Medicare Settlement 101

BESLER helps hospitals and healthcare systems optimize revenue and reimbursement. We seek to educate our clients on the latest Medicare reimbursement news so they can prepare accordingly. We’ve outlined things you should know regarding the Medicare settlement in the cost report below.

Medicare Settlement Overview

Hospitals enrolled in Medicare are eligible to receive a Medicare settlement determined using their annual cost report. The settlement reimburses hospitals for the expenses associated with providing services to Medicare beneficiaries, like staff salaries, supplies and supplemental payments for medical education, organ acquisitions, service for disproportionate share (DSH), and Medicare bad debts, among other special payment provisions. Hospitals can receive varying payment amounts from Medicare depending on factors such as the number of patients treated each year, hospital size, and services provided.

Watch our webinar hosted by BESLER’s Reimbursement Manager, Andrew Kinnaman, to learn more about the Medicare settlement and how you can maximize your hospital’s reimbursement.

In addition to general reimbursement principles and processing of Medicare settlement on the cost report, Andrew covers the following topics:

During the Medicare settlement process, hospitals submit their annual cost report to the Medicare Administrative Contractors (MACs). MACs serve as the primary operational contact between the Medicare FFS program and healthcare providers. The cost report includes several worksheets providing information about the hospital’s services, costs, and Medicare’s portion of those costs. MACs and CMS use this information in various ways to make hospital specific rate adjustments and a final annual hospital-specific Medicare settlement.

The Medicare settlement process involves several steps and data sources. Understanding the basics allows you to ensure your Medicare Cost Report is processed efficiently and correctly.

Data Sources

The Medicare Cost Report (MCR) is the first data source for processing. The Medicare Cost Report includes information about payments received from Medicare, payment adjustments, cost figures, and other financial information related to the settlement. Hospitals leverage the cost report data to determine how much they should receive or will owe the Medicare program for their services on an annual or reporting period basis.

The second source is the Medicare Administrative Contractor (MAC). The MAC is responsible for processing claims and keeping track of payment changes. The MAC is also the auditor for the cost report following the submission. Some of the resources and information provided by the MAC are necessary and an integral part of the settlement process and cost report submission.

The third source is The Provider and Statistical Reimbursement (PS&R) System, a key tool for institutional healthcare providers, Medicare Administrative Contractors (MACs), and CMS. The system accumulates statistical and reimbursement data applicable to the processed and finalized Medicare claims. This is a key contributor to the Medicare Cost Report settlement process.

Lastly, some hospitals may access data from the Centers for Medicare & Medicaid Services (CMS) website. The information includes guidelines and rules related to the settlement process and all changes.

When you understand the common data sources, you can more accurately and efficiently process settlement data to maximize reimbursement.

Important Steps

First, gather all relevant source documents related to your settlement, such as written agreements between parties involved, financial statements, PS&R and other appropriate documentation. Review and consider every document source to determine the data’s accuracy.

Next, identify specific settlement details relevant to your cost report, including facility specific issues involved, when it occurred, and how much money was paid or received.

Then, review and analyze the data to ensure accuracy. Doing so includes:

  • Double-checking calculations.
  • Comparing numbers to other documents.
  • Ensuring all information is accurate and up-to-date.

Finally, enter all data into the cost report in the appropriate form. Depending on the specific requirements of the cost report, entering the data could include utilizing a spreadsheet, creating a detailed report, or other methods. Adequate and auditable data is a key for determining the settlement amount and supporting in subsequent audits the amount reported in the Cost Report.

To determine the settlement amount, you should utilize a payment summary report detailing all payments received from Medicare. The report should include detailed information about any adjustments to the final settlement amount and relevant data such as service dates, diagnosis codes, and payments received on behalf of Medicare services.

You might also consider mapping the payment summary report to your internal accounting system to ensure accurate tracking and reporting both now and in the future. The process begins with a full review and understanding of each line item. It’s essential to recognize which codes represent specific types of payments, the data points to track, and how they should be mapped into your internal accounting system.

Follow these steps when mapping the payment summary report:

  1. Create a template for each line item in the payment summary report within your accounting software. Doing so allows you to easily enter the data from the report into your internal system.
  2. Label appropriate fields within the template, ensuring you designate all relevant items with a name or code.
  3. Input the payment summary report data into each field, matching line item data with their respective fields.
  4. Ensure that fields link correctly and calculations are accurate within the system.
  5. Test the mapping to ensure accuracy before finalizing it in your accounting system.

The Medicare settlement process for other types of hospitals, such as skilled nursing facilities and hospice care providers, is similar to the aforementioned process. However, it may include additional steps like tracking specific services or analyzing patient outcomes and satisfaction levels.

Skilled nursing facilities and hospice care providers may need to consider different data sources when determining their settlement. Items include patient surveys and quality measure performance assessments. You should also stay up-to-date on regional or state-specific regulations affecting your organization’s Medicare settlement calculation.

Andrew Kinnaman also joined BESLER’s The Hospital Finance PodcastⓇ to discuss additional items about the Medicare settlement process. Listen to the episode using the link below or read on to learn more.

When working on a Medicare settlement cost report worksheet, review the Provider Statistical Reports (PS&Rs), any non-PS&R Settlement data such as Bad Debts, IME/GME, Nursing and Allied Health payments, and DSH payments. However, each hospital’s settlement differs and thus requires an analysis of varying data sources.

Carefully reviewing this information will help ensure that all payment changes are accounted for and that the settlement data accurately reflects the services provided. Further, consider any deductions when calculating settlement amounts, like discharge planning or charity care deductions for bad debts. Doing so allows you to create an accurate and complete cost report for Medicare and thus receive appropriate payments for your services.

Reviewing the Medicare Payment Summary and Statistical Report (PS&R) when working on your cost report worksheet is essential. The PS&R provides hospitals with detailed information regarding their claims and payments from Medicare in a Medicare reporting year.

Information includes payment amounts, the services provided, and any adjustments made to charges. Ensure you pull this data 30 days before the cost report is due or to be completed by internal or external review. This 30-day target should be based on factors such as how long you estimate the data compiling and reporting will take you to complete, when the report is completed, and any necessary internal or external planned reviews prior to filing the cost report.

Three general areas lead to errors when compiling reports.

  1. The first is key-in errors. A wrong data entry, such as an incorrect digit, transposing a number, or not inputting something that should be entered, can quickly impact a hospital’s bottom line.
  2. The second area focuses on instruction and interpretation errors. They’re commonly seen by omission or misinterpretation of the instructions or use of the data in the settlement. The cost report provides instructions for calculating and inputting amounts like the hospital-specific payment, the Nursing and Allied Health managed care payments, and other settlement inputs. Wrongly interpreting these instructions could lead to incorrect input of data to the cost report.
  3. The third area includes source and documentation errors. You use numerous interpretations and sources to complete a settlement – not just the PS&R. Ensure you know the data and follow the instructions to prepare a cost report successfully.

When preparing a Medicare settlement, focus on systems-verifiable data sources, then the review itself. Pay attention to a few areas, as they have the most significant impact on your payment. These areas differ depending on the type of hospital.

For example, teaching hospitals should focus on the bed management, available bed days, GME, IME, Worksheet E Part A, and E-4. If you’re a Disproportionate-Share Hospital (DSH), consider reviewing your inputs and calculations of the disproportionate share and the uncompensated care adjustment.

Ensure you have a system to help you capture and correctly input the data into your cost report. To do so, you must know the data and the information to process the report. It’s essential that the data you use is accessible and maintained so that future individuals can find and use these sources to support audits or for other work related to the hospital.

Processing the Medicare Settlement

BESLER’s Reimbursement Software Director, Jeff Wolf, discusses processing the Medicare settlement and related best practices in another related webinar linked below.

He reviews the following topics associated with processing the Medicare settlement:

Review your Provider Statistical Reports (PS&Rs) to allocate revenue on the cost report properly. The PS&R provides detailed information about payments you’ve received from Medicare. You can then use the information to identify discrepancies or errors before assigning revenue.

Additionally, assess the revenue worksheets of your cost report to ensure all payments are adequately reflected. Utilizing this information allows you to understand better how Medicare values your hospital’s services and correctly assign revenue to each line. As a result, you can ensure you receive appropriate payments and prepare accurate reports in the future.

The Provider Statistical Reports (PS&Rs) are essential in the cost report process. Identifying and placing settlement data into the cost report is a critical step in streamlining the process.

The types of settlements within the PS&R include cost report settlements, ancillary settlements, and other adjustments. Cost report settlements relate to previous reports settled by Medicare. Ancillary statement data refers to payments for Part B services not on the prior cost report. Other adjustments indicate changes to the settlement amount for reasons like late filing or underpayment.

Once you identify the type of settlement, the next step is to place the data into the cost report. Pull all relevant information from the PS&R and enter it into the report by selecting applicable account codes and amounts. The amount you enter should match what was received in the PS&R. If you notice a difference, adjust the cost report to reflect the correct amount.

Finally, review all settlement information after you enter it into the cost report. Doing so includes verifying that all account codes and amounts match what was received in PS&Rs and ensuring adjustments have been appropriately entered.

In addition to the Provider Statistical Reports (PS&Rs), hospitals must review any non-PS&R settlement data required for cost reports. Potential data can include Bad Debts, IME/GME, Nursing and Allied Health payments, and DSH/Uncompensated Care payments, among other hospital specific non-PS&R data.

Your hospital should ensure that all adjustments to charges are accounted for and that the data accurately reflects the services rendered. Bad debts refer to payments not collected from patients due to various circumstances. Review your bad debt worksheet for accuracy. Consider any discharge planning or charity care deductions when calculating your hospital’s bad debt amounts. Also consider new filing requirements and data formats required when supporting the amount claimed on the cost report.

IME/GME refers to indirect medical education (IME) and graduate medical education (GME) payments. Nursing Allied Health Managed Care Payments refers to payments for nurses and allied health professionals. DSH payments refers to payments made to qualified Medicare Disproportionate Share Hospitals. Verify settlements based on changes of operations during the reporting year with emphasis on comparison between years to determine if there were any significant changes. Ensure all information is documented correctly and any adjustments are made to ensure accurate reporting.

By carefully reviewing your Provider Statistical Reports (PS&Rs) and non-PS&R Settlement data, your hospital can ensure that the cost reports are accurate and complete.

Jeff Wolf hosted the second session of a two-part webinar series on the Medicare Cost Report. In the webinar, he reviews areas to be mindful of while preparing cost report work papers.

The charges and settlement worksheets in the Medicare Cost Report are designed to help hospitals track the costs regarding their services to Medicare beneficiaries. Below are basic definitions of the two:

  • Charges: The charges worksheet includes a list of all charges billed to Medicare, including service dates, diagnosis codes, and more.
  • Settlement: The settlement worksheet lists all payments made to the hospital from Medicare and any adjustments to them, if applicable. It also lists data such as diagnosis codes and service dates.

It’s essential to understand charges and settlement worksheets and use them accurately to receive appropriate payments from Medicare. The charges worksheet helps you track all services billed to Medicare, while the settlement worksheet provides an overview of any payments or adjustments to those charges.

The revenue worksheets of the Medicare Cost Report (Worksheets C and D series) provide detailed information about patient charges received by hospitals in total and by Medicare Services. Both worksheets are part of a settlement data source and play essential roles in processing Medicare payments.

Worksheet C is called the “Computation of Ratio of Costs to Charges.” It breaks down hospital charges into categories like inpatient, outpatient, and long-term care services. CMS uses this information to calculate the cost-to-charge ratio that when applied to Medicare charges calculates the Medicare costs as part of settlement.

Worksheet D is series of workpapers that are integral to the Medicare Settlement. These worksheets primarily serve the purpose of determining the cost of treating Medicare patients by specific reimbursement mechanisms. The worksheets use various data sources, including but not limited to PS&R, data flow from other cost report worksheets, and if applicable, organ acquisition charges and cost calculations. Not all worksheets will necessarily be utilized for any given specific cost report. It’s important to understand during the settlement process the inputs and flows of the Worksheet D series to the Worksheet E settlement series for your facility.

Key areas to focus on include Worksheet D-3 and D, Part V, where the costs of treating Medicare inpatient and outpatient services are based on the calculation of Medicare charges multiplied by the Worksheet C cost to charge ratio. Worksheet D-1 is the computation of inpatient operating costs and is used to calculate Medicare cost per diem, pass through cost adjustments, and observation expense for Worksheet C. Worksheet D-4 is required if your facility has organ acquisition services.

Hospitals should take a few basic steps when preparing the data for the critical worksheets of the Medicare Cost Report. First, ensure all data is up-to-date and accurate, such as accounting for charge adjustments, service dates, and diagnosis codes.

Secondly, make sure you include all required documentation in the cost report. Doing so includes verifying charges billed to Medicare. Finally, review the settlement worksheets of the cost report to ensure that you receive accurate payments from Medicare.

The Provider Statistical Report (PSR) is a section of the cost report that gives hospitals detailed data about their Medicare payments. Information within the PSR includes total allowed charges, allowed amounts by diagnosis code, and adjustments made to original charges. The PSR also gives you insight into the utilization rates for each service line and allows your hospital to see the most frequently provided services.

Begin by gathering all patient encounter data for the year and organizing it into an easily reviewable format. Include all relevant information and review it to identify discrepancies. Enter the data into the Cost Report and check it once more for accuracy before submitting the cost report.

The Medicare settlement worksheet records a hospital’s Medicare payment receipts for each patient’s care. It contains general information about the Medicare program and data specific to a settlement or reimbursement claim.

The document dictates how much Medicare pays for the care given to a particular patient. It looks at which Medicare Part A and/or Part B payments have been made and determines the reimbursement amount.

The Part A Services and Payments section of the settlement worksheet includes payment information related to inpatient hospital services. These can include room and board charges, laboratory fees, drugs, and other supplies or services associated with inpatient care. Place all applicable Medicare Part A payments for a particular settlement within this section.

The Part B Services and Payments section includes payment information for Outpatient services provided by a hospital. Other services considered Part B include home health care, physician services, durable medical equipment (DME), and others classified as Medicare Part B eligible. Record all applicable Medicare Part B payments for a particular settlement within this section.

The Miscellaneous Services and Payments section contains any other payments related to a settlement. These payments may include supplemental insurance, coinsurance, and copayment amounts for Part A and Part B services. Include these miscellaneous payments in the total Medicare settlement amount when applicable.


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