MedPac Report Rebasing Cost Report Update

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In 2008, 3.2M Medicare beneficiaries, 10,026 HHAs, $17B reimbursement

6.1M episodes 1.9 episodes per user $5,337 avg. payment per user 21.6 visits per episode www.medpac.gov

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Home Health access: very good Growth in HHAs, increase of 476 in 2009 Abuse with outlier payments Decrease in LUPA episodes: 15% in 2002,

10% in 2008 Case mix increase in 2008: 2.4% Cost per episode increase: 3.8%

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2008 Medicare margin for freestanding providers: 17.4%

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Beneficiaries access to home health care is very good

Number of HHAs continues to increase but at a slower rate

Quality: improvement in functional measures but unchanged in adverse events

Payments are more than adequate Predicting margin of 13.7% in 2011

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What is Rebasing?

• Change prospective rates based on more current cost data– President

•Improve Medicare home health payments to align to costs

– MedPAC• Rebase rates for home health care

services to reflect the average cost of providing care

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Methods of Rebasing

• Provider specific vs. all providers• Ownership type vs. all ownership

types• Provider type vs. all provider types• Regional vs. national• Phase-in vs. one-time adjustment• Ceiling/floor vs. no limits• Cost report methodology vs. IRS

standards

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Common Errors in Cost Report Preparation Free-Standing and

Hospital Based• Improper accounting method

• Inaccurate visit counts

• Lack of understanding of like-kind visits

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• Inaccurate FTE calculations

• Improper use of the PS&R

• Missing data

Common Errors in Cost Report Preparation Free-Standing and

Hospital Based

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Common Errors in Cost Report Preparation Free-Standing and

Hospital Based• Improper classification of direct

costs

• Duplicating indirect cost allocations

• Proper reporting of non-reimbursable cost centers such as Telehealth

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Common Errors in Cost Report Preparation Free-Standing and

Hospital Based• Proper reporting of non-routine

medical supply costs and revenues

• FYI – there is a new worksheet in 2009 for reporting flu vaccines

• Failure to properly reclassify costs using the Trial Balance or Worksheet A-4 - Reclassifications

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Common Errors in Cost Report Preparation Free-Standing and

Hospital Based• Lack of use or improper use of Worksheet A-5 - Adjustments

• Proper use of Worksheet A-6 - Related Organization Costs and related organizational costs issues

• Proper preparation and reconciliation of the F series of worksheets relating to the Balance Sheet, Income Statement and Reconciliation of the Fund Balances

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Common Errors in Cost Report Preparation Free-Standing and

Hospital Based• Failure to charge direct costs to the

HHA – just using the step-down method

• Benefit and other cost allocations that do not relate to HHA operations

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Common Errors in Cost Report Preparation Free-Standing and

Hospital Based• Medical supplies costs without the

revenue and the cost-to-charge ratio

• Need for direct costs to be in line with free-standing agencies – So that these costs can be included in

calculations for rebasing/reimbursement rate setting

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The first person to register for the provider organizationmust be the designated Security Official (SO). The SO isultimately responsible for all users in the organization.

The SO will:• First register the organization in IACS• Submit all required verification documentation, and• If approved, will then be given the ability to approve other users’ access to the PS&R system.

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Note: The SO can approve users, but CANNOT use thespecific application (PS&R). The SO will delegate PS&Raccess to the “PS&R Users”.

If you require access to the PS&R system, DO NOT register yourself as the SO.

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The registration process is time consuming and confusing

The Security Official (SO) must first register and isthen supposed to get an email requesting IRSdocumentation, CP575 or 147C letter. This stepseems to be the bottleneck.

The SO cannot access the PS&R System

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To get a copy of the IRS Form 147C, you can call the IRS at 1-800-829-4933. The provider name on the registration must match exactly to the name on the IRS Form.

You should get an email from IACS, within a few days of the Security Officer registering.

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NEED HELP ? ? ?

• Questions regarding IACS Contact the IACS help desk, External User Services (EUS) at 866-484-8049 or EUSSupport@cgi.com

• If you have PS&R application specific questions, Contact your Fiscal Intermediary/MAC

The Medicare Cost Report is NOT just a “compliance” requirement we must file each year, but a valuable tool to assist in budgeting, pricing, and “what if analysis”.

Find your Direct and Indirect cost per visit Find your cost of non-routine medical

supplies Find your Medicare margin!

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Some terms1.Direct and indirect costs2.Fixed and variable costs

3.Incremental costs4.Fully absorbed costsHow can we get these various types of costs and use them in the business decision making process?

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Worksheet B leads to Worksheet C which calculates your cost per visit.

This is in the aggregate, and is not very useful in making your contracting decisions, yet.

It does not give you any of the various categories of costs yet, but it is fully absorbed.

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Using the costs and visits in Worksheet C and going back to Worksheet A -1, we can calculate our direct and indirect costs per visit and the makeup of those costs.

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WORKSHEET C Total Costs Total Visits Cost Visit Visits Cost

MedicareSN 12,235,590 68,775 $177.91 42,276 7,521,219PT 2,574,391 27,387 $94.00 19,761 1,857,543OT 540,014 5,484 $98.47 3,889 382,953ST 117,230 681 $172.14 391 67,308MSW 178,179 342 $520.99 255 132,853HHA 1,186,129 36,784 $32.25 19,807 638,692Total 16,831,533 139,453 86,379 10,600,568

MedicaidSN 12,235,590 68,775 $177.91 7,137 1,269,726PT 2,574,391 27,387 $94.00 1,589 149,367OT 540,014 5,484 $98.47 337 33,185ST 117,230 681 $172.14 50 8,607MSW 178,179 342 $520.99 5 2,605HHA 1,186,129 36,784 $32.25 10,159 327,585Total 16,831,533 139,453 19,277 1,791,075

Managed CareSN 12,235,590 68,775 $177.91 19,362 3,444,646PT 2,574,391 27,387 $94.00 6,037 567,481OT 540,014 5,484 $98.47 1,258 123,876ST 117,230 681 $172.14 240 41,314MSW 178,179 342 $520.99 82 42,721HHA 1,186,129 36,784 $32.25 6,818 219,852Total 16,831,533 139,453 33,797 4,439,890 30

Make sure you have all of your expenses included◦Some expenses have traditionally been left

out of the cost report but need to be added back for this purpose Marketing expenses Bad debt Interest expense

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Now we know what our direct and indirect expenses are on a fully absorbed basis.

One would suggest your price for a nursing visit should be $177.91 plus some margin for profit.

Now the art sets in. How to Price our services.

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We have product lines, products, markets and distribution channels.

Nursing is a product line and MCH nursing is a product within the nursing product line.

Our payers are our distribution channels. Our referrers are our markets. Besides our cost per visit we need to know

our costs per hour of service.

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Our payers have different contracts and payment methods◦ Fee for service◦ Episodic◦ Capitation

Our payers and referrers also have other sources of our products – our competition.

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Using the total cost per discipline we came up with way back in the cost report we can spread the costs using the hours of service.

Simply divide the total costs per discipline by the number of hours of service.

Then look at your various payers and visit types to see how the cost pattern changes.

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How can you split the costs between payers or even types of visits within payer

Looking at nursing only for now◦ We did 68,775 visits and took 40,200 hours to do

them◦ That’s 40,200/68,775 or .5845 of an hour or 35

minutes per visit◦ Using 40,200 hours we get 2,412,000 minutes◦ Our nursing costs were $12,235,590

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So $12,235,590/2,412,000 is $5.07 per minute.

Lets assume our managed care visits are 30 minutes long.

We did 19,362 managed care visits but our cost on that basis was $2,944,960.

Our cost is not the $177.91 per visit but $152.10 per visit.

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In Summary:• You should be very careful doing your cost report

with the various expenses being allocated properly.

• You should know your costs per visit and per hour of service within discipline.

• You should calculate your costs for the services you provide within each payer.

Using both your per visit and per hour costs you should calculate the cost of your episodes.

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HHA, 1728-94, Transmittal 14 issued 1/28/2010.

Primary change was H1N1 vaccines, on W/S RF-4; and W/S RF-3, line 14 is phasing out the 62.5% “limit”, over 5 years.

HHA Transmittal 15 issued 2/22/2010, and was “clean up” of T.14, with no new policy changes.

HFS current version is 15.2.121.1.

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Questions and Other Topics

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