Minnesota Rural Health Conference July 19, 2005 PEOPLE. PRINCIPLES. POSSIBILITIES. Critical Access...
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Transcript of Minnesota Rural Health Conference July 19, 2005 PEOPLE. PRINCIPLES. POSSIBILITIES. Critical Access...
Minnesota Rural Health Conference
July 19, 2005
PEOPLE. PRINCIPLES. POSSIBILITIES.
Critical Access HospitalBilling and Reimbursement Strategies
Ralph J. Llewellyn, CPA, [email protected]
(701) 239-8594
PEOPLE. PRINCIPLES. POSSIBILITIES.
Objectives
Provide basic understanding of cost based reimbursement
Discuss how decisions impact final reimbursement
Discuss billing and reimbursement strategies
PEOPLE. PRINCIPLES. POSSIBILITIES.
Cost Based Reimbursement
Reimbursable vs Non-reimbursable services
Reimbursable – Medicare participates in cost
Non-Reimbursable – Medicare does not participate in cost
PEOPLE. PRINCIPLES. POSSIBILITIES.
Cost Based Reimbursement
Respiratory TherapyEmergency RoomCardiologyPharmacySuppliesCardiac RehabSwing BedProvider based clinic
Reimbursable Examples
Medical/SurgicalOperating RoomLabRadiologyPhysical TherapyOccupational TherapySpeech Therapy
PEOPLE. PRINCIPLES. POSSIBILITIES.
Cost Based Reimbursement
Non-Reimbursable ExamplesHome HealthHospiceSkilled Nursing FacilityAssisted LivingMeals on WheelsDay Care (Some costs may be reimbursable)Non-Provider Based Clinics
PEOPLE. PRINCIPLES. POSSIBILITIES.
Cost Based Reimbursement
Allowable vs. Unallowable CostsCosts are deemed unallowable if they are not related to patient care
Patient Phones/Television
Advertising
Physician Recruitment (except RHC)
Lobbying
PEOPLE. PRINCIPLES. POSSIBILITIES.
Cost Based Reimbursement
Allowable vs. Unallowable CostsCosts in excess of established limits are unallowable
Contracted– Physical Therapy– Occupational Therapy– Speech Therapy– Respiratory Therapy
Employee or Contract– Provider-Based Physicians– Reasonable cost limitations apply
PEOPLE. PRINCIPLES. POSSIBILITIES.
Cost Based Reimbursement
Allowable vs. Unallowable CostsNon-Patient Revenues are offset against cost as a recovery of cost
Interest income (to extent of interest expense)
Copies of Medical Records
Cafeteria
PEOPLE. PRINCIPLES. POSSIBILITIES.
Cost Based Reimbursement
Medicare Cost Based ReimbursementMedicare reimburses costs based on Medicare utilization in the departments in which costs are reported
Direct Costs– Salary– Supplies
Allocated Costs (Overhead)– Housekeeping– Laundry– Dietary– Administrative and General
PEOPLE. PRINCIPLES. POSSIBILITIES.
Cost Based Reimbursement
Overhead Allocation MethodologiesMethodologies determine how overhead costs will be allocated to various departments and subsequently determine Medicare’s reimbursement of costs
Methodologies can be changed with approval from Medicare
PEOPLE. PRINCIPLES. POSSIBILITIES.
Cost Based Reimbursement
Overhead Allocation MethodologiesBuildings – Square Footage
Moveable Equipment – Square Footage or Actual
Benefits – Gross Salary
PEOPLE. PRINCIPLES. POSSIBILITIES.
Cost Based Reimbursement
Overhead Allocation MethodologiesAdministrative & General – Accumulated Cost
Fragmented Administrative & General
Maintenance & Repair – Square Footage or Time Study
Operation of Plant – Square Footage
PEOPLE. PRINCIPLES. POSSIBILITIES.
Cost Based Reimbursement
Overhead Allocation MethodologiesLaundry – Pounds or Patient Days
Housekeeping – Square Footage or Time Study
Dietary – Meals or Patient Days
PEOPLE. PRINCIPLES. POSSIBILITIES.
Cost Based Reimbursement
Overhead Allocation MethodologiesCafeteria – Full Time Equivalents (FTEs)
Nursing Administration – Hours of Service
Medical Records – Gross Revenue or Time Study
PEOPLE. PRINCIPLES. POSSIBILITIES.
Cost Based Reimbursement
Medicare Cost Based ReimbursementInterim payments made based on percentage of charges submitted and/or per diem
Interim rates based on prior year cost to charge ratio / per diem
PEOPLE. PRINCIPLES. POSSIBILITIES.
Cost Based Reimbursement
Medicare Cost Based ReimbursementFinal costs are calculated using departmental specific cost-to-charge ratio
Routine Med/Surg and Skilled Swing Bed costs calculated based on cost per day
PEOPLE. PRINCIPLES. POSSIBILITIES.
Cost Based Reimbursement
Medicare Cost Based ReimbursementExample
Medicare will reimburse high percentage of direct costs incurred in Med/Surg due to high Medicare utilization.
Medicare will reimburse lower percentage of direct costs incurred in the departments with lower Medicare utilization (i.e. Emergency Room, Physical Therapy, etc.).
PEOPLE. PRINCIPLES. POSSIBILITIES.
Cost Based Reimbursement
Medicare Cost Based ReimbursementExample
Medicare will provide no additional reimbursement for direct costs incurred in non-reimbursable cost centers
Overhead costs incurred by the entity will be reimbursed by Medicare based on the Medicare utilization in the departments in which the costs are subsequently allocated
PEOPLE. PRINCIPLES. POSSIBILITIES.
Cost Based Reimbursement
Factors impacting year-to-year cost settlements
VolumeMedicare UtilizationChanges in ChargesChanges in Expenses
PEOPLE. PRINCIPLES. POSSIBILITIES.
Cost Based Reimbursement
VolumeSignificant increases in volume tend to lead to year-end payable to Medicare
Significant decreases in volume tend to lead to year-end receivable from Medicare
PEOPLE. PRINCIPLES. POSSIBILITIES.
Cost Based Reimbursement
Medicare UtilizationChanges in Medicare utilization impacts percentage of costs Medicare will reimburse
Department specific
PEOPLE. PRINCIPLES. POSSIBILITIES.
Cost Based Reimbursement
Changes in ChargesIncreases in charges that exceed increases in expenses can result in overpayment on interim basis
Results in payable at final settlement
Decreases in charges can result in opposite effect
PEOPLE. PRINCIPLES. POSSIBILITIES.
Cost Based Reimbursement
Changes in ExpensesIncreases in expenses that exceed increases in charges can result in underpayment on interim basis
Results in receivable at final settlement
Decreases in expenses can result in opposite effect
PEOPLE. PRINCIPLES. POSSIBILITIES.
Impact of Decisions on Final Reimbursement
Decisions may have unintended reimbursement implications
Medicare may share in cost reductionsNew programs may decrease profitability of existing services due to changes in overhead allocations
PEOPLE. PRINCIPLES. POSSIBILITIES.
Billing and Reimbursement Strategies
PricingSuppliesBorrowingComponentized DepreciationEmergency Room PhysiciansCost Report AllocationsNon-Reimbursable Cost Centers
PEOPLE. PRINCIPLES. POSSIBILITIES.
Pricing
Why have CAHs discontinued monitoring of and updating of pricing?
Charges still important
Medicare is not the only payer
PEOPLE. PRINCIPLES. POSSIBILITIES.
Pricing
Facilities must continue to implement annual increases to charges unless
Facility is make too much money
Facility costs are decreasing
Proof charges are above market
PEOPLE. PRINCIPLES. POSSIBILITIES.
Pricing
Across the board increasedMost common
Least effectiveIgnores marketIgnores changes in cost
PEOPLE. PRINCIPLES. POSSIBILITIES.
Pricing
StrategicVarious methods
Better reflect market
Better reflect costs
Ability to drive increases to bottom line
PEOPLE. PRINCIPLES. POSSIBILITIES.
Pricing
Market DrivenNot commonly reviewed
Reveals opportunities/threats
Significant opportunity for many rural providers
PEOPLE. PRINCIPLES. POSSIBILITIES.
Pricing
RHCCost per visit myth80% Cost / 20% ChargeCosts > $100 per visitCharged approximately $75Actual reimbursement
$15 – Coinsurance$80 – MedicareImpact varies if deductible applies
PEOPLE. PRINCIPLES. POSSIBILITIES.
Pricing
Non-MedicareProviders often ignore impact of charges on other payers
Believe impact minimalDiscomfort
PEOPLE. PRINCIPLES. POSSIBILITIES.
Pricing
Non-Medicare : ExampleAssumptions:
$5,000,000 gross revenue30% Non-Medicare volume5% below market pricing80% reimbursement rateMarket pricing provides
Market pricing = $60,000 net revenue
PEOPLE. PRINCIPLES. POSSIBILITIES.
Supplies
Routine vs non-routineRoutine supplies not billable to Medicare
Lack of comprehensive or consistent listNegative impact of billing other payers
PEOPLE. PRINCIPLES. POSSIBILITIES.
Supplies
CurrentSupply Expense = $100,000Supply Revenue = $400,000CCR = .25Medicare Utilization = 50% ($200,000)Medicare Pays = $50,000
PEOPLE. PRINCIPLES. POSSIBILITIES.
Supplies
UpdatedBill non-Medicare payers for routine supplies and equipment
New non-Medicare revenue = $100,000
Assuming 80% reimbursement rate$80,000 “new” reimbursement
PEOPLE. PRINCIPLES. POSSIBILITIES.
Supplies
CurrentSupply Expense = $100,000Supply Revenue = $500,000CCR = .20Medicare Utilization = 40% ($200,000)Medicare Pays = $40,000
PEOPLE. PRINCIPLES. POSSIBILITIES.
Borrowing
PRM I Section 202.2 states: “Borrowing for a purpose for which funded depreciation account funds should be used makes the borrowing unnecessary to the extent that funded depreciation account funds are available at the time of the borrowing….The burden of proof to show that there is a financial need for the borrowing and that the borrowing does not result in excess working capital rests with the provider.”
PEOPLE. PRINCIPLES. POSSIBILITIES.
Borrowing
PRM I Section 226.4 adds: “Available funded depreciation must be withdrawn and used before resorting to borrowing for the acquisition of depreciable assets or other capital purposes, except that, when available funded depreciation is insufficient to cover the total cost of a major construction project and borrowing is necessary…all available funded depreciation need not be withdrawn and applied to construction cost prior to borrowing. Because it is frequently difficult to time a bond offering or other borrowing to coincide with the exhaustion of available funded depreciation, it is sufficient if available funded depreciation is contractually committed to and expended during the course of construction.”
PEOPLE. PRINCIPLES. POSSIBILITIES.
Borrowing
Need for financial managers to properly inform Finance Committee and Board of Directors of implications of borrowing funds.
May not always change the decision to enter into arrangement creating unnecessary borrowing.
Includes leases considered to be capital leases
PEOPLE. PRINCIPLES. POSSIBILITIES.
Borrowing
Proper planning can result in avoiding the disallowance of interest expense related to unnecessary borrowing
PEOPLE. PRINCIPLES. POSSIBILITIES.
Borrowing
Not just an issue for new borrowing
FIs have not recently focused on reviewing new borrowing
Could result in FI determining past debt was unnecessary
PEOPLE. PRINCIPLES. POSSIBILITIES.
Componentized Depreciation
Determine depreciable life by component of asset versus asset as a whole
Reduced overall life of asset
Examples of componentsBuildingRoofElectricalPlumbingHVAC
PEOPLE. PRINCIPLES. POSSIBILITIES.
Componentized Depreciation
Increases short term expense
Increases short term Medicare reimbursement
Cash flow impactBetter in early years
Poorer in later years
PEOPLE. PRINCIPLES. POSSIBILITIES.
Componentized Depreciation
Impact of cross-overMay be beneficial
Requires planning
CAH versus PPS impact
PEOPLE. PRINCIPLES. POSSIBILITIES.
Emergency Room Physicians
Standby servicesNo longer required to be onsite to claim standby costs
Time studiesVerify FI requirements : most require two – two week time studies per year
PEOPLE. PRINCIPLES. POSSIBILITIES.
Emergency Room Physicians
Coverage by RHC physiciansHow is cost allocated to Emergency Room?
Does contract address this issue?
Recommend completing analysis of impact
PEOPLE. PRINCIPLES. POSSIBILITIES.
Emergency Room Physicians
Fiscal Intermediaries focusing on PRM I 2109.3
Signed contract between hospital and physiciansWritten allocation agreement and support documentationPermanent payment recordsPermanent record of all treated patientsSchedule of chargesDocumentation of attempts to obtain alternative coverage
PEOPLE. PRINCIPLES. POSSIBILITIES.
Cost Report Allocations
Many providers struggle with the allocation of salary costs to the various cost centers supported by nursing and to smaller cost centers
Emergency RoomNurseryLabor and DeliveryEKGStress TestRespiratory TherapyCardiac Rehab
PEOPLE. PRINCIPLES. POSSIBILITIES.
Cost Report Allocations
Compliance and reimbursement concern
Many providers have allocated these costs as a reclassification of costs on Worksheet A-6
Allocations are often made based an estimated time per test or estimates from department heads
Supporting documentation rarely exists to support methodology
PEOPLE. PRINCIPLES. POSSIBILITIES.
Cost Report Allocations
Discussions with some FIs indicates they expect these reclassifications to be made based on the time study criteria in PRM I 2313.2.E
Same requirements for time studies used to allocate overhead costs on Worksheet B-1
Recommend providers develop methodology to comply with these regulations
PEOPLE. PRINCIPLES. POSSIBILITIES.
Non-Reimbursable Cost Centers
Non-reimbursable cost centers may negatively impact facility reimbursement due to the impact of allocating overhead costs
Nursing HomesHome HealthHospiceClinicsAssisted Living
PEOPLE. PRINCIPLES. POSSIBILITIES.
Non-Reimbursable Cost Centers
StrategiesNursing Home or TCU conversion
PPS to cost basedWorks well for smaller facilitiesMinnesota specific issues
Discontinue servicesCommunity loses serviceTransfer to another outside entity
PEOPLE. PRINCIPLES. POSSIBILITIES.
Non-Reimbursable Cost Centers
StrategiesSeparate Corporations
New corporation houses non-reimbursable cost centersEliminates inappropriate allocation of overhead expensesDuplication of costs?How to fund losses if new corporation is not profitable
PEOPLE. PRINCIPLES. POSSIBILITIES.
Non-Reimbursable Cost Centers
Difficulties arise as organization creates separate corporation
Cannot duplicate all servicesContinue to share services
Home Office Cost Report?No request requiredNo 855’sSeparate organization not required
PEOPLE. PRINCIPLES. POSSIBILITIES.
Non-Reimbursable Cost Centers
Home Office Cost Report?Cost Allocations
DirectFunctionalPooledNo set rules on allocations by Medicare
PEOPLE. PRINCIPLES. POSSIBILITIES.
Closing Comments
Obtaining CAH status should not be thought of as reaching a destination. Receiving this status is the beginning of an ever changing journey. Facilities need to maintain awareness of new legislation, interpretations, and strategies to assist in achieving financial success.