Medicare Cost Report

Double Checking Your Medicare Cost Report

October 22, 2013 1:00 pm

While developing your hospital’s Medicare cost report, keep these seven potential stumbling blocks in mind.

You have heard the saying, “It is 5 o’clock somewhere.” Well, that can easily be changed to, “It is cost report time somewhere.” While FY ends vary, hospitals across the country are in some stage of developing their annual Medicare cost reports. 

These reports—which are large collections of financial and statistical data (e.g., patient discharges/days, gross and net revenue/expenses, payer mix)—determine a provider’s total costs and charges for all patients, and allocate a portion of these costs and charges to Medicare patients. The amount is then compared to the provider’s actual Medicare payments and a settlement is calculated. 

Providers must ensure that an accurate cost report is submitted to their fiscal intermediary (FI) or Medicare Administrative Contractor (MAC). This arduous process is essential in evaluating the cost of providing care to patients and the receipt of appropriate Medicare payments. The report can also assist hospital management in future budgeting, decision support, and strategic planning.  

Before Submitting

To ensure the most accurate results, consider the following items prior to submitting your Medicare cost report: 

Protested amounts/appeals. The Provider Reimbursement Review Board’s (PRRB’s) rules related to protested amounts/appeals were revised earlier this year (March 1, 2013). These changes supplement the appeal rule change made in 2008. 

To preserve your organization’s appeal rights on an issue not being claimed as reimbursable, you must use the protested item line on the cost report, which is located at the bottom of the applicable settlement sheets (E Part A line 75, E Part B line 44, E-3 line # varies by Part, etc.). 

Providers must be as specific as possible in identifying the issue being appealed. If you are including a protested amount on your cost report, make a note of it in your cover letter. In addition, with your filed cost-report package and work papers, you must show the calculation of the estimated impact and include a narrative describing what is being protested. 

The PRRB could take a more strict approach with regards to appeal issues. Providers that do not comment on a particular item during the proposed rule comment period may face challenges when including that item as a protested amount and with their subsequent appeal. This approach has not yet been used by the PRRB to deny appeals. Nevertheless, providers should continue to include all appeal items, but remain aware of how such an interpretation by the PRRB could impact their future appeals.

Software updates. We have all heard or known of someone that has completed a Medicare cost report by hand, which is a scary thought, but that is not possible any longer. Software updates occur throughout the year and your software vendor will keep you informed of all revisions. By applying the latest available update to your software, it will minimize the risk of your cost report being rejected for being on the wrong software version.

Medicaid days. When the Centers for Medicare & Medicaid Services (CMS) changed the form version from 2552-96 to 2552-10, there were some challenges to the reporting of disproportionate share (DSH) days. These days have an impact on a provider’s DSH or low-income provider (LIP) payment. 

To avoid problems, use W/S S-2 Part I, lines 24 and 25 for the calculation of DSH and LIP on W/S E Part A and E-3 Part III. Also, the S-2 Medicaid and Medicaid HMO days and S-3 Medicaid and Medicaid HMO days should agree.

Medicare HMO and Medicaid HMO days. On W/S S-3 Part I, use line 2, columns 6 and 7 for reporting the Medicare Advantage (HMO) days and Medicaid HMO days for adult and pediatric intensive care unit (ICU), continuing care unit (CCU), and nursery. This does not include psychiatric and rehabilitation; they have their own lines for HMO days.

Providers should properly report their Medicare HMO and Medicaid HMO days on line 2. Information from this line is used in the calculation of additional reimbursement (if applicable) for DSH, graduate medical education, nursing allied health, and the health IT meaningful use incentive payment.

Worksheet S-10. The purpose of worksheet S-10 is to provide charges and payments for uncompensated care and indigent care and to calculate the associated cost for providing patient care services for which the hospital is not compensated. 

In addition, data in the 2552-10 W/S S-10 is currently used in the calculation of meaningful use incentive payments. The S-10 data has also been discussed as a potential source for data that will be used to allocate the 75 percent DSH pool for federal FY15. Providers should spend the extra time necessary to complete this form accurately due to its present and potential future implications to meaningful use and DSH payments.

Medicare bad debts. Acute care hospitals, as well as skilled nursing facilities and rehabilitation hospitals, are eligible to claim Medicare bad debts. Providers should prepare their listings carefully so that incorrect accounts are excluded. If chosen for review by the FI or MAC, these accounts could reduce your reimbursement. 

There are recent PRRB cases (for example, Lakeland Regional Medical Center vs. NGS) that challenged bad debt accounts that are referred to collection agencies. Bad debts that would fall into this category should be listed as a potential protested item.

Wage index. Slight changes to a provider’s wage index value could impact Medicare payments by hundreds of thousands of dollars. Incorrect data could also affect not only that provider but other providers in the relevant geographic area. 

There is a four-year time lag from the submitted cost report wage data and when the data actually impacts reimbursement for the provider. During this time, providers have the opportunity to revise their data before it is actually used in their payment calculation. Any adjustments should be submitted to their FI or MAC. 

As required by the Affordable Care Act, wage index reform is mandated. In April 2012, CMS published its report to Congress—Plan to Reform the Medicare Wage Index—which discussed a commuter-based wage index. There have also been proposals developed by MedPAC, Acumen, LLC, and a AHA task force on the issue. 

The Office of Management and Budget bulletin dated February 28, 2013 — which revised delineations of Metropolitan Statistical Areas, Micropolitan Statistical Areas, and Combined Statistical Areas, and also provided guidance on their uses — was released and may be used in the federal FY15 wage index. Hospitals should prepare their W/S S-3 Parts II-V carefully and monitor any changes that occur in the coming months. 

All Year Long

Similar to tax returns, cost report preparation is a year-long process. Providers that submit their cost report after its deadline (five months from the close of year-end) are subject to suspension of their Medicare payments. To ensure proper time management, hospitals should maintain a cost report inventory that includes status and deadlines. Hospitals should also keep a log of their Medicare cost report reserves and estimated settlement amounts, in addition to having an understanding of the open appeal items. In addition, employees will need to invest time in implementing policies and creating procedures for cost report data accumulation and preparation.

The cost report will continue to play an integral role in any analysis of Medicare cost or payments. Hospital finance leaders should ensure that a formal cost report process is in place that involves not only finance but also staff from clinical and other departments.  

Scott Besler is a senior manager, BESLER Consulting, Princeton, N.J.


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