Medicare Reimbursement Update and Financial Improvement Tools for Rural Hospitals

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1 acumen Medicare Reimbursement Update and Financial Improvement Tools for Rural Hospitals Presented by Ann King White, CPA BKD, LLP June 15, 2017 insight ideas attention reach expertise depth agility talent Agenda Reimbursement Update Current Status for CAH hospitals Medicare Inpatient PPS Proposed Rule - FFY 2018 Final Rule CY 2017 for OPPS and Other Providers Preparing for the Future CAH Metrics and Financial Measures 1. Profitability 2. Revenue 3. Liquidity 4. Capital Structure 5. Operational Measures 15th Annual Western Region Flex Conference Flex Conference Hospital Analysis Analysis of Western CAHs including Hospital s attending the conference Medicare cost reports from FYE 2015 & 2016 Obtained from on-line Cost Report service CAH Hospitals census = 138 From 8 Western States including: AZ, CA, CO, HI, ID, NM, NV, UT, WY Hospital Conference Attendees = 30 Average Bed Size Hospital average bed size at 19 Smallest at 2, Largest at 25 Reimbursement Update Inpatient PPS (IPPS) FFY 2018 Proposed and FFY 2017 Final Rule 1

2 Reimbursement Current Status for CAHs Hospitals FFY 2018 IPPS Proposed Rule Published on 4/14/17 CAH hospitals on holding pattern, same as PY Sequestration at 2% cut all Health Care Cost Reimbursement still at 1% less 2% = 99% But this is an area that has brought discussion to reduce by 1% So From 1% reimbursement to 0%, then with 2% sequestration would mean reimbursement at 98% Comments accepted through 6/13/17 Final Rule expected in August, effective /1/17 for FFY 2018 Limited comments specific to CAHs Impact for Quality Reporting and MU 7 FFY 2015 Submit Quality Data & meets MU Submit Quality Data & does not meet MU Did not submit Quality Data & meets MU Did not submit Quality Data & does not meet MU Market Basket Rateof-Increase 2.90% 2.90% 2.90% 2.90% Quality Data Adjustment (0.725) (0.725) MU Adjustment 0.00 (2.175) 0.00 (2.175) MFP Adjustment (0.40) (0.40) (0.40) (0.40) Documentation & Coding (0.75) (0.75) (0.75) (0.75) Operating Payment Rate 1.75% (0.425) 1.025% (1. 15%) Wage Index Issues 8 Does not Apply to CAH s No Proposed changed to the Frontier Policy Frontier states (Montana, North Dakota, South Dakota, Wyoming & Nevada) guaranteed 1.0 WI Proposed national average hourly wage Proposed $41.96 in 2018 Prior year final was $41.07 or 1.9% increase Methodology If a hospital terminated data remains in the WI unless not reasonable If a hospital has become a CAH before 1/23/17, data excluded Reclassification Currently 906 hospitals are reclassified For FFY 2019 must apply by 9/1/17 2

3 DSH & UNCOMPENSATED CARE Uncompensated Care FY 2018 and after To begin using S- data for allocation of uncompensated care beginning in FY 2018 To be consistent with FY 2017 proposed changes, use 3 years of cost report data for S- allocation Medicaid days from FY 2012 and FY 2013 cost reports FY 2014 and FY 2015 published SSI ratios. FY 2014 S- uncompensated care data DSH UNCOMPENSATED CARE PAYMENTS Key takeaways The increase in the Factor 1 uncompensated care pool and the change in the Factor 2 methodology may mask the true impact of using Worksheet S- uncompensated care data. Maintain auditable documentation for charity care and bad debt amounts Comply with Worksheet S-, Transmittal Still lots of unanswered questions: Example: Presumptive charity care eligibility RURAL DEMONSTRATION PROJECT Extension for an additional 5-year period. Participating hospitals can continue. CMS released the requests for applications in April 2017 and announcement of participating hospitals in June Maximum of 30 participating hospitals. Any rural community hospital in any State can submit an application. However priority will be granted to hospitals in the 20 states with the lowest population densities. (Alaska, Arizona, Arkansas, Colorado, Idaho, Kansas, Maine, Mississippi, Montana, Nebraska, Nevada, New Mexico, North Dakota, Oklahoma, Oregon, South Dakota, Utah, Vermont, and Wyoming) Propose the periods of performance for previously and newly selected hospitals would start with the hospital s first cost reporting period on or after October 1, PROPOSED CHANGES TO CAH HOSPITALS Last year CMS is selected CAHs to participate in the Frontier Rural Community Health Integration Project Demonstration (FCHIP) Developed to test new models for the deliver of health care services, improve access, and better integrate delivery of acute care to Medicare beneficiaries Period of performance August 1, 2016 July 31, 2019 Goal is to maintain budget neutrality for the demonstration project Any increase in Medicare payments will be recouped from all CAHs through a reduction in Medicare payments over a three year period of cost reporting years, beginning in calendar year So CMS notes there is no impact on FY

4 REVIEW OF CAH 96-HOUR CERTIFICATION REQUIREMENT CMS proposed to direct QIOs, MACs, SMRCs and RACs to make the 96-hour cert. a low priority for medical records reviews. Effective for review conducted after /1/2017 Covers the rule where a physician certifies patient can be discharge/transferred in 96-hours Unless there is probably fraud, waste or abuse Other reviews, such as by OIG, DOJ or ZPICs are not effected MEDICARE COST REPORTING AND PROVIDER REQUIREMENTS Electronic Signature and Submission: Historically the provider has been required to submit a hard copy of the settlement summary with original signature; under proposed rule the provider will be able sign the certification page via electronic signature or original signature A checkbox will be added to indicate if signing electronically on the settlement page If signed electronically, the provider can submit the Certification and Settlement Summary page in the same manner the MCR cost report is submitted (electronically versus hard copy) QUALITY REPORTING E. Clinical Quality Measurement for Eligible Critical Access Hospitals (CAHs) Participating in the EHR Incentive Programs Program includes incentive payments under Medicare and Medicaid for adoption and meaningful use of certified electronic health record technology (CEHRT) by reporting of CQMs or ecqms Proposed reporting period changes: CY 2017: 2 self selected quarters of CQM data in 2017 instead of full calendar year CY 2018: first 3 quarters of CY 2018 Proposed CQM changes: CY 2017: report on at least 6 (self-selected) CQMs instead of 8 CY 2018: report on at least 6 (self-selected) CQMs instead of 8 QUALITY REPORTING F. Clinical Quality Measurement for Eligible Professionals (EPs) Participating in the Medicaid EHR Incentive Program in 2017 Proposed reporting period changes: CY 2017: minimum of a continuous 90-day period during the CY Proposed CQM changes: Align CQMs available in the Medicaid EHR Incentive Program with those available in the Merit-based Incentive Payment System (MIPS) For CY 2017, report on any 6 CQMs that are relevant to scope of practice 4

5 Acute Care Volume Indicators Western CAHs Analysis compared to most profitable Western CAHs Acute Care Averages Volume differences Acute M/C Days Median 7 compared to 1,274 Conference Attendees M/C Days 684 Total Days Median 1,396 compared to 2,742 Conference Attendees Total Days 1,337 Acute Care Reimbursement Western CAHs Analysis compared to most profitable Western CAHs Acute Care Average Reimbursement per day (Median) Acute M/C $2,346 compared to $2,120 Conference Attendees $2,062 Ancillary M/C $1,385 compared to $2,746 Conference Attendees $1,446 Total M/C Payment $3,731 compared to $4,866 Conference Attendees $3,508 Swing Bed Comparison What is your utilization? M/C Days 1 to 2,6 (Average 491) Conference Attendees Average SB M/C Days = 444 Top Western CAH s Average SB M/C Days = 456 M/C Utilization 19% to 0% Does it help your bottom line? What are the threats to this good reimbursement? What are opportunities to collaborate related to CJR Comprehensive Care for Joint Replacement and other upcoming payment bundles? Reimbursement Regulations CY 2017 Final Rule for Outpatient OPPS and Other Providers 5

6 FY 2017 OPPS Final Rule Conversion factor update of 1.9% after productivity and other adjustments CY12: $ CY13: $ (1.59% increase) CY14: $ (2.17% increase) CY15: $ (2% increase) CY16: $ (1.9% increase) CY 17: $ (1.65% increase) Outpatient Indicators and Reimbursement Western CAHs compared to most profitable Western CAHs at the Average Outpatient Cost to Charge Ratios 50% to 38% -- Attendees 53% Outpatient Medicare Revenue per Calendar Day $30,116 to $76,530 Attendees $26,596 Outpatient Medicare Cost to Allowable Cost Percentage 26% to 14% --Attendees 22% RHC Rates -- CY 2017 Upper Payment Limit per visit (Does not apply to CAHs) Increase, rates in: 2015 = $ = $ = $82.30 Reflects a 1.2% payment increase Flex Attendees with RHCs (Limit does not apply) Average Per Visit cost = $220 (over limit get + $138 ) IMPORTANT Billing Changes and Reimbursement Opportunities for RHCs and Rural Providers including Chronic Care Management (CCM) and Advanced Care Planning (ACP) Rate Changes for Other Providers 2017 SNF - Overall rate increase = 2.4% HHA Overall rate decrease = (0.7%) Hospice Overall rate increase = 2.1% 6

7 Preparing for the Future CAH Metrics and Financial Measures Financial Indicators and Comparison Benchmarks 1. Profitability 2. Revenue 3. Liquidity 4. Capital Structure 5. Operational Measures Profitability Profitability 7

8 Goals for Profitability Hospitals need to look for ways to be More Efficient Cost Effective In the delivery of Services Keep in mind the Triple Aim: Increase efficiency in providing care Improve the patient experience Improve outcomes Western CAHs Profitability Cost Report data (12/31/2015 & 6/30/2016) Net Operating Income (Net Patient Revenue less Expenses) 56 CAHs or 41% had Positive Net Income from Operations (PY 34%) 82 CAHs or 59% had Net Operating Losses -- Average Loss ($2,200,000) Attendees Net Operating Income 14 CAHs or 47% had Positive Net Income from Operations 16 CAHs or 53% had Net Operating Losses -- Average Loss ($2,400,000) Western CAHs Profitability Cost Report data (12/31/2015 & 6/30/2016) Net Income (including Other Income) 1 CAHs or 80% were Profitable ( PY 75%) 28 CAHs or 20% had Net Losses -- Average Loss ($1,080,000) Attendees Net Operating Income 24 CAHs or 80% had Positive Net Income from Operations 6 CAHs or 20% had Net Operating Losses -- Average Loss ($818,000) Total Margin % (Average) Western Attendees Top A BBB CAHs 7 6 8

9 EBIDA Margin % (Average) Western Attendees Top A BBB CAHs Revenue Acute Medicare Utilization Low Mid High Average Attendees Top 9

10 Acute Medicaid Utilization Low Mid High Average Attendees Top Western CAHs Outpatient Revenues Cost Report data (12/31/2015 & 6/30/2016) Outpatient revenue to Total Revenue Range from 55% to 98% Median for Western CAHs was 78%, One major source of outpatient revenue was from RHC Clinics Analyze for your hospital where the largest sources of outpatient revenue are and look at departments and specific services. Outpatient Revenue to Total % Low High Western Average Top Outpatient Medicare Utilization Low High Western Average 25 Top

11 Improve Revenue Realization Analyze charge payer % s by procedure Restructure charges to take advantage of procedures with higher % of charge payers OR consider reducing charges to capture market share for competitive pricing and consumer shopping Update the hospital s Charge Description Master (CDM) 41 Take a closer look at Medicare Payments Re-examine that all Medicare payments are correct Verify the relationship between coding and payments How Do Your Third Party Payers pay... Depends on the payer and services provided to the patient Fee for service Fixed payments Payments based on Medicare methodology Contracts with payer AUDIT these payments 11

12 Medicare Bad Debts All Medicare Bad Debts are reimbursed at 65% Western CAH s Average for Inpatient Deductibles & Co-Insurance Average = $209,805 Average Bad Debts $20,140 or 9.6% Western CAH s Average for Outpatient Deductibles & Co-Insurance $1,863,129 Average Bad Debts $188,124 or % Hospitals with No Medicare Bad Debts- 22 or 16% Attendees overall had 7% Medicare Bad Debts Western CAHs Medicare Bad Debts Inpatient Bad Debts 15% 2% 1% No Bad Debts 11% 47% 24% Under $25,000 Under $50,000 Under $0,000 Under $250,000 Over $250,000 Outpatient Bad Debts 17% 19% Bad Debts to Deductibles & Co-Insurance is 8% 9% 17% 16% 22% Liquidity Western CAHs Liquidity Cost Report data (12/31/2015 & 6/30/2016) Current Ratio range from 1.82 to 5.08 Average 3.92 (Attendee Average 4.15) Days Cash on Hand range from negative 27 to 167 Days Cash is still King Average 122 Days (Attendee Average 143 Days) Net Days in Accounts Receivable range from 43 to150 Days Average 56 Days (Attendee Average 52 Days) 12

13 Current Ratio Low Mid High Average Attendees Top Days Cash on Hand Including Investments Low Mid High Attendees Top A RatedBBB Rated Net Days in Accounts Receivable Capital Structure 0 Western Average Attendees Top A Rated BBB Rated 13

14 Debt to Capitalization (%) Western Average Top AA A BBB 36 Debt Financing A word of caution Typical financing structures (i.e. long-term revenue bonds) for major facility improvements can generate strong cash flow in early years but could have insufficient cash flow to make the payments in later years CHA cost reimbursement higher in early years from Depreciation and Interest Important to understand your forecast model Operational Measures Average Daily Census Acute Beds & Swing Beds Acute Acute Acute Top SB SW SB Top Western Attendees Western Attendees CAH's CAH's 14

15 Staffing Levels Hospital s largest cost Average FTE s Western CAH s = 175 (Average Salary per FTE = $62,879) Attendees = 176 (Average Salary per FTE = $62,217) Western Top = 340 (Average Salary per FTE = $78,637) Prepare an FTE analysis If you cannot benchmark yourself get help Then take action with a Staffing Plan Then budget to the agreed plan Reduce/eliminate agency staffing Goal is to manage staffing Medicare Cost Report Worksheet S- Uncompensated Care Uses overall Cost to Charge Ratios (CCR) But we know excludes: Selected costs to do business that Medicare does not share in Physician services Other sub-providers part of organization Western CAH s overall Average CCR = 62% Attendees overall Average CCR = 65% Top CAH s overall Average CCR = 49% 58 Prepare for the Future Fine tune operations Revenue Cycle Medicare Cash Flow Staffing Levels Adequate Medical Staff Evaluate & consider eliminating unprofitable services, carefully evaluate new services How do you increase revenues without increasing costs? If the future is keeping patients well thus less health care costs? What resources do you need? Is the future focus on Community and Health? 15

16 Thank You Contact Information Ann King White, CPA Denver, CO