Presented by Tom Johansen, CPA th Street Plano, Texas Office: Direct:

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1 Presented by Tom Johansen, CPA th Street Plano, Texas Office: Direct:

2 Medicare Cost Reports, DRG Payments and Your Bottom Line

3 Why Talk About Medicare Cost Reports? Medicare utilization is significant Reimbursement is material Current year and future reimbursement Impact on future DRG payments Settlement impacts net income Cash flow Balance Sheet adjustments Major compliance area/risk

4 Educate & Collaborate Educate provider personnel on how Medicare pays for services Financial Operational/Management Administrative Clinical stakeholders

5 Educate & Collaborate Collaboration between different departments/areas of hospital is essential to ensure proper payment Polices & Procedures Systems Documentation Collections Accounting Compliance

6 Medicare Cost Report Calculates & summarizes Medicare program settlement DSH Medical Education IME GME Paramedical Ed, Nursing and Allied Bad Debts Organ Acquisition Value Based, HRR Program and E H R settlements Cost based outpatient services New technology payments

7 Included in Cost Report Demographic Information: Hospital identifier information Provider numbers Provider units (Hosp, Psych, Rehab, HHA etc.) Certification dates Ownership Information Location (CBSA) MAC

8 Included in Cost Report Provider Financial Information: Revenues Expenses Balance sheet Income statement Medicare/Medicaid revenues and payments Uncompensated/indigent care revenue/payment information

9 Included in Cost Report Provider Statistical Information: Patient days Patient discharges Revenues Square feet Assigned time Lbs. of laundry Costed requisitions Meals served Misc. Other Statistics FTE s

10 Who Uses the Cost Report? CMS State Agencies TMHP, Medicaid Office of Inspector General - OIG Financial auditors, investors, lenders, bond purchasers News organizations, journalistic organizations Insurance companies/commercial payers Healthcare industry advocacy groups Healthcare industry service companies Courts/judicial system

11 Medicare Cost Report Impact to Bottom Line Medicare Settlement Calculations Bad debts Paramedical, nursing, allied health education programs Medicare disproportionate share (DSH) Indirect medical education (IME) Graduate medical education (GME) Organ acquisition pass thru Pay for performance programs Electronic health records (HIT) (separate) O/P Cost based payments New technology payments

12 Settlement Items Payment Methods Bad Debts Interim Pass Through Payment Cost Report Settlement Medicare Disproportionate Share Per claim DRG Payment add on Cost Report Settlement Indirect Medical Education Per claim DRG payment add on Cost Report Settlement Graduate Medical Education Interim - Pass Thru Payment Cost Report Settlement

13 Settlement Items Payment Methods Organ Acquisition Payment Interim - Pass Through Payment Cost Report Settlement Paramedical Ed, Nursing & Allied Health Interim - Pass Through Payment Cost Report Settlement Pay for Performance Programs Per claim DRG adjustment Cost Report Settlement

14 Settlement Items Payment Methods Electronic Health Record Lump Sum Payment Settlement calculated & Shown on Cost Report Older unsettled cost reports

15 Prospective Payment Systems PPS - Medicare payment is made based on a predetermined, fixed amount. DRG - Diagnosis-related groups the classification system utilized for payment of inpatient hospital services

16 CMS Proposed 2018 Standardized Amounts Tables 1A - 1E FY 2018 NPRM Tables 1A-1E TABLE 1A. PROPOSED NATIONAL ADJUSTED OPERATING STANDARDIZED AMOUNTS; LABOR/NONLABOR (68.3 PERCENT LABOR SHARE/31.7 PERCENT NONLABOR SHARE IF WAGE INDEX GREATER THAN 1) Hospital Submitted Quality Data and is a Meaningful EHR User (Update = 1.75 Percent) Hospital Submitted Quality Data and is NOT a Meaningful EHR User (Update = Percent) Hospital Did NOT Submit Quality Data and is a Meaningful EHR User (Update = Percent) Labor-related Nonlabor-related Labor-related Nonlabor-related Labor-related Nonlabor-related Labor-related Hospital Did NOT Submit Quality Data and is NOT a Meaningful EHR User (Update = Percent) $3, $1, $3, $1, $3, $1, $3, $1, Nonlaborrelated TABLE 1B. PROPOSED NATIONAL ADJUSTED OPERATING STANDARDIZED AMOUNTS, LABOR/NONLABOR (62 PERCENT LABOR SHARE/38 PERCENT NONLABOR SHARE IF WAGE INDEX LESS THAN OR EQUAL TO 1) Hospital Did NOT Submit Quality Hospital Submitted Quality Data Hospital Submitted Quality Data Hospital Did NOT Submit Quality Data and is NOT a Meaningful and is a Meaningful EHR User (Update = 1.75 Percent) and is NOT a Meaningful EHR User (Update = Percent) Data and is a Meaningful EHR User (Update = Percent) EHR User (Update = Percent) Nonlaborrelated Labor-related Nonlabor-related Labor-related Nonlabor-related Labor-related Nonlabor-related Labor-related $3, $2, $3, $2, $3, $2, $3, $2, TABLE 1C. PROPOSED ADJUSTED OPERATING STANDARDIZED AMOUNTS FOR HOSPITALS IN PUERTO RICO, LABOR/NONLABOR (NATIONAL: 62 PERCENT LABOR SHARE/38 PERCENT NONLABOR SHARE BECAUSE WAGE INDEX IS LESS THAN OR EQUAL TO 1) Rates if Wage Index Greater Than 1 Rates if Wage Index Less Than or Equal to 1 Labor Nonlabor Labor Nonlabor National 1 Not Applicable Not Applicable $3, $2, For FY 2018, there are no CBSAs in Puerto Rico with a national wage index greater than 1. TABLE 1D. - PROPOSED CAPITAL STANDARD FEDERAL PAYMENT RATE Rate National $451.37

17 DRG Table 5 CMS Proposed Rule 2018 TABLE 5. LIST OF MEDICARE SEVERITY DIAGNOSIS-RELATED GROUPS (MS-DRGS), RELATIVE WEIGHTING FACTORS, AND GEOMETRIC AND ARITHMETIC MEAN LENGTH OF STAY FY 2018 Proposed Rule MS-DRG FY 2018 NPRM Post-Acute DRG FY 2018 NPRM Special Pay DRG Geometric Arithmetic MDC TYPE MS-DRG Title Weights mean LOS mean LOS 001 No No PRE SURG HEART TRANSPLANT OR IMPLANT OF HEART ASSIST SYSTEM W MCC No No PRE SURG HEART TRANSPLANT OR IMPLANT OF HEART ASSIST SYSTEM W/O MCC Yes No PRE SURG ECMO OR TRACH W MV >96 HRS OR PDX EXC FACE, MOUTH & NECK W MAJ O.R Yes No PRE SURG TRACH W MV >96 HRS OR PDX EXC FACE, MOUTH & NECK W/O MAJ O.R No No PRE SURG LIVER TRANSPLANT W MCC OR INTESTINAL TRANSPLANT No No PRE SURG LIVER TRANSPLANT W/O MCC No No PRE SURG LUNG TRANSPLANT No No PRE SURG SIMULTANEOUS PANCREAS/KIDNEY TRANSPLANT No No PRE SURG PANCREAS TRANSPLANT No No PRE SURG TRACHEOSTOMY FOR FACE,MOUTH & NECK DIAGNOSES W MCC No No PRE SURG TRACHEOSTOMY FOR FACE,MOUTH & NECK DIAGNOSES W CC No No PRE SURG TRACHEOSTOMY FOR FACE,MOUTH & NECK DIAGNOSES W/O CC/MCC No No PRE SURG ALLOGENEIC BONE MARROW TRANSPLANT No No PRE SURG AUTOLOGOUS BONE MARROW TRANSPLANT W CC/MCC No No PRE SURG AUTOLOGOUS BONE MARROW TRANSPLANT W/O CC/MCC No No 01 SURG INTRACRANIAL VASCULAR PROCEDURES W PDX HEMORRHAGE W MCC No No 01 SURG INTRACRANIAL VASCULAR PROCEDURES W PDX HEMORRHAGE W CC No No 01 SURG INTRACRANIAL VASCULAR PROCEDURES W PDX HEMORRHAGE W/O CC/MCC Yes No 01 SURG CRANIOTOMY W MAJOR DEVICE IMPLANT OR ACUTE CNS PDX W MCC OR CHEMOTHERAPY IMPLANT OR EPILEPSY W NEUROSTIMULATOR Yes No 01 SURG CRANIO W MAJOR DEV IMPL/ACUTE COMPLEX CNS PDX W/O MCC Yes No 01 SURG CRANIOTOMY & ENDOVASCULAR INTRACRANIAL PROCEDURES W MCC Yes No 01 SURG CRANIOTOMY & ENDOVASCULAR INTRACRANIAL PROCEDURES W CC Yes No 01 SURG CRANIOTOMY & ENDOVASCULAR INTRACRANIAL PROCEDURES W/O CC/MCC Yes Yes 01 SURG SPINAL PROCEDURES W MCC Yes Yes 01 SURG SPINAL PROCEDURES W CC OR SPINAL NEUROSTIMULATORS Yes Yes 01 SURG SPINAL PROCEDURES W/O CC/MCC Yes No 01 SURG VENTRICULAR SHUNT PROCEDURES W MCC Yes No 01 SURG VENTRICULAR SHUNT PROCEDURES W CC Yes No 01 SURG VENTRICULAR SHUNT PROCEDURES W/O CC/MCC No No 01 SURG CAROTID ARTERY STENT PROCEDURE W MCC No No 01 SURG CAROTID ARTERY STENT PROCEDURE W CC No No 01 SURG CAROTID ARTERY STENT PROCEDURE W/O CC/MCC No No 01 SURG EXTRACRANIAL PROCEDURES W MCC

18 Operating DRG Rate - Example Labor Related (Standardized) $ 3, Area Wage Index (Per MSA) , Non Labor Related (Standardized) 2, Base Operating DRG Amount $ 5, Value Based Adjustment (27.77) HRR Adjustment (4.90) IME Add On DSH Add On (Empirical Portion) Blended Operating DRG $ 6, =======

19 Capital DRG Calculation - Example Capital Rate (Standardized) $ GAF.9858 Base Capital Rate IME Add On DSH Add On Blended Capital DRG $ =====

20 Blended DRG Amount - Example (Per Medicare Discharge) Operating Amount (Calculated) $ 6, Capital Amount (Calculated) Total DRG Per Discharge $ 6, UC Adjust (DSH) 1, DRG Before HAC $ 7, HAC Penalty Amount (76.73) Final DRG Per Discharge $ 7, =======

21 DRG CALCULATION Example & Comparison Final Proposed Operating Labor Standardized Amount 3, , IPPS Wage Index Wage-Adjusted Amount 3, , Non Labor Standardized Amount 2, , Wage-Adjusted Federal Payments 5, , VBP Adjustment Amount (27.77) (28.14) HRR Adjustment Amount (4.90) (4.97) IME Adjustment Amount DSH Adjustment Amount Adjusted Federal Payment Amount 6, , Capital Capital Federal Rate Geographic Adjustment Factor Large Urban Add-on 1 1 Subtotal IME Adjustment Amount DSH Adjustment Amount Total Capital Rate Fully Loaded Base DRG Rate 6, , DRG Weight 1 1 Total DRG Payment 6, , UC Amount Per Discharge 1,000 1,000 Total Medicare Payment 7, , HAC Reduction (76.73) (77.60) Mcare Payment Net of HAC 7, , Patient Portion 1, , Net Provider Payment 6, , % Sequestration (125.61) (127.33) Mcare Payment Net of HAC & Seq 6, ,239.00

22 Total Hospital DRG Payment Calculation For Estimation Purposes Example Medicare Discharges 9,500 X Medicare Case Mix Index X Final DRG Amount 7, Total DRG Payments $117,360,217 =========

23 DRG Payment Analysis Compare actual DRG payments with expected amount Investigate variances Proper DRG coding Correct payment rates being paid by MAC? Correct factors in provider accounting system and logging system Outliers Transfer adjusted payments Contractual percentage Revenue per case Case Mix Length of Stay

24 Settlement Items Due To From Calculation Amount Earned Amount Paid = Due To/From Changes in actual or estimated settlement impact net income Accurate estimates Understand factors that impact reimbursement settlement amounts Consider impact of operational changes in planning stages. Communication between operational/administrative and financial departments

25 Medicare Cost Report Booking Analysis Look at all cost report settlement items individually Compare year end accruals and filed cost report settlements Are settlement amounts different than expected? Why? Review the factors involved in the reimbursement calculation. Do your estimates or methodologies need to be revised going forward? Do the numbers make sense given your understanding of operational issues?

26 Medicare Bad Debt Settlement Factors Estimate DTF Accrual Medicare bad debts written off and deemed worthless (Collection Agencies & Reports) Recoveries Pass Thru payment accruals Medicaid Crossovers Cost Report Calculation Bad Debts reported on cost report Recoveries Pass Thru payments (per MAC) Medicaid Crossovers

27 Paramedical Education, Nursing & Allied Health Estimation & Settlement Factors Estimate DTF Accrual Cost Report Calculation Estimated Costs Medicare Utilization Pass Thru Payments per provider records Direct & Allocated Costs Per Cost Report Medicare Utilization Per Cost Report Pass Thru Payments Per MAC

28 Indirect Medical Education Settlement Factors Estimate DTF Accrual FTE Estimate Estimated Resident to Bed Ratio Estimated DRG Payments (Medicare Discharges x DRG Amount x Case Mix Index) Estimated IME Payments - % Add on to DRG Cost Report Calculation FTE Calculation Final Resident to Bed Ratio Medicare DRG Payments per PS&R IME Payments per PS&R

29 Graduate Medical Education Settlement Factors Estimate DTF Accrual FTE Estimate Per Resident Amount Estimated Medicare Utilization Pass Thru Payments (Per Provider Records) Cost Report Calculation FTE Calculation Per Resident Amount Medicare Utilization Per Cost Report Pass Thru Payments (Per MAC records)

30 Medicare DSH (Empirical) Payment Settlement Factors Estimate DTF Accrual Cost Report Calculation Estimated Medicaid Eligible Days Total Days SSI Ratio Estimated DRG Payments (Medicare Discharges x DRG Amount x Case Mix Index) DSH Earned Percentage Estimated DSH Payment Received Filed Medicaid Eligible Days Per Cost Report Total Days SSI Ratio Medicare DRG Payments per PS&R DSH Earned Percentage DSH Payment Per PS&R

31 Organ Acquisition Settlement Factors Estimate DTF Accrual Estimated Organ Acquisition Cost (Direct, Allocated, Computed Pre-Transplant Evaluation) Medicare Useable Organ to Total Useable Organ Ratio Revenue For Organs Sold Pass Thru Payments Received Estimate MSP Adjustments Cost Report Calculation Total Organ Acquisition Cost Per Cost Report Medicare Useable Organ to Total Useable Organ Ratio Revenue For Organs Sold Pass Thru Payments Received Final MSP Adjustments

32 Summary Educate and collaborate Ensure DRG payments are correct Track contractual percentage and understand any changes File complete, accurate cost reports Determine that reimbursement settlement amounts make sense Develop and implement systems to estimate final reimbursement settlement amounts Complete analysis of cost report reimbursement settlement amounts. Understand your reimbursement payment methodologies!

33 Questions? Please feel free to call or me if you have any questions regarding today s presentation Thank You!

34 Tom Johansen, CPA th Street Plano, Texas Office: Direct:

FY 2018 DRG Updates. Under both the Medicare PPS and the TRICARE DRG-based payment system, cases are

FY 2018 DRG Updates. Under both the Medicare PPS and the TRICARE DRG-based payment system, cases are FY 2018 DRG Updates I. Medicare PPS Changes Which Affect the TRICARE DRG-Based Payment System Following is a discussion of the changes CMS has made to the Medicare PPS that affect the TRICARE DRG-based