C o s t R e p o r t i n g : M e d i c a r e C o s t R e p o r t M o r e t h a n j u s t C o m p l i a n c e J u l y 1 8,

Size: px

Start display at page:

Download "C o s t R e p o r t i n g : M e d i c a r e C o s t R e p o r t M o r e t h a n j u s t C o m p l i a n c e J u l y 1 8,"

Silvester Lynch
5 years ago
Views:

1 Cost Reporting 201: M edicare Cost Report More than just Compliance July 18, 2016 Wipfli LLP

2 Wipfli LLP

3 Agenda What will be covered today: Uses of information included in the Medicare Cost Report for a Critical Access Hospital Decision making at a high level using the Medicare Cost Report Wipfli LLP 2

4 Wipfli LLP

5 Most Common Uses of the Medicare Cost Report? Wipfli LLP 4

6 Who Uses the Medicare Cost Report? External Users: Medicare Settlement Rate adjustments and interim rate setting Medicaid Settlement Annual rate setting Assessments and/or state hospital taxes (if applicable) Private Insurance Companies Payment structure ~ Percentage of charges ~ Fee schedule Wipfli LLP 5

7 Who Uses the Medicare Cost Report? Your Facility Some possible uses: Monthly contractual adjustment Service line analysis Budgeting Rate or price setting Contract negotiations Other Organizations Congress State and regional health care groups Financial indicators/benchmarks Wipfli LLP 6

8 Decision Making at a High Level Using the Medicare Cost Report If all you had to make a decision was your Medicare cost report, how would you begin to... Analyze inpatient activity Compare room charges and related cost Evaluate cost to charge ratios Develop a CAH reimbursement tool for high level decision making Calculate contribution margins Wipfli LLP 7

9 Wipfli LLP 8

10 Analyze Inpatient Activity Observations: Adults & Peds Direct cost per day $ 535 Total cost per day $ 1,164 Gross charge per day $ 1,134 Direct cost is 46% of total cost Overhead cost is $629 per day or 54% of total cost Costs exceed gross charges by $30 per day Cost-to-charge ratio is 1.03 Wipfli LLP 9

11 Analyze Inpatient Activity Calculation for ratios: Department Worksheet B Part I Column 0 Direct Cost Worksheet B Part I Column 26 Total Cost Worksheet C Part I Column 8 Charges Worksheet S-3 Part I Column 8 Line 7 Days Direct Cost/Day Total Cost/Day Total Charge/Day Overhead Percent Sample CAH Adults & Peds (Line 30) $ 3,167,300 $ 6,890,400 $ 6,712,900 5,920 $ 535 $ 1,164 $ 1,134 54% Wipfli LLP 10

12 Analyze Inpatient Activity Adults & Peds Direct cost per day $ 535 Total cost per day $ 1,164 Gross charge per day $ 1,134 Overhead percent 54% Thoughts: Is it reasonable that more than 50% of the Adults & Peds total cost is overhead? Are these results comparable to or as expected when compared to prior years? Wipfli LLP 11

13 Analyze Inpatient Activity Adults & Peds Direct cost per day $ 422 $ 488 $ 535 Total cost per day $ 881 $ 1,070 $ 1,164 Gross charge per day $ 905 $ 1,049 $ 1,134 Days 7,140 6,400 5,920 Observations: From 2013 to 2015, direct cost per day increased $113 or 27% From 2013 to 2015, total cost per day increased $283 or 32% From 2013 to 2015, gross charge per day increased $229 or 25% From 2013 to 2015, days decreased 1,220 or 17% Wipfli LLP 12

If days decreased, why didn t direct cost

14 Analyze Inpatient Activity Thoughts: If your days decrease and your direct cost remains the same or increases, direct cost per day will increase. If days decreased, why didn t direct cost decrease in some proportion... what could be causing this? Wipfli LLP 13

15 Analyze Inpatient Activity Adults & Peds Observation: Direct cost per day $ 422 $ 488 $ 535 Total cost per day $ 881 $ 1,070 $ 1,164 Gross charge per day $ 905 $ 1,049 $ 1,134 Days 7,140 6,400 5,920 Overhead cost per day $ 459 $ 581 $ 629 From 2013 to 2015, overhead cost per day increased $170 or 37% Wipfli LLP 14

16 Analyze Inpatient Activity Adults & Peds Direct costs $ 3,011,800 $ 3,124,400 $ 3,167,300 Capital - Building 425, , ,600 Capital - MME 140, , ,700 Employee benefits 409, , ,000 Communications 45,600 45,100 Data processing 41,400 39,400 Purchasing 3,200 2,900 Admitting 40,400 37,100 Cashiering 47,600 52,400 Other admin 411, , ,100 Operation of plant 411, , ,500 Laundry 68,800 77,100 73,600 Housekeeping 135, , ,700 Dietary 355, , ,900 Cafeteria 133, , ,000 Nursing administration 614, , ,900 Medical records 153, , ,900 Social service 190, , ,300 Thoughts: Was there a capital project completed in 2014? A & G department was fragmented in What happened in dietary to reduce costs 45%? Total indirect costs 3,448,600 3,727,600 3,723,100 Total costs $ 6,460,400 $ 6,852,000 $ 6,890,400 Source: Direct Costs: Medicare cost report Wkst. B, Part I, Col 0, Line 30 Source: Indirect costs: Medicare cost report Wkst. B, Part I, Overhead Columns, Line 30 Wipfli LLP 15

17 Analyze Inpatient Activity Adults & Peds Direct cost per day $ 422 $ 488 $ 535 Total cost per day $ 881 $ 1,070 $ 1,164 Gross charge per day $ 905 $ 1,049 $ 1,134 Days 7,140 6,400 5,920 Overhead cost per day $ 459 $ 581 $ 629 Gross charge greater (less) than cost $ 24 $ (21) $ (30) Cost-to-charge ratio 97% 102% 103% Observation: Charge exceeded cost in 2013, but cost exceeded charge in 2014 and 2015 Thoughts: If my total charge per day is less than my total cost per day... Do I have a pricing issue? Wipfli LLP 16

18 Analyze Inpatient Activity Consider calculating other routine departments Department Worksheet B Part I Column 0 Direct Cost Worksheet B Part I Column 26 Total Cost Worksheet C Part I Column 8 Charges Worksheet S-3 Part I Column 8 Days Direct Cost/Day Total Cost/Day Total Charge/Day Sample CAH Adults & Peds $ 3,167,300 $ 6,890,400 $ 6,712,900 5,920 $ 535 $ 1,164 $ 1,134 Nursery $ 202,400 $ 380,300 $ 511, $ 302 $ 568 $ 763 SNF $ 3,248,900 $ 5,630,100 $ 6,994,700 30,200 $ 108 $ 186 $ 232 Wipfli LLP 17

19 Analyze Inpatient Activity Summary: Do your costs exceed charges? Does overhead look reasonable? Is the percent of direct costs to total costs consistent between the years? What s happening to the direct costs as your days change? Is there something you need to investigate? Wipfli LLP 18

20 Wipfli LLP

21 Room Charge and Cost Comparison On an allowable cost basis, the Medicare cost report computes an average cost per day for routine inpatient care. This information can be used for: Year-end price setting, Comparisons to other facilities, Profitability review, A variety of other reviews. Wipfli LLP 20

22 Room Charge and Cost Comparison In order to review this information, we should consider: Inpatient routine cost per day < = > Net charge received per day Reminder: General definitions of allowable cost equal total expense minus costs not supported by Medicare. Sample analysis of routine department profitability and charge level amounts: Wipfli LLP 21

23 Room Charge and Cost Comparison Sample Routine Cost-Per-Day Calculation Using the Medicare Cost Report: WS B, Part I, Col. 26, Line 30 (total acute care cost) $ 1,959,185 Wkst D-1, Part I, line 21 Less: Swing bed NF 3,100 Wkst D-1, Part I, lines 24 & 25 (NF days x state rate (20 days x $155/day)) = Adjusted acute care costs 1,956,085 Number of acute care days (Acute care, swing bed-snf, & observation equivalent days) 2,200 Wkst D-1, Part I, line 1 less lines 7-8 = Routine service cost per diem $ Wkst D-1, Part II, line 38 Based on the allowable costs in the cost report, our sample hospital would expect that on average it costs $ per inpatient day to care for patients in the inpatient unit, excluding ancillary services. Wipfli LLP 22

24 Room Charge and Cost Comparison How do We Determine if We Are Charging Enough for Routine Inpatient Care? We should consider the following: Days by payor Expected payment received by payor Efficiency and potential expense changes in the future Potential changes in average daily census or patient volumes Do we have a profit on ancillary services? Wipfli LLP 23

25 Room Charge and Cost Comparison Review of Payor Mix and Reimbursement Expected per Payor for Routine Care: Medicare Medicaid Other Payors Total Adults and Peds Days per S-3, Part I line 1 1, ,200 x Routine Average Cost Per Day (previously calculated) $ $ $ $ Average Annual Routine Costs by Payor $ 1,273,234 $ 253,402 $ 429,450 $ 1,956,086 Routine Charges: Average Room Charge per Day $ $ $ $ Gross Annual Charges by Payor $ 1,217,200 $ 242,250 $ 410,550 $ 1,870,000 Reimbursement Analysis: "Allowable" Cost per Day Average DRG Pmt 10% Discount on Billed Charges Total Contractual Adjustment ( Premium or (Discount)) $ 43,047 $ (72,675) $ (41,055) $ (70,683) Net Annual Revenue by Payor $ 1,260,247 $ 169,575 $ 369,495 $ 1,799,317 Profit (Loss) for Routine Services $ (12,987) $ (83,827) $ (59,955) $ (156,769) (includes sequestration) Wipfli LLP 24

26 Room Charge and Cost Comparison Summary: Average charge per day: $ per inpatient day Discount per day: Varies by payor Average cost per day: $ What can be done in this situation? Review of patient room charge - Consider payor contracts, patient experience, price in the market/region, etc. Review of contract terms with payors - This may be the most difficult to negotiate with many different insurance payors or networks. How do we expect patient volumes or costs to change in the next year? What hospital services are supplementing/supporting inpatient care? Wipfli LLP 25

27 Wipfli LLP

28 Cost-to-Charge Ratio Review What additional data is found on the cost report that can be used to evaluate other hospital departments: What is a cost-to-charge ratio? Cost-to-Charge Ratios Direct Costs per Department (excluding professional costs) + / - Reclassifications and Adjustments + Allocated Overhead Costs Gross Hospital Charges per Department (excluding professional charges) = Cost-to-Charge Ratio Where can we find the cost-to-charge ratios? Medicare cost report: Worksheet C, Part I, Column 9 Wipfli LLP 27

29 Cost-to-Charge Ratio Review Worksheet C of the Medicare Cost Report reports gross patient service revenue and calculates the cost-to-charge ratio by department. Column 1 equals cost from Worksheet B, Part 1, Column 26 Wipfli LLP 28

30 Cost-to-Charge Ratio Review Below is a sample of Page 2 of Worksheet C, Part I showing the gross charges and calculated cost-to-charge ratios from a sample Medicare cost report: How can we use the cost-to-charge ratios in Column 9? Wipfli LLP 29

31 Cost-to-Charge Ratio Review Comparison of 3 CAH s cost-to-charge ratios by selected departments: Cost Centers CAH 1 CAH 2 CAH 3 Operating room Radiology-diagnostic Laboratory Respiratory therapy Physical therapy Occupational therapy Speech pathology Electrocardiology Medical Supplies charged Implantable Supplies and Devices Drugs chared to patients Cardiac Rehab Chemotherapy Provider-based Clinic Emergency Observation beds What observations can be made? How can we use this information? Next step.additional analysis? Wipfli LLP 30

32 Cost-to-Charge Ratio Review What are some points to consider from the cost-to-charge ratio reviews? Are the cost allocations in the cost report up-to-date and accurate? What are the business plans for the CAH? If no immediate changes in operations, costs, or revenue are planned, what departments should we focus on if all we had for information was the cost-to-charge ratios of the ancillary departments? Next steps to consider: High cost-to-charge ratio departments How do the cost-to-charge ratios compare to the prior year ratios Payor mix of high cost-to-charge ratio departments Profitability by payor Wipfli LLP 31

33 Wipfli LLP 32

34 CAH Reimbursement Tool for Decision Making Know What Portion of Each Department is Cost-Based Reimbursed Do you have a CAH Tool? Wipfli LLP 33

35 CAH Reimbursement Tool for Decision Making Medicare Cost- THE TOOL Medicaid Based Department Utilization Reimb. Capital - Building 40% Capital - Equipment various Employee Benefits 40% Admin & General 50% Operation of Plant 30% Laundry & Linen 15% Housekeeping 30% Dietary 15% Cafeteria 40% Nursing Admin 20% Medical Records 60% Social Services 5% Adults & Peds 75% 75% Intensive Care Unit 90% 90% Nursery 70% 70% SNF 60% 0% Operating Room 45% 45% Labor & Delivery 70% 70% Anesthesiology 45% 45% Radiology 47% 47% Laboratory 60% 60% Respiratory Therapy 80% 80% Physical Therapy 60% 60% Occupational Therapy 90% 90% Speech Therapy 30% 30% Electrocardiology 80% 80% Med Supply 40% 40% Pharmacy 60% 60% Emergency 25% 25% Observation Beds 80% 80% Rural Health Clinic 50% 35% Home Health 90% 0% Physician Clinic 40% 0% Wipfli LLP 34

36 CAH Reimbursement Tool for Decision Making Where would you want to expense the EHR expense that was not eligible for the incentive payment? Capital reimbursement is 40%. Medical Records is 60%. Medicare Cost- THE TOOL Medicaid Based Department Utilization Reimb. Capital - Building 40% Capital - Equipment various Employee Benefits 40% Admin & General 50% Operation of Plant 30% Laundry & Linen 15% Housekeeping 30% Dietary 15% Cafeteria 40% Nursing Admin 20% Medical Records 60% Social Services 5% Adults & Peds 75% 75% Intensive Care Unit 90% 90% Nursery 70% 70% SNF 60% 0% Operating Room 45% 45% Labor & Delivery 70% 70% Anesthesiology 45% 45% Radiology 47% 47% Laboratory 60% 60% Respiratory Therapy 80% 80% Physical Therapy 60% 60% Occupational Therapy 90% 90% Speech Therapy 30% 30% Electrocardiology 80% 80% Med Supply 40% 40% Pharmacy 60% 60% Emergency 25% 25% Observation Beds 80% 80% Rural Health Clinic 50% 35% Home Health 90% 0% Physician Clinic 40% 0% Wipfli LLP 35

37 CAH Reimbursement Tool for Decision Making Where would you want to expense new patient beds? Adults and Peds = 75% ICU = 90% Medicare Cost- THE TOOL Medicaid Based Department Utilization Reimb. Capital - Building 40% Capital - Equipment various Employee Benefits 40% Admin & General 50% Operation of Plant 30% Laundry & Linen 15% Housekeeping 30% Dietary 15% Cafeteria 40% Nursing Admin 20% Medical Records 60% Social Services 5% Adults & Peds 75% 75% Intensive Care Unit 90% 90% Nursery 70% 70% SNF 60% 0% Operating Room 45% 45% Labor & Delivery 70% 70% Anesthesiology 45% 45% Radiology 47% 47% Laboratory 60% 60% Respiratory Therapy 80% 80% Physical Therapy 60% 60% Occupational Therapy 90% 90% Speech Therapy 30% 30% Electrocardiology 80% 80% Med Supply 40% 40% Pharmacy 60% 60% Emergency 25% 25% Observation Beds 80% 80% Rural Health Clinic 50% 35% Home Health 90% 0% Physician Clinic 40% 0% Wipfli LLP 36

38 CAH Reimbursement Tool for Decision Making Where would you want to expense new patient monitors? Adults and Peds = 75% ER = 25% Medicare Cost- THE TOOL Medicaid Based Department Utilization Reimb. Capital - Building 40% Capital - Equipment various Employee Benefits 40% Admin & General 50% Operation of Plant 30% Laundry & Linen 15% Housekeeping 30% Dietary 15% Cafeteria 40% Nursing Admin 20% Medical Records 60% Social Services 5% Adults & Peds 75% 75% Intensive Care Unit 90% 90% Nursery 70% 70% SNF 60% 0% Operating Room 45% 45% Labor & Delivery 70% 70% Anesthesiology 45% 45% Radiology 47% 47% Laboratory 60% 60% Respiratory Therapy 80% 80% Physical Therapy 60% 60% Occupational Therapy 90% 90% Speech Therapy 30% 30% Electrocardiology 80% 80% Med Supply 40% 40% Pharmacy 60% 60% Emergency 25% 25% Observation Beds 80% 80% Rural Health Clinic 50% 35% Home Health 90% 0% Physician Clinic 40% 0% Wipfli LLP 37

39 CAH Reimbursement Tool for Decision Making Given the option, where would you want to expense any new purchases? Adults and Peds/ICU = 75%-90% Majority of all other cost centers < Adults and Ped/ICU% Medicare Cost- THE TOOL Medicaid Based Department Utilization Reimb. Capital - Building 40% Capital - Equipment various Employee Benefits 40% Admin & General 50% Operation of Plant 30% Laundry & Linen 15% Housekeeping 30% Dietary 15% Cafeteria 40% Nursing Admin 20% Medical Records 60% Social Services 5% Adults & Peds 75% 75% Intensive Care Unit 90% 90% Nursery 70% 70% SNF 60% 0% Operating Room 45% 45% Labor & Delivery 70% 70% Anesthesiology 45% 45% Radiology 47% 47% Laboratory 60% 60% Respiratory Therapy 80% 80% Physical Therapy 60% 60% Occupational Therapy 90% 90% Speech Therapy 30% 30% Electrocardiology 80% 80% Med Supply 40% 40% Pharmacy 60% 60% Emergency 25% 25% Observation Beds 80% 80% Rural Health Clinic 50% 35% Home Health 90% 0% Physician Clinic 40% 0% Wipfli LLP 38

40 Wipfli LLP

41 Contribution Margin When looking at contribution margins remember to evaluate all factors Wipfli LLP 40

42 Contribution Margin Calculating Contribution Margin for Hospital Departments #1 Challenge How do you determine contractual adjustments by department? While it is not perfect... One option is to use an average contractual adjustment percent from Medicare cost report Worksheet G-3 Wipfli LLP 41

43 Contribution Margin Average Contractual Adjustment % Total gross patient service revenue (Wkst G-3, Line 1) $ 119,149,800 $ 126,727,900 $ 144,677,900 Total contractual adjustments (Wkst G-3, Line 2) $ 58,169,500 $ 61,925,800 $ 75,053,800 C/A % 48.8% 48.9% 51.9% Wipfli LLP 42

44 Contribution Margin Radiology Department Medicare Cost Report Reference Revenue: Wkst. C, Part 1, Col 8, Line 54 Radiology revenue $ 16,693,100 $ 17,915,200 $ 19,845,400 From Internal Records * Less: - C/A & discounts 8,149,700 8,754,300 10,295,100 Subtotals Net Radiology revenue 8,543,400 9,160,900 9,550,300 Expenses: Wkst. A, Col 1, Line 54 Direct salary expense 1,261,700 1,294,500 1,397,400 Wkst. A, Col 2, Line 54 Direct other expense 1,094,600 1,153,900 1,091,400 Wkst. B, Part I, Col 4, Line 54 Employee benefits 202, , ,000 Subtotals Total direct expenses 2,558,900 2,650,900 2,726,800 *Or calculated average Contribution margin $ 5,984, % $ 6,510, % $ 6,823, % Contractual adjustment % Considerations: Cost report excludes professional revenue and expense Other information to consider: FTEs and volume statistics What other items should a CAH consider if the radiology department manager would suggest lowering prices? Wipfli LLP 43

45 Contribution Margin Physical Therapy Department Medicare Cost Report Reference Revenue: Wkst. C, Part 1, Col 8, Line 66 PT revenue $ 3,261,400 $ 3,184,400 $ 3,952,500 From Internal Records * Less: - C/A & discounts 1,591,600 1,557,200 2,051,300 Subtotals Net ER revenue 1,669,800 1,627,200 1,901,200 Expenses: Wkst. A, Col 1, Line 66 Direct salary expense 545, , ,900 Wkst. A, Col 2, Line 66 Direct other expense 156, , ,700 Wkst. B, Part I, Col 4, Line 66 Employee benefits 87,600 85, ,500 Subtotals Total direct expenses 789, , ,100 *Or calculated average Contribution margin $ 880, % $ 789, % $ 974, % Question: If the hospital would contract PT services to a nursing home, how could this analysis be used to assist with structuring a rate? Wipfli LLP 44

46 Contribution Margin There s not a magic contribution margin: Contribution margin depends on your operations and charge structure. Within a hospital, we would expect the contribution margin to stay relatively similar to prior periods or understand why any changes have occurred. Wipfli LLP 45

47 Summary Dust off your Medicare Cost report Wipfli LLP 46

48 Questions? Wipfli LLP 47

49 Thank You Contact Information Holly Pokrandt Wipfli LLP 3703 Oakwood Hills Pkwy. P.O. Box 690 Eau Claire, WI Paul Traczek Wipfli LLP 3703 Oakwood Hills Pkwy. P.O. Box 690 Eau Claire, WI Wipfli LLP 48

50 49 Wipfli LLP

The Medicare Cost Report: A Tool for Decision Making and Strategic Development

2014 MEGA Conference The Medicare Cost Report: A Tool for Decision Making and Strategic Development January 30, 2014 10:30 a.m. 12:00 p.m. Date or subtitle Kathy LaBrake, CPA, Partner Holly Pokrandt, CPA,