8/16/2011 1 The Importance of the FQHC Medicare Cost Report in Calculating Your PPS Rate Presented by: Michael Holton, Manager, Health Care Services Groupc [email protected]ober 12, 2006 Tennessee Primary Care Association Leadership Conference August 18, 2011 1 This session is intended to familiarize participants with the theory behind the preparation of Cost Reports. Understand the steps involved in preparing a Cost Report. Will review recommended preparatory reports and guidelines, with an emphasis on providing an improved understanding of how a health center arrives at their calculated cost per visit. Look at how the FQHC Medicare cost report can be used to determine PPS rates Goals of Section
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8/16/2011
1
The Importance of the FQHC Medicare Cost Report in Calculating Your PPS Rate
Presented by: Michael Holton, Manager, Health Care Services [email protected] 12, 2006
Tennessee Primary Care Association
Leadership ConferenceAugust 18, 2011
1
This session is intended to familiarize participants with the theory behindthe preparation of Cost Reports.
Understand the steps involved in preparing a Cost Report.
Will review recommended preparatory reports and guidelines, with anemphasis on providing an improved understanding of how a health centerarrives at their calculated cost per visit.
Look at how the FQHC Medicare cost report can be used to determine PPSrates
Goals of Section
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ALLOWABLE COSTS
BILLABLE VISITS___________________
= ALL-INCLUSIVE RATE
POSSIBLECAPS
POSSIBLE CEILINGS
POSSIBLE PRODUCTIVITY
SCREENS
All-Inclusive Rate Methodology
1. Based on the All-Inclusive Allowable Cost of Providing Covered Services
2. Defining Covered and Non-Covered Services
3. Defining Allowable Cost for Covered Services
4. Allocation of Cost to All Services
Principles of Cost-Based Reimbursement
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• Physician Services
• Services and supplies incident to physician services (including drugs and biologicals that cannot be self administered)
• Pneumococcal vaccine and its administrations and influenza vaccine and its administration
• Physician Assistant services
• Nurse practitioner services
• Clinical Psychologist services
• Clinical Social Worker Services
• Services and supplies incident to clinical psychologist and clinical social worker services as would otherwise be covered if furnished by or incident to physician services
• In the case of those FQHC’s that are located in an area that has a shortage of home health agencies, part-time or intermittent nursing care and related medical supplies to a homebound individual
• Any other ambulatory service included in a state’s Medicaid plan if the FQHC offers such a service (e.g. dental, pharmacy).
• EPSDT screening, diagnosis, and treatment (including federally reimbursable medically necessary services regardless of coverage in state’s Medicaid plan)
Preventive Services
Core Services
M
E
D
M I
E C
D A
I R
C E
A
I
D
“Other Ambi’s”
FQHC Covered Services
Services and Supplies Incident to….
Services and supplies incident to a physician's professional services are covered FQHC services as long as they are:
• Furnished as an incidental, although integral, part of a physician's professional services;
• Of a type commonly rendered either without charge or included in the RHC or FQHC’s bill;
• Services provided by clinic employees other than those nonphysicianpractitioners listed in §30.1 (PA/NP/CNM and CP/CSW), furnished under the direct, personal supervision of a physician;
• Covered FQHC services provided by clinic employees furnished under the direct, personal supervision of a physician; and
• Furnished by a member of the clinic or center’s staff who is an employee of the clinic or center
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Services and Supplies Incident to….
Incidental and Integral Part of Physician’s Professional Services
• Services and supplies incident to a physician’s professional services are covered as FQHC services as long as they are an integral, although, incidental, part of the physician's personal professional services in the course of diagnosis or treatment of an injury or illness. In other words, there must be a physician’s personal service rendered to which the nonphysican’s service (or the supply) is an incidental, although integral part.
• This requirement is also met for nonphysician services furnished during a course of treatment in which the physician performs an initial and subsequent service with a frequency which reflects his or her active participation in and management of the course of treatment.
• Although incident to services are covered, they are covered as part of an otherwise billable encounter. If no medically necessary face-to-face encounter with a physician or midlevel practitioner, CP or CSW has also occurred during the visit with the incident to staff then no encounter can be billed.
Total Costs of Operation includes:
Direct Costs
• Covered Costs - Cost Related to the Direct Services of Providers Covered by the Program as well as Services Incident to a Provider’s Visit
• Non-Covered Costs - Direct Costs Relating to Provision of Services Not Covered by the Program
Indirect Costs
• Overhead Costs and Administrative Costs
Total Costs
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Allowable Costs
• Provider’s ACTUAL COSTS for Furnishing the Covered Services PLUS the Appropriate ADMINISTRATIVE and OVERHEAD COSTS related to the Covered Services
Reasonable Costs
• Allowable Costs with “Tests of Reasonableness” applied
Unallowable Expenses and Adjustments• Donated Services, Bad Debt, etc.• Income Offsets - Rent, Interest, etc.
Other Eliminations• Out of Scope Sites• Other carve outs (Provider, Service, Site)
Non-Covered Service Cost• WIC, Research, Group/Mass Education, Environment, etc.
Reducing Total Cost to Allowable Cost
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• Bad debt expense
• Transactions with related parties
• Donated services
• Income offsets
• Outside contracted ancillary services (if contractor bills Medicare directly and bills FQHC for non-Medicare patients)
• Service carve-outs(?)
Examples of Common Adjustments
Total Cost $110
Less: Overhead Costs 10
Total Direct Costs 100
Less: Non-Covered Direct
• Research $4• WIC 6
10
Total Covered Direct Costs 90
Covered Overhead [(90/100)*($10)] 9
TOTAL ALLOWED COSTS $ 99
Elimination of Non-Covered Services
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Types of Units of Service:
• Procedures
• Encounters
• Visits• Allowable• Billable
Billable Visits
Medicare/Medicaid often apply productivity standards to provider FTEs to determine a reasonable level of billable visits to be used in the rate equation.
If the visits imputed by applying the productivity standards to reported FTEs are greater than the actual visits reported, the imputed visits will be used in the rate equation, effectively reducing the rate.
Medicare standards:Physicians = 4,200 per FTEMidlevels = 2,100 per FTE
Productivity Screens
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• Medicare and Medicaid often require that centers report the number of FTEs for each provider category listed (e.g. Worksheet B, Part I).
• An FTE for cost reporting purposes is often defined as the number of hours worked in relation to the total possible number of hours an employee can work at the Center for a given year.
Full Time Equivalent (FTE) Calculation
Assuming a Center’s standard work week is 40 hours, 52 weeks a year, the total number of hours an employee can work is 2,080.
Thus, an employee who worked 1,800 hours during the year has an FTE of .87 calculated as follows:
Total hours worked during year 1,800
Total possible hours worked 2,080
Full Time Equivalent (FTE) Calculation
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Medicare guidelines state that a provider’s FTE must be reduced by all administrative and non-worked days (vacation, sick, personal, etc.) for reporting purposes. Thus, our providers FTE of .87 must be further reduced as follows:
Vacation hours 80
Sick hours 16
Holiday hours 48
CME hours 56
Administrative Duties 32
Total Non-Work Hours 232
Full Time Equivalent (FTE) Calculation
The new FTE for this provider is thus calculated as follows:
Total Hours Compensated 1,800
Less: Non-Work Hours 232
Total Hours Worked 1,568
Total Hours Worked 1,568
Total Possible Hours 2,080= .75 FTE
Full Time Equivalent (FTE) Calculation
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The following data should be referenced as you prepare theCost Report:
• Health Center’s Trial Balance
• All Staff Salaries and Consultant Fees - including jobtitles and FTEs
• Total Visits by Provider
Necessary Information for Completion of a Cost Report
• To accurately account for total compensation paid for the reporting year, aSalary/FTE worksheet should be prepared listing all employees salarieson a spreadsheet with employee’s job title, compensation and hoursworked.
• Determination of an employee’s FTE is critical• Based on hours worked versus paid?
• The Payroll Department would be the data source to refer to for thenecessary data elements.
Step One: Salary/FTE Worksheet
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If FTE is based on Hours “Worked”, an employee’s FTE will be calculated based on Total Hours Paid less vacation, sick days, holidays, and CME hours.
Name Job Title Salary Hours Paid Vacation Sick Holiday CME HoursTotal Hours
For reference purposes, every employee should be assigned a “line number”.For consistency in reporting and ease of data entry, follow the Cost Centerline numbers used in Expense Worksheet (e.g. Worksheet A of the MedicareC/R).
Name Job Title Salary Hours Paid Vacation Sick Holiday CME HoursTotal Hours
Once you have the salaries and FTEs listed, the worksheetshould be rolled up to a total salary and FTE for each linenumber.
The summary line numbers are then compared with the healthcenter’s general ledger to identify any differences. Anydifferences in salaries should be allocated on the worksheet.Differences may occur due to accrued vacation, etc.
Account for Difference Allocation
Salary & Wages per G/L: 1,140,000Fringe Benefits: 200,000 Difference 1,140,000
Line No Description Category Amount FTE Allocation Total1,130,000 18.75 10,000 1,140,000
The final step to completing the Salary/FTE Worksheet would be theallocation of fringe benefits among employees. Allocation of fringebenefits is based on a percentage of each salary line to the total salaries.
Salary & Wages per G/L: 1,140,000
Fringe Benefits: 200,000 Difference 1,140,000 Fringe Line No Description Category Amount FTE Allocation Total Allocation
The other category of expense that must be itemized is the OtherThan Personal Services (OTPS). The health center’s trial balanceneeds to be broken down by line item of the Cost Report.
Account # or ExpenseLead Sheet # Expense Description Amount Line Description $
• Interest and miscellaneous income will need to be offsetagainst any interest and miscellaneous expense.
• Woman Infants & Children Program
• Outside contracted radiology and laboratory
• Bad Debt Expense
Data Entry-Expense Adjustments
The Reclassification column is often used to reallocate expenses to specificcost centers on a Cost Report, consistent with cost reporting rules, that arecombined on the health center’s trial balance. A common type ofreclassification is fringe benefits. The reclassification of fringe benefits istypically based on the cost center’s percentage of salaries & wages to totalsalaries & wages.
To check that all cost centers have been accounted for, the reclassificationcolumn should zero out. If the cost report has a Reclassification worksheet(e.g. Worksheet A-1 on the Medicare cost report), this worksheet shouldalso be reconciled to the Reclassification column.
Step Four: Reclassifications-Explanation of Entry
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For each line item that an adjustment was made, preparation of a detailedexplanation is typically required, including an indication of which generalledger account the expense amount is adjusted out of. For example,Worksheet A-2 of the Medicare Cost Report.
Step Five: Summary of All Adjustments
For any “related” organization that a health center incurs financialtransactions, additional disclosure is typically required includingorganization information and actual cost of providing the service to therelated organization (e.g. Supplemental Worksheet A –2 of the MedicareCost Report).
Common examples of such an arrangement include the following:• Rental Expense• Information Technology consultation and/or support• Administrative Management
Step Six: Disclosure of Transactions with Related Organizations
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Visits and Productivity provides a picture of the level of the Center’sprovider productivity compared to FQHC standards.
Completion of this schedule requires a “billable visit” report of all medicalproviders, including contracted physicians. Generally, this report can begenerated from the health center’s billing system.
Provider FTEs can be obtained from the Salary/FTE Worksheet.
Step Seven: Visits and Productivity
This worksheet is used to determine the total allowable cost per visitapplicable to RHC/FQHC services. Typically, overhead is allocated toallowable direct costs, to arrive at the amount of reimbursable costs.
Total Costs/Adjusted Visits = Adjusted Cost Per Visit
This worksheet can be used as an analytical tool by management incomparing direct health center cash, non-reimbursable, and overhead withthe prior year Medicare Cost Report.
Step Eight: Determination of Rate for RHC/FQHC Services
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Medicaid Services Line No.Cost col 7
Less Additional Adjustments Sub Total
Allocate Facility Overhead After Facility Overhead After Admin Overhead Total Costs Units of Service* Cost per Unit