A saved is a $ saved
Understanding Critical Access Hospital Medicare Reimbursement
Southeastern Critical Access Hospital Conference
Savannah, GeorgiaMarch 24, 2011
The $1,000,000
solution
MEMO To: All Hospital Staff From: Administration/Grounds keeping Subject: New Cost Cutting Measures
Effective immediately, this hospital will no longer provide security. Each charge nurse will be issued a .38 caliber revolver and 12 rounds of ammunition. An additional 12 rounds will be stored in pharmacy. In addition to routine nursing duties, Charge Nurses will rotate the patrolling of the hospital grounds. A bicycle and helmet will be provided for patrolling the parking areas.
In light of the similarity of monitoring equipment, ICU will now take over the security surveillance duties. The ward clerk will be responsible for watching cardiac monitors and security monitors as well as regular duties.
Food service will be discontinued. Patients wishing to be fed will need to let their families know to bring something or may make arrangements with Subway or Pizza Hut to deliver. Coin-operated telephones will be available in patient rooms for this purpose as well as for other calls the patient may wish to make.
Housekeeping and Physical Therapy will be combined. Mops will be issued to those patients who are ambulatory, thus providing range of motion exercises as well as a clean environment. Families and ambulatory patients may also sign up to clean the rooms of non-ambulatory patients for special discounts on their final bill. Time cards will be provided.
Hospital administration is assuming the grounds keeping duties. If an administrator cannot be reached by calling his/her office, it is suggested that you walk outside and listen for the sound of a lawnmower, weed-whacker, etc.
Maintenance is being eliminated. The hospital has subscribed to the Time-Life "How to..." series of maintenance books. These can be checked out from administration, and a toolbox will be standard equipment on all nursing units. We will be receiving the series at a rate of one volume every other month. We already have the volume on "Basic Wiring", but if a non-electrical problem occurs, please try to handle it as best you can until the appropriate volume arrives.
Cutbacks in phlebotomy staff will be accommodated by only performing blood-related tests on patients who are already bleeding.
Physicians will be informed that they may order no more than two X-rays per patient stay. This is due to the turn-around time required by Walmart. Two prints will be provided for the price of one, and physicians are being advised to clip coupons from the Sunday paper if they want extra sets. Walmart will also honor competitors’ coupons for one-hour processing in emergency situations, so if you come across any extra coupons please clip out and send these to ER.
In view of the hot summer temperatures, the Utilities Dept. has been asked to install individual meters in each patient room, office, etc., so that electrical consumption can be monitored and appropriately billed. Fans will be available for sale or lease in the hospital gift shop.
In addition to the current recycling programs, a bin for collection of unused fruit and bread will soon be provided on each floor. Families, patients, and the few remaining employees are asked to contribute discarded produce. Pharmacy will utilize this for antibiotic production. These will be available for purchase and, coincidentally, will soon be the only antibiotics on our HMO's formulary.
Now go out and save some money!
Seriously now, let’s talk about Medicare
payments!
There are two key factors in Medicare CAH reimbursement
• Interim payments• Final cost report settlements
Interim payments can get the CAH in financial trouble?
Huh?
Terminology
• INTERIM PAYMENTSoThe amount of payment the facility
receives related to daily billings to Medicare/Medicaid for services rendered to patients• Inpatient• Swing bed• Outpatient
Interim Payment Methods
• INPATIENTo Payment made based on a specific daily rateo Specific daily rate based on most recently filed cost
report OR MAC interim calculationo Components:
Routine cost 1,047$ Ancillary cost 234
Total daily rate 1,281$
Interim Payment Methods
• SWINGBEDo Payment made based on a specific daily rateo Specific daily rate based on most recently filed cost
report OR MAC interim calculationo Components:
Routine cost 1,047$ Ancillary cost 147
Total daily rate 1,194$
Interim Payment Methods
• OUTPATIENTo Payment made based on aggregate Medicare
outpatient cost to charge ratioo Typically based on most recently filed cost report OR
MAC interim calculationo Calculation:
Cost Charges CCR
Medicare 3,363,064$ ÷ 6,609,237$ = 51%
Prior Year
Interim Rate
Final payment
• The final payment the CAH receives on patient claims is made after the cost report is prepared.
• The final payment amount is compared to the interim payments and a settlement is computed.
Settlement
• COST REPORT SETTLEMENToAmounts received from or paid to the
MAC or Medicaid Intermediary as a result of the annual cost report settlement computation
oReceivable – cash inflowoPayable – cash outflow
Cost report settlement
Inpatient Swingbed Outpatient Total
Reimbursable cost @ 1,683,219 377,251 3,118,769 5,179,239
Medicare bad debts 29,864 - 69,428 99,292
Amount Due to Hospital 1,713,083 377,251 3,188,197 5,278,531
Patient responsibility (268,736) (9,078) (915,301) (1,193,115)
Primary payor payments - - (1,212) (1,212)
Interim payments & (1,256,992) (314,810) (1,971,363) (3,543,165)
Cost report settlement 187,355 53,363 300,321 541,039
@ - Includes 1% add-on& - Includes any pass through, lump sum or advance recovery payments
MEDICARE
Impact of charge and expense fluctuations
You’ve Got to be Kidding Me?
Questions
• Does reducing your expenses cost you money?
• Does reducing your expenses automatically result in a payback to Medicare?
• Should you increase expenses to avoid a payback to Medicare?
• Should you increase charges? • Is a payback to Medicare an indication of
poor management?
When the cost report was filed, it was determined that Medicare utilization was 60%, therefore Medicare will pay 60% of the total hospital costs.
Medicare utilization determines Medicare’s FINAL payment
amounts
Interim payments
• Inpatient interim payments are based on the prior year’s cost per day including room and ancillary services.
• Outpatient interim payments are based on the relationship between costs and charges from the prior year’s report. This is called a cost to charge ratio.
Cost to charge ratios determine interim payments
In this example, the cost to charge ratio is 95%.
Costs = $95,000 Charges = $100,000$95,000 / $100,000 = 95%
Why use cost to charge ratios?
• The cost report is not completed until AFTER the hospital’s year end.
• So Medicare does not what the total hospital costs are, nor its utilization percentage.
• So how does Medicare know what to pay on the bills submitted during the year?
• The payments are based on the information from the prior year’s cost report.
Cost to charge ratios
• The cost to charge ratio is used for interim outpatient payments.
• The ratio is used to convert charges on a UB claim form to estimated costs.
Lab $ 500OR 900
Med Supp 200Drugs 200 Total $1800
Cost to charge ratio = 95%
$1,800 * 95% = $1,710 interim payment amount
The cash flow trap
• What if the CAH’s costs change from last year?• What if the CAH’s charges change from last year?• What if the CAH’s Medicare utilization changes
from last year?
The CAH may find itself owing money back to Medicare!
The cash flow trap
• Since interim payments are based on last year’s charges, costs, and utilization any changes in these areas can cause either under or over payments!
• Hospital executives may think cash flow is great, only to have a giant headache once the cost report is filed.
How can this happen?
• We’ll spend some time looking at several scenarios to highlight how these changes affect Medicare payments.
Baseline information
Scenario 1 – Prior year’s cost report
Total Costs = $10Total Charges = $10Cost to charge ratio = 100%Medicare utilization = 50%
* Assume 50% of patients are Medicare
What happens if costs are reduced?
*Medicare Medicare
Scenario Cost Charges CCR Charges Cost
1 10$ ÷ 10$ = 100% x 5$ = 5$ 2 8$ ÷ 10$ = 80% x 5$ = 4$
*Medicare Medicare
Scenario Cost Charges CCR Charges Cost
1 10$ ÷ 10$ = 100% x 5$ = 5$ 2 8$ ÷ 10$ = 80% x 5$ = 4$ 3 6$ ÷ 10$ = 60% x 5$ = 3$
* Assume 50% of patients are Medicare
What happens if costs are reduced?
Are you being penalized for reducing costs?
* Assume 50% of patients are Medicare
Here’s the dilemma!
MAC’s time lag in adjusting interim payments
Here’s your dilemma!
* Medicare PaybackMedicare Medicare Interim to
Year Cost Charges CCR Charges Cost Payments Medicare
1 10$ ÷ 10$ = 100% x 5$ = 5$ - 5$ = -$ 2 8$ ÷ 10$ = 80% x 5$ = 4$ - 5$ = (1)$ 3 6$ ÷ 10$ = 60% x 5$ = 3$ - 4$ = (1)$
* Medicare PaybackMedicare Medicare Interim to
Scenario Cost Charges CCR Charges Cost Payments Medicare
1 10$ ÷ 10$ = 100% x 5$ = 5$ - 5$ = -$ 2 8$ ÷ 10$ = 80% x 5$ = 4$ - 5$ = (1)$ 3 6$ ÷ 10$ = 60% x 5$ = 3$ - 5$ = (2)$
* Assume 50% of patients are Medicare
Here’s the dilemma!(Cost reductions within the same year)
MAC’s time lag in adjusting interim payments
Here’s your dilemma!
*Medicare Other Sources
Total Share of Share ofScenario Cost Cost Cost
1 10$ - 5$ = 5$ 2 8$ - 4$ = 4$ 3 6$ - 3$ = 3$
* Assume 50% of patients are Medicare
If we reduce costs – who pays for the non-Medicare costs?
Reduces pressure on sources available to pay remaining cost – • Medicaid?• Commercial?• Self pay?• County Subsidy?
* Assume 50% of patients are Medicare
What happens if costs are
increased?
* Medicare ReceivableMedicare Medicare Interim from
Scenario Cost Charges CCR Charges Cost Payments Medicare
1 10$ ÷ 10$ = 100% x 5$ = 5$ - 5$ = -$
* Medicare ReceivableMedicare Medicare Interim from
Scenario Cost Charges CCR Charges Cost Payments Medicare
1 10$ ÷ 10$ = 100% x 5$ = 5$ - 5$ = -$ 2 12$ ÷ 10$ = 120% x 5$ = 6$ - 5$ = 1$
* Assume 50% of patients are Medicare
What happens if costs are
increased?
* Medicare ReceivableMedicare Medicare Interim from
Scenario Cost Charges CCR Charges Cost Payments Medicare
1 10$ ÷ 10$ = 100% x 5$ = 5$ - 5$ = -$ 2 12$ ÷ 10$ = 120% x 5$ = 6$ - 5$ = 1$ 3 14$ ÷ 10$ = 140% x 5$ = 7$ - 5$ = 2$
* Assume 50% of patients are Medicare
Are you being rewarded for increasing costs?
What happens if costs are
increased?
*Medicare Other Sources
Total Share of Share ofScenario Cost Cost Cost
1 10$ - 5$ = 5$ 2 12$ - 6$ = 6$ 3 14$ - 7$ = 7$
* Assume 50% of patients are Medicare
Increases pressure on sources available to pay remaining cost – • Medicaid?• Commercial?• Self pay?• County Subsidy?
If we increase costs – who pays for the non-Medicare costs?
Impact of increased CHARGE on Medicare costs
* Assume 50% of patients are Medicare
*Medicare Medicare
Scenario Cost Charges CCR Charges Cost
1 10$ ÷ 10$ = 100% x 5$ = 5$ 2 10$ ÷ 20$ = 50% x 10$ = 5$ 3 10$ ÷ 40$ = 25% x 20$ = 5$
45
Impact of increased charges on patient responsibility
10%Increase in
Description Base Charges
Total Hospital charges 10,000,000$ 11,000,000$ Total Hospital expense 6,000,000 6,000,000 Cost to Charge Ratio 60% 55%
Medicare Charges 5,000,000$ 5,500,000$ X Cost to Charge Ratio 60% 55%= Medicare Gross Reimbursement 3,000,000 3,000,000
- Amount Due from Patient:20% Coinsurance (1,000,000) (1,100,000)
Amount Due from Medicare 2,000,000$ 1,900,000$
Medicare Medicare MedicarePatients Cost Charges CCR Charges Pays
50% 10$ ÷ 10$ = 100% x 5$ = 5$
What if the Medicare patient population declines?
Assume cost and charges remain stable
Medicare Medicare MedicarePatients Cost Charges CCR Charges Pays
50% 10$ ÷ 10$ = 100% x 5$ = 5$ 40% 10$ ÷ 10$ = 100% x 4$ = 4$
What if the Medicare patient population declines?
Assume cost and charges remain stable
Medicare Medicare MedicarePatients Cost Charges CCR Charges Pays
50% 10$ ÷ 10$ = 100% x 5$ = 5$ 40% 10$ ÷ 10$ = 100% x 4$ = 4$
What if the Medicare patient population declines?
Assume cost and charges remain stable
Why is this soooo difficult?
10 11 12 1 2 3 4 5 6 7 8 9 100
150
200
250
300
REVENUES DAYS EXPENSES
Units
Recap – expense fluctuations
Increase in expenses Decrease in expenses• Total $’s spent
increase• Total $’s from
Medicare increase• Increase likelihood of
cost report receivable• Pressure to recover
additional costs from other payers
• Total $’s spent decrease• Total $’s from Medicare
decrease• Increase likelihood of
cost report payable• Reduction in costs to
recover from other payers
Presuming all other factors are stable.
Recap – charge fluctuations
Increase in charges Decrease in charges• Perfect World - No
impact on $’s from Medicare
• Real World – Increase likelihood of cost report payable
• Increases patient co-insuranceo Potential slow down in related
cash collections
• Increase $’s from charge-based payers
• Perfect World - No impact on $’s from Medicare
• Real World – Increase likelihood of cost report receivable
• Decreases patient co-insurance
• Decreases $’s from charge-based payers
Presuming all other factors are stable.
Recap – Medicare utilization fluctuations
Increase in utilizationDecrease in utilization
• Increase in $’s from Medicare
• Reduction in costs to recover from other payers
• Decrease in $’s from Medicare
• Pressure to recover additional costs from other payers
Presuming all other factors are stable.
Bottom line!
• You must be aware of significant changes in charges, costs and payer mix from prior year!
• If significant, model cost report impact.
