Revenue Cycle Impact on Medicare Cost Reports September 16, 2014

Revenue Cycle Impact on Medicare Cost Reports September 16, 2014 Mike Nichols, Partner, McGladrey LLP

Mike Nichols, CPA, FHFMA 32 years of health care experience - Cost reporting (auditing, preparing, reviewing) - Contractual allowance and settlement analysis determinations - Reimbursement opportunities and strategies McGladrey LLP - Healthcare Advisory Services - Partner (health care consulting) HFMA - First Illinois Chapter - Past President - 2013-2014 Regional Executive Region 7 1

Description Explore the key drivers of Medicare reimbursement that are directly connected to information developed through a hospital s revenue cycle function, and learn how and where this information is used within the cost report 2

After This Session, You Will be Able to Describe the importance of collaboration between a hospital s revenue cycle and reimbursement functions Recognize the importance of collaboration necessary to produce a compliant and accurate Medicare cost report Identify the significance of patient day accumulation, observation status and uncompensated care reporting 3

Tools and Takeaways Revenue cycle KPIs reflected in the cost report data National cost/charge ratio information based on FY14 rule Medicare bad debt documentation Medicare bad debt work plan Uncompensated care definitions Charity care log data elements DSH data elements Medicare margin example 4

Cost Report Certification MISREPRESENTATION OR FALSIFICATION OF ANY INFORMATION CONTAINED IN THIS COST REPORT MAY BE PUNISHABLE BY CRIMINAL, CIVIL AND ADMINISTRATIVE ACTION, FINE AND/OR IMPRISONMENT UNDER FEDERAL LAW. FURTHERMORE, IF SERVICES IDENTIFIED IN THIS REPORT WERE PROVIDED OR PROCURED THROUGH THE PAYMENT DIRECTLY OR INDIRECTLY OF A KICKBACK OR WERE OTHERWISE ILLEGAL OR CRIMINAL, CIVIL AND ADMINISTRATIVE ACTION, FINES AND/OR IMPRISONMENT MAY RESULT. CERTIFICATION BY OFFICER OR ADMINISTRATOR OF PROVIDER(S) I HEREBY CERTIFY that I have read the above certification statement and that I have examined the accompanying cost report and the Balance Sheet and Statement of Revenue and Expenses prepared by HOSPITAL for the cost reporting period and to the best of my knowledge and belief, this report and statement are true, correct, complete and prepared from the books and records of the provider in accordance with applicable instructions, except as noted. I further certify that I am familiar with the laws and regulations regarding the provision of health care services, and that the services identified in this cost report were provided in compliance with such laws and regulations. (Signed) Officer or Administrator of Provider(s) 5

Revenue Cycle and Cost Report Connections 6

Revenue Cycle Definition Revenue management procedures that allow hospital to remain financially sound, both in the short-term and long-term by collecting patient account receivables - Functions Capture Manage and Collect patient revenue - Processes Review patient s financial situation Issue bills Collect payments - Strategies Customer receivable valuation Underpayment recovery Third party payer transactions 7

Revenue Cycle 8

Example Revenue Cycle KPIs 9

Cost Report Uses External (CMS) - Standardized data gathering tool - Determination of program liability on annual basis by hospital - Reconcile interim payments - Comparison of Medicare cost vs. reimbursement - Develop future payment amounts and methodology - Benchmarking across providers - Investigative tool (establish patterns) Internal (provider) - Same as CMS (individual/local/competitive basis) - Operational assessments and management tool - Advocacy and education 10

High Impact Focus Areas 11

Patient Statistics 12

Available Beds S-3 (Patient Access) Medicare term of art that impacts payment calculations - Indirect medical education (PPS) - Disproportionate share - Critical access hospitals - Other special payment situations Patient registration may be responsible for - Bed management - Reporting closed units Understand differences between licensed, operating, staffed and available beds - Licensed: As reported to the state licensure authority (most likely maximum) - Operating or staffed: Actual beds in service impacting staffing decisions and ability to admit more patients (most likely minimum) - Occupied: Actual inpatient census (most likely lowest number) - Available: Medicare term of art applied to all inpatient payment provisions 13

Counting Patient Days (Revenue Capture) Source of patient days - Census - H I M - Revenue & Usage Reports Count patients in an inpatient bed at midnight Two Midnight Rule Exclude patients in an ancillary area at midnight (L&D, ER, X-Ray, etc.) Exclude L&D patients at midnight unless they have already occupied an IP routine bed Medicare days should be filed by discharge date - Since Medicare days are based on discharge date, then so should Total, Medicaid, etc. 14

Patient Days: Observation Days Non-distinct part (scattered site) - Need to accumulate time units (hours; minutes, etc.) based on charging (based on UB04 codes) methodology and convert to equivalent patient days - Observation time in subproviders or ICU should be calculated and reclassified to adults and pediatrics - Post surgical recovery time should be reclassified to where charge is generated (OR; Recovery; ER, etc.) - Use separate mechanism to track compared to distinct part observation Distinct part (defined area) - Will be apportioned based on charges, rather than cost calculated on a per diem - Maintain cost center specific expenses; revenues, program revenues and cost allocation statistics - Ensure not included in adults and pediatrics patient statistics, expenses, revenues and cost allocation statistics - Observation time in subproviders or ICU should be calculated and reclassified to adults and pediatrics - Post surgical recovery time should be reclassified to where charge is generated (OR; Recovery; ER, etc.) but may be billed out of this cost center if this is where cost is incurred - Use separate mechanism to track compared to distinct part observation 15

Uncompensated Care 16

Why Do We Care? Reimbursement professionals often pulled into uncompensated care discussions Cost reports are a HUGE part of the reporting Timely, accurate and complete information is KEY Hospital CFOs should be very interested in this information External users not familiar with the Medicare principles may draw incorrect conclusions from reported data Planning and strategy and public perception Results not likely to improve in near term 17

Uncompensated Care Cost Calculation (Charge Capture and Patient Accounting) Overall cost-to-charge ratio applied to various uncompensated care program changes to impute costs (based on Medicare defined costs) Sum of all elements represents Medicare defined uncompensated care costs Medicaid and other state indigent care payment systems and charity care programs (per collection reports and other sources) Charity reported at charges - Currently used for HIT payment (Both PPS and CAH) - May be used for future DSH calculation - Total patient charges, which include bad debts (i.e., before any write-offs) Bad debt information is for the entire complex (excludes professional component) 18

Cost-to-Charge Ratio Calculation for Uncompensated Care Cost Determination COMPUTATION OF RATIO OF COSTS TO CHARGES WORKSHEET C COSTS CHARGES CCR INPATIENT ROUTINE SERVICE COST CENTERS 30 3000 ADULTS & PEDIATRICS 32,319,460 52,143,871 31 3100 INTENSIVE CARE UNIT 7,741,774 12,483,039 ANCILLARY SERVICE COST CENTERS 50 5000 OPERATING ROOM 17,530,140 56,656,956 0.309408 51 5100 RECOVERY ROOM 2,220,978 10,579,444 0.209933 53 5300 ANESTHESIOLOGY 3,624,963 8,246,576 0.439572 54 5400 RADIOLOGY-DIAGNOSTIC 6,317,322 23,563,235 0.268101 60 6000 LABORATORY 7,800,647 37,763,241 0.206567 64 6400 INTRAVENOUS THERAPY 950,957 1,152,895 0.824843 65 6500 RESPIRATORY THERAPY 2,551,508 8,202,140 0.311078 66 6600 PHYSICAL THERAPY 1,398,615 3,668,721 0.381227 67 6700 OCCUPATIONAL THERAPY 361,811 1,877,488 0.192710 68 6800 SPEECH PATHOLOGY 142,300 620,642 0.229279 69 6900 ELECTROCARDIOLOGY 2,647,912 17,659,179 0.149945 71 7100 MEDICAL SUPPLIES CHARGED TO PATIENTS 560,879 21,054,573 0.026639 72 7200 IMPL. DEV. CHARGED TO PATIENT 14,922,705 49,417,407 0.301973 73 7300 DRUGS CHARGED TO PATIENTS 11,392,841 34,296,166 0.332190 OUTPATIENT SERVICE COST CENTERS 91 9100 EMERGENCY 6,738,714 35,509,712 0.189771 92 9200 OBSERVATION BEDS (NON-DISTINCT PART) 2,976,508 3,724,357 0.799201 OTHER REIMBURSABLE COST CENTERS 200 SUBTOTAL (SEE INSTRUCTIONS) 141,463,277 505,138,544 201 LESS OBSERVATION BEDS 2,976,508 202 TOTAL (SEE INSTRUCTIONS) 138,486,769 505,138,544 0.280048 19

Medicare Definitions Uncompensated Care Uncompensated care Charity care and bad debt which includes non-medicare bad debt and nonreimbursable Medicare bad debt; uncompensated care does not include courtesy allowances or discounts given to patients Charity care Health services for which a hospital demonstrates that the patient is unable to pay; charity care results from a hospital s policy to provide all or a portion of services free of charge to patients who meet certain financial criteria; for Medicare purposes, charity care is not reimbursable, and unpaid amounts associated with charity care are not considered as an allowable Medicare bad debt 20

Medicare Cost Report Definitions Bad Debts Non-Medicare bad debt Health services for which a hospital determines the non-medicare patient has the financial capacity to pay, but the non-medicare patient is unwilling to settle the claims Non-reimbursable Medicare bad debt The amount of allowable Medicare coinsurance and deductibles considered to be uncollectible but are not reimbursed by Medicare under the requirements of 413.89 of the regulations and of Chapter 3 of the Provider Reimbursement Manual Part 1 21

Timing/Recognition Issues: Net Revenue Actual payments received or expected to be received from a payer (including coinsurance payments from the patient) for services delivered during this cost reporting period; net revenue will typically be charges (gross revenue) less contractual allowance 22

Timing/Recognition Issues: Charity Care Criteria Total initial payment obligation of patients who are given a full or partial discount based on the hospital s charity care criteria (measured at full charges) for care delivered during this cost reporting period for the entire facility 23

Timing/Recognition Issues: Bad Debts Total facility (entire hospital complex) charges for bad debts (bad debt expense) written off or expected to be written off on balances owed by patients for services delivered during this cost reporting period; include such charges for all services except physician and other professional services 24

Charity Care Log Essential components for documenting charity care write-offs - Patient name - Hospital identification number - Charity application status - Service from-to dates - Patient days - Primary/secondary payer - Total gross charges - Contractual adjustments - Denied days/changes - Payments - Full or partial charity - Charity write-off amount - Patient amount due after charity discount - Patient payment plan: Yes or no 25

CMS Charity Care Definition Provider may have established before discharge, or within a reasonable time before the current admission, that the beneficiary is either indigent or medically indigent Providers can deem Medicare beneficiaries indigent or medically indigent when such individuals have also been determined eligible for Medicaid as either categorically needy individuals or medically needy individuals, respectively Otherwise, the provider should apply its customary methods for determining the indigence of patients to the case of the Medicare beneficiary under the following guidelines 26

IRS Charity Care Definition: Agrees to Provider s Policy Free or discounted health services provided to individuals who meet the organization s criteria for financial assistance and are thereby deemed unable to pay for all or a portion of the services Charity care does not include - Bad debts or uncollectible charges written off due to the patient s failure to pay - The cost of providing such care - The difference between the cost and revenue for Medicaid (and other means tested programs) - The difference between cost and revenue for Medicare - Any contractual adjustments for any third party payer 27

FASB (GAAP) Definition: Financial Reporting Management s policy for providing charity care, as well as the level of charity care provided shall be disclosed in the financial statements Such disclosure shall be measured based on the direct and indirect costs of providing charity care services Providers may use - Cost accounting system (patient specific analysis) - [Financial statement] cost/charge ratio, applied to charges for charity care - Other methods may be used Separate disclosure for any funds received to offset or subsidize charity services provided by the organization 28

Charity Care Reporting Land Mines Financial statement audit typically done three to four months after year-end Medicare cost report typically due five months after year-end IRS 990 completed and filed up to 11 months after year-end Prepare a reconciliation between the three accrual/irs/cms cost report 29

Action Items for Uncompensated Care Develop worksheet to model S-10 and include formulas, comments and other information regarding the sources and methodology related to the reported data Review and update all hospital policies relating to uncompensated care, charity care, compassionate care, uninsured or underinsured do internal audit Understand how regulatory or internal operational changes may impact reported results Differentiate non-covered services from C/A for Medicaid, SCHIP and state/local indigent care programs Segregate SCHIP/state only claims from Medicaid Update S-10 reported values on a periodic basis and file amended WS S-10 immediately prior to audit 30

Affordable Care Act New Requirements: 501(r) Overview Patient Protection and Affordable Care Act enacted March 23, 2010 Four new requirements: - CHNA - Financial assistance policy - Limitation on charges - Billing and collection practices 31

ACA Requirement #1 Community health needs assessment - First, each hospital facility is required to conduct a community health needs assessment at least once every three tax years - Adopt an implementation strategy to meet the community needs identified through such an assessment (Code Sec. 501(r)(3), as added by the Affordable Care Act) - The assessment process must take into account input from persons who represent the broad interests of the community served by the hospital, including those with special knowledge or expertise of public health issues - Each hospital facility is required to make the assessment widely available 32

ACA Requirement #2 Financial assistance policy - Each hospital facility is required to adopt, implement and widely publicize a written financial assistance policy (Code Sec. 501(r)(4)(A), as added by the Affordable Care Act) - The financial assistance policy must indicate the eligibility criteria for financial assistance and whether such assistance includes free or discounted care - For those eligible for discounted care, the policy must indicate the basis for calculating the amounts that will be billed to such patients - The policy must also indicate how to apply for such assistance - If a hospital does not have a separate billing and collections policy, the financial assistance policy must also indicate what actions the hospital may take in the event of nonpayment, including collections action and reporting to credit agencies 33

ACA Requirement #3 Limitation on charges - Each hospital facility is permitted to bill patients who qualify for financial assistance no more than the amount generally billed to insured patients (Code Sec. 501(r)(5), as added by the Affordable Care Act) - A hospital facility may not use gross charges (i.e., "chargemaster" rates) when billing individuals who qualify for financial assistance 34

ACA Requirement #4 Billing and collection requirements - A hospital facility (or its affiliates) may not undertake certain extraordinary collection actions (even if otherwise permitted by law) against a patient without first making reasonable efforts to inform the patient about the hospital's financial assistance policy and to determine whether the patient is eligible for assistance under the policy (Code Sec. 501(r)(6), as added by the Affordable Care Act) 35

WS C Revenue Capture Strategies 36

Pricing Strategy (Charge Integrity and PFS) Strategic Market Rational Defensible Net Revenue/ Reimbursement Cost 37

Pricing Model (Patient Financial Accounting) Rational pricing strategy Evaluate Hospital s existing cost, market position and managed care contract terms to develop a pricing strategy that identifies opportunities to adjust service prices to optimize net revenue while being competitive in market - Market assessment Market/competitor pricing data to identify market opportunities - Contract/payer environment assessment Understand managed care payer matrix - Financial model Utilize cost/medicare rate data and market data to project future gross and net revenue impact Cost surrogate option Understand existing prices compared to internal cost accounting data and/or Medicare rates Reimbursement-based option Calculate service level price sensitivity for each CDM service code based on payer contract rates Market-based option Use market data to calculate competitor average prices and develop market average data pricing adjustments into financial model - Medicare cost report impact analysis 38

Charge Description Master (CDM) (Charge Integrity) Coding compliance/reporting --- CMS requires all providers to appropriately code and report all services and procedures performed within their organization; it allows them (CMS) and providers to effectively manage patient utilization, health care trends, future payment/rate settings and current financial reimbursement obligations; the following should be addressed to mitigate coding compliance/reporting concerns: - Outdated CPT/HCPCS/modifier/revenue code and description assignments - Outdated pharmacy national drug codes and minimum units charging - Missed facility and/or professional services and procedures charges 39

Charge Description Master (CDM) (Charge Integrity) (cont.) Lost gross and net revenue --- Because recorded revenues are based on procedure/service level charges and contractual reimbursement methodologies, if a CDM is not updated or does not fully reflect the services and procedures being performed, providers are, in fact, experiencing lost revenues; the results of not having an updated CDM on revenues include - Impact to the cost-to-charge ratio for critical access hospitals as a result of the cost-based reimbursement methodology - Missed gross and net revenues for services performed but not reported, e.g., missed facility and procedure charges, reference lab charges, etc. - Pharmaceuticals and supplies may have lost additional net revenues if inappropriately reported without a higher level revenue code, e.g., 636 high cost drugs and 278 implantable supply - If bundling of procedures, equipment and other codes is not appropriately repriced, will lead to lost gross and net revenues 40

Worksheet C: The Bridge (Charge Integrity and PFS) Worksheet C Revenues Cost-to-charge ratios: Fully allocated departmental costs Total department charges = Cost-to-charge ratio for each ancillary department Hint: Set up grouping workpapers to include both costs and charges to eliminate matching errors 41

Worksheet C Issues Objective is to improve how hospitals categorize Medicare charges, total charges and total costs into departments - Mismatch with the CCR - Mismatch between how hospitals categorize on the cost report and how CMS categorizes on MedPAR file 42

National Cost/Charge Ratios Provider CCRs will vary from national National average CCRs from FFY 2014 Proposed Rule Values: - Mark-up formula - Cost center groupings CMS groupings Can this information be used to evaluate pricing strategy beyond Medicare? FY 2014 19 Group CCRs Routine Days 0.500 Intensive Days 0.414 Drugs 0.193 Supplies & Equipment 0.300 Implantable Devices 0.356 Therapy Services 0.356 Laboratory 0.134 Operating Room 0.221 Cardiology 0.130 Cardiac Catheterization 0.136 Radiology 0.171 MRI 0.090 CT Scans 0.045 Emergency Room 0.206 Blood 0.365 Other Services 0.400 Labor & Delivery 0.424 Inhalation Therapy 0.186 Anesthesia 0.119 43

Implantable Devices Did this facility incur and report costs for high cost implantable devices charged to patients? - Charge capture - CDM update - Billing - Documentation - Follow-up 44

Medical Supplies vs. Implantable Devices Medical supplies (UB 270-274; 621-623) (line 71) Implantable devices (UB 275-278; 624) (line 72) - Classify all billable supply costs and charges based on UB codes - Accommodate through general ledger or through an A-6 reclassification based on volume or charges in the revenue usage report Applies to all hospitals 45

Settlement Data 46

Settlement Data Internal Sources (Patient Access, Charge Integrity and PFS) Internal data - Census data (patient days and discharges) Total facility Financial class - Revenue and usage reports Departmental charge distribution Procedure UB04 revenue codes (matching) - Case mix reports Verification of reasonableness of reported volumes 47

Revenue Center Cross Walk UB04 Codes CMS Lines GL Dept # GL Dept Name Revenues by UB Code Percentage Allocation of Each UB Code for Each Department Applied to Paid Data Using PSR Import 48

Settlement Data External Sources PSR Provider statistical and reimbursement report (how often obtained) - Service dates (splits) vs. run dates (update when cost reports are amended or settled) - Provider components - Managed care reports - Included and excluded reports Intermediary correspondence (where are these maintained) - Interim payments (bad debts; GME; organ acquisition) - Rate letters DRG base rates - Per resident amount updates - Cost report due dates and acceptance 49

Disproportionate Share (DSH) 50

Disproportionate Share (DSH) (Patient Access, Charge Capture, Patient Accounting) Hospitals may qualify for an additional payment per discharge for serving a disproportionate share of low income patients DSH adjustment based on two fractions: Medicare fraction (SSI percentage) and Medicaid fraction - Medicare fraction Days of patients entitled to both Medicare Part A and SSI/total days of patients entitled to Medicare Part A; obtained from CMS - Medicaid percentage Days of patients eligible for Title XIX Medicaid, but not entitled to Medicare Part A/total patient days - Sum >= 15% to qualify (>20.2% higher adjustment factors) 340B Drug pricing program - Eligible with DSH adjustment percentage of 11.75% - SCHs and RRCs eligible at 8% Similar calculation for rehab units (LIP) 51

Disproportionate Share Hospital (DSH) What is the source of patient days used for the DSH calculation? - Accuracy of front-end registration process results in better starting point for calculation How are patient days classified within a particular financial class or plan code? What process is used to reconcile expected classification with final adjudicated disposition? Which method is used to determine Medicaid days? - 1 if date of admission - 2 if census days - 3 if date of discharge 52

DSH Cost Report S-2 S-2 Column DSH Patient Day Category IPPS Line 24 IRF Line 25 1 In-state Medicaid paid days 3,970 2 In-state Medicaid eligible unpaid days 975 3 Out-of-state Medicaid paid days 856 4 Out-of-state Medicaid eligible days - 5 Medicaid HMO days 10,018 6 Other Medicaid days - Calc'd Total Medicaid days 15,819 S-3 Total acute patient days 132,206 Calc'd Medicaid percentage 11.97% 53

DSH Information Days Categories 24 PS 25 IRF In-State Paid In-State Eligible Out-of-State Paid Out-of-State Eligible Mcaid HMO Other Is there a mechanism to capture the days in these categories? 54

DSH Cost Report E Part A E Pt A Description Value 1 DRG amount $57,266,312 30 SSI percentage (from CMS) 6.21% Medicaid percentage (based on S-2/S-3 calculation) 11.97% 31 32 DSH percentage (30 + 31) 18.18% >15% (Ln 32-15%)*65%+2.5% >20.2% (Ln 32-20.2%)*82.5%+5.88% 33 34 Allowable disproportionate share percentage (based on DSH %) Manually entered 4.57% Disproportionate share adjustment (Ln 1 x Ln 33) $2,617,079 55

DSH Extract Required Data Fields Suggested Additional Fields Account Number Discharge Status Indicator Medical Record Number Discharge Location Name DRG Social Security Number Room Number Sex Total Charges Admit Date For Babies - Mother's Account Number Discharge Date Medicare HIC # (if not in policy #) Length of Stay Patient Type Date of Birth Financial Class Insurance Plan Codes (3 fields) Insurance Plan Policy Numbers (3 fields) Medicaid Recipient # (if not in Policy #) 56

DSH Payments for Uncompensated Care New DSH payment methodology - 25% empirically justified DSH amount - Additional payment for uncompensated care payment 75% of what would have been paid Adjusted for change in percentage of uninsured Allocate pool based on the aggregate amount of uncompensated care for all subsection (d) hospitals - Will NOT use S-10 data in FFY 2014 - May use in future years - Will use SSI and Medicaid ratios similar to DSH 57

DSH Payments for Uncompensated Care (cont.) Winners and losers - Previous DSH IPPS add-on - New DSH uncompensated care Results in payment swings - Old DSH awarded hospitals with high Medicare utilization - New DSH awards hospitals with high uncompensated care (Medicaid due to use of SSI/Medicaid ratio) 58

DSH Payments for Uncompensated Care (cont.) Looking forward - As uninsured population decreases, the uncompensated care pool will decrease - S-10 data is not currently being used, but may in the future When used, will probably be from a previous filed cost report May involve wage index type review - Medicaid expansion impacts both empirically justified and uncompensated care payments Potentially decreases UCC pool States with expanded Medicaid receive higher % of pool based on current methodology Higher Medicaid utilization increases empirical DSH 59

DSH Payments ACA impact on DSH payment - Reduced 75% beginning in FFY 2014 (now) - Savings returned as an additional payment for continued uncompensated care costs ACA DSH impact criteria - Updated in 10/3/13 Federal Register Includes Indian Health Service hospitals in Factors 1 and 3 Prorates uncompensated care on cost reports for hospitals without a 9/30 federal fiscal year-end - Funds available $9,593,000,000 calculated DSH less 25% paid - Percentage change in uninsured population from 2013 (1 minus the % change of individuals under age of 65 who are uninsured - minus.1 % for 2014,.2% for FY 2015 FY 2017) - Hospital s amount of uncompensated care costs relative to the amount of uncompensated care for all DSH hospitals 60

DSH Payments (cont.) Summary of uncompensated care payment - Factor 1 CMS estimates empirically justified Medicare DSH payments for FY 2014 in total to be $12,791,000,000; 25% of this is $3,198,000,000; Factor 1 is then the difference between these two estimates; pool for 2014 will be $9,593,000,000 - Factor 2 CMS is proposing factor 2 to be 94.3% for FY 2014; CMS is proposing the amount available for uncompensated care is $9,046,000,000 (.943*Factor 1 estimate of $9,593,000,000) - Factor 3 For FY 2014, this factor would reflect the Medicaid and Medicare SSI patient days for all hospitals that CMS estimates would receive DSH payments in FY 2014; CMS posted proposed Factor 3 for the hospitals that would receive DSH in FY 2014 61

DSH Payments (cont.) Limited/no appeal opportunity on the 75% portion - Factors are considered estimates and proxies CMS will likely use S-10 data in the future for the uncompensated care payment - Winners and losers based on amount of actual uncompensated care compared to Medicaid days - Complete S-10 accurately now and watch for instruction changes (e.g., recent Line 26 updated) 62

DSH Key Drivers Key Drivers DSH/LIP DRG payments Medicaid eligible days SSI % Action Items Case management/payment accuracy/transfers? Process to identify, verify and report ALL eligible days? Validate reported SSI data Impact of Medicare Part C days in SSI Is the reported information correct? 63

Medicare Bad Debts 64

Medicare Bad Debts (PFS) Unpaid deductible and coinsurance amounts related to covered hospital services Excludes pro fees and fee screen amounts Excludes MCO amounts Reimbursed @ 65% of the amount (phased to 65% for CAH) Reasonable collection efforts consistent among all payers Debt actually uncollectible when claimed as worthless Cannot be claimed as bad debt until returned from collection agency 65

Medicare Bad Debts (cont.) May 2, 2008 CMS memorandum Contractors to disallow bad debts if not returned from collection agency Settlements issued after May 2, 2008 66

Medicare Bad Debts (cont.) Collection effort must be documented in patient file Collection may include use of a collection agency in addition to or in lieu of subsequent billings Traditional accounts turned over to collection cannot be claimed until returned from agency 120-day rule beginning on the date of the first bill sent to the patient (indicating deductible or coinsurance owed by the beneficiary) - Presumed uncollectible after 120 days Who owns bad debt process? Reimbursement or PFS? 67

Medicare Bad Debts (cont.) Medicare/Medicaid crossover patients (must bill requirement) (actual voucher vs. notice) Prove that no other insurance exists Indigent or medically indigent patients (hospital must establish and document indigence) Charity accounts for Medicare beneficiaries Deceased patients (must document lack of estate) Bankrupt patients (must document court filings, etc.) May all be claimed without collection effort (no 120-day rule) (varies with contractor) 68

Medicare Bad Debts (cont.) Recoveries must be netted against bad debt expense claimed, even if the claim was originally included in a prior year bad debt submission - Caution: Re-starts 120-day counting period Prorate recoveries not specifically identified as payment for covered/non-covered services 69

Documentation/Listing (Take-away) Required Fields per 339 Exhibit 5 Suggested Additional Fields Last Name Patient Account Number First Name Medical Record Number M.I. Total Covered Charges HIC. NO. Non Covered Charges (includes PC and FS) DOS from MM/DD/YYYY DOS to MM/DD/YYYY Indigency & Wel. Recip. (Ck If Appl) Hospital Charity Care Determination Medicad Number Date 1st Bill to Beneficiary 120-Day (from last payment) Test (non X/0) Write-off Date Date Ret. from Coll. Agencies (non X/O) Remittance Advice Date (MC) MA Remittance Date and/or MA RA # Deductibles (excludes PC and FS amounts) Document no other insurance exists Co-Ins (excluded PC and FS amounts) Total 70

Bad Debt Other Audit Considerations Accounts claimed in one year may be very old based on returned from collection criteria - Locate underlying documentation - Have multiple accounts for the same patient been combined - Different collection personnel, processes and policies may result in reporting challenges - Accounts included on Medicare bad debt listings cannot also be included on HCAP reports - Large clean-up projects may result in increased contractor audit scrutiny Develop separate listings - Inpatient (Part A) vs. outpatient (Part B) for each program component - Traditional vs. crossover - Any special circumstances (appeal issues; clean up project listings, etc.) Use of contract auditors may lengthen the audit process and result in more questions 71

Bad Debt Suggested Review Format Trace amounts from the detailed listings (by hospital) to the summaries and actual cost report files Develop a small sample from the detailed listings in order to validate the required Medicare bad debt attributes Pay close attention to large dollar amounts included in listings Read and understand Medicare bad debt policies in place for the cost reporting periods included in the review Obtain collection agency agreements Interview PFS personnel responsible for the Medicare bad debt process Test accounts identified in each list for the required attributes based on the available documentation Develop a log of observations related to the small scale sampling list Estimate a range of potential financial impacts by applying sample results to the entire population 72

Bad Debt Reductions Hospital - From 70% allowable to 65% allowable for hospital cost reporting periods beginning during federal fiscal year 2013 and subsequent fiscal years Skilled nursing facility - Non-dual eligible From 70% allowable to 65% allowable for cost reporting periods beginning during federal fiscal year 2013 and subsequent fiscal years Swing-bed services - Non-dual eligible From 100% allowable to 65% allowable for cost reporting periods beginning during federal fiscal year 2013 and subsequent fiscal years 73

Bad Debt Reductions (cont.) SNF and swing-bed dual eligible - Cost reporting periods beginning during FFY 2013 12% - Cost reporting periods beginning during FFY 2014 24% - Cost reporting periods beginning during FFY 2015 and subsequent 35% All other provider types (CAH, ESRD, CMHC, FQHC, RHC) - Cost reporting periods beginning during FFY 2013 12% - Cost reporting periods beginning during FFY 2014 24% - Cost reporting periods beginning during FFY 2015 and subsequent 35% 74

Shadow Billing Additional GME and IME reimbursement attributable to services rendered to Medicare Managed Care Organization (MCO) enrollees - GME: Patient days for IPPS, IPF and IRF components included on the 118 PSR report - IME: Simulated DRG amounts for MCO IPPS patients reflected on the 118 PSR report To preserve this reimbursement opportunity - Identify all Medicare Managed Care plans and patients - Complete shadow billing on a timely basis - Monitor PSR reports and reconcile adjudicated claims with the 118 PSR report MCO days and simulated DRG percentages should be similar Also used for Meaningful Use Calculation and special payment provisions 75

Wage Index 76

Why do we have S-3 Pt II and II? Measures relative differences between each labor market s average hourly rate and the national average hourly rate Data is accumulated at hospital level, aggregated into CBSA groupings and indexed against the nationwide dataset Key driver of ultimate Medicare Prospective Payment System (PPS) payment: Inpatient DRG payments Disproportionate share (DSH) Indirect medical education (IME) Outpatient APCs Skilled nursing facility Home health Inpatient rehabilitation Psychiatric 77

Data Issues Key: Match wage dollars (compensation and benefits) with corresponding hours Salary dollars all flow from W/S A (includes reclassifications when properly coded on A-6) All hours and benefit information must be input (including hours related to A-6 reclassifications) 78

Wages Special attention is warranted with respect to - Vacation, sick and holiday, paid time off, severance and bonus pay need to be included in salaries and not as a fringe benefit - Bonus pay includes award pay and vacation, holiday and sick pay conversion (pay in lieu of time off) - This will have to be done on WS A, as the total salaries flow from WS A and are not a direct input item 79

Special Salary Situations Special attention is warranted with respect to - Non-physician anesthetist salaries (excluded) - Part A physician salaries (contract amounts v A82 data) - Part B physician salaries (excluded) - Contracted services for interns and residents; these costs must also be included on line 11, contracted services - Home office-related organization personnel included in total salaries (when Main hospital serves as Home Office for system entities) 80

Hours and Contract Labor Special attention is warranted with respect to - Excluded hours for the non-hospital services must be accumulated and input on lines 9 and 10 - Contract labor salaries and hours should be obtained for all direct patient care services and management services and input on line 11 (Do all need to be accumulated?) - Consulting fee and purchasing sub-accounts need to be reviewed to identify contract labor dollars which could have been miscoded; this review will also reveal any purchased services that could qualify as contracted labor - Purchased administrative services? 81

Chain Organizations and Benefits Special attention is warranted with respect to - Chain organization members - Home office salaries and hours applicable to the hospital should be obtained and included on line 14 - Fringe benefit information (lines 17-25) is based on GAAP (except defined benefit pension), as opposed to Medicare payment principles; report the wage-related costs applicable to the excluded areas whose salaries have been reported on lines 9 and 10 on line 19 82

Special Hours Issues Special attention is warranted with respect to - Paid hours Regular hours, including paid lunch hours Overtime hours Paid holiday hours Vacation Sick leave PTO hours Hours associated with severance pay - These hours should reflect any changes reported in salaries due to A-6 reclassifications 83

More Hours Issues Special attention is warranted with respect to - Excluded hours On call/standby hours - Overtime hours are calculated as one hour when an employee is paid time and a half - No hours for bonus pay are required 84

New Pension Reporting Old: Allow pension contributions paid within one year New: Allow cash contributions, different treatments for wage index and cost report purposes Wage index reporting - Use actual pension contributions funded during the reporting period on a cash basis - Use an average of three years cash contributions for FY 2014 based on FY 2009-2012, depending on fiscal year-end - Pre-funding calculation (see next slide) Cost reporting - Actual contributions to pension plan allowed on cash basis - 150% limit on current period liability using three consecutive Medicare cost reporting periods out of five most recent cost reporting periods with highest average 85

Pre-funding Calculation Allowable defined benefit pension expenses will be based upon each hospital's actual cash contributions to the plan over a three-year period (i.e., FFY 2014 WI based on each hospital's average funding contribution for FYs 2009, 2010, 2011 and 2012 based on fiscal year-end) CMS included a "transition policy" under which hospitals will be allowed to establish a "prefunding balance" based upon the sum of cash contributions made during cost reporting years beginning October 1, 2003 through September 30, 2008, reduced by the actual total pension costs reflected in the wage index for those cost reporting periods; a hospital's prefunding balance may be different from its "carry forward amount," which may include different cost reporting periods and contributions A hospital's prefunding balance will be divided into ten equal installments, and 1/10 of the prefunding balance can be included in the wage index data filed for FFYs 2013 2022; the hospital must have documentation to support the calculation of the prefunding balance when claiming the prefunding installment during each given cost reporting year To receive the full benefit of the transition policy, hospitals must (a) identify the proportionate amount includable as wage data for the FFY 2013 wage index and (b) send the fiscal intermediary a request for wage data correction by December 5, 2011 Hospitals failing to timely submit their requests will lose the ability to amortize the prefunding amount for at least that year 86

Wage Index Audit Issues MACs appeared to concentrate on - Physician AHW, requests for contracts and support of dollars and hours were requested; appears the upper tolerance is $200/hr - Wage-related costs as a percentage of salaries; explanations were requested when benefit percentage was above tolerance - CMS pension Excel worksheets; all hospitals with a defined benefit pension plan were asked to complete this form; Excel was published in FFY 2013 wage index files on CMS website; our understanding at that time was all providers would be required to complete; this was not done; some MACs did not complete the review in FFY 2013; per CMS Central Office in FFY 2014, all defined benefit plans were being reviewed, including state and local governmental sponsored plans; support of contributions was requested; accepted documentation included IRS Form 5500SB, bank wires and transfers 87

Future State? Report submitted to Congress on 4/11/2012 on a plan to reform the wage index system Acumen study points toward using a commutingbased wage index - Individual WI value for each hospital - Current WI exceptions may no longer be applicable - No implementation date, just a recommendation as of now Shortened time Frame for revisions - Consider completing with original cost report filing - As a minimum make sure revisions are included in filed report. 88

Occupational Mix Survey Required to be completed every three years Collects data regarding the occupational mix of employees (i.e., RNs vs. LPNs vs. aides, etc.) Purpose is to control the effect of the hospital s employment choices on the wage index Any hospital subject to the Inpatient Prospective Payment System (IPPS), or any hospital that would be if not granted a waiver, is required to complete the survey 89

Occupational Mix Survey (cont.) Exclusions include - Critical access hospitals - No or low Medicare utilization providers - Any hospital that has terminated participation in the Medicare program prior to 1/1/13 Data used to calculate an occupational mix adjustment factor to be applied to the wage index data 90

Occupational Mix Survey (cont.) 91

Occupational Mix Survey (cont.) Occupational mix survey - Nursing hours used to calculate provider percentage by subcategory (RN, LPN, aides and med asst) - Each nursing category percentage is multiplied by the national AHW by category - The provider adjusted AHW is totaled and compared to the overall final national adjusted nurse AHW 92

Occupational Mix Survey (cont.) Occupational mix adjustment (OMA) factor - OMA < 1 means the provider adjusted AHW is greater than the national adjusted nurse AHW - OMA > 1 means the provider adjusted AHW is less than the national adjusted nurse AHW - Only applied to your nursing percentage OMA < 1 will increase your AHW 93

Occupational Mix Survey (cont.) Occupational mix survey - Survey is due July 1, 2014 - Survey will include data from a 12-month period, pay periods ending between January 1, 2013 and December 31, 2013 - Survey will apply to the FFY 2016-2018 wage index data; as such, payments beginning October 1, 2015 through September 30, 2018 will be impacted - Opportunity to revise still exists: Incorporate revisions in connection with Wage index filing this year. 94

Medical Education 95

Graduate Medical Education Review existing Medicare regulations Review current correct cost report treatment Two payment streams Model potential Medicare reimbursement opportunities Future state? 96

General Requirements: 42 CFR 413.75 Approved medical residence program means a program that meets one of the following criteria: - Is approved by one of the national organizations listed in 42 CFR 415.152 - Effective for cost reporting periods beginning on or after October 1, 2010, primary care resident is a resident who is formally accepted, enrolled and participating in an approved medical residence training program in family medicine, general internal medicine, general pediatrics, preventive medicine, geriatric medicine or osteopathic general practice (42 CFR 413.75(b)) 97

Calculation of Payments: 42 CFR 413.76 A hospital s Medicare payment for the costs of an approved residency program is calculated as follows: - (a) Step one The hospital s updated per resident amount (as determined under 413.77) is multiplied by the actual number of FTE residents (as determined under 413.79); this result is the aggregate approved amount for the cost reporting period - (b) Step two The product derived in step one is multiplied by the hospital s Medicare patient load 98

Determination of Per Resident Amounts: 42 CFR 413.77 Base period for certain hospitals - The fiscal intermediary establishes a per resident amount for the hospital using the information from the first cost reporting period immediately following the cost reporting period during which the hospital participates in Medicare and residents began training at the hospital - The per resident amount is based on the lower of the [actual costs] or [locality adjusted national per resident amount] - Any GME costs incurred by the hospital during the cost reporting period prior to the base period used for calculating the PRA are reimbursed on a reasonable cost basis 99

Determination of the Total Number of FTE Residents: 42 CFR 413.78 The count of FTE residents is determined as follows: - (a) Residents in an approved program working in all areas of the hospital complex may be counted - (b) No individual may be counted as more than one FTE; a hospital cannot claim the time spent by residents training at another hospital - (g) For cost reporting periods beginning on or after July 1, 2010, the time residents spend in non-provider settings in connection with approved programs may be included in determining the number of FTE residents The resident spends his or her time - In patient care activities as defined at 413.75(b) - In non-patient care activities, such as didactic The hospital or hospitals must incur the costs of the salaries and fringe benefits of the resident during the time the resident spends in the nonprovider setting 100

Counting Residents: IRIS Requirements Medicare Audit Example/Approach (1/3) Documentation/Work Steps 1 Identify all GME programs in which the hospital is claiming FTEs and provide a copy of a valid program approval for each program identified 2 Provide a copy of the rotation schedules related to the year under review 3 Provide a description of all terms/abbreviations used on the rotation schedules 4 Provide a listing of off-site (non-hospital owned facility) rotations; include I&R name, dates of rotation, type of rotation and the supervising physician 101

Counting Residents: IRIS Requirements Medicare Audit Example/Approach (2/3) Documentation/Work Steps 5 Provide off-site agreements (e.g., rotation agreement between hospital and outside provider or non-provider setting); 42 CFR 413.86 requirements include: a) Resident spends his or her time in patient care activities b) Written agreement between hospital and the off-site provider c) Agreement must indicate the hospital will incur the cost of the residents salaries and fringe benefits while the residents are training at the nonhospital site (satisfies the all or substantially all requirement ) 6 Listing of part-time residents (if applicable) and support, such as copies of the contracts 7 Provide the name and SSN of any I&R that took part in moonlighting activities (those providing services in provider settings payable as physician services) 102

Counting Residents: IRIS Requirements Medicare Audit Example/Approach (3/3) Documentation/Work Steps 8 Provide the name and SSN of any I&R that worked in research rotations (not associated with the treatment or diagnosis of a particular patient of the hospital (66FR39896)) 9 Provide the names and SSN contract applications and salary for all fellows (i.e., beyond initial residency) 10 Provide the name and SSN of any I&R that replaced nonphysician anesthetist 11 Biographical data (resumes, initial applications, diploma to support graduation date, number of years completed, etc.) 12 ECFMG certificates, if applicable 103

Medicare Funding: Two Payments Direct medical education (DME) (E-4) - Compensates hospital for allowable program costs Facility specific direct expense Applicable overheads - In most cases, reimbursement not tied to current period factors (except load factor) Indirect medical education (IME) (E Part A (acute PPS); E-3 (subproviders in some cases) - Compensates hospital for indirect patient care costs arising from residents training in hospital settings, compared to costs incurred by similar non-teaching hospitals - In most cases, reimbursement not tied to current period factors (except load factor) 104

Objective: Medicare Funding: Two Payments Direct medical education (DME) - Payment formula Number of GME residents x Hospital-specific (or national) per resident amount x Medicare load factor (includes patient days attributable to Medicare Managed Care plans) = - Payment amount Apportioned between Part A and Part B hospital services Paid to hospital via bi-weekly level payments Final settled through annual cost report submission (Different rules for new programs) 105

DME Payment Transition (New Program) December 31, 2012 - Reimbursement based on actual cost in first cost reporting year (42 CFR 413.77(e)) December 31, 2013 - Base period - Reimbursement based on the lower of actual cost per resident in connection with the GME program OR the weighted mean value per resident amount of all hospitals located in the same census region (East North Central) (42 CFR 413.77(e)) - Projected census region per resident amount (PRA) for FY 2011 will be $91,075 December 31, 2014 (and subsequent years) - Per resident reimbursement (# residents x lower of) Actual cost per resident amount (inflation adjusted hospital-specific PRA, from base period (2011)) OR Weighted mean value per resident amount of all hospitals located in the same census region (42 CFR 413.77(e)) - Residents beyond initial residency will be weighted at 50% for DGME (only) purposes 106

Medicare Funding: Two Payments Indirect medical education (IME) adjustment - Operating payment formula Number of IME residents Available PPS beds = Teaching intensity factor (r) 1.35 x [(1 + (I&R count/available beds)).405 1] = IME factor - Payment amount Applied to DRG operating and capital amounts - Medicare FFS and simulated DRG amounts for Medicare Managed Care enrollees Add-on amount to CMI adjusted DRG payments Final settled through annual cost report submission 107

Indirect Medical Education (IME) Resident cap window expires at the end of the third program year and the cap equals the highest number of FTE resident counts subject to the number of accredited FTE slots for the program (42 CFR 413.79(e)) If a resident rotates to an existing teaching hospital, then the new teaching hospital cannot count that time as part of their FTE count IME FTE count is not subject to 50% weighting for residents or fellows who exceed their initial residency period Available beds only include beds in the acute PPS component of the hospital (excludes nursery, sub-providers, skilled nursing units, hospices) (separate calculations for subproviders) Separate calculation for Psych and Rehab subproviders Observation and labor room bed days available no longer enter into calculation 108

IME Caution CMS/MedPAC finds little correlation between statutory IME formula and incremental operating costs incurred by having a medical education program MedPAC asserts that the current level of the IME adjustment factor, 5.5% for every 10% increase in resident-to-bed ratio, overstates IME payments by more than twice the empirically justified level, resulting in approximately $3 billion in overpayments; the empirical level of the IME adjustment is estimated to be 2.2% for every 10% 109

Reimbursement Process: DME Direct medical education (DME) - Hospital obtains accreditation - Provides notice to Medicare administrative contractor regarding the new program (for interim rate purposes) - Operates programs in accordance with accreditation standards and Medicare regulations (42 CFR 413.78 413.85) - Tracks count of residents and where training occurs - Identifies and accumulates allowable costs of the program in and from the books and records of the hospitals - Costs are claimed on the annual cost report, subject to audit or review by the MAC - Hospital submits Interns & Residents Information System (IRIS) data to contractor - Per resident amount established as basis for future payments 110

Reimbursement Process: DME (cont.) DME: Special treatment for new programs - FY2012 reimbursement based on actual (reasonable) cost reimbursement - FY2013 will be used as base period to establish hospital-specific per resident amount (PRA) - FY2013 reimbursement will be based on the lesser of the hospitalspecific cost/resident or the weighted mean value per resident amount of all hospitals located in the same census region (42 CFR 413.77(e)) - Subject to regulatory changes, reimbursement in future cost reporting periods will be based on an updated regional or national amount - Program considered new for three years - Resident cap window expires at the end of the third program year and the cap equals the highest number of FTE resident counts subject to the number of accredited FTE slots for the program (see 42 CFR 413.79(e)) 111

Reimbursement Process: IME Indirect medical education (IME) adjustment - Subject to the accreditation and approval for GME - Regulations regarding IME at 42 CFR 412.105 - Basis of reimbursement is count of residents and available beds - Time spent by residents in the PPS component of the facility can be used for IME purposes; based on the type of program, GME and IME counts should be the same - Time in non-provider settings is also allowable, subject to certain documentation requirements - Hospital performs bed inventory to determine available beds in the PPS component of the facility and establishes protocol to track bed changes - Calculation is based on bed days available/days in cost reporting period - IRIS resident count may be different for DME and IME - Interim DRG payments will be adjusted when contractor accepts program - Hospital MUST shadow bill for IME and GME reimbursement 112

Reimbursement Process: IME (cont.) IME: Special treatment for new programs - FY2012 resident count is adjusted to reflect portion of year residents on duty at the hospital - Future period reimbursement will be based on three-year rolling average of residents, after cap period ends - Further limitation of prior year interns-to-beds ratio - Resident cap window expires at the end of the third program year and the cap equals the highest number of FTE resident counts subject to the number of accredited FTE slots for the program (see 42 CFR 413.79(e)) 113

GME Margin DME - Reimbursement only based on Medicare share of costs - Application of regional amounts likely to result in shortfall comparing direct expenses to actual reimbursement amount IME - Cost report does not provide mechanism to capture incremental costs that IME is designed to reimburse Caution - Evaluate each revenue stream separately when considering the margin contribution associated with the GME program - Regulatory changes may impact the continued viability of the program 114

GME Program Success Factors: General Considerations Notify MAC regarding existence of new program for accurate interim rate setting; this also allows time to implement any specific information requests they may require to accept the program Capture all appropriate program expenses in GME cost center Obtain and retain all required contracts for teaching physician remuneration, resident employment agreements and accreditation notices Monitor regulatory changes for impact on GME operations and contributions Document count of residents and ensure all required IRIS information is available before the cost report is completed; this includes detailed rotation schedules and information regarding non-provider rotations (42 CFR 413.75(d)) 115

GME Program Success Factors: Available Beds Understand differences between licensed, operating, staffed and available beds - Licensed: As reported to the state licensure authority (most likely maximum) - Operating or staffed: Actual beds in service impacting staffing decisions and ability to admit more patients (most likely minimum) - Occupied: Actual inpatient census (most likely lowest number) - Available: Medicare term of art applied to all inpatient payment provisions (median value) PPS component only, excludes nursery, custodial care and beds in outpatient ancillary areas (labor room days and observation may be included in the future) Additional information at 42 CFR 412.105(b); Vol. 69 of the Federal Register 154, dated August 11, 2004, page 49093 (see CMS Pub. 15-1, 2200.2 C and 2205) 116

GME Program Success Factors: Shadow Billing CMS allows for additional GME and IME reimbursement attributable to services rendered to Medicare Managed Care Organization (MCO) enrollees - GME: Patient days for IPPS, IPF and IRF components included on the 118 PSR report type positively influence the Medicare load factor; the total days for these components are already in the denominator of the load factor calculation - IME: The simulated DRG amounts for IPPS patients only are included in the IME calculation; this is also reflected on the 118 PSR report To preserve this reimbursement opportunity - Identify all Medicare Managed Care plans and patients - Complete shadow billing on a timely basis - Monitor PSR reports and reconcile adjudicated claims with the 118 PSR report MCO days and simulated DRG percentages should be similar 117

Margin Calculation 118

Objectives Calculate Medicare margin based on - Filed cost report data - Payment adjustments - Impact of health care reform - IRS guidelines - GAAP estimates 119

What is the Hospital s Medicare Margin? Who calculates the margin? What mechanism is used? When is it updated? Where is the information distributed? Why do we calculate the margin? 120

Medicare Margin Analysis: General Definitions Margin/(deficit) - Reimbursement > Cost: Margin - Reimbursement < Cost: (Deficit) 121

Medicare Margin Analysis Comparison of Medicare cost report information - Charges - Medicare defined fully allocated cost - Reimbursement Reports - Contractual allowance - Margin or deficit High level executive summary - Senior financial executives - Corporate governance - Education advocacy 122

Margin Analysis: System Consolidated Margin Contractual Reimb % Contractual Charges Cost Reimb. (Deficit) Allowance of Charges % Charges Inpatient Acute 1,034,091,607 331,240,549 251,194,987 (80,045,562) 782,896,620 24.29% 75.71% Inpatient Capital 0 20,413,921 20,408,950 (4,971) (20,408,950) 1.97% -1.97% Swing Bed 227,662 631,281 637,594 6,313 (409,932) 280.06% -180.06% SNF 0 0 0 0 0 0.00% 0.00% IME 0 0 20,764,498 20,764,498 (20,764,498) 2.01% -2.01% GME (@ load factor) 0 32,527,396 14,661,203 (17,866,193) (14,661,203) 1.42% -1.42% Disproportionate Share 0 0 50,151,386 50,151,386 (50,151,386) 4.85% -4.85% Allied Hlth (@ actual reimbursement) w MCNAHE 0 589,049 649,984 60,935 (649,984) 0.06% -0.06% Psych Unit 24,007,070 11,940,274 9,903,163 (2,037,111) 14,103,907 41.25% 58.75% Rehab Unit 34,830,086 22,534,249 17,734,780 (4,799,469) 17,095,306 50.92% 49.08% Outpatient ( in cost report) 438,162,623 152,024,066 110,357,569 (41,666,497) 327,805,054 25.19% 74.81% Rural Health Clinic 1,232,713 1,257,392 1,256,846 (546) (24,133) 101.96% -1.96% Total 1,532,551,761 573,158,177 497,720,960 (75,437,217) 1,034,830,801 32.48% 67.52% 123

What Opportunities Exist to (Legally) Improve the Hospital s Medicare Margin? Cost Pricing strategy Reimbursement opportunities 124

Key Drivers and Opportunities: Inpatient Services (Take-away) DRG, Outliers and New Technology & Capital IME DSH Key Drivers IP Medicare Volume CMI Wage Index Pricing Strategy DRG Payments Count of Residents Available Beds Prior Year Ratios DRG Payments Medicaid Eligible Days SSI % Opportunity/Question Case management/payment accuracy/transfers? Documentation/chart audits/md education? Is pricing strategy impacting outlier reimbursement? Case management/payment accuracy/transfers? Opportunities through bed management? Shadow billing for MCO claims? Case management/payment accuracy/transfers? Process to identify, verify and report ALL eligible days? Impact of MCO days in SSI? 125

Key Drivers and Opportunities: Special Inpatient Situations (Take-away) MDH (Rural Facilities Only) Other Pass-Through (College of Nursing) DGME Bad Debts Key Drivers DRG Payments Historical Cost/Discharge Location/Size/Medicare Utilization Allowable Costs Cost Allocation Cost Apportionment Per Resident Amounts Count of Residents Rotations Prior Year Count Auditable Documentation Supporting Bad Debts Opportunity/Question Is the decline in DRG revenue temporary? Selecting the correct base period? Does the hospital qualify? Available beds? MCO days? Would conversion to CAH be a possibility? Are all appropriate net costs reflected in this cost center? Is the College of Nursing receiving all appropriate statistical allocations? Is the statistic used to allocate the College costs accurate? Is the hospital s Medicare utilization or pricing strategy impacting reimbursement? Have all the correct update factors been applied? GME strategy/documentation? Where have all the residents gone? Is the reported information correct? MCO days? What processes exist to ensure compliance with contractor documentation requirements? 126

Key Drivers and Opportunities: Sub-Provider Services (Take-away) Psychiatric Units IPF PPS Rehabilitation Units IRF PPS Skilled Nursing Units Key Drivers IP Volume Length of Stay Patient Acuity Operating Cost (through transition period routine) IP Volume Length of Stay Patient Acuity LIP% IP Volume Length of Stay Patient Acuity Strategy Opportunities/Questions Case management/documentation/transfers? Is the actual length of stay clinically appropriate? Are the diagnosis codes reported accurately? Are the costs apportioned to the Medicare psychiatric unit appropriate? Is a de-exemption strategy appropriate? Case management/documentation/transfers? Is the actual length of stay clinically appropriate? Are the diagnosis codes reported accurately? What process exists to validate the reported Medicaid and SSI % attributable to the rehab unit? Is the actual length of stay clinically appropriate? Is the patient being treated in the most appropriate setting? Are there opportunities to improve reimbursement through accurate coding? How does the SNF advance the overall organizational strategy? 127

Key Drivers and Opportunities: Outpatient & HHA Services (Take-away) Key Drivers Opportunities/Questions Outpatient PPS (sub-providers may also have OP PPS services) OP Volume Patient Acuity Operating Cost (TOPS providers) Case management/documentation? Are the diagnosis codes reported accurately? Are the costs apportioned to Medicare outpatient services appropriate? Is pricing strategy impacting reimbursement? Fee Screen Services: Lab Mammography Therapy Home Health Agency OP Volume External Referrals Patient Acuity Fee Screen Amounts Volume Length of Stay Patient Acuity Strategy Case management/documentation? Any opportunities created through clinical alliances? Are the diagnosis codes reported accurately? Is the correct fee screen being applied? What can the hospital do to improve the reimbursement level? Is the actual length of stay clinically appropriate? Is the patient being treated in the most appropriate setting? Are there opportunities to improve reimbursement through accurate coding? How does the HHA advance the overall organizational strategy? 128

Conclusion Understanding the key reimbursement drivers will identify many potential opportunities Asking the right questions will create a strategy for implementing change Communicating results to constituencies will influence their behavior and thought process 129

Questions 130

Contact Information Mike Nichols Partner McGladrey LLP 847.413.6360 mike.nichols@mcgladrey.com Thank You! 131

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