8/16/2011

Tennessee Primary Care Association Leadership Conference August 18, 2011

The Importance of the FQHC Medicare Cost Report in Calculating Your PPS Rate

Presented by: Michael Holton, Manager, Health Care Services Groupc [email protected] 12, 2006 1

Goals of Section 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

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All-Inclusive Rate Methodology

POSSIBLE CEILINGS

ALLOWABLE COSTS ___________________ BILLABLE VISITS

POSSIBLE CAPS

=

ALL-INCLUSIVE RATE

POSSIBLE PRODUCTIVITY SCREENS

Principles of Cost-Based Reimbursement 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

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FQHC Covered Services Preventive Services •

Physician Services

Core 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

M E D

•

Physician Assistant services

M

I

•

Nurse practitioner services

E

C

•

Clinical Psychologist services

D

A

•

Clinical Social Worker Services

I

R

•

C

E

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)

A I D “Other Ambi’s”

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 nonphysician practitioners 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 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

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Total Costs (Continued) 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

Reducing Total Cost to Allowable Cost Total Cost Less: Unallowable Expenses and Adjustments Other Eliminations Non-Covered Costs

XXX

(XX) (XX) (XX)

Total Allowable

(XX) XXX

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.

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Examples of Common Adjustments •

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(?)

Elimination of Non-Covered Services

Total Cost Less: Overhead Costs Total Direct Costs Less: Non-Covered Direct • Research • WIC Total Covered Direct Costs Covered Overhead [(90/100)*($10)] TOTAL ALLOWED COSTS

$110 10 100 $4 6 10 90 9 $ 99

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Billable Visits

Types of Units of Service: • Procedures • Encounters • Visits • Allowable • Billable

Productivity Screens 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 FTE Midlevels = 2,100 per FTE

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Full Time Equivalent (FTE) Calculation

•

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

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Full Time Equivalent (FTE) Calculation

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 Less: Non-Work Hours

1,800 232

Total Hours Worked

1,568

Total Hours Worked

1,568

Total Possible Hours

2,080

= .75 FTE

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Necessary Information for Completion of a Cost Report The following data should be referenced as you prepare the Cost Report: •

Health Center’s Trial Balance

•

All Staff Salaries and Consultant Fees - including job titles and FTEs

•

Total Visits by Provider

Step One: Salary/FTE Worksheet •

To accurately account for total compensation paid for the reporting year, a Salary/FTE worksheet should be prepared listing all employees salaries on a spreadsheet with employee’s job title, compensation and hours worked.

•

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 the necessary data elements.

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Preparation of Salary/FTE Worksheet Name Jon Small Adam Brick Katie Nickel Joan Dollar Carmella Soprano Anthonoy Soprano Donna Berman Joe Ajax

Job Title Internist Pediatrician Physician Assist. Nurse Pracitioner Nurse Nurse Clinical Social Worker Housekeeping Karry McDonanld Executive Director Chief Financial Officer Ira Rothblack Dentist Steven Smile

Salary Hours Paid Vacation 110,000 1,720 40 125,000 1,800 32 65,000 1,820 40 60,000 2,040 53 40,000 2,000 56 35,000 1,750 32 60,000 1,770 56 30,000 2,140 68 130,000 2,200 68 90,000 2,200 68 70,000 2,150 32

$ $ $ $ $ $ $ $ $ $ $

Sick

Holiday CME Hours 48 60 48 60 48 56 48 60 48 48 48

8 8 8 16 16 8

48 48 48

Total Hours Annual Total Worked Hours 1,564 2,080 1,660 2,080 1,668 2,080 1,871 2,080 1,880 2,080 1,654 2,080 1,658 2,080 2,072 2,080 2,084 2,080 2,084 2,080 2,070 2,080

FTE 0.75 0.80 0.80 0.90 0.90 0.80 0.80 1.00 1.00 1.00 1.00

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.

Assignment of Line Numbers For reference purposes, every employee should be assigned a “line number”. For consistency in reporting and ease of data entry, follow the Cost Center line numbers used in Expense Worksheet (e.g. Worksheet A of the Medicare C/R). Name Jon Small Adam Brick Katie Nickel Joan Dollar Carmella Soprano Anthonoy Soprano Donna Berman Joe Ajax

Job Title Internist Pediatrician Physician Assist. Nurse Pracitioner Nurse Nurse Clinical Social Worker Housekeeping Karry McDonanld Executive Director Ira Rothblack Chief Financial Officer Steven Smile Dentist

$ $ $ $ $ $ $ $ $ $ $

Salary Hours Paid Vacation 110,000 1,720 40 125,000 1,800 32 65,000 1,820 40 60,000 2,040 53 40,000 2,000 56 35,000 1,750 32 60,000 1,770 56 30,000 2,140 68 130,000 2,200 68 90,000 2,200 68 70,000 2,150 32

Sick 8 8 8 16 16 8

Holiday CME Hours 48 60 48 60 48 56 48 60 48 48 48 48 48 48

Total Hours Annual Total Worked Hours 1,564 2,080 1,660 2,080 1,668 2,080 1,871 2,080 1,880 2,080 1,654 2,080 1,658 2,080 2,072 2,080 2,084 2,080 2,084 2,080 2,070 2,080

FTE Line No. 0.75 1 1 0.80 0.80 2 3 0.90 5 0.90 0.80 5 7 0.80 1.00 32 38 1.00 38 1.00 38 1.00

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Account for Difference Allocation Once you have the salaries and FTEs listed, the worksheet should be rolled up to a total salary and FTE for each line number. The summary line numbers are then compared with the health center’s general ledger to identify any differences. Any differences 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: Fringe Benefits: Line No 1 2 3 4 5 6 7 8 9 10 11 12

Description Physician Physician Assistant Nurse Practitioner Visiting Nurse Other Nurse Clinical Psychologist Clinical Social Worker Laboratory Technician Other (Specify) -1 Other (Specify) -2 Other (Specify) -3 SubTotal

1,140,000 200,000 Category Healthcare Staff Cost Healthcare Staff Cost Healthcare Staff Cost Healthcare Staff Cost Healthcare Staff Cost Healthcare Staff Cost Healthcare Staff Cost Healthcare Staff Cost Healthcare Staff Cost Healthcare Staff Cost Healthcare Staff Cost

Amount 1,130,000 235,000 65,000 60,000 75,000 60,000 80,000

575,000

FTE 18.75 1.55 0.80 0.90 1.70 0.80 2.00 7.75

Difference Allocation 10,000 2,080 575 531 664 531 708 5,089

1,140,000 Total 1,140,000 237,080 65,575 60,531 75,664 60,531 80,708 580,089

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Allocation of Fringe Benefit The final step to completing the Salary/FTE Worksheet would be the allocation of fringe benefits among employees. Allocation of fringe benefits is based on a percentage of each salary line to the total salaries. Salary & Wages per G/L: Fringe Benefits: Line No 1 2 3 4 5 6 7 8 9 10 11 12

Description Physician Physician Assistant Nurse Practitioner Visiting Nurse Other Nurse Clinical Psychologist Clinical Social Worker Laboratory Technician Other (Specify) -1 Other (Specify) -2 Other (Specify) -3 SubTotal

1,140,000 200,000 Category Healthcare Staff Cost Healthcare Staff Cost Healthcare Staff Cost Healthcare Staff Cost Healthcare Staff Cost Healthcare Staff Cost Healthcare Staff Cost Healthcare Staff Cost Healthcare Staff Cost Healthcare Staff Cost Healthcare Staff Cost

Amount 1,130,000 235,000 65,000 60,000 75,000 60,000 80,000

575,000

FTE 18.75 1.55 0.80 0.90 1.70 0.80 2.00 7.75

Difference Allocation 10,000 2,080 575 531 664 531 708 5,089

1,140,000 Total 1,140,000 237,080 65,575 60,531 75,664 60,531 80,708 580,089

Fringe Allocation 199,998 41,593 11,504 10,619 13,274 10,619 14,159 101,768

Step Two: Other Than Personnel Services The other category of expense that must be itemized is the Other Than Personal Services (OTPS). The health center’s trial balance needs to be broken down by line item of the Cost Report. Account # or Lead Sheet # Expense Description 6150 CONSULTANTS & PROF. FEES

6151 MEDICAL CONSULTANTS 6155 LABORATORY 6160 CONSUMABLE SUPPLIES

6165 PHARMACEUTICALS 6170 SPACE COST

a list of lines. Expense Amount Line Description 1,480,000 100,000 38 Office Salaries 52 Dental 32 Housekeeping - Maintenance 42 Accounting 41 Legal 80,000 13 Physician Services Under Agreement 140,000 59 Other - Non Reimburseable - 2 280,000 17 Medical Supplies 58 Other - Non Reimburseable - 1 52 Dental 40 Office Supplies 32 Housekeeping - Maintenance 90,000 51 Pharmacy 240,000 26 Rent 29 Utilities

$ 1,480,000 45,000 20,000 10,000 10,000 15,000 80,000 140,000 190,000 20,000 40,000 20,000 10,000 90,000 200,000 40,000

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OTPS – Other Than RHC/FQHC and Non-Reimbursable Examples of non-reimbursable costs and costs other than RHC/FQHC include the following: • Ancillary Services (Outside Contracted Radiology, Laboratory, Pharmacy) • Dental – (Medicare) • WIC • Bad Debt Expense • Fundraising Expense

Step Three: Data Entry-Expenses Column

Data Entry

Source

Column 1

Compensation Totals

= Salary/FTE Worksheet

Column 2

OTPS expenses

= OTPS Worksheet

Column 3

Total expenses

= Trial Balance

Column 4

Reclassification of Salary/FTE Worksheet/Fringe Benefits

Column 5

Reclassified Trial Balance = Reclassified Trial Balance

Column 6

Adjusted Trial Balance

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Data Entry-Expense Adjustments Examples of adjustments are the following: • Interest and miscellaneous income will need to be offset against any interest and miscellaneous expense. • Woman Infants & Children Program • Outside contracted radiology and laboratory • Bad Debt Expense

Step Four: Reclassifications-Explanation of Entry The Reclassification column is often used to reallocate expenses to specific cost centers on a Cost Report, consistent with cost reporting rules, that are combined on the health center’s trial balance. A common type of reclassification is fringe benefits. The reclassification of fringe benefits is typically based on the cost center’s percentage of salaries & wages to total salaries & wages. To check that all cost centers have been accounted for, the reclassification column should zero out. If the cost report has a Reclassification worksheet (e.g. Worksheet A-1 on the Medicare cost report), this worksheet should also be reconciled to the Reclassification column.

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Step Five: Summary of All Adjustments

For each line item that an adjustment was made, preparation of a detailed explanation is typically required, including an indication of which general ledger account the expense amount is adjusted out of. For example, Worksheet A-2 of the Medicare Cost Report.

Step Six: Disclosure of Transactions with Related Organizations For any “related” organization that a health center incurs financial transactions, additional disclosure is typically required including organization information and actual cost of providing the service to the related organization (e.g. Supplemental Worksheet A –2 of the Medicare Cost Report). Common examples of such an arrangement include the following: • Rental Expense • Information Technology consultation and/or support • Administrative Management

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Step Seven: Visits and Productivity Visits and Productivity provides a picture of the level of the Center’s provider productivity compared to FQHC standards. Completion of this schedule requires a “billable visit” report of all medical providers, including contracted physicians. Generally, this report can be generated from the health center’s billing system. Provider FTEs can be obtained from the Salary/FTE Worksheet.

Step Eight: Determination of Rate for RHC/FQHC Services This worksheet is used to determine the total allowable cost per visit applicable to RHC/FQHC services. Typically, overhead is allocated to allowable 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 in comparing direct health center cash, non-reimbursable, and overhead with the prior year Medicare Cost Report.

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Determination of Cost of Services Worksheet

Medicaid Services

Line No.

Less Addit ional Adju Cost stme col 7 nts

Allocate Facility Overhead

Sub Total

After Facility Overhead

After Admin Overhead

Total Costs

Units of Service*

Cost per Unit

Core Services

25

##

0

11,111,805

1,263,495 

12,375,300

4,748,202

17,123,503

110,826

Pharmacy

51

##

0

730,137

83,022 

813,159

311,996

1,125,155

110,826

10.15

Dental

52

##

0

803,037

91,311 

894,348

343,147

1,237,495

9,323

132.74

154.51

Optometry

53

##

0

57,187

6,503 

63,690

24,437

88,126

2,387

36.92

Laboratory

54

##

0

78,685

8,947 

87,632

33,623

121,255

110,826

1.09

Radiology

55

##

0

100,530

11,431 

111,961

42,958

154,919

110,826

1.40

Behavioral Health

56.1

##

0

857,120

97,461 

954,581

366,257

1,320,838

11,879

111.19

Podiatry

56.2

##

209,244

23,793 

233,037

89,412

322,449

2,800

115.16

Patient Transportation

56.3

##

55,235

6,281 

61,516

23,603

85,118

110,826

0.77

Inpatient Services

56.4

##

48,909

5,561 

54,470

20,899

75,370

3,517

21.43

Other: STD Clinic

56.5

##

226,669

25,774 

252,443

96,858

349,301

2,384

146.52

Other: Nutrition Services

56.6

##

501,177

56,988 

558,165

214,159

772,323

1,994

387.32

Other:

56.7

0

0

0

0

0.00

0

0

Non Reimbursable

61

Subtotal

0

0

0

##

0

996,748

113,338

1,110,086

425,922

1,536,008

##

0

15,776,483

1,793,904

17,570,387

6,741,473

24,311,860

1,793,904

(1,793,904)

6,741,473

0

Facility Overhead

37

##

Administrative Overhead

49

##

##

##

## $ 24,311,860

Totals

0

0

0 6,741,473 24,311,860

0 (6,741,473)

0 -

0 $ 24,311,860

Step Nine: Worksheet C-Part II Determination of Total Payment The final calculations of the Medicare Cost Report determine whether the health center owes money to Medicare or is due money from Medicare (Line 25). Enter cash received for dates of services rendered during the fiscal year from PS&R report on line 22. Final Step – The FQHC may be entitled for bad debt related to the uncollectible portion of co-insurance. If so, enter the amount of bad debt on line 24.

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Additional Medicare Cost Report Schedules

The FQHC Medicare cost report includes two schedules specific to the Medicare program: • 100% reimbursement for the cost of pneumococcal and influenza vaccines, as well as their administration (e.g. Supplemental Worksheet B-1) – Effective September 1, 2009, the administration of influenza H1N1 vaccines will also be cost reimbursed • Reimbursement for bad debt related to uncollected coinsurance amounts

Medicaid/Medicare Sample Findings on Medicaid and Medicare Cost Report Desk Audits  Non-allowable or non-covered costs are being claimed (e.g., bad debt, inpatient costs, research, etc.).  The percentage of time allocated to cost centers is incorrect (e.g., allocation of medical director’s FTE).  Other revenue is not offset against related expenses (e.g., miscellaneous revenue should reduce miscellaneous expense).  Information on provider statistical and reimbursement report is not correct or updated (Medicare only).  Costs claimed for services are not incident to a visit or not considered reasonable by State or intermediary.

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Medicaid/Medicare Sample Findings on Medicaid and Medicare Cost Report Field Audits  The calculation for full time equivalents is not correct and lacks support.  The expenses on invoices are for non-allowable costs (e.g., advertising).  Total visit count per the organization’s records does not agree to data provided on the cost report.  Medicare visits billed are not correctly reported by provider.  Prior year desk audit adjustments are not reflected in current year cost report filing – Considered fraudulent cost report filing!

Submission Submission of the Cost Report typically requires the submission of attachments, such as: 1. 2. 3. 4. 5. 6.

Cost Report Submission Checklist A Trial Balance with a cross-reference to line numbers on the Cost Report A schedule that lists allocations (including supporting documentation in package) Documentation for reclassification, adjustments and protested items. Provider questionnaires Electronic version of cost report

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Questions???

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