Translating Critical Access Hospital Finance [Read-Only] · 2017. 8. 23. · 1 Translating Critical Access Hospital Finance Ralph Llewellyn Partner [email protected] Introduction

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Translating Critical Access Hospital Finance

Ralph Llewellyn

Partner

[email protected]

Introduction

• No other industry operates in the same manner as health care.

• Critical Access Hospitals operate differently than other health care providers.

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Reimbursement Theory

• There are various methods of reimbursement• Fee schedule

• Mostly large commercial payors

• Most physician services (except Rural Health Clinics)

• Charge based• Other commercial payors (very common for CAHs in

California)

• Cost based• Medicare

• Medicaid in some states (including Montana)

Reimbursement – Fee Schedule

• Diagnostic Related Groups (DRGs)• Inpatient reimbursement based on a fixed payment

according to the diagnosis of the patient

• Charges and length of stay are irrelevant

• Focus on chart documentation and HIM skills to improve reimbursement

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Reimbursement – Fee Schedule

• Common Procedure Terminology (CPT)• Payment made based on an established 5 alpha

numeric identifier (CPT)

• Codes for individual procedures

• Typically lower of charge or fee schedule

• Focus on documentation, HIM skills, and charge capture process to improve reimbursement

Reimbursement Theory – Charges

• Full charges or percentage of charge• CAHs like these payors!

• Dwindling number of payors

• Critical Access Hospital may be treated more favorably

• Allows facility to chart its financial course

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Reimbursement Theory – Cost

• Reimbursement based on actual costs• Full cost

• Partial cost

• Blends

• Submission of cost report

• Profit??

Medicare Reimbursement Theory

• Reimbursable vs Non-reimbursable services

• Reimbursable – Medicare participates in cost

• Non-Reimbursable – Medicare does not participate in cost

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Emergency RoomCardiologyPharmacySuppliesCardiac RehabSwing BedProvider Based ClinicRural Health Clinic

Reimbursable ExamplesMedical/SurgicalOperating RoomLabRadiologyPhysical TherapyOccupational TherapySpeech TherapyRespiratory Therapy


Non-Reimbursable ExamplesHome HealthHospiceSkilled Nursing Facility (Some states are exceptions)Assisted LivingMeals on WheelsDay Care (Some costs may be reimbursable)Non-Provider Based ClinicsWellness Centers

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Allowable vs. Unallowable CostsCosts are deemed unallowable if they are not related to patient care

Patient Phones/Television

Advertising

Physician Recruitment (except Rural Health Clinic)

Lobbying


Allowable vs. Unallowable CostsCosts in excess of established limits are unallowable

Contracted– Physical Therapy– Occupational Therapy– Speech Therapy– Respiratory Therapy

Employee or Contract– Provider-Based Physicians– Reasonable cost limitations apply

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Allowable vs. Unallowable CostsNon-Patient Revenues are offset against cost as a recovery of cost

Interest income (to extent of interest expense)

Copies of Medical Records

Cafeteria


Medicare Cost Based ReimbursementMedicare reimburses costs based on Medicare utilization in the departments in which costs are reported

Direct Costs– Salary– Supplies

Allocated Costs (Overhead)– Housekeeping– Laundry– Dietary– Administrative and General

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Overhead Allocation MethodologiesMethodologies determine how overhead costs will be allocated to various departments and subsequently determine Medicare’s reimbursement of costs

Methodologies can be changed with approval from Medicare

Strategy – Analyze alternative methodologies!


Overhead Allocation MethodologiesBuildings – Square Footage

Moveable Equipment – Square Footage or Actual

This is where IT capital is typically reported and allocated from.Results in costs being allocated to all hospital departments including non-reimbursable cost centers.

Benefits – Gross Salary

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Overhead Allocation MethodologiesAdministrative & General – Accumulated Cost

This is where IT ongoing operating costs are typically reported.Results in costs being allocated to all hospital departments including non-reimbursable cost centers.

Maintenance & Repair – Square Footage or Time Study

Operation of Plant – Square Footage


Overhead Allocation MethodologiesLaundry – Pounds or Patient Days

Housekeeping – Square Footage or Time Study

Dietary – Meals or Patient Days

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Overhead Allocation MethodologiesCafeteria – Full Time Equivalents (FTEs)

Nursing Administration – Hours of Service

Medical Records – Gross Revenue or Time Study


Medicare Cost Based ReimbursementInterim payments made based on percentage of charges submitted and/or per diem

Interim rates based on prior year cost to charge ratio / per diem

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Medicare Cost Based ReimbursementFinal costs are calculated using departmental specific cost-to-charge ratio

Routine Med/Surg and Skilled Swing Bed costs calculated based on cost per day


Medicare Cost Based ReimbursementExample

Medicare will reimburse high percentage of direct costs incurred in Med/Surg due to high Medicare utilization.

Medicare will reimburse lower percentage of direct costs incurred in the departments with lower Medicare utilization (i.e. Emergency Room, Physical Therapy, etc.).

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Medicare Cost Based ReimbursementExample

Medicare will provide no additional reimbursement for direct costs incurred in non-reimbursable cost centers

Overhead costs incurred by the entity will be reimbursed by Medicare based on the Medicare utilization in the departments in which the costs are subsequently allocated

Why is it so difficult?

Cost Settlements

Factors impacting year-to-year cost settlements

VolumeMedicare UtilizationChanges in chargesChanges in expenses

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VolumeSignificant increases in volume tend to lead to year-end payable to MedicareSignificant decreases in volume tend to lead to year-end receivable from Medicare

Medicare utilization Changes in Medicare utilization impacts percentage of costs Medicare will reimburseDepartment specific


Changes in chargesIncreases in charges that exceed increases in expenses can result in overpayment on interim basisResults in payable at final settlementDecreases in charges can result in opposite effect

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Changes in expensesIncreases in expenses that exceed increases in revenues can result in underpayment on interim basisResults in receivable at final settlementDecreases in expenses can result in opposite effect


Cost plus 1% ≠ ProfitUnallowable costsWhere does the profit come from?

Rules/Interpretations ChangeLegislationMedicare Final RulesMedicare TransmittalsMedicare Audit Contractor interpretations (many retroactive)

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Challenges in managing costs as methodology to improve financial position

Example #1Decrease $100,000 in salary in Med/SurgReduce Medicare reimbursement $90,000.$10,000 net impact.

Example #2Decrease $10,000 in cost in Assisted LivingNo reduction in reimbursement$10,000 net impact.


Different rules in different statesCritical Access HospitalNursing Home

Difficulty finding trained staffNot offered as a specific college program

No reimbursement training for nurses and other clinical staffNo reimbursement training for Doctors

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Strategies

• Financial success is not easy nor guaranteed• PPS

• CAH

• Long term success is typically due to two factors• Location

• Development of best practices

• Location is difficult to change, but best practices can be addressed by all providers

Strategies

• Revenue recognition• Emergency Room

• Charge Capture/Coding

• Timely Filing

• Denial Management

• Precollection Efforts

• Benchmarking

• Physicians

• Other services

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Revenue Recognition – Emergency Room

• Emergency rooms often account for a significant amount of lost revenues• E/M Levels

• Charges

• Procedures


• Medicare allows providers to establish internal methodology for assignment of E/M levels 1 – 5 (CPT codes 99281 – 99285)• “Providers should continue to apply their current

internal guidelines to the existing CPT codes. Each hospital’s internal guidelines should follow the intent of the CPT code descriptors, in that the guidelines should be designed to reasonably relate the intensity of hospital resources to the different levels of effort represented by the codes. Hospitals should ensure that their guidelines accurately reflect resource distinctions between the five levels of codes.” (Pub. 100-04 Chapter 4 Section 160.)

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• These internally designed methodologies are frequently flawed• Originally developed in 2000 without change

• Incorrectly include other reportable services in the determination of levels (i.e., laceration repair, injections, etc.)

• Frequently result in an E/M assignment and overall distribution that is not reflective of the services rendered


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• While all facilities will vary, one would anticipate facilities would have a distribution somewhat similar to that of a Bell Curve unless there are explanations for a difference• Emergency Room has a higher than normal usage

for non-emergent clinic type services

• The number of “points” typically required to reach a specific level usually has little scientific background


• A review of the resources and points to reach each level can allow the facility to report levels that are more accurately reflecting the services rendered

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LevelOriginal Volume

New Volume Charge Impact

1 1,000 250 $ 107 $ (80,250)

2 2,000 1,250 $ 156 $ (117,000)

3 1,000 2,000 $ 253 $ 253,000

4 750 1,250 $ 409 $ 204,500

5 250 250 $ 653 $ -

Total $ 260,250

• Potential Gross Revenue Impact of Level Corrections


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• $260,250 or 23% increase!


• Charges for rural services frequently is well below that of larger counterparts for the exact same services

• Lack of appropriate pricing strategy may caused by numerous issues• Restraints placed on Management by Board

• Lack of understanding of reimbursement impact

• Inability to access market based data

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• Successful providers have strong pricing strategies• Use of market based data

• Commercial sources

• MedPar

• 75th percentile pricing

• Annual updates to pricing

Level VolumeOriginal Charge

Update Charge Impact

1 250` $ 107 $ 91 $ (4,000)

2 1,250 $ 156 $ 198 $ 52,500

3 2,000 $ 253 $ 376 $ 246,000

4 1,250 $ 409 $ 601 $ 240,000

5 250 $ 653 $ 873 $ 55,000

Total $ 589,500

• Potential Gross Revenue Impact of Market Pricing


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• $589,500 or 42% increase!


• Don’t forget the procedures!

• Procedure charges (lacerations, IVs, injections, etc.) are frequently missed in the CAH Emergency Room• Incorrectly included in E/M assignment

• Belief that assignment of CPT codes during coding process with capture reimbursement

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• Only way to ensure there is an opportunity to capture revenue is to capture the charge

• Charges for additional procedures in the Emergency Room can range from $50 to over $1,000• Average $100 - $200

• Reimbursed based on charges or fee schedules


• Example:• 5,000 annual visits

• 25% of visits qualify for additional procedure charge

• Average procedure charge of $150

• Total gross revenue opportunity = $187,500

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• Total gross revenue opportunity• E/M Levels = $ 260,250

• Pricing = $ 589,500

• Procedures = $ 187,500

• Total = $1,037,250

• Net opportunity assuming 60% non-Medicare and 75% payment level = $$466,800 annually

Revenue Recognition – Charge Capture

• Best practice facility’s capture the revenues for services they are rendering• Significant area of opportunity for most facilities

• Common areas of confusion/lost revenues• Outpatient nursing procedures

• Pharmacy

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• Outpatient nursing procedures• Facilities miss these opportunities

• IV therapy, injections, Foley catheter insertions, etc.


• Outpatient nursing procedures• Lost charges occur due to a lack of understanding of

what is actually separately reportable• Nursing documentation can affect ability to capture charges

• Start times

• Stop times

• Site

• Drugs

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• Outpatient nursing procedures• Recommend a team from nursing and HIM meet

frequently to discuss documentation and charge capture opportunities


• Pharmacy• Pharmacy charges are often missing from claims

• Totally missing

• Errors in proper reporting of units

• Overreliance on systems• Dispensing units

• Unit conversion factors

• Need to develop processes to review and update processes

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Revenue Recognition – Timely Filing

• Why capture the charges and then not file them timely?

• All Medicare claims must be filed within 1 year of service• Other payors may vary

• Many facilities still missing the deadlines!• Monitor write-off’s

• Separate account for tracking

Revenue Recognition – Denials

• Advanced Beneficiary Notices / Medical Necessity• Need to manage denials

• ABNs are not an option• This is an issue of liability not a determination of proper care

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Revenue Recognition – Denials

• Advanced Beneficiary Notices / Medical Necessity• Track Denials

• Service

• Physician

• Staff performing service

• Etc.

• Emergency Room services are not exempt• Monitor

• Follow up with providers

Revenue Recognition – Precollection

• Large increase in uninsured and those with large coinsurance and deductibles

• Precollection necessary• Time of scheduling

• Time of service

• Based on estimates if necessary

• Charity Care determinations• Application

• Presumptive methods

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Benchmarking / Physicians

• Best practice facilities develop strategies for benchmarking and physicians• Addressed in Session #2

Overhead Allocations - CAHs

• Proper cost report reimbursement can only occur if overhead allocations are properly monitored• Addressed in Session #2

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Other Services

• Less is often times more

• Overall financial performance can be significantly impacted by the addition of non-hospital services• Home health

• Hospice

• Physicians

• Ambulance

• Nursing Homes

• Assisted Living

• Etc.

Other Services

• The reimbursement methodology for many of these other services is not intended for smaller organizations/volumes• Difficult to make ends meet for larger organizations

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Other Services

• Rural providers frequently lack management time, commitment, or expertise to operate these other services• Have seen many home health agencies sold by CAH

to freestanding entities• Staffing levels improve

• Compensation levels managed to more appropriate levels

Closing

• The more successful rural providers have developed ongoing strategies to take advantage of opportunities while minimizing the financial threats

• These strategies are not all inclusive and are continuously developing. Don’t be afraid to challenge past decisions and to reverse course when appropriate

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Questions?

Ralph J. Llewellyn, CPA, CHFPPartner

Eide Bailly, [email protected]

701-239-8594

Documents

Translating Critical Access Hospital Finance [Read-Only] · 2017. 8. 23. · 1 Translating Critical Access Hospital Finance Ralph Llewellyn Partner [email protected] Introduction