1. A saved is a $ saved Understanding Critical Access Hospital Medicare Reimbursement Southeastern Critical Access Hospital Conference Savannah, Georgia March 24, 2011

2. The $1,000,000 solution

3. MEMO To: All Hospital Staff From: Administration/Grounds keeping Subject: New Cost Cutting Measures Effective immediately, this hospital will no longer provide security. Each charge nurse will be issued a.38 caliber revolver and 12 rounds of ammunition. An additional 12 rounds will be stored in pharmacy. In addition to routine nursing duties, Charge Nurses will rotate the patrolling of the hospital grounds. A bicycle and helmet will be provided for patrolling the parking areas.

4. In light of the similarity of monitoring equipment, ICU will now take over the security surveillance duties. The ward clerk will be responsible for watching cardiac monitors and security monitors as well as regular duties.

5. Food service will be discontinued. Patients wishing to be fed will need to let their families know to bring something or may make arrangements with Subway or Pizza Hut to deliver. Coin-operated telephones will be available in patient rooms for this purpose as well as for other calls the patient may wish to make.

6. Housekeeping and Physical Therapy will be combined. Mops will be issued to those patients who are ambulatory, thus providing range of motion exercises as well as a clean environment. Families and ambulatory patients may also sign up to clean the rooms of non-ambulatory patients for special discounts on their final bill. Time cards will be provided.

7. Hospital administration is assuming the grounds keeping duties. If an administrator cannot be reached by calling his/her office, it is suggested that you walk outside and listen for the sound of a lawnmower, weed- whacker, etc.

8. Maintenance is being eliminated. The hospital has subscribed to the Time-Life "How to..." series of maintenance books. These can be checked out from administration, and a toolbox will be standard equipment on all nursing units. We will be receiving the series at a rate of one volume every other month. We already have the volume on "Basic Wiring", but if a non-electrical problem occurs, please try to handle it as best you can until the appropriate volume arrives.

9. Cutbacks in phlebotomy staff will be accommodated by only performing blood- related tests on patients who are already bleeding.

10. Physicians will be informed that they may order no more than two X-rays per patient stay. This is due to the turn-around time required by Walmart. Two prints will be provided for the price of one, and physicians are being advised to clip coupons from the Sunday paper if they want extra sets. Walmart will also honor competitors coupons for one-hour processing in emergency situations, so if you come across any extra coupons please clip out and send these to ER.

11. In view of the hot summer temperatures, the Utilities Dept. has been asked to install individual meters in each patient room, office, etc., so that electrical consumption can be monitored and appropriately billed. Fans will be available for sale or lease in the hospital gift shop.

12. In addition to the current recycling programs, a bin for collection of unused fruit and bread will soon be provided on each floor. Families, patients, and the few remaining employees are asked to contribute discarded produce. Pharmacy will utilize this for antibiotic production. These will be available for purchase and, coincidentally, will soon be the only antibiotics on our HMO's formulary.

13. Now go out and save some money!

14. Seriously now, lets talk about Medicare payments!

15. There are two key factors in Medicare CAH reimbursement Interim payments Final cost report settlements

16. Interim payments can get the CAH in financial trouble? Huh?

17. Terminology INTERIM PAYMENTS o The amount of payment the facility receives related to daily billings to Medicare/Medicaid for services rendered to patients Inpatient Swing bed Outpatient

18. Interim Payment Methods INPATIENT o Payment made based on a specific daily rate o Specific daily rate based on most recently filed cost report OR MAC interim calculation o Components:

19. Interim Payment Methods SWINGBED o Payment made based on a specific daily rate o Specific daily rate based on most recently filed cost report OR MAC interim calculation o Components:

20. Interim Payment Methods OUTPATIENT o Payment made based on aggregate Medicare outpatient cost to charge ratio o Typically based on most recently filed cost report OR MAC interim calculation o Calculation: Interim Rate

21. Final payment The final payment the CAH receives on patient claims is made after the cost report is prepared. The final payment amount is compared to the interim payments and a settlement is computed.

22. Settlement COST REPORT SETTLEMENT o Amounts received from or paid to the MAC or Medicaid Intermediary as a result of the annual cost report settlement computation o Receivable – cash inflow o Payable – cash outflow

23. Cost report settlement

24. Impact of charge and expense fluctuations Youve Got to be Kidding Me?

25. Questions Does reducing your expenses cost you money? Does reducing your expenses automatically result in a payback to Medicare? Should you increase expenses to avoid a payback to Medicare? Should you increase charges? Is a payback to Medicare an indication of poor management?

26. When the cost report was filed, it was determined that Medicare utilization was 60%, therefore Medicare will pay 60% of the total hospital costs. Medicare utilization determines Medicares FINAL payment amounts

27. Interim payments Inpatient interim payments are based on the prior years cost per day including room and ancillary services. Outpatient interim payments are based on the relationship between costs and charges from the prior years report. This is called a cost to charge ratio.

28. Cost to charge ratios determine interim payments In this example, the cost to charge ratio is 95%. Costs = $95,000 Charges = $100,000 $95,000 / $100,000 = 95%

29. Why use cost to charge ratios? The cost report is not completed until AFTER the hospitals year end. So Medicare does not what the total hospital costs are, nor its utilization percentage. So how does Medicare know what to pay on the bills submitted during the year? The payments are based on the information from the prior years cost report.

30. Cost to charge ratios The cost to charge ratio is used for interim outpatient payments. The ratio is used to convert charges on a UB claim form to estimated costs. Lab $ 500 OR 900 Med Supp 200 Drugs 200 Total $1800 Cost to charge ratio = 95% $1,800 * 95% = $1,710 interim payment amount

31. The cash flow trap What if the CAHs costs change from last year? What if the CAHs charges change from last year? What if the CAHs Medicare utilization changes from last year? The CAH may find itself owing money back to Medicare!

32. The cash flow trap Since interim payments are based on last years charges, costs, and utilization any changes in these areas can cause either under or over payments! Hospital executives may think cash flow is great, only to have a giant headache once the cost report is filed.

33. How can this happen? Well spend some time looking at several scenarios to highlight how these changes affect Medicare payments.

34. Baseline information Scenario 1 – Prior years cost report Total Costs = $10 Total Charges = $10 Cost to charge ratio = 100% Medicare utilization = 50%

35. * Assume 50% of patients are Medicare What happens if costs are r e d u c e d ?

36. * Assume 50% of patients are Medicare What happens if costs are re du ce d ? Are you being penalized for reducing costs?

37. * Assume 50% of patients are Medicare Heres the dilemma! MACs time lag in adjusting interim payments Heres your dilemma!

38. * Assume 50% of patients are Medicare Heres the dilemma! (Cost reductions within the same year) MACs time lag in adjusting interim payments Heres your dilemma!

39. * Assume 50% of patients are Medicare If we reduce costs – who pays for the non-Medicare costs? Reduces pressure on sources available to pay remaining cost – Medicaid? Commercial? Self pay? County Subsidy?

40. * Assume 50% of patients are Medicare What happens if costs are i n c r e a s e d?

41. * Assume 50% of patients are Medicare What happens if costs are i n c r e a s e d?

42. * Assume 50% of patients are Medicare Are you being rewarded for increasing costs? What happens if costs are i n c r e a s e d?

43. * Assume 50% of patients are Medicare Increases pressure on sources available to pay remaining cost – Medicaid? Commercial? Self pay? County Subsidy? If we increase costs – who pays for the non-Medicare costs?

44. Impact of increased CHARGE on Medicare costs * Assume 50% of patients are Medicare

45. Impact of increased charges on patient responsibility 45

46. What if the Medicare patient population declines? Assume cost and charges remain stable

47. What if the Medicare patient population declines? Assume cost and charges remain stable

48. What if the Medicare patient population declines? Assume cost and charges remain stable

49. Why is this soooo difficult? Units

50. Recap – expense fluctuations Increase in expenses Decrease in expenses Total $s spent increase Total $s from Medicare increase Increase likelihood of cost report receivable Pressure to recover additional costs from other payers Total $s spent decrease Total $s from Medicare decrease Increase likelihood of cost report payable Reduction in costs to recover from other payers Presuming all other factors are stable.

51. Recap – charge fluctuations Increase in chargesDecrease in charges Perfect World - No impact on $s from Medicare Real World – Increase likelihood of cost report payable Increases patient co- insurance o Potential slow down in related cash collections Increase $s from charge- based payers Perfect World - No impact on $s from Medicare Real World – Increase likelihood of cost report receivable Decreases patient co- insurance Decreases $s from charge-based payers Presuming all other factors are stable.

52. Recap – Medicare utilization fluctuations Increase in utilizationDecrease in utilization Increase in $s from Medicare Reduction in costs to recover from other payers Decrease in $s from Medicare Pressure to recover additional costs from other payers Presuming all other factors are stable.

53. Bottom line! You must be aware of significant changes in charges, costs and payer mix from prior year! If significant, model cost report impact.

54. Thank you for your attention! Charles Horne Draffin & Tucker, LLP (229) 883-7878 chorne@draffin-tucker.com