1. RESIDENTIAL TREATMENT COST REPORTING Presented By: Steven Kohler, Senior Director Mary Cloney, Supervisor Matthew Rogers, Supervisor McBee Associates, Inc.

2. Introduction to Cost Reports Why Now? Why Now? Integrated Children’s Service Initiative Integrated Children’s Service Initiative Conversion to Medical Assistance Funding Conversion to Medical Assistance Funding Purpose of a Cost Report Purpose of a Cost Report Per Diem Rate Determination Per Diem Rate Determination OMAP Rates OMAP Rates Managed Care Funding Sources Managed Care Funding Sources

3. Cost Report Forms Pennsylvania Joint Financial Schedule (JFS) Pennsylvania Joint Financial Schedule (JFS) Report all of an entity’s costs Report all of an entity’s costs County Forms County Forms

4. PA JFS Schedule A 3800 Capacity vs. RTF Beds 3800 Capacity vs. RTF Beds Payer Classes Payer Classes Total Bed Days Used Total Bed Days Used Occupancy Percentage Occupancy Percentage 85% minimum 85% minimum Average Length of Stay Average Length of Stay

5. PA JFS Schedule B Schedule B The Columns The Columns Relation to Service Areas Relation to Service Areas Relation to Cost Centers Relation to Cost Centers Account Descriptions Account Descriptions Relation to your chart of accounts Relation to your chart of accounts Combination determine reimbursement Combination determine reimbursement

6. PA JFS Columns Column 2 – Total Expenses Column 2 – Total Expenses Calculated Field Calculated Field Columns 3 – Occupancy Columns 3 – Occupancy Maintenance or facility costs Maintenance or facility costs Can not be directly attributed to any other column Can not be directly attributed to any other column Examples on page 11 of Instructions Examples on page 11 of Instructions Allocated on Square Footage Allocated on Square Footage

7. PA JFS Columns Column 4 – General and Administrative Column 4 – General and Administrative “Common or joint purpose” “Common or joint purpose” Can not be directly attributed to Columns 8 or 11 Can not be directly attributed to Columns 8 or 11 Examples on Page 11 of Instructions Examples on Page 11 of Instructions Allocated on total expense less this column Allocated on total expense less this column

8. PA JFS Columns Column 5 – Room & Board Column 5 – Room & Board Examples: Night Workers, Food, Laundry Examples: Night Workers, Food, Laundry All RTF Living Area Square Footage All RTF Living Area Square Footage All Living Area Occupancy Expense All Living Area Occupancy Expense Column 6 – Related Services Column 6 – Related Services Expense used by both Column 7 and 8 that can not be individually attributed to either Expense used by both Column 7 and 8 that can not be individually attributed to either

9. PA JFS Columns Column 7 – Residential Mental Health Services Column 7 – Residential Mental Health Services Directly associated with mental health services Directly associated with mental health services Examples Examples Mental Health Workers Mental Health Workers Medical Supplies (No prescription medication) Medical Supplies (No prescription medication) Religious Services Religious Services

10. PA JFS Columns Column 7 (continued) Column 7 (continued) Professional vs. Provider Component Professional vs. Provider Component Professional – Not Allowable – Column 10 Professional – Not Allowable – Column 10 Physicians Physicians Dentists Dentists Psychiatrists Psychiatrists Medication Management & Evaluations Medication Management & Evaluations Provider – Allowable – Column 7 Provider – Allowable – Column 7 Psychiatrists Psychiatrists Consultations & Supervision Consultations & Supervision TIME STUDIES TIME STUDIES

11. PA JFS Columns Column 8 – Education Column 8 – Education Approved Private Schools (APS) or Private Residential Rehabilitative Institute (PRRI) Approved Private Schools (APS) or Private Residential Rehabilitative Institute (PRRI) All other education expense in column 11 All other education expense in column 11 No APS or PRRI No APS or PRRI All education expense in column 8 All education expense in column 8 Include: School salaries, supplies, square footage Include: School salaries, supplies, square footage

12. PA JFS Columns Column 9 – Therapeutic Day Program Column 9 – Therapeutic Day Program Only use if you have a separately funded Therapeutic Day Program or Partial Hospitalization Program supporting the RTF Only use if you have a separately funded Therapeutic Day Program or Partial Hospitalization Program supporting the RTF Column 10 – Unallowable Column 10 – Unallowable Marketing/Fund Raising Marketing/Fund Raising Professional Component Professional Component Bad Debts Bad Debts Personal Care Items Personal Care Items

13. PA JFS Columns Column 11 – Other Programs Column 11 – Other Programs All other program not related to RTF All other program not related to RTF Only include program for this entity Only include program for this entity

14. PA JFS Account Descriptions Salaries and Wages Salaries and Wages Time Studies Time Studies Professional and Senior Administrative Staff Professional and Senior Administrative Staff Once each quarter for two weeks Once each quarter for two weeks Identify time in each program Identify time in each program Identify face-to-face time (professional) Identify face-to-face time (professional) Identify Administrative time Identify Administrative time Tie to Exhibit 1 Tie to Exhibit 1 Details individual salaries and wages Details individual salaries and wages

15. PA JFS Account Descriptions Fringe Benefits Fringe Benefits Enter Total Enter Total Allocation Following Employee Salaries and Wages Allocation Following Employee Salaries and Wages Operating Expenses Operating Expenses Tie to internal chart of accounts Tie to internal chart of accounts Home Office Costs Restricted to Column 4 Home Office Costs Restricted to Column 4

16. PA JFS Account Descriptions Purchased Services Purchased Services Administrative General Administrative General Accounting Accounting Auditing Auditing Data Processing Data Processing Payroll Payroll Legal Legal Other expense classification vary with use Other expense classification vary with use

17. PA JFS Account Descriptions Buildings & Fixtures Buildings & Fixtures If not attributed to one program must be Occupancy If not attributed to one program must be Occupancy Major Movable Equipment & Transportation/Vehicles Major Movable Equipment & Transportation/Vehicles Classified according to use Classified according to use Maintenance & Repair reported in Operating Maintenance & Repair reported in Operating

18. PA JFS Account Descriptions Restricted Income Restricted Income USDA – PDE Food Programs USDA – PDE Food Programs Chapter 1 Chapter 1 Interest Income Interest Income Offset expense in appropriate column to determine Net Operating Expense Offset expense in appropriate column to determine Net Operating Expense

19. PA JFS Account Descriptions Allocations Allocations Square Footage Square Footage Allocation of Occupancy Column Allocation of Occupancy Column Related Service Related Service Residential Mental Health 65% Residential Mental Health 65% Education 35% Education 35%

20. PA JFS Account Descriptions Allocations (continued) Allocations (continued) G & A G & A Expense allocation of net operating including occupancy less G&A Expense allocation of net operating including occupancy less G&A Per Diem Calculations Per Diem Calculations 85% Bed Day Minimum 85% Bed Day Minimum 13% G&A limitation 13% G&A limitation

21. PA JFS Supporting Schedules – Schedule C Supporting Schedules – Schedule C Exhibit 1 – Salary & Wage Roster Exhibit 1 – Salary & Wage Roster Tie to Schedule B Column 2 Line 1 Tie to Schedule B Column 2 Line 1 Exhibit 2 – Loans & Interest Exhibit 2 – Loans & Interest Tie to sum of Loans & Interest on Schedule B Tie to sum of Loans & Interest on Schedule B Exhibit 3 – Depreciation Exhibit 3 – Depreciation Each line should tie to corresponding line on Schedule B Each line should tie to corresponding line on Schedule B Exhibit 4 – Transactions with Related Parties Exhibit 4 – Transactions with Related Parties

22. Filing Requirements Filed to the Department of Public Welfare for RTF’s Filed to the Department of Public Welfare for RTF’s Filed to Department of Education for APS’s and PRRI’s Filed to Department of Education for APS’s and PRRI’s 90 Days from June 30 th 90 Days from June 30 th Can request extension Can request extension Include Program Description with first and when changes are made Include Program Description with first and when changes are made Follow Checklist Follow Checklist

23. CMS Cost Accounting Model The Medicare Cost Allocation Model The Medicare Cost Allocation Model Has roots back to 1965, developed in part by the American Hospital Association (AHA) and exists today some 40 years later, virtually unchanged Has roots back to 1965, developed in part by the American Hospital Association (AHA) and exists today some 40 years later, virtually unchanged Concepts include determining allowable cost; allocation of overhead; matching cost with revenue or days / visits; and apportioning the cost to the Medicare Program based upon the ratio of cost to charges / units times Medicare charges / units (RCCAC) Concepts include determining allowable cost; allocation of overhead; matching cost with revenue or days / visits; and apportioning the cost to the Medicare Program based upon the ratio of cost to charges / units times Medicare charges / units (RCCAC)

24. CMS Cost Accounting Model Allocation Methods Allocation Methods Occupancy – Indirect Facility Occupancy – Indirect Facility Square footage less Occupancy square footage Square footage less Occupancy square footage Administrative/General Administrative/General Total expense less administrative expense Total expense less administrative expense

25. Regulatory Authority Where the Commonwealth or Pennsylvania does not provide specific regulatory authority to define allowable costs, the Medicare Regulations prevail. Where the Commonwealth or Pennsylvania does not provide specific regulatory authority to define allowable costs, the Medicare Regulations prevail. Commonwealth of Pennsylvania regulations can be found in Instructions and 55 PA Code 6211 Commonwealth of Pennsylvania regulations can be found in Instructions and 55 PA Code 6211 CMS (Centers for Medicare and Medicaid Services) regulations and program instructions can be found at: CMS (Centers for Medicare and Medicaid Services) regulations and program instructions can be found at: 42 CFR 413 – Principles of Cost Reimbursement 42 CFR 413 – Principles of Cost Reimbursement CMS Publication 15-1 – Provider Reimbursement Manual CMS Publication 15-1 – Provider Reimbursement Manual

26. Recordkeeping Requirements Accrual Basis of Accounting Accrual Basis of Accounting Liquidation of Liabilities – 1 Year (few exceptions) Liquidation of Liabilities – 1 Year (few exceptions) Cost Finding Cost Finding Direct Cost Allocations Direct Cost Allocations Indirect Cost Allocations Indirect Cost Allocations Home Office Cost Home Office Cost Direct Allocations Direct Allocations Functional Allocations Functional Allocations Pooled Allocations Pooled Allocations

27. CMS Provider Reimbursement Manual CMS Website Reference: www.cms.hhs.gov/manuals/pub151/PUB_15_1.a sp www.cms.hhs.gov/manuals/pub151/PUB_15_1.a sp

28. CMS – Provider Reimbursement Manual 15-1 (Relevant Chapters) Chapter 1 - Depreciation Chapter 1 - Depreciation Chapter 1 Chapter 1 Chapter 2 - Interest Expense Chapter 2 - Interest Expense Chapter 2 Chapter 2 Chapter 8 - Purchase Discounts and Allowances, and Refunds Chapter 8 - Purchase Discounts and Allowances, and Refunds Chapter 8 Chapter 8 Chapter 9 - Compensation of Owners Chapter 9 - Compensation of Owners Chapter 9 Chapter 9 Chapter 10 - Cost to Related Organizations Chapter 10 - Cost to Related Organizations Chapter 10 Chapter 10 Chapter 21 - Costs Related to Patient Care Chapter 21 - Costs Related to Patient Care Chapter 21 Chapter 21 Chapter 22 - Determination of Cost of Services Chapter 22 - Determination of Cost of Services Chapter 22 Chapter 22 Chapter 23 - Adequate Cost Data and Cost Finding Chapter 23 - Adequate Cost Data and Cost Finding Chapter 23 Chapter 23

29. Allowable & Non-Allowable Costs CMS Standards CMS Publication 15-1- Provider Reimbursement Manual – Chapter 21 – Costs Related to Patient Care CMS Publication 15-1- Provider Reimbursement Manual – Chapter 21 – Costs Related to Patient Care What is an allowable cost? What is an allowable cost? Must be reasonable and related to patient care - Section 2102.1 Must be reasonable and related to patient care - Section 2102.1 What would be paid for an item by a prudent and cost conscious buyer – Section 2103 What would be paid for an item by a prudent and cost conscious buyer – Section 2103

30. Allowable & Non-Allowable Costs CMS Standards CMS Publication 15-1- Provider Reimbursement Manual – Chapter 21 – Costs Related to Patient Care CMS Publication 15-1- Provider Reimbursement Manual – Chapter 21 – Costs Related to Patient Care What is a non-allowable cost? What is a non-allowable cost? Cost that are not related to patient care Cost that are not related to patient care Costs of gifts or donations – Section 2105.7 Costs of gifts or donations – Section 2105.7 Cost of entertainment – Section 2105.8 Cost of entertainment – Section 2105.8 Cost of employee personal use of motor vehicles – Section 2105.9 Cost of employee personal use of motor vehicles – Section 2105.9 Cost of fines or penalties – Section 2105.10 Cost of fines or penalties – Section 2105.10 Costs of patient phones / television – Section 2106 Costs of patient phones / television – Section 2106 Federal Income; State or Local Income Taxes – Section 2122.2 Federal Income; State or Local Income Taxes – Section 2122.2 Taxes for which exemption of taxes are available to the provider – Section 2122.2 Taxes for which exemption of taxes are available to the provider – Section 2122.2 Special Assessments on land which represent capital improvements (e.g. sewers, water, and pavements) – Section 2122.2 Special Assessments on land which represent capital improvements (e.g. sewers, water, and pavements) – Section 2122.2

31. Allowable & Non-Allowable Costs CMS Standards CMS Publication 15-1- Provider Reimbursement Manual – Chapter 21 – Costs Related to Patient Care CMS Publication 15-1- Provider Reimbursement Manual – Chapter 21 – Costs Related to Patient Care What is a non-allowable cost? What is a non-allowable cost? Certain advertising cost – Section 2136.2 Certain advertising cost – Section 2136.2 Political and lobbying cost – Section 2139 Political and lobbying cost – Section 2139

32. Allowable & Non-Allowable Costs CMS Standards Costs to Related Organizations - CMS Publication 15-1– Chapter 10 Costs to Related Organizations - CMS Publication 15-1– Chapter 10 Principle Principle Costs applicable to services, facilities, or supplies furnished to a provider by common ownership or control are includable in the allowable cost of the provider at the cost to the related organization. Costs applicable to services, facilities, or supplies furnished to a provider by common ownership or control are includable in the allowable cost of the provider at the cost to the related organization. Such costs must not exceed the price of comparable services, facilities, or supplies that could be purchased elsewhere. Such costs must not exceed the price of comparable services, facilities, or supplies that could be purchased elsewhere.

33. Allowable & Non-Allowable Costs CMS Standards Related Organizations Related Organizations Purpose Purpose To avoid payment of a profit factor to the provider through the related organization To avoid payment of a profit factor to the provider through the related organization To avoid the payment of artificially inflated costs which may be generated from less than an arm’s-length bargaining To avoid the payment of artificially inflated costs which may be generated from less than an arm’s-length bargaining

34. Allowable & Non-Allowable Costs CMS Standards Related Organizations Related Organizations Definitions Definitions Related to the provider means that the provider to a significant extent is associated or affiliated with, or has control of, or is controlled by, the organization furnishing the services, facilities, or supplies. Related to the provider means that the provider to a significant extent is associated or affiliated with, or has control of, or is controlled by, the organization furnishing the services, facilities, or supplies. Common ownership exists when an individual or individuals possess significant ownership or equity in the provider and the institution or organization serving the provider. Common ownership exists when an individual or individuals possess significant ownership or equity in the provider and the institution or organization serving the provider. Control exists where an individual or an organization has the power, directly or indirectly, to significantly influence or direct the actions or policies of an organization or institution. Control exists where an individual or an organization has the power, directly or indirectly, to significantly influence or direct the actions or policies of an organization or institution.

35. Allowable & Non-Allowable Costs CMS Standards Related Organizations Related Organizations Tests of Common Ownership and Control Tests of Common Ownership and Control If either common ownership or control are present, costs to the provider must be reflected as the costs of the supplier, with the reasonable cost provisions guiding. (e.g. must be less than or equal to market rates that a prudent buyer would pay) If either common ownership or control are present, costs to the provider must be reflected as the costs of the supplier, with the reasonable cost provisions guiding. (e.g. must be less than or equal to market rates that a prudent buyer would pay)

36. Allowable & Non-Allowable Costs CMS Standards Related Organizations Related Organizations Determination of a related organization’s cost Determination of a related organization’s cost The related organization’s cost include all reasonable costs, direct and indirect, incurred in the furnishing of services, facilities, and supplies to the provider. The intent is to treat the costs incurred by the supplier as if they were incurred by the provider itself, subject to the allowable cost provisions. The related organization’s cost include all reasonable costs, direct and indirect, incurred in the furnishing of services, facilities, and supplies to the provider. The intent is to treat the costs incurred by the supplier as if they were incurred by the provider itself, subject to the allowable cost provisions. Access to the books and records of the related party must be provided for. Access to the books and records of the related party must be provided for.

37. Allowable & Non-Allowable Costs CMS Standards Related Organizations - Exceptions Related Organizations - Exceptions The following criteria apply for an exception The following criteria apply for an exception The supplying corporation is a bona-fide separate organization The supplying corporation is a bona-fide separate organization A substantial part of the supplying organization’s business activity is transacted with other organizations not related to the provider A substantial part of the supplying organization’s business activity is transacted with other organizations not related to the provider The services, facilities, or supplies are those which are commonly obtained by providers from other organizations The services, facilities, or supplies are those which are commonly obtained by providers from other organizations Open market charging practices Open market charging practices

38. Allowable & Non-Allowable Costs CMS Standards Interest Expense – Pub 15-1, Section 200 Interest Expense – Pub 15-1, Section 200 Necessary Necessary Incurred on a loan to satisfy a financial need Incurred on a loan to satisfy a financial need For a purpose related to patient care For a purpose related to patient care Is reduced by investment income Is reduced by investment income Proper Proper Interest incurred at a rate not in excess of what a prudent borrower would pay Interest incurred at a rate not in excess of what a prudent borrower would pay Interest paid to a lender not related to the provider (e.g. – Interest paid on loans from owner are not an allowable cost) Interest paid to a lender not related to the provider (e.g. – Interest paid on loans from owner are not an allowable cost)

39. Allowable & Non-Allowable Costs CMS Standards Owners Compensation – Pub 15-1, Chapter 9 Owners Compensation – Pub 15-1, Chapter 9 Reasonable value of services rendered limited to the fair market value of such services on the open market Reasonable value of services rendered limited to the fair market value of such services on the open market Applies to the actual compensation of all individuals performing services at the provider Applies to the actual compensation of all individuals performing services at the provider Necessary – Had the owner not performed the services, the provider would have to employ another person to perform them. Necessary – Had the owner not performed the services, the provider would have to employ another person to perform them. Criteria for assessing reasonable compensation: Criteria for assessing reasonable compensation: Survey of comparable size providers Survey of comparable size providers Comparable services provided Comparable services provided Geographic location Geographic location Qualifications of the individual Qualifications of the individual

40. Reference Material www.dpw.state.pa.us/omap/ www.dpw.state.pa.us/omap/ www.dpw.state.pa.us/omap/ www.pacode.com www.pacode.com www.pacode.com www.cms.gov www.cms.gov www.cms.gov www.cms.hhs.gov/manuals/pub151/PUB_15_1.asp www.cms.hhs.gov/manuals/pub151/PUB_15_1.asp www.cms.hhs.gov/manuals/pub151/PUB_15_1.asp www.cms.hhs.gov/manuals/pub151/PUB_15_1.asp

41. Question & Answer Session