1. Georgia Hospital Association Center for Rural Health Annual Summer Meeting August 2014 Hospital Operations and the Medicare Cost Report Presented By: Southwest Consulting Associates

2.  Brief history of the report  Brief outline of the flow of the report  Use of the report  Where operations and the cost report intersect  Wage Data – Wage Index  DSH/ACA Uncompensated Care Pool OVERVIEW

3.  Pre 1980s – paid on cost up to limits  1980s – Prospective Payment System for Inpatient Acute implemented  Outpatient, Psych, Rehab SNF, etc. to follow  Current use  Still used to settle certain cost/reimbursement items  Used extensively in rate setting and other program reimbursement decision making  Used by CMS, MACs, OIG, MedPac and Congress HISTORY

4. REPORT FLOW  Worksheet A Series – GAAP expenses converted to Medicare allowable cost  Worksheet B Series – Allocate overhead cost to revenue producing cost centers  Worksheet C Series – Develop departmental cost – to – charge ratios  Worksheet D Series – Apportion cost among the programs  Worksheet E Series – Reimbursement settlement  Worksheet H Series – Home Health Agency  Worksheet I Series – Renal Dialysis  Worksheet J Series – Community Mental Health Centers  Worksheet K Series – Hospice  Worksheet L Series – Capital – Related Costs  Worksheet M Series – RHC and FQHC

5. MOST IMPORTANT SCHEDULE  PART II – 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 WHERE OTHERWISE ILLEGAL, 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 STATEMENT AND THAT I HAVE EXAMINED THE ACCOMPANYING ELECTRONICALLY FILED OR MANUALLY SUBMITTED COST REPORT AND THE BALANCE SHEET AND STATEMENT OF REVENUE AND EXPENSES PREPARED BY (PROVIDER NAME(S) AND NUMBER(S)) FOR THE COST REPORTING PERIOD BEGINNING 10/01/2011 AND ENDING 09/30/2012, AND TO THE BEST OF MY KNOWLEDGE AND BELIEF, IT IS A TRUE, CORRECT AND COMPLETE STATEMENT 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)

6. REPORT FLOW (con’t)  Mandatory submission requirement  Non compliance penalty – interim payments among others  Estimated completion time – 600 – 800 hours  All subject to audit and settlement IMPLICATIONS OF SETTLEMENT?? Settled w/ Audit 26% Settled w/o Audit 73%

7. REPORT USE - EXAMPLES  Used by  Medicare  Medicaid  Private Insurance  Hospitals  Others – Consultants, Government entities, etc.  Used For  Settlements CAHs SCHs MDHs DSH Bad debts Medical Education  Interim payments  Rate Setting Medicare weights, outlier thresholds, labor – related share, wage index, geographic reclassifications, etc. Medicaid weights, standardized payment amounts, Medicaid DSH calculation, etc.  340B drug discount program qualification  ACA DSH/Uncompensated care reimbursement allocations  Contract analysis and negotiations  Financial reporting

8. OPERATIONS MEET COST REPORT WAGE RELATED COSTS  Objectives  Understand impact  Understand where the data comes from  Understand the rules behind the reported data  Understand the process  Factor this knowledge into decision making  Impacts virtually all aspects of Medicare reimbursement  Rates IP and OP PPS IP Psych IP Rehab LTAC Swing Bed HHA  Designations & Exceptions Geographic reclassification Others

9. OPERATIONS MEET COST REPORT (con’t) WAGE RELATED COSTS (con’t)  Formula – IPPS payment DRG standardized amount X Wage Related Portion X area wage index +non – wage related portion Adjusted standardized amount The wage related portion of the standardized amount derived by reported data, as is hospital AHW, area AHW and national AHW

10. WAGE RELATED COSTS (con’t) Salaries TOTAL SALARIES NON-PHYSICIAN ANESTHETIST PART A NON-PHYSICIAN ANESTHETIST PART B PHYSICIAN-PART A ADMINISTRATIVE PHYSICIAN-PART A - TEACHING PHYSICIAN-PART B NON-PHYSICIAN-PART B INTERNS & RESIDENTS (IN AN APPROVED PROGRAM) HOME OFFICE PERSONNEL EXCLUDED AREA SALARIES Other Wage & Related Costs CONTRACT LABOR CONTRACT MANAGEMENT AND ADMINISTRATIVE SERVICES CONTRACT LABOR: PHYSICIAN-PART A - ADMINISTRATIVE Wage related Costs WAGE-RELATED COSTS (CORE) WAGE-RELATED COSTS (OTHER) EXCLUDED AREAS NON-PHYSICIAN ANESTHETIST PART A NON-PHYSICIAN ANESTHETIST PART B PHYSICIAN PART A - ADMINISTRATIVE PHYSICIAN PART A - TEACHING PHYSICIAN PART B WAGE-RELATED COSTS (RHC/FQHC) INTERNS & RESIDENTS (IN AN APPROVED PROGRAM Overhead Costs – Direct Salaries EMPLOYEE BENEFITS ADMINISTRATIVE & GENERAL ADMINISTRATIVE & GENERAL UNDER CONTACT MAINTENANCE & REPAIRS OPERATION OF PLANT LAUNDRY & LINEN SERVICE HOUSEKEEPING HOUSEKEEPING UNDER CONTRACT DIETARY DIETARY UNDER CONTRACT (SEE INSTRUCTIONS) CAFETERIA MAINTENANCE OF PERSONNEL NURSING ADMINISTRATION CENTRAL SERVICES AND SUPPLY PHARMACY MEDICAL RECORDS & MEDICAL RECORDS LIBRARY SOCIAL SERVICE OTHER GENERAL SERVICE

11. WAGE RELATED COSTS (con’t) Reported SalariesReclassifications Adjusted SalariesPaid Hours 1 NET SALARIES358,459,0766,583,218356,042,2948,949,94840.79 2 EXCLUDED AREA SALARIES20,214,3121,574,87821,789,190826,72226.36 3 SUBTOTAL SALARIES338,244,7645,008,340343,253,1048,123,22642.26 4 SUBTOTAL OTHER WAGES & RELATED COSTS23,548,885 233,933100.67 5 SUBTOTAL WAGE-RELATED COSTS89,901,693 26.19% 6 TOTAL (SUM OF LINES 3 THRU 5)451,695,3425,008,340456,703,6828,357,15954.65 7 TOTAL OVERHEAD COST103,821,4651,903,921105,725,3862,797,10537.80

12. WAGE RELATED COSTS (con’t) Translated into a wage index: AHW MSA$35.00 Nat’l AHW$37.00 MSA Wage Index0.9459

13. WAGE RELATED COSTS (con’t)  Priority objective – review the data  Begins with cost report filing Year – Over – Year analysis  Overall assessment Your hospital Hospitals in your grouping  Development Timetable May 2014Release prelim wage data July 2014Release prelim occupational mix data Oct 2014Deadline for hospitals to request corrections Dec 2014Deadline for MAC to complete reviews Feb 2015Release revised WI and OM files Mar 2015Re-request corrections previously disclosed Apr/May 2015 NPRM issued, reclassification withdrawal 45- days from publication April 2015MAC transmission of data April 2015Hospital deadline to appeal MAC determination April 2015Compiled data sent to MACs from CMS May 2015Release of PUFs June 2015Hospital deadline to request error correction Aug 2015Publish final payment rule Oct 2015Rates become effective

14. WAGE RELATED COSTS (con’t)  Occupational mix Adjustment  Every three years  2013 most current – to be used in 2016 – 2018 WI  Estimated 480 hours to complete the research, compile the data, review and submit the survey  Adjust costs due to management decisions

15. DSH UNDER THE AFFORDABLE CARE ACT  Traditional formula – Medicare ratio + SSI ratio 100% payment  ACA formula 25% of traditional formula PLUS pro rata share of National Uncompensated Care Pool  Pool distribution based on days, to be converted to uncompensated care cost  Cost report related facts  Cost report drove the pre – ACA payment methodology  Cost report drives 25% empirically justified piece  Cost report drives UC pool “estimate” calculation  Cost report drives the current UC pool distribution methodology  Cost report expected to drive the new UC pool distribution pool methodology

16. DSH UNDER THE AFFORDABLE CARE ACT (con’t)  Key elements of the calculation  Operations considerations Medicaid eligible days – impacts qualification, empirical payment, UC payment Medicaid patient ID, conversions, services and product lines, physicians, Medicaid expansion Hospital uncompensated care costs Policies and procedures, federal and state laws, Medicaid expansion

17. DSH UNDER THE AFFORDABLE CARE ACT (con’t)  Factor 1  CMS DSH estimate  2011 base year  2011 = $11,498 B  DRG payment update factors to forecast 2015 DSH  2015 = $14,205 B  Reduced by 25% (empirically justified DSH)

18. DSH UNDER THE AFFORDABLE CARE ACT (con’t)

19.  Factor 2 under uc distribution formula

20. DSH UNDER THE AFFORDABLE CARE ACT (con’t)  Factor 3  Provider’s % of low income days = % UC pool distribution  Medicaid days + SSI days  Source: 2011 SSI days  Source: 2012 cost reports

21. DSH UNDER THE AFFORDABLE CARE ACT (con’t) Georgia Numbers 2014  Using days($2,310,000)  Using UC$40,000,000  Priority 2015  Using days($42,290,000 )  Using UC($10,826,000) Challenges  Medicaid expansion  Denominator growing faster than numerator  Higher UC care  Distribution basis

22. DSH UNDER THE AFFORDABLE CARE ACT S–10  “Although we have not yet developed revisions to the Worksheet S – 10 instructions at this time, we remain committed to making improvements to Worksheet S – 10. For that reason, we believe it would be premature to propose the use of Worksheet S – 10 data for the purposes of determining factor 3 for FY 2015.”  “We are inviting public comments on what would be a reasonable timeline for adopting Worksheet S – 10 of the Medicare cost report as the data source for determining Factor 3.”

23.  Summary – Cost reports drive  Future year estimates  Current UC pool distribution basis  340b program qualification for DSH providers  Current year qualification  Empirically justified component  Future year distribution basis DSH UNDER THE AFFORDABLE CARE ACT (con’t)

24. QUESTIONS & COMMENTS

25. Michael Newell President mnewell@southwestconsulting.net Jeff Norman National Sales Manager jnorman@southwestconsulting.net Southwest Consulting Associates 2805 Dallas Parkway Suite 620 Plano, Texas 75093 (972)732-8100 www.southwestconsulting.net