1.  MedPac Report  Rebasing  Cost Report Update 1

2.  In 2008, 3.2M Medicare beneficiaries, 10,026 HHAs, $17B reimbursement  6.1M episodes  1.9 episodes per user  $5,337 avg. payment per user  21.6 visits per episode  www.medpac.gov 2

3.  Home Health access: very good  Growth in HHAs, increase of 476 in 2009  Abuse with outlier payments  Decrease in LUPA episodes: 15% in 2002, 10% in 2008  Case mix increase in 2008: 2.4%  Cost per episode increase: 3.8% 3

4.  2008 Medicare margin for freestanding providers: 17.4% 4

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9.  Beneficiaries access to home health care is very good  Number of HHAs continues to increase but at a slower rate  Quality: improvement in functional measures but unchanged in adverse events  Payments are more than adequate  Predicting margin of 13.7% in 2011 9

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12. 12 What is Rebasing? Change prospective rates based on more current cost data –President Improve Medicare home health payments to align to costs –MedPAC Rebase rates for home health care services to reflect the average cost of providing care

13. 13 Methods of Rebasing Provider specific vs. all providers Ownership type vs. all ownership types Provider type vs. all provider types Regional vs. national Phase-in vs. one-time adjustment Ceiling/floor vs. no limits Cost report methodology vs. IRS standards

14. 14 Common Errors in Cost Report Preparation Free-Standing and Hospital Based Improper accounting method Inaccurate visit counts Lack of understanding of like-kind visits

15. 15 Inaccurate FTE calculations Improper use of the PS&R Missing data Common Errors in Cost Report Preparation Free-Standing and Hospital Based

16. 16 Common Errors in Cost Report Preparation Free-Standing and Hospital Based Improper classification of direct costs Duplicating indirect cost allocations Proper reporting of non-reimbursable cost centers such as Telehealth

17. 17 Common Errors in Cost Report Preparation Free-Standing and Hospital Based Proper reporting of non-routine medical supply costs and revenues FYI – there is a new worksheet in 2009 for reporting flu vaccines Failure to properly reclassify costs using the Trial Balance or Worksheet A-4 - Reclassifications

18. 18 Common Errors in Cost Report Preparation Free-Standing and Hospital Based Lack of use or improper use of Worksheet A-5 - Adjustments Proper use of Worksheet A-6 - Related Organization Costs and related organizational costs issues Proper preparation and reconciliation of the F series of worksheets relating to the Balance Sheet, Income Statement and Reconciliation of the Fund Balances

19. 19 Common Errors in Cost Report Preparation Free-Standing and Hospital Based Failure to charge direct costs to the HHA – just using the step-down method Benefit and other cost allocations that do not relate to HHA operations

20. 20 Common Errors in Cost Report Preparation Free-Standing and Hospital Based Medical supplies costs without the revenue and the cost-to-charge ratio Need for direct costs to be in line with free-standing agencies –So that these costs can be included in calculations for rebasing/reimbursement rate setting

21. 21 PS&R REGISTRATION The first person to register for the provider organization must be the designated Security Official (SO). The SO is ultimately responsible for all users in the organization. The SO will: First register the organization in IACS Submit all required verification documentation, and If approved, will then be given the ability to approve other users’ access to the PS&R system.

22. 22 Note: The SO can approve users, but CANNOT use the specific application (PS&R). The SO will delegate PS&R access to the “PS&R Users”. If you require access to the PS&R system, DO NOT register yourself as the SO.

23. 23 The registration process is time consuming and confusing The Security Official (SO) must first register and is then supposed to get an email requesting IRS documentation, CP575 or 147C letter. This step seems to be the bottleneck. The SO cannot access the PS&R System

24. 24 To get a copy of the IRS Form 147C, you can call the IRS at 1-800-829-4933. The provider name on the registration must match exactly to the name on the IRS Form. You should get an email from IACS, within a few days of the Security Officer registering.

25. 25 NEED HELP ? ? ? Questions regarding IACS Contact the IACS help desk, External User Services (EUS) at 866-484-8049 or EUSSupport@cgi.comEUSSupport@cgi.com If you have PS&R application specific questions, Contact your Fiscal Intermediary/MAC

26.  The Medicare Cost Report is NOT just a “compliance” requirement we must file each year, but a valuable tool to assist in budgeting, pricing, and “what if analysis”.  Find your Direct and Indirect cost per visit  Find your cost of non-routine medical supplies  Find your Medicare margin! 26

27.  Some terms 1. Direct and indirect costs 2. Fixed and variable costs 3. Incremental costs 4. Fully absorbed costs  How can we get these various types of costs and use them in the business decision making process? 27

28.  Worksheet B leads to Worksheet C which calculates your cost per visit.  This is in the aggregate, and is not very useful in making your contracting decisions, yet.  It does not give you any of the various categories of costs yet, but it is fully absorbed. 28

29.  Using the costs and visits in Worksheet C and going back to Worksheet A -1, we can calculate our direct and indirect costs per visit and the makeup of those costs. 29

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31.  Make sure you have all of your expenses included ◦ Some expenses have traditionally been left out of the cost report but need to be added back for this purpose  Marketing expenses  Bad debt  Interest expense 31

32.  Now we know what our direct and indirect expenses are on a fully absorbed basis.  One would suggest your price for a nursing visit should be $177.91 plus some margin for profit.  Now the art sets in.  How to Price our services. 32

33.  We have product lines, products, markets and distribution channels.  Nursing is a product line and MCH nursing is a product within the nursing product line.  Our payers are our distribution channels.  Our referrers are our markets.  Besides our cost per visit we need to know our costs per hour of service. 33

34.  Our payers have different contracts and payment methods ◦ Fee for service ◦ Episodic ◦ Capitation  Our payers and referrers also have other sources of our products – our competition. 34

35.  Using the total cost per discipline we came up with way back in the cost report we can spread the costs using the hours of service.  Simply divide the total costs per discipline by the number of hours of service.  Then look at your various payers and visit types to see how the cost pattern changes. 35

36.  How can you split the costs between payers or even types of visits within payer  Looking at nursing only for now ◦ We did 68,775 visits and took 40,200 hours to do them ◦ That’s 40,200/68,775 or.5845 of an hour or 35 minutes per visit ◦ Using 40,200 hours we get 2,412,000 minutes ◦ Our nursing costs were $12,235,590 36

37.  So $12,235,590/2,412,000 is $5.07 per minute.  Lets assume our managed care visits are 30 minutes long.  We did 19,362 managed care visits but our cost on that basis was $2,944,960.  Our cost is not the $177.91 per visit but $152.10 per visit. 37

38.  In Summary: You should be very careful doing your cost report with the various expenses being allocated properly. You should know your costs per visit and per hour of service within discipline. You should calculate your costs for the services you provide within each payer.  Using both your per visit and per hour costs you should calculate the cost of your episodes. 38

39.  HHA, 1728-94, Transmittal 14 issued 1/28/2010.  Primary change was H1N1 vaccines, on W/S RF-4; and W/S RF-3, line 14 is phasing out the 62.5% “limit”, over 5 years.  HHA Transmittal 15 issued 2/22/2010, and was “clean up” of T.14, with no new policy changes.  HFS current version is 15.2.121.1. 39

40. Questions and Other Topics 40