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1. Rural Health Clinic Cost Reporting March 20, 2008Jeff Bramschreiber, CPAWipfli LLP920.662.2822jbramschreiber@wipfli.com WIPFLI.COM

2. Presentation Overview I. Cost Reporting Theory II. Payment Rate Calculation III. Allowable Costs IV. Non-RHC Costs V. RHC Visits VI. Physician/Provider Full-Time Equivalents (FTEs) VII. Cost Report VIII. Medicare Bad Debts

3. Two Types of Rural Health Clinics 1. Independent RHCs:  Can be owned by physicians, midlevels, hospitals, etc.  Submit claims to 1 of 5 regional fiscal intermediaries. 2. Provider-Based RHCs:  Must be owned and operated by hospital, SNF, or home health agency.  Submit claims to owner provider’s fiscal intermediary.  Need to meet provider-based requirements.

4. Cost Reporting Theory Clinic Direct Costs Indirect Allocated Costs RHC Services • Clinic • Nursing home visits Non-RHC Services • Hospital I/P • Hospital O/P • Lab services

5. Cost Reporting Theory Clinic Direct Costs Indirect Allocated Costs RHC Visits Cost of RHC Services RHC $ Rate

6. Payment Rate Calculation RHC Cost Per Visit (Rate) = (Not to exceed the maximum reimbursement limits.)

7. Payment Rate Calculation RHC Reimbursement Limits* *Only applies to independent RHCs and provider-based over 50 beds.

8. Allowable Costs for Rural Health Clinics

9. Allowable Costs • Defined at 42 CFR 413 • Explained in Provider Reimbursement Manual, Pub. 15. Allowable RHC Costs: “Allowable costs are the cost actually incurred by you which are reasonable in amount and necessary and proper to the efficient delivery of your services.” RHC Manual, Ch. 501

10. Allowable Costs • Recorded when cost incurred, not when paid. • Payment must be made within 12 months after year-end (unless a more restrictive requirement applies). Costs Recorded on Accrual Basis: Examples: a. Employee profit-sharing contributions recorded in 2004, but contributions made in 2005. b. Expenses incurred in December 2004, but paid in January 2005.

11. Allowable Costs • Accrual versus cash basis • Depreciation • Related parties • Provider/owner compensation Not the Same as Tax Deductions:

12. Allowable Costs • Accelerated depreciation for tax • §179 write-offs • Differences in useful life Depreciation: Examples: a. First year tax write-off (§179) of $100,000 not allowable on RHC cost report. b. Three-year useful life for tax purposes; may be five- or seven-year life according to AHA.

13. Allowable Costs • Related through ownership or control (Board of Directors, key employees). Related Parties: “The intent is to treat the costs incurred by the supplier as if they were incurred by the provider itself.” CMS Pub. 15-1 (PRM)

14. Allowable Costs • Building and equipment leases • Contracted employees • Purchased services (e.g., cleaning, billing, etc.) Related Parties: (Continued) Examples: a. Clinic shareholders own clinic building through separate real estate partnership. Lease to RHC. b. Clinic management forms separate billing service and contracts with RHC.

15. Allowable Costs • RHC pays $4,000 per month ($48,000 per year) to owners’ partnership for building rent • Actual annual cost of building incurred by partnership: −Interest on mortgage = $20,000 −Depreciation on building = $8,000 −Property taxes = $6,000 −Insurance on building = $1,000 −Total annual costs = $35,000 • RHC costs must be reduced by $13,000 Related Party Example - Building Lease:

16. Allowable Costs • Health Care Staff Costs: − Physician − Physician Assistant − Nurse Practitioner − Visiting Nurse − Other Nurse − Clinical Psychologist − Clinical Social Worker Cost report requires separation by: • Facility Overhead Costs: − Office Staff • Cost Other Than RHC Services: − Laboratory − Radiology − Hospital services − Other

17. Allowable Costs • Reasonable in relation to other providers: − Can use comparative survey data − Can use other RHC cost reports • Can be adjusted for hours worked or productivity measurements: − Providers working hours in excess of one FTE − Provider productivity measured by visits, professional charges, or work relative value units • Different for sole proprietors/partnerships Provider Compensation:

18. Allowable Costs • Compensation is value of services rendered—no salary paid. • Assume survey data for similar physician is $140,000 for one FTE treating 4,200 patients per year. • Value will be higher if more patients treated: • Assume 6,300 annual patients treated by physician (150% above comparable data); works > 2,080 hrs. • Value may be 50% higher than comparable compensation. • New comparable salary of $140,000 x 150% = $210,000. • Also, can add value of retirement and other benefits. Provider Compensation Example - Sole Proprietor:

19. Allowable Costs • Compensation is the amount earned during the year. • May include a year-end bonus, even if not paid until after the end of the year. • Owners must be paid within 75 days after year-end. Provider Compensation Example - Corporations: Example: a. Providers receive production bonus based on RVUs. 2004 bonus is not paid until January 2005. The bonus must be claimed as an RHC cost on the 2004 cost report.

20. Costs Other Than Rural Health Clinic

21. Non-RHC Costs Common Non-RHC Services: • Diagnostic radiology • Hospital patients (inpatient/ER/ASC) • Laboratory services • Medical directorships • Mammography • DME

22. Non-RHC Costs Laboratory Services: • “…Clinical diagnostic laboratory services are not within the scope of services covered and paid for under the RHC provisions. Consequently, laboratory services (including the six required laboratory tests for RHC certification…) furnished by a clinic should be paid under the laboratory fee schedule.” • “When clinics separately bill laboratory services, the cost of associated space, equipment, supplies, facility overhead and personnel for these services must be adjusted out of RHC/FQHC cost report.” CMS Program Memorandum A-00-30

23. Non-RHC Costs Laboratory Services: (Continued) “The Health Care Financing Administration [CMS] has notified our office that this ruling applies to venipuncture services as well. These services should also be billed to the Part B Carrier (or Fiscal Intermediary) effective for dates of service on or after January 1, 2001.” Per Riverbend GBA Medi-995-01

24. Non-RHC Costs Most common direct cost associated with lab: • Lab tech salaries/benefits • Nursing salaries/benefits (for venipunctures) • Reagent costs • Other lab supplies • Lab equipment depreciation • CLIA licensure/reference lab fees Laboratory Services: (Continued)

25. Non-RHC Costs Costs unrelated to the RHC must be excluded: Example: a. Visiting specialists rent space from the RHC. Rental income must be FMV and used to offset occupancy costs. b. RHC billing department also does billing for an unrelated practice. Costs related to providing billing service must be removed from RHC cost.

26. Non-RHC Costs Commingling: What is commingling of services? " …the simultaneous operation of an RHC and another physician practice, thereby mixing the two practices. The two practices share hours of operations, staff, space, supplies, and other resources." CMS Proposed Rule, February 28, 2000

27. Non-RHC Costs Commingling: (Continued) CMS goal is to: • Remove opportunities for duplicate billing. • Eliminate opportunities for RHCs to shift between functioning as RHC and other entities to achieve higher reimbursement.

28. Non-RHC Costs New Rules (status pending): • Under the new rules, CMS prohibits the use of RHC space, professional staff, equipment, and other resources by another health care professional (during RHC hours of operation). • New rules allow for operation of multipurpose facilities, but preclude any RHC provider from furnishing non-RHC services during RHC hours of operation. Commingling: (Continued)

29. Non-RHC Costs Avoid Commingling by: • Maintaining cost records for each facility/department—if operating specialty clinic next to RHC, need to maintain time-studies for staff sharing between departments. • Do not use same staff simultaneously. • Separate certification may be necessary (e.g., CLIA). • Establish separate hours of operation (post it!).

30. Rural Health Clinic Visits

31. RHC Visits “The term “visit” is defined as a face to face encounter between the patient and a physician, physician assistant, nurse practitioner, nurse midwife, specialized nurse practitioner, visiting nurse, clinical psychologist, or clinical social worker during which an RHC service is rendered.” RHC Manual, Ch.504

32. RHC Visits • Total visits, the denominator in the cost per visit calculation, should include all “visits” that take place in the RHC during hours of operation, home visits, and SNF visits for all payors. • Total visits should not include hospital visits (either inpatient or outpatient visits) or “nurse-only” visits in the RHC setting.

33. RHC Visits The method of counting visits should be clearly defined and documented in the RHC. The visit statistics reported on the RHC cost report must be supported by documentation used to generate the totals. Suggestion: Prepare a written policy and procedure for counting visits.

34. RHC Visits Total RHC Visits on the Cost Report: • Greater of actual visits or productivity standards • Higher visit count lowers cost per visit • Penalty for low productivity • Standard applies in aggregate: − 4,200 per physician FTE − 2,100 per midlevel FTE

35. RHC Visits Example of Total RHC Visits on the Cost Report:

36. Physician/Provider Full-Time Equivalents (FTEs)

37. Physician/Provider FTEs FTEs: A physician may be considered > 1.0 FTE if the documented hours are > 2,080:  This will increase the compensation allowance, but  will also increase the productivity standards.

38. Physician/Provider FTEs Sample Reconciliation of FTEs reported on Worksheet B, Part I: Clinical FTE (w/s B, Part I) 0.70 Administrative FTE 0.05 Hospital FTE 0.20 Medical Director FTE 0.05 Total FTE 1.00

39. Rural Health ClinicCost Report

40. Cost Report Cost Report Components: • RHC/FQHC provider statistics • Reclassification and adjustment of trial balance of expenses: • Reclassifications • Adjustments • Related-party adjustments • Flu/PPV vaccine costs • Visits (part I), Overhead (part II) • Determination of Medicare reimbursement (part I) and Payment (part II)

41. Cost Report Computation of Flu/PPV Costs: • May be the only settlement on the cost report. • Reimburse on cost per injection basis. • Do not bill to FI during year. Keep a log with the following information: • Patient’s name • HIC number • Date of injection • Compute ratio of injection staff time to total health care staff time.

42. Cost Report Data Required:  Estimated time to give injection (usually 8 to 12 minutes)  Total injections  Medicare injections  Direct supply costs  Total health care staff hours  Compute ratio of injection time to total health care time Computation of Flu/PPV Costs: (Continued)

43. Cost Report Flu/PPV Comparison Data

44. Helpful Hints • Collect data on an ongoing basis; monitor changes during the year. • Include explanations and details with the cost report. • Be consistent from year to year. • 2006 RHC cost reports must be submitted electronic and hard copy.

45. Medicare Bad Debts

46. Medicare Bad Debts Medicare will reimburse the RHC for all uncollectible Medicare deductibles and coinsurance, if considered to be “allowable” bad debts.The amount of allowable Medicare bad debts is added to the RHC cost report settlement.

47. Medicare Bad Debts CMS Pub. 15-I Section 308 states the criteria for allowable Medicare bad debts: • Debt must be related to covered services and derived from deductible and coinsurance. • Provider must be able to establish that reasonable collection efforts were made. • Debt must be actually uncollectible when claimed as worthless. • Sound business judgment must have been established that there was no likelihood of recovery at any time in the future.

48. Medicare Bad Debts • Similar to effort for non-Medicare patients. • Issuance of bill to responsible party. • May include subsequent statements, collection letters, and telephone calls. • Referral to collection agency if used for non-Medicare patients of “like amounts.” CMS Pub. 15-I Section 310 defines reasonable collection effort:

49. Medicare Bad Debts Presumption of Non-Collectibility, CMS Pub. 15-I Section 310.2: If after reasonable and customary attempts to collect a bill, the dept remains unpaid more than 120 days from the date the first bill is mailed to the beneficiary, the debt may be deemed uncollectible.

50. Medicare Bad Debts Indigent Patients, CMS Pub. 15-I Section 312: • Clinics can claim bad debt without waiting the 120-day collection period. • Determination of indigence must be documented in the patient’s file. • Beneficiary considered indigent if eligible for Medicaid. • Provider must determine that no other source is legally responsible for payment.