August 31, 2005
3:00 p.m. ET

Cost Reporting: The Basics

Operator: Good day, ladies and gentlemen, and welcome to today's Office of Rural Health Policy/National Association of Rural Health Clinics Technical Assistance Conference Call, entitled "Cost Reporting: The Basics." Today's conference is being recorded.

At this time for opening remarks and introductions I would like to turn the conference over to Mr. (Bill Finerfrock); please go ahead, sir.

Bill Finerfrock: Thank you everyone for participating in today's call. I'd like to welcome you to today's presentation.

Before beginning, I just would like to take a moment to draw attention to the situation down in the Gulf States region. And if there are individuals who are on this call who are interested in trying to help out, we are in the process of getting information on how folks can direct assistance, if they want to provide it. If you'd like to get in touch with me through e-mail at info@narhc.org, we'll be happy to forward along to you any information we get. We'll also put it out on the list serve as we get information. Today's call is on cost reporting, the basics. Our speaker is (Jeff Bramschreiber). (Jeff) is a certified public accountant and a partner at (WIPFLI ULLRICH BERTELSON) in Green Bay, Wisconsin, where he directs the medical practice segment of the (Ripley) healthcare practice. Jeff specializes in healthcare consulting for RHC's, medical groups and hospitals. He's provided guidance to the HRC community for over 13 years on topics such as initial application certification, reimbursement, billing and cost reporting for both independent and provided based clinics.

Today's program is scheduled to last one hour. The first 45 minutes will consist of (Jeff's) presentation. The last 15 minutes will be dedicated to question-and-answers. This series is sponsored by the Health Resources and Services Administration Federal Office Rural Health Policy in Conjunction with the National Association of Rural Health Clinics. We really appreciate the support of ORHP, and everybody's participation in today's call. And (Jeff) we look forward to it, and the floor is yours.

Jeff Bramschreiber: Thank you very much, (Bill). And thank you for inviting me to participate in today's call. I'm going to assume that everyone has had an opportunity to access the presentation materials. And I will proceed through the presentation slide by slide. The first slide regarding the overview of the presentation is we've - I've broken down the presentation into eight smaller parts. I will proceed through the presentation relatively quickly, and then wrap up, again, with 15 minutes worth of questions.

The presentation will address in general basic cost reporting theory, an overview of the cost report process. And we'll touch on what I think are some of the more critical topics related to the cost report preparation and reimbursement. The rural health clinic program is somewhat unique to the Medicare reimbursement structure in that rural health clinics are entitled to receive cost based reimbursement for both professional services of practitioners, practitioners, being physicians, mid level providers, as well as the technical aspects of the facility or facility component of the services that the render.

And in many other programs, the professional component is not necessarily based on a cost reimbursement system, but under the real health clinic program, cost based reimbursement is available for both professional and as well as facility type services, up to the reasonable caps in many instances or there are safe guards in place, for the - under the reimbursement program to limit reimbursement in instances, where volumes may be lower than expected under the program. But basically it's a cost based system, up to maximum reimbursement for some providers. And it is an opportunity to improve reimbursement for the delivery of primary healthcare services in rural and under serve markets.

The slide - the third slide, slide number three, we talk about, essentially, there are two different types of rural health clinics from a reimbursement perspective. We have independent rural health clinics, as well as provider based rural health clinics. Independent rural health clinics can be owned by physicians, mid level practitioners, hospitals, et cetera. The independent rural health clinics submit their claims to one of five regional fiscal intermediaries. I've identified (River Bend) as a fiscal intermediary in a four state region around Wisconsin, and including Wisconsin, so Illinois, Michigan, Minnesota and Wisconsin. All of the independent rural health clinics submit their claims to the (River Bend) fiscal intermediary.

The second type of rural health clinics, the provider based rural health clinics are essentially owned and operated as departments of a hospital, home health agency, or skilled nursing facility. In most instances, and probably 99 percent of the instances that I'm familiar with, the provider based rural health clinics are owned and operated by a hospital.

The difference between the provider-based rural health clinics and the independent rural health clinics, from a claim submission standpoint, is that provider based rural health clinics, submit their claims to the fiscal intermediary of the hospital, which may be different than the fiscal intermediary that independent RHC's submit their claims to. So when you look at the differences from a claims processing standpoint, between independent, and the provider base, the provider base RHC's are all submitting their claims to the same fiscal intermediary of their owned and operated hospital or home health agency or skilled nursing facility.

We did have a question regarding the ownership of independence, and provider based rural health clinics. And if you noticed on the slide, you'll see that a hospital can own either an independent or a provider based rural health clinic. And that is largely left up to the structure of that clinic. If the clinic is structured in such a way as to meet the provider based requirements, and is owned and operated as department of the hospital, the hospital can claim or can arrange or organize that clinic as a provider based department or as a provider base rural health clinic.

The - there is a difference in reimbursement between provider based RHCs, and independent RHCs for small hospitals, those less than 50 beds, as well as critical access hospitals. The provider base rural health clinics for small hospitals, and critical access hospitals are not held to the same cost base limitations as an independent RHC or as a provider based rural health clinic, owned and operated by a larger hospital greater than 50 beds. So there -for any small hospital, there is typically a reimbursement advantage to be organized as a provider based rural health clinic, as opposed to an independent. However, it is possible for a hospital to own one or the other or in fact, own both types of rural health clinics.

Slide number four; I'd like to talk a bit about the theory on cost reporting for rural health clinics. The - in practice when the rural health clinic cost report is prepared, the starting point is to start with a financial report from the clinic itself, if that's a provider base or a hospital base rural health clinic, that financial report is often a departmental summary or a responsibility report for that department of the hospital. If it's an independent rural health clinic, typically, a physician owned practice will - our starting point will be the financial statements, the income and expense report of that practice, which is usually prepared by the clinic itself, or their accountant.

So once we've identified the source of the information, we start with the total cost of operating that rural health clinic. And then, we need to separate those costs between what we're showing here, as a pool of costs, considered direct costs, clinic direct costs, as well as indirect costs. And the separation of costs between direct costs, and indirect costs is critical to preparing the cost report. The direct cost typically costs such as the healthcare staff cost, meaning salaries and benefits relate to providers of services, nurses, as well as technicians, and other direct costs associated with the delivery of the healthcare services, such as direct supply, (med surg) supplies is a direct cost.

Depreciation on medical equipment would be considered as direct cost, as well as the liability insurance, malpractice insurance, related to those practitioners. All of those costs are considered direct costs, and need to be separated from other - the other indirect costs, which are typically costs, as such as facility overhead, (rent) utilities, et cetera, administrative and general costs, costs related to the billing office, for instance and other costs incurred by the clinic, that are not necessarily directly related to the patient care.

The separation clinic direct and indirect cost is important, because the direct cost pool has to be further segregated between rural health clinic services on the right hand side of the diagram, and none rural health clinic services on the left hand side. The rural health clinic services, a direct cost associated with rural health clinic services, are typically costs associated with the care delivered in the clinic itself, care delivered in a nursing home setting, or skilled nursing facility, as well as the care delivered in patient's home. Those rural health clinic services, and the costs associated with that are segregated from non rural health clinic services, such as services delivered in a hospital in patient setting, or services delivered in a hospital outpatient department, as well as other non rural health clinic services, such as lab services, and X-ray services.

So when we've - just backing up, when we have our pool of direct costs, our salary of our staff, as well as supplies directly related to the care, we can then separate those costs between rural health clinic costs, costs associated with the delivery of rural health clinic services, and costs associated with the delivery of non rural health clinic services.

The allocation of those indirect costs, the billing, the facility overhead, the administrative and general costs, follow that split between our rural health clinic direct costs, and our non rural health clinic direct costs. As an example, if we have a - the direct cost associated with a nursing individual, a nurse in our clinic, who may be involved in providing lab services, which are non rural health clinic costs, as well as providing patient care services that are considered rural health clinic services. We may need to split those costs, of that nurse, between the RHC component, and the non RHC component.

The total cost that we allocate between the rural health clinic services and non rural health clinic services are used in the basis of allocating the indirect costs, the billing costs, the facility costs, as well. So if we're allocating, for example, this nurse 70 percent of her time to RHC services, then she - that 70 percent of her time will drop a 70 percent allocation of indirect costs into the RHC services as well and leaving 30 percent of her time and her cost to draw 30 percent overhead into the non rural health clinic services. If we don't properly account for that split between direct RHC and direct non RHC costs, we also then influence the allocation of indirect costs.

So for example, if really only 50 percent of her time was really allocated to RHC services on the cost report, and it should have been 70 percent, we've under allocated cost to the rural heath clinic program, both on the indirect, meaning her time, as well as the indirect because of the allocation of indirect costs. So it's critical that number one, we separate direct costs, from indirect costs. And number two, that we separate the direct costs, between rural health clinic services, and non rural health clinic services.

If we flip the slide to slide number five, and only deal with then, the rural health clinic cost side of that diagram, the right hand side, we've identified the direct cost of the rural health plan services. We then will receive an allocation of indirect costs related to those RHC services. So we then have a total pool of RHC service costs which are used in computing the rural health clinic reimbursement rate.

And on the next slide, I've got just a basic diagram of the rural health clinic reimbursement rate, which essentially is our total rural health clinic allowable costs, divided by the total rural health clinic visits. The remaining portions of our discussion we'll talk about each of those two components what are allowable costs, and also, then what are allowable visits that are used at arriving at our reimbursement rate. But when it is all said and done, basics in terms of the cost reporting principal. It's simply cost divided by visits. And items that effect the reimbursement rate then, are increases, for example, in allowable costs, will drive up our reimbursement rate. As well as increases in rural health clinic visits, the denominator in that calculation will lower the reimbursement rate.

As visits go up relative to cost, the cost per visit comes down. And that can negatively impact the reimbursement rate for Medicare rural health clinics. As well as the opposite is true, as allowable costs, perhaps go down, that may then lower - that will lower your reimbursement rate. However, if the visits go down or are decreased at a greater rate than allowable cost, it can increase the reimbursement rate. But when it's all said and done, we always come back to the basic formula cost divided by visits.

If we flip the slide - move forward to slide number seven on the payment rate calculation. We've illustrated the rural health clinic maximum reimbursement rates, which are used for limiting costs for all independent rural health clinics, as well as all provider rural health clinics that are part of a larger hospital greater than 50 beds. So both of those provider types, the independents, as well as the provider base with hospitals greater than 50 beds, are subject to these maximum reimbursement rates. As you see back in 2000, the maximum rate was $61.85. That's risen anywhere between two and three percent per year, over the last several years, up to our current reimbursement rate for calendar year 2005 is $70.78 per visit.

You'll note that the increase, as well, are relatively nominal in the two to three percent range. If you compare those percentage increases with the Medicare physician fee schedule, you'd see that the reimbursement increases for the rural health clinic program has actually exceeded the increases for Medicare payment for physician services, outside of the rural health clinic setting. In 2005, the reimbursement increase under the physician fee scheduled was one-and-a-half percent, as well as a one-and-a-half percent in 2004. The expectation, at least, initially is that the 2006 reimbursement for physician services may actually decrease for 2006. So the rural health clinic program, while the increases have not been substantial, has at least outpaced the standard increases, for other physician services reimbursement.

The next section I'd like to talk about is the allowable costs for rural health clinics. And if you go back again, think in terms of our formula calculation being cost divided by visit. We're going to focus attention on what is included in that - in the numerator of that calculation. What are considered allowable costs? Well allowable costs on slide number nine, are defined in code section under 42 CFR, section 413, and they're further explained in the provider reimbursement manual or publication 15. But essentially allowable costs are costs actually incurred by the clinic, which are reasonable and necessary to the proper - to the delivery of services.

The allowable cost, then, going back to that statement, state that that those costs must be considered reasonable in the eyes of Medicare. And they also need to be considered proper in the eyes of Medicare as well. So costs that would not be considered related to the patient - the efficient delivery of patient care services, can be excluded or deducted from the cost report, upon audit if Medicare deems that your costs are either not reasonable or not necessary for the property delivery of care in your clinic.

Some comments about allowable costs, in general. And this, I think, is fairly common knowledge for provider based rural health clinics because most hospitals all ready record their expenses on an accrual basis, meaning expenses are recorded in the period that they are incurred, not necessarily when they are paid. However, for most independent rural health clinics that are owned and operated by physician practices it's often customer for physician practices to record their income and expenses on a cash basis, which is not consistent with Medicare cost reporting principles.

So just keep in mind, especially for the independent rural health clinics that costs need to be recorded when the cost is incurred, not necessarily when it's paid. And, in order for an accrued cost, or a cost to be included in a cost report, it just - it needs to be paid at least within 12 months after the end of the year. So any expenses, for example, that are incurred in December, and included in your cost report for your December year end, those expenses, while they don't have to be paid in the month of December, or even in the month of January, they just need to be paid prior to the end of the next fiscal year, unless there are more restrictive requirements that apply to specific types of costs.

For example, owner compensation, there is a more restrictive requirement that states that the competition of owners has to be paid within 75 days after year end, in order to be counted as compensation on the previous year of cost reports. We've included a couple of examples here, simply stating that it's fairly common for many practices to record an expense in 2004, for example, such as employee profit sharing contribution or a pension contribution, even though the contribution may not be made until the due date of the tax return which may be March or April of the following year.

So that's a fairly common expense, and a good example of an expense that is typically counted in the cost report for a particular year, but the expense is not actually paid or it's not - the cash doesn't actually leave the clinic, until the subsequent year. Often times, we do find that clinics forget about the accrual requirement, and for example, if our costs are actually lower than the maximum reimbursement rate, we often will ask to see invoices that have been paid by the clinic in January and sometimes even into a February just to make sure that we've identified all of the expenses in the prior year.

And we often times find that expenses may not be counted in the cost report, even though the expense was related to that period, it simply was paid later on and often times forgotten. So that is a common error that many independent rural health clinics make, by not picking up those expenses that are maybe paid after the end of the year, but really relate to items incurred during the cost reporting period, for example, supplies ordered in the month of December, or delivered in the month of December, not paid for until the month of January. That item would be considered a December expense.

So costs need to be included on an accrual basis. Moving on to the next slide, slide 11, costs are not the same as tax deductions. And again, this applies, probably more so to the independent rural health clinics owned and operated by physician practices because often times, they're accustomed to accounting for certain things based on the tax requirements. Again, we've touched on the accrual versus the cash basis, and the cost report needs to be prepared on an accrual basis.

The slide number 12, or the next slide, we touch on depreciation for equipment items. There is a difference between tax depreciation and depreciation for Medicare cost reporting purposes. For tax purposes, for example, practices may be allowed to write off, under code sections 179, they may be allowed to write off significant amounts of purchases in the year that they're purchased for tax purposes. That's not the case for Medicare cost reporting purposes.

So from a preparation of a cost report, one would need to adjust the depreciation from the - from a tax basis, to what Medicare is looking for in terms of their depreciation which is typically utilizing straight line depreciation over the SMA useful life of the particular item. And we use the American Hospital Association publishes a listing of equipment items, as well as the estimated useful life of each of those items. So for tax purposes, you may have purchased, for example, a piece of medical equipment that you may depreciate over three years for tax purposes. But according to the American Hospital Association, the useful life of that equipment may be five years. And so therefore, we would have to use that five year life, rather then the three year life for tax purposes.

So there's differences between tax and cost report treatment for depreciation. On the next slide, slide number 13, related parties, for example, under tax purposes, you can have a clinic renting space from the separate, yet related, entity real estate partnership, for example owned and operated by the clinic owners. And for tax purposes, the rent is deducted on the clinic side. And there are no adjustments that's perfectly allowed for tax purposes. The Medicare, however, looks at those related party transactions, as if they were - there was no separate entity involved. So what Medicare looks at, is Medicare would look to the real estate partnership, and only allow the costs associated with that space, that are being incurred on the part of the real estate partnership.

So essentially, Medicare, when there are related party transactions, Medicare will essentially collapse the two entities into one, and say that we will only reimburse the cost, actually, incurred by the other entity. It doesn't matter what is charged back and forth between the two entities, we won't recognize that amount. We will only recognize the cost incurred by the related entity. And we've got an example on - well we'll touch on slide 14. So, some of the more common examples have to do with building and equipment leases. I all ready used the real estate example. Often times practices will set up related equipment companies as well, in order to - in order to have payments back and forth to the - an equipment partnership, for example. There also may be instances of contract and employees as well as other purchase services, such as cleaning services or billing services.

But again, if you flip the slide onto slide 14, in the eyes of Medicare, those related parties essentially don't exist. So where we've shown an example where the rural health clinic may be paying $4,000 per month or $48,000 per year of rent to the partnership for the building, when we look at the owner partnership and the actual cost incurred, if we find that the actual cost related to that building are only $35,000, then essentially Medicare will disallow the - that difference, will disallow $13,000 of that $43,000 of rent. So that on the Medicare cost report, only the $35,000 will be reflected on the cost report, and will reimbursed or allowable for Medicare purposes.

Moving on to the next topic, provider compensation. There are no reasonable compensation limits that have been set by Medicare for rural health clinic cost report reimbursement purposes. However, the compensation paid to your providers, needs to be reasonable, and Medicare will look to compensation paid to similar providers in your area. They may look at compensation surveys that have been performed, either regionally or nationally. As well as they have access to rural health clinic cost reports from other clinics in your area. So as long as the compensation paid to your providers is reasonable, we typically don't see any real significant problems with provider compensation on cost reports. However, there are reasonable standards that Medicare will look at, if they believe that the compensation may be too high for the providers in your rural health clinic.

The - just recognize that the compensation for your providers can be adjusted based on the hours worked, or based on some productivity measurements. So, for example, if the providers in your organization are working well over what's commonly considered full time status for those providers, Medicare will recognize that there would be an allowance - a higher allowance for compensation for those practitioners, because of the time commitment, additional time commitment that they've put in.

As well as the productivity of those providers, either measured by visits or measured by charges, or relative value units. The - there's recognition that providers who are highly productive are generating or serving a large number of patient visits, also may be higher than what you would find in other practices, so that if you run into a situation where you may believe that your compensation could be considered unreasonable just based on the fact that it's one physician, or one mid level practitioner. If you take into account, the fact that they may bee seeing more patients, generating, more volume or working extra hours, that compensation - the reasonable compensation calculations can be adjusted for those factors as well.

Moving on to the next slide. The one example for provider compensation, for corporations, for instance is that the often times, corporations have a compensation system that includes, not only a base salary arrangement, but also some type of a productivity bonus amount that is commonly paid either on or around the year end, or sometimes not paid until after year end. It's perfectly legitimate for that compensation bonus based on a productivity measurement, for example, even if it's not paid during that year, but it needs to be paid within 75 days after the end of the year. It's perfectly fine for that compensation to be paid - or to be counted in that cost report, even though the compensation wasn't actually paid until after the end of the year.

So we've concluded our section on allowable costs, and we've talked about some of the more common topics that are brought up under the concept of Medicare allowable costs for rural health clinics. What I'd like to do now is talk a bit about what are some of the costs that are considered non rural health clinic costs, and will be accounted for on the rural health clinic cost report.

So if we move on to the next section, under costs, other than rural health clinic, some of the more common non rural health clinic services, and their costs would not be considered rural health clinic costs relate to diagnostic radiology services, any radiology performed in the clinic is not considered a rural health clinic service. And the costs related to the radiology services, would not be considered RHC costs. Any costs related to hospital patients, whether they be in patients, out patients, emergency room patients, those costs would not be considered rural health clinic because they are not rural health clinic.

Costs related to lab services, again, not rural health clinic health clinic costs. Costs related to duties around medical directorships, for example. It's fairly common that a rural health clinic physician, might be the medical director of a nursing home. And the costs related to their time associated with those responsibilities would not be considered allowable real health clinic costs, because those would be considered an administrative cost for that nursing home, and the compensation related to that service should be considered a non rural health clinic cost as well.

If we move on and target - and talk more specifically about laboratory services. It should become knowledge for rural health clinic that laboratory services are no longer considered rural health clinic services. There was a time when the cost of lab services were part of the rural health clinic cost report. That has been changed since January of 2001, the laboratory services are no longer considered rural health clinic services, therefore, the costs related to those services are no longer considered rural health clinic costs, as well.

So if you move on to the slide number 21 just to comment on the cost related to drawing the blood or the (vena) puncture, that service is also considered a laboratory service. It's not a rural health clinic service, therefore costs associated with nursing time or technician time around the drawing of blood for lab work, would not be considered a rural health clinic cost, and needs to be separated from the RHC costs for cost report purposes.

The next slide, slide 22, laboratory services, some of the - just mentioning some of the more common direct costs associated with the lab. If you have a laboratory technician, the salaries and benefits related to your lab techs, would be carved out of your rural health clinic costs or be considered non rural health clinic costs. As well as nursing salaries and benefits related to the (vena) punctures. Lab supplies such as reagent costs, and other lab supplies would be considered not RHC direct costs, as well as deprecation on the laboratory equipment and any lab fees associated with licensure or certification for your laboratory.

Bill Finerfrock: (Jeff), just to give you a heads up, we have about 10 minutes before we're scheduled to go to questions.

Jeff Bramschreiber: OK. The - just - I would like to skip over some of the examples the - related to the non RHC services. But I'd like to move into the next section on co mingling, because this has been a fairly hot topic in the rural health clinic world. And how do we handle the costs to non RHC services that might be delivered within the four walls of our rural health clinic?

The most common example is rural health clinics may rent out some of their space to visiting specialists, for example in order to see their patients. Medicare had provided some guidance in the proposed - or the final rule in December of 2003. The - that rule has since been retracted, but I think the guidance that they provided is still valid in that the Medicare's concern is that we don't have costs associated with non rural health clinic services being part of our rural health clinic cost report. And so therefore, they want us to have, if at all possible, separate space, separate hours of operation. And most importantly we do not want to commingle our rural health clinic staff with the non RHC.

So probably the biggest concern is that we don't have rural health clinic providers moving between a rural health clinic and a non rural health clinic throughout the day. And as long as we've got a separation of costs, and we make sure that we've got a rational basis for allocating those costs, apart from our rural health clinic, we shouldn't have a problem. And in fact, Medicare stated, that they do not want to discourage the multi use rural health clinic, but they just want to make sure that we're not included costs associated with other practitioners or non rural health clinic within our rural health clinic cost report.

I would like to then proceed beyond the commingling section, and talk a bit about rural health clinic visits. Because, again, going back to our computation of the actual cost per visit or the reimbursement rate, it's cost divided by visit. So we're going to talk a little bit about the denominator in that equation, our rural health clinic visits.

On slide 29, we've got rural health clinic visits to find most rural health clinics should realize that a visit is defined as a face to face encounter between the patient and a practitioner whether that's a mid level provider, or a physician. The - if there is no face to face encounter, with either of those two provider types, then there's not a billable encounter, and there's not a visit on our cost report.

The total visits moving on to the next slide, slide 20, the total visits in the denominator should include all of the visits that occur during the hours of operation in the clinic, as well as any home visits, and nursing home visits. We should not include in our rural health clinic cost report, any visits related to hospital visits, whether they're in patient or out patient. Or any visits that are nurse only visits or that don't meet the face to face requirements.

The next slide is our - just the suggestion that our method of counting those visits should be clearly defined and documented within your rural health clinic. We suggest that you actually prepare a written policy and procedure for counting the visits, since that's a critical component of your cost report, we want to be assured that the visit count is accurate, and is being properly reported on your cost report.

The actual visits moving to the next slide, reported on the cost report is the actual - it's the greater of your actual visits or what are considered the minimum visits as applied by the productivity standards that Medicare uses. The - keep in mind that a higher visit count will actually lower your cost per visit. And the productivity standards are actually a penalty that's imposed for low productivity. The standards that apply through the cost report are that for every full time equivalent physician, we need to have at least 4,200 visits annually.

And the standard for mid level practitioners is half that, or 2100 visits for every mid level full time equivalent. If you do not meet those productivity standards, again, Medicare will use in our cost per visit calculation, the greater of their standard or your actual. So if this - if you're actually below the standards, you will in essence be reimbursed at a rate that's below your actual cost per visit, because of the effect of increasing the denominator in the equation.

We've included an example of utilizing the rural health clinic visits, and the productivity standards on the next slide. I would prefer to skip now into the physician provider, and the full time equivalent calculation, because that is a key component of the cost report, and does affect the productivity standards. It's essential on your cost report, that you accurately report the full time equivalents, in order to properly apply the productivity standards.

The full time equivalent is considered by Medicare either the actual hours, as computed based on the actual hours, your clinic considers to be full time, or a minimum of 1600 hours per year. It is possible that you could count your full time equivalents differently than simply dividing actual hours work by the standard 2080 hours per year that's considered standard for a full time equivalent. If your organization requires your physicians, or your providers to actually work more than the 2080 hours it may be possible to utilize that higher standard in determining your full time equivalents.

Just keep in mind that the full time equivalents -if your full time equivalents go up, so do your productivity standards. So often times, when rural health clinics are impacted by the productivity standards, it's a function of how they're counting those full time equivalents. And the full time equivalent number can be affected by the hours worked, as well as the standard that is used within your organization.

If you flip the slides to slide 37, we've shown kind of a breakdown of a full time equivalent physician on a rural health clinic cost report. Often times, one full time equivalent does not relate to one practitioner. In most cases, a practitioner is devoting time to some non rural health clinic activities, and therefore, the full time equivalent on the cost report is actually less than one. In our example, we had a point seven reported on the rural health clinic cost report, and the remainder of that time was related to administrative activities, hospital services as well as the medical directorship. So in most cases, a provider in your rural health clinic does not equal a full time equivalent on your cost report.

The cost report forms themselves. Time simply wouldn't allow to go through a completion of a cost report form, but I would like to just touch on the components of the cost reporting forms themselves. Keep in mind that the cost reports are different for provider based than what they are for independent rural health clinics. The provider based rural health clinic cost report is actually a part of the hospital cost report. And it's a series of reports that are schedule - or the M as in Mary series, there's an M1 through M5 component on the hospital cost report. The independent cost report is a separate cost report that has a series of schedules, work sheets, AB, and work sheet C, to report, essentially, the same information on both.

The cost report components are broken down to a provider. There's a provider statistic component. There is a trial balance of expenses in reclassification that identify the costs. There are separate schedules that report flu (pneumecocal) vaccines because those are reimbursed separately through the cost report. There's a separate schedule that reports the visits and the productivity standards. And then, finally, there is a schedule that reconciles the cost related to the rural health clinic services, as well as the reimbursement that's been paid throughout the year, by the Medicare program.

And any difference is either paid in addition to the rural health clinic or refunded by the rural health clinic. So, for example, if the cost exceeded the reimbursement that had been received throughout the year, then Medicare would make up that difference, between what they had paid, and the allowable cost on the cost report, or vice versa, if the costs were less than what had been paid throughout the year, then the clinic will be required to submit that difference back to the Medicare program.

Bill Finerfrock: (Jeff), we're pretty much up on our time. If you could quickly wrap it up so we could move to questions.

Jeff Bramschreiber: OK. I will just to touch briefly on the flu and (pneumecocal) often times on a cost report settlement that may the only cost settlement that's present on the cost report. The calculation is fairly complicated. However, it's based on a estimation of the cost, actually, to provide the flu and (pneumecocal). There is no billing, separate billing for flu and (pneumecocal) vaccines, and they're simply paid through the cost report.

Bill Finerfrock: All right. Thank you, (Jeff). We appreciate the presentation. It was a lot of information to try and cover in 45 minutes, and we really appreciate the time you've taken to help us out with this. The purpose of this call series is to give an opportunity for folks to hear speakers on different topics that they may not be able to get information on, and do it through a convenient mechanism, and hopefully that has fulfilled that for many of you here today.

The - as I said at the outset, these calls are sponsored by the Office of Rural Health Policy and we want to thank you for that. Operator, if you would please explain to individuals how they can come online to ask their question, we'll open up the phone lines for their questions.

Operator: Thank you. If you would like to ask a question at this time, you may do so by pressing the star key followed by the digit one on your touch-tone telephone. A voice prompt on your phone line will indicate that your line is open. We ask that you just please state your name before posing your question. Once again, it is star one, please. And we'll pause for just a moment.

Bill Finerfrock: And if you would also in addition to your name, the clinic, or the region, the city you're calling from - city and state you're calling from.

Operator: And we'll take our first question.

John Hanson: Hi, this is (John Hanson). I'm from the Washington State Department of Health. My question relates back to the beginning, where you were talking about the two different kinds of rural health clinics independent and provider base. If a hospital owns a rural health clinic, what determines whether it's an independent clinic or a provider based clinic?

Bill Finerfrock: (Jeff)?

Jeff Bramschreiber: Yes, thank you for your question, (John). The determination is really whether or not the clinic meets the provider based requirements, and is owned and operated as any other department of that hospital.

Bill Finerfrock: There are very specific criteria that are issued in a program memorandum that any entity must meet in order to achieve provider based status. Rural health clinics is only one type of entity that can get provider based status. And those are independent of anything to do with RHC. It has to do with the integration of the facility into the parent organization, financially, clinically, et cetera, that it holds itself at as the department of the parent entity. And that's a separate determination that is made by the fiscal intermediary as to whether or not the facility would quality for provider based status. But it's a rather involved process we don't have time to go through here, but there is a program memo that outlines all of the criteria that must be met, in order for the facility to achieve provider based status.

John Hanson: Can you direct me to that memo?

Bill Finerfrock: I don't have it off the top of my head, but I do have your e-mail (John), and we'll get back to you with it.

John Hanson: Great. Thanks very much.

Bill Finerfrock: Yes.

Operator: We'll now move on to our next question.

Claudia Libel: Hi this is (Claudia Libel) from a rural health center in Plainview, Vermont and I have two questions. The first one is you mentioned that nursing home and homes were a rural health center visit. However, I was told by Medicare that because they're not in our clinic, that they're not an RHC service. Therefore, I've been billing Medicare out of ((inaudible)) under my non RHC provider number for all nursing home and home visits.

Bill Finerfrock: (Jeff)?

Jeff Bramschreiber: The rural health clinic program has fairly specifically included the services rendered within a nursing home as well as a patient's home as rural health clinic services. So I'm going to defer this to (Bill). I don't know if you're aware of any other …

Bill Finerfrock: The only basis on which they could make that determination if they concluded or made an opinion that the patients in question were not really patients of the RHC. If these individuals of the RHC, then visits to the home or to the nursing home would be RHC visits. Said, unless they made a determination that somehow they don't believe that these individuals were truly patients of the RHC. But - if so they had been going to the RHC, have actually been in there. You have a file, active file on the patients, and now subsequent or, you know, home bound or need to be seen at home rather than being able to get to the RHC or have now left their home are on a nursing home, as long as they are established patients of the RHC, those would be RHC visits.

Claudia Libel: So I should change the way I do things, then, obviously because they are actual patients…

Bill Finerfrock: Yes, as long as they are patients of the RHC, and you can show that they have been patients, they've been in to see - they've been into the clinic within the four walls, you maintain active records on them, then those would be RHC visits.

Claudia Libel: OK.

Bill Finerfrock: Those are specifically referenced in the RHC manual as RHC visits as well.

Claudia Libel: Now I've been doing this for the last two years, I don't have to go back and reverse all of these, do it?

Bill Finerfrock: Unless you felt that you wanted to if - for financial reasons. But it would go back - this was your fiscal intermediary?

Claudia Libel: Yes.

Bill Finerfrock: Who's your FI?

Claudia Libel: Out of Concord, New Hampshire.

Bill Finerfrock: So you're a provider based. You're an independent, you do the - OK.

Claudia Libel: Yes, we're independent.

Bill Finerfrock: Yes. I don't know why your FI is telling you that, but they're wrong.

Claudia Libel: OK. All right.

Jeff Bramschreiber: The only other comment I'd have though, is you need to make sure, then that your cost report preparation follows how you're billing those services…

Claudia Libel: Well it does. I take the costs related to when the providers are at the nursing home.

Jeff Bramschreiber: OK. So when you switch that, you need to add those costs back in then.

Claudia Libel: Yes, I agree. My second question is how you come to a fully time equivalent? I have a physician, as an example, that I consider full time. He's paid full time salary. And I take out - I would normally take out just as a number to use, 10 percent of his time to do rounds at the hospital. So I'm not - going to exclude all of his salary and benefits, related to going to the hospital, 10 percent of his salary and benefits.

But Medicare, my intermediary also has me, I'll take the 2080 hours, which we consider full time, and they have me subtract any sick time he's taken, or any vacation time he's taken, in order to come up with a percentage of his FTE, which is far from being an FTE if they take, you know, say four weeks vacation and a week of CME, and they happen to be out sick for a week during the year. And so that decreases his FTE. And maybe it helps me, maybe it doesn't, but is that the correct way of doing that? Or is it FTE 90 percent, not say 75 percent after his vacation and sick time?

Jeff Bramschreiber: I would think his FTE is 90 percent.

Claudia Libel: Well that's what I think too, but that's not the way - and I've been doing this since '85, and so if I change - I'm in the process of working on our cost report because our year ended July - June 30, if I change the way that I think it should be done, obviously they're going to question it since the last 20 years we've been doing it this way.

Bill Finerfrock: Yes, I don't know what else to tell you, but, you know, I think (Jeff) - what (Jeff) has said, I would agree with.

Claudia Libel: OK. All right, thank you very much.

Jeff Bramschreiber: Yes.

Bill Finerfrock: Next question.

Operator: We'll now move one.

Sandy: Hi, this is (Sandy) at Mercy Medical Center in Sioux City, Iowa. And my question is can a clinic disadvantage themselves, from a reimbursement standpoint if the charges are less than the cost? And the co insurance is billed to the patient at 20 percent of charges. But the MCR calculates it based on cost. So if our charges are lower than cost, are disadvantaging ourselves?

Jeff Bramschreiber: If your charges are lower than cost, you're theoretically leaving some money on the table. However, if - you know, you still need to be cognizant of what the market bears for the charge.

Sandy: Exactly, and that's…

Jeff Bramschreiber: And I'm not sure you can avoid that from happening. Because often times, the cost per visit is - can be higher than what the market would bear for a comparable charge. And when that happens, there isn't, in my opinion, there isn't a way to avoid not recovering the full reimbursement rate.

Sandy: And there's nothing as far as Medicare changing the rule, so that co-insurance is actually whatever was billed to the patient?

Bill Finerfrock: Say that again.

Jeff Bramschreiber: Co insurance is whatever was billed to the patient. Twenty …

Bill Finerfrock: Twenty percent of whatever your charges are for that. The program is set up so that the patient is held harmless through the reimbursement methodology. So they would never pay any more out of pocket when they're seen by an RHC, than what they would have paid, had they not been seen in an RHC environment, which you wouldn't have I mean from a PR standpoint, you don't want to create a situation where you have a clinic that becomes an RHC, and suddenly the patients are paying more out of pocket, to be seen in the RHC than they were prior to the facility becoming an RHC.

Jeff Bramschreiber: Well actually, (Bill), that does occur…

Bill Finerfrock: But it's not supposed to.

Jeff Bramschreiber: Yes. Under this traditional fee schedule payment system, the patient co insurance is 20 percent of the fee schedule amount. Under RHC it's 20 percent of the charge.

Bill Finerfrock: So you're a provider base?

Sandy: Yes.

Bill Finerfrock: OK.

Jeff Bramschreiber: OK. But I guess I don't believe that there's a good solution to maximizing that co insurance amount, simply because your charge structure would have to be higher than what the market typically would bear for that service, in the situation described.

Bill Finerfrock: Right.

Sandy: Right.

Bill Finerfrock: OK. Next question.

Operator: We'll now move on to our next question.

Gerard Baumsark: Hello. This is (Gerard Baumsark) from Lovell, Wyoming, going back to the FTE if you do a cost report for a four month period, instead of a 12 month period, how would I adjust that?

Jeff Bramschreiber: If you're doing a cost report for a four month period, you're basically reporting for one third of the year, and so your calculation would be adjusted - the FTEs would be reported downward by - down to a one third of the year essentially. So if you had a - normally, what would have been a one FTE provider for a full year, if you're reporting a four month period, that would be shown on their cost report schedule, as a 0.33 FTE provider for that period.

Gerard Baumsark: OK. Thank you.

Operator: Once again if you do have a question, it's start one, please. And we'll now move on.

Jennifer: Hi, this is (Jennifer) at Kewanee Hospital, in Kewanee, Illinois. We have a provider based rural health clinic and I was wondering if you have seen where intermediaries are requiring time studies to allocate that FTE for like say physician rounds in the hospital?

Jeff Bramschreiber: The fiscal intermediaries, yes, it's not uncommon that they will require a time study. The difficulty, of course, is having physicians actually complete the time studies. And there should be an attempt to have your providers complete those time studies, so you've got a proper allocation basis for removing costs, or reallocating the FTE's to non RHC services. So yes, that is fairly copy, that fiscal intermediaries will require a time study.

Jennifer: OK. That's how we're doing, and that's what our FI has required. OK, thank you.

Bill Finerfrock: This is probably going to have to be the last question, Operator.

Operator: OK. We'll take that.

Calvin Carin: Hello. My name is (Calvin Carin) I'm calling from Madison Hospital in Idaho. I have a question regarding what types of activities might be considered clinical versus administrative hours for FTE computation.

Jeff Bramschreiber: Well the types of activities that I most commonly see are considered administrative would be time spent in business meetings of the rural health clinic, for example. The physician or the provider may have administrative responsibilities for - in the employee supervision area, you know, reviewing employee handbooks or having human resource type responsibilities. I think most of the time, though, the administrative component I see removed has more to do with the general business direction of the clinic, that's being performed by that provider.

Bill Finerfrock: (Jeff), what about chart review, that if under state law, physicians are required to review X percentage of charts for the PA or the Nurse Practitioner as part of their supervisor collaborative responsibilities. Would that be considered the administrative or clinical time?

Jeff Bramschreiber: Well, actually, you can reallocate some of that time on the cost report, to the physician supervision which is outside of the productivity standards. So you could consider that to be - it's still considered to be health care time, but for the productivity standards, that time can be - it's - it can be removed from the FTE calculations.

Bill Finerfrock: OK.

Jeff Bramschreiber: And there's a separate line on the cost report for that.

Bill Finerfrock: I think that's going to have to do it for today's call. We appreciate everybody's participation. A transcript of the call will be made available on the ORHP site probably in a week or two. It generally takes about a week or so to get the transcript back. We then ask the speaker to review it for accuracy. Once that's been completed, we then post it up on the OHRP Web site, and we'll send an announcement of its availability out to the list serve. The next call will be in about a month. We have not yet finalized the topic, but we'll send out an announcement about that in the next couple of different weeks.

I want to thank (Jeff) for his time today. He did a great job in the presentation. If there are some follow up questions you'd like to submit to me at info@nararhc.org, we will try to get those answered and again post those up on the list serve. I want to thank the Office of Rural Health Policy again for their support for this initiative, and thank everyone for their participation. Have a great day. Thank you.

Jeff Bramschreiber: Thank you.

Operator: That does conclude our conference everyone. We thank you for your participation. Have a great day.