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Slide 1: Cost Reporting for Rural Health Clinics Rural Health Clinic Audioconference August 31, 2005 Presented by: Jeff Bramschreiber, CPA Wipfli LLP Green Bay, Wisconsin Office 920.662.2822 jbramschreiber@wipfli.com

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Slide 2: Presentation Overview Cost Reporting Theory Payment Rate Calculation Allowable Costs Non-RHC Costs RHC Visits Physician/Provider FTEs Cost Report Forms Helpful Hints

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Slide 3: 2 Types of Rural Health Clinics 1. Independent RHC’s: can be owned by physicians, midlevels, hospitals, etc. Submit claims to 1 of 5 regional fiscal intermediaries (Riverbend in Illinois, Michigan, Minnesota, and Wisconsin). 2. Provider-based RHC’s: must be owned and operated by hospital, SNF, or home health agency. Submit claims to owner provider’s fiscal intermediary (UGS in Illinois, Michigan, and Wisconsin). Need to meet provider-base requirements.

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Slide 4: Cost Reporting Theory Image: Flow Chart with Clinic Direct Costs and Indirect Allocated Costs Flowing either to Non-RHC Services, including hospital I/P, hospital O/P, lab services or to RHC Services including clinic, nursing home, home visits.

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Slide 5: Cost Reporting Theory Image: Flow chart with Clinic Direct Costs and Indirect Allocated Costs flowing to Cost of RHC Services and then to RHC $ Rate

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Slide 6: Payment Rate Calculation RHC Cost Per Visit (Rate) = Allowable RHC Costs/Rural Health Clinic Visits (Not to exceed the maximum reimbursement limits, except for hospitals < 50 beds.)

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Slide 7: Payment Rate Calculation RHC Reimbursement Limits   2000 2001 2002 2003 2004 2005 Maximum $61.85 $63.14 $64.78 $66.72 $68.65 $70.78 Increase 2.4% 2.1% 2.6% 3.0% 2.9% 3.1%

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Slide 8: Allowable Costs for Rural Health Clinics

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Slide 9: Allowable RHC Costs: Defined at 42 CFR 413. Explained in Provider Reimbursement Manual, Pub. 15. “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

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

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Slide 11: Allowable Costs Not the Same as Tax Deductions: Accrual vs. cash basis. Depreciation. Related parties. Provider/Owner compensation.

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Slide 12: Allowable Costs Depreciation: Accelerated depreciation for tax. §179 write-offs. Differences in useful life. Examples: First year tax write-off (§179) of $100,000 not allowable on RHC cost report. 3-year useful life for tax purposes; may be 5- or 7-year life according to AHA .

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Slide 13: Allowable Costs Related through ownership or control (board of directors, key employees). “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)

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

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Slide 15: Allowable Costs Related Party Example – Bldg. Lease: 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.

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Slide 16: Allowable Costs Provider Compensation: 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 1 full-time equivalent (FTE). Provider productivity measured by visits, professional charges, or work relative value units. Different for sole proprietors/partnerships.

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Slide 17: Allowable Costs Provider Compensation Example – Corporations: 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. Example: Providers receive production bonus based on RVUs. 2004 bonus is not paid until January 2005. The bonus must be claimed as a RHC cost on the 2004 cost report.

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Slide 18: Costs Other Than Rural Health Clinic

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Slide 19: Non-RHC Costs Common Non-RHC Services Diagnostic radiology Hospital patients (inpatient/E.R./ASC) Laboratory services Medical directorships Mammography DME

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Slide 20: 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

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Slide 21: 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

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Slide 22: Non-RHC Costs Laboratory Services (continued) 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

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Slide 23: Non-RHC Costs Costs unrelated to the RHC must be excluded: Example: Visiting specialists rent space from the RHC. Rental income must be FMV, and used to offset occupancy costs. RHC billing department also does billing for an unrelated practice. Costs related to providing billing service must be removed from RHC cost.

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Slide 24: Non-RHC Costs Commingling " . . . 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

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Slide 25: Non-RHC Costs Commingling CMS Goal is to: Remove opportunities for duplicate billing. Eliminate opportunities for RHC's to shift between functioning as RHC and other entities to achieve higher reimbursement.

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Slide 26: Non-RHC Costs Commingling New Rules (status pending): Under the new rule, CMS prohibits the use of RHC space, professional staff, equipment, and other resources by another health care professional (during RHC hours of operations). New rules allow for operation of multi-purpose facilities, but preclude any RHC provider from furnishing non-RHC services during RHC hours of operation.

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Slide 27: 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!).

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Slide 28: Rural Health ClinicVisits

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Slide 29: 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

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Slide 30: 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 nursing home visits for all payers. Total visits should not include hospital visits (either inpatient or outpatient visits), or "nurse-only" visits in the RHC setting.

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Slide 31: 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.

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Slide 32: 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

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Slide 33: RHC Visits Example of Total RHC Visits on the Cost Report: Table:   Number of FTEs Total Visits Standard Minimum Visits Greater of Physicians 0.8 3,000 4,200 3,360 Physician Asst. 0.75 1,500 2,100 1,575 Nurse Practitioners 0.5 1,200 2,100 1,050             Subtotal 2.05 5,700 5,985 5,985   If actual RHC costs are: $300,000 Actual Cost per Visit $52.63 Adjusted Cost per Visit $50.13

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Slide 34: Physician/Provider Full-Time Equivalents (FTEs)

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Slide 35: Physician/Provider FTEs Provider Full Time Equivalent (FTE): Actual number of hours worked divided by the greater of: the hours considered to be full time, or 1,600 hours per year. (CMS Pub. 27, Sec. 503)

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Slide 36: Physician/Provider FTEs FTE’s 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.

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Slide 37: 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

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Slide 38: Rural Health ClinicCost Report

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Slide 39: 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) & Payment (part II)

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Slide 40: 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 Name HIC Number Date of injection Compute ratio of injection staff time to total health care staff time

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Slide 41: 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.

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Slide 40: Questions & Discussion Thank You!