The days of cost reimbursement are virtually over, but the Medicare cost report-loathed for its complexity and loved for the data it yields-lives on.
Annual cost reports now serve a dual purpose, reimbursement experts say. First and foremost, HCFA uses them to settle up with providers. The cost report is a provider's final claim for services rendered in a year.
Experts guess that acute-care hospitals receive 10% to 20% of their Medicare reimbursement on a cost basis and much more in some cases. Cost-reimbursed care includes outpatient care, some capital costs and certain bad debts. The amount would depend on a hospital's size, Medicare patient volume and the types of services it offers.
But with the shift of care to outpatient settings, the amount of money at stake is not insignificant. "The more . . . cost-based operations (facilities have), the more they can shift their overhead into those other types of operations," says a HCFA official, who spoke on background.
Cost reports also provide a wealth of data used by the government and providers alike.
"It gives you the balance sheet, income statements and costs within different departments of the hospital," says Lisa Roy, a senior director with HCIA, a Baltimore-based healthcare information company. HCIA uses the data to determine benchmarks and norms in the industry.
In recent weeks, the cost report has become a target in the federal government's investigation of Columbia/HCA Healthcare Corp. (Aug. 11, p. 2). The prospect of further fraud investigations has frightened many providers.
But even before the government's more intensive focus on fraud began, providers found the process of settling up with the government to be a royal pain. That's because the rules delineating what Medicare will cover are not clear cut and often result in disagreements between providers and HFCA's fiscal intermediaries.
"There are a lot of gray areas in the principles of cost reimbursement," says Lamar Blount, president of Healthcare Management Advisors, a reimbursement consulting firm in Alpharetta, Ga.
Costs associated with a hospital's marketing campaign, for example, frequently are cited as one of the fuzzy areas. Medicare allows hospitals to claim marketing costs that help promote the availability of services but not expenses related to a campaign aimed at increasing admissions.
Providers have the right to challenge disallowed costs exceeding $10,000 before the Baltimore-based Provider Reimbursement Review Board, the government's five-member arbiter of cost-report appeals. But it's a tedious process. The PRRB faces a backlog of 9,900 appeals, and there's a three-year wait for hearings.
About 90% of cases, however, are settled with HCFA before they come to a hearing, says Irvin Kues, the panel's chairman. Normally, decisions rendered by the board are worth some $75 million a year, he says.
The good news is the government recently established a technical advisory group to study the arduous appeals process. It's hoped that the group, made up of representatives of providers, intermediaries and HCFA officials, can find ways to streamline the process.