Identifying Cost Report Opportunities for Ohio CAHs

The Medicare cost report is a systematic method of cost accounting that determines both allowable costs and the costs allocated to each department. Cost reports provide a wealth of information about a hospital’s clinical model, cost structure, reimbursement, and financial performance. Since Critical Access Hospitals (CAHs) receive cost-based reimbursement for most services, this data can have a significant impact on a hospital’s financial statements.

Stroudwater has extensive experience reviewing CAH cost reports, and over time, we have found that many hospitals make the same types of mistakes. We developed our cloud-based Cost Report Tool to optimize reimbursements for CAHs by searching for errors, inconsistencies, omissions, misallocated costs, and opportunities to improve reimbursement accuracy.

By reviewing and aggregating multiple years of cost reports from every CAH in the country, we have established benchmarks for approximately 50 different metrics. We can compare an individual hospital’s metrics to the national or state data set to see where it could make changes to increase reimbursement.


Analyzing Cost Reports for Ohio CAHs

Utilizing our Cost Report Tool, we analyzed fiscal year 2021 cost reports for all of the Ohio CAHs, aggregating that information to determine the most commonly missed opportunities —especially those that would have the biggest accuracy and reimbursement improvements if corrected.

We identified the five most commonly reported errors that provide improvement opportunities, not just for Ohio CAHs but for any CAH that reports similar results:

  1. Medicare outpatient beneficiary cost
  2. Swing bed NF patients
  3. Ratios of cost to charges
  4. Medical records cost allocation
  5. Reimbursement Medicare bad debt

For each of these five areas, we investigated four important elements:

  1. The Issue: Why is this important? What do we need to know about it?
  2. The Benchmark: What does our data about other Ohio CAHs tell us?
  3. The Results: How does this hospital’s data compare to other Ohio CAHs?
  4. The Opportunity: Where are there potential opportunities for improvement?


Medicare Outpatient Beneficiary Cost

The Issue: The deductible and coinsurance cost to Medicare beneficiaries is 20% of charges for outpatient services, except for lab services

The Benchmark: We look for deductibles and coinsurance as a percentage of total Medicare outpatient cost to be less than 40%

The Results: Most Ohio CAHs passed greater than 40% of the cost of outpatient care to Medicare beneficiaries as deductibles and coinsurance. Three hospitals passed on over 90% of Medicare costs to beneficiaries.

The Opportunity: Monitor Worksheet E, Part B, evaluating the percentage of deductibles and coinsurance for Medicare beneficiaries relative to the total Medicare outpatient cost. Ensure that a hospital is not passing on more than 40% of the cost of care to the beneficiaries in the way of coinsurance and/or deductibles.

Swing Bed NF Patients

The Issue: Due to how the Medicare cost report treats swing bed NF (non-Medicare and Medicare advantage) days, CAHs can leverage swing bed NF days as a margin opportunity despite reimbursement rates below those of cost-based payers.

Benchmark: We look for a CAH’s swing bed NF days to be at least 10% of total swing bed days.

The Results: Many Ohio CAHs have fewer than 10% of the total reported swing bed days as swing bed NF, which may present an opportunity for the hospital if excess bed capacity exists.

The Opportunity: Actively pursue swing bed NF patient referrals and admissions to create swing bed census and create a positive margin.

Ratios of Cost to Charges

The Issue: The ratio of cost to charges (RCC) is the correlation between the cost to provide care with the charge(s) structure for the services provided. An RCC of 1.0 means that the cost to provide a service equals the service charge.

The Benchmark: It varies by service, generally between 0.2 and 0.8.

The Results: Most Ohio CAHs had RCCs outside the optimal range for most services.

The Opportunity: Monitor RCC levels on Worksheet C for results outside the benchmark range to potentially indicate revenue cycle process improvement opportunities such as charge setting and/or charge capture improvement opportunities.

Medical Records Cost Allocation

The Issue: The allocation of medical records cost may negatively impact reimbursements when the hospital doesn’t accurately allocate cost to each department.

The Benchmark: We look for adult and pediatric departments to receive greater than 20% medical records cost allocation.

The Results: Most Ohio CAHs had medical records cost allocations to adult and pediatric departments of less than 20%, which may indicate that they are allocating costs based on gross charges instead of utilizing time studies or are inaccurately reporting time spent.

The Opportunity: Implement a time study process and conduct medical record time studies to accurately capture true worked time by department.

Reimbursement Medicare Bad Debt

The Issue: CAHs must have systems that track and eventually deem receivables as uncollectible.

The Benchmark: We look for Medicare bad debts included on the cost report to exceed 10% of patient responsibility.

The Results: Several Ohio CAHs reported less than 10% allowable Medicare bad debt on the cost report, indicating the potential for missed reimbursement opportunities.

The Opportunity: Establish a bad debt policy that pulls claims back from the collection company, after a certain period of inactivity, for inclusion on the cost report.