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Benefits of Medicare Interim Cost Report Template for Critical Access Hospitals

Julianne Kipple, Healthcare Shareholder
June 17, 2020
Benefits of Medicare Interim Cost Report Template for Critical Access Hospitals

The Medicare cost report has a material financial impact on Critical Access Hospitals (CAHs). Significant changes in hospital utilization, expense swings or changes in service lines can result in large settlements. Cost reports are typically not due until five months after the end of the fiscal year. An interim cost report template can be done monthly or quarterly with financial statements. The template enables the facility to have knowledge of the cash flow and financial impact of the cost report as the fiscal year progresses. It also gives management the ability to provide board members with more accurate monthly financial statements as the cost report journal entry would be included in contractual adjustments.

 

Cash Flow Planning

CAHs typically do not have high days of cash on hand. The interim template allows facilities to anticipate the Medicare settlement as early as possible to help with cash flow management. Waiting until after year-end to calculate the cost report settlement is not ideal as decisions made earlier in the year may have been affected if the amount of the cost report settlement had been known earlier. 

 

Interim Settlement and Rate Changes

Preparing an interim cost report template allows CAHs to compare current reimbursement rates from Medicare to current calculated rates. If the CAH has an excellent start to the fiscal year and revenue has increased while expenses are holding steady, it is likely reimbursement rates are too high, and the CAH has a cost report payable. The template can be used to request a rate adjustment or interim settlement from MACs.

Rates can be adjusted to reduce the payable or receivable before the end of the year. For example, instead of paying a large lump sum at the end of the year, a CAH can slowly reduce the reimbursement received from Medicare and better manage cash flow. The same is true if the opposite has occurred, CAHs can request a rate increase to improve reimbursement during the year from Medicare instead of waiting to get a large check after year-end.

 

Service Line Analysis and Projections

An interim cost report template can be adjusted and recalculated for any anticipated service line changes or projects. Many facilities use templates during strategic planning. For example, a CAH can analyze a potential new service line to see the impact it has on the cost report. The analysis provides the ability for more in-depth decision-making on whether the service line is a good fit for the facility from a reimbursement perspective. Moving forward, a hospital can also see in real-time the impact of the new service line on reimbursement.

 

Building Projects

If a CAH is contemplating a new building project, a template is a very useful tool. Calculating the square foot changes the new project may cause, the additional depreciation and interest expense can all be factored into a template to see the impact the new building project may have on the cost report and reimbursement from Medicare in the future. This analysis should be done during the architectural planning phase of the project to ensure there are no unanticipated negative impacts on Medicare reimbursement.

 

Non-Reimbursable Cost Report Center Analysis

Templates can be used to review non-reimbursable departments in a facility. Many times, the non-reimbursable department’s impact on the cost report is not immediately obvious when looking at the face of a cost report. By taking out the costs and other figures tied to the non-reimbursable and recalculating the template, a facility can see what the impact of the non-reimbursable department has on Medicare reimbursement. 

 

COVID-19 Impact and Planning

As the country is trying to navigate these unprecedented times since the COVID-19 virus has hit communities and affected businesses, the Medicare interim cost report template has become increasingly important to manage reimbursement rates and cash flow better. As revenue declines due to the virus and expenses are unchanging or even increasing, it is likely reimbursement rates are too low. Cash is going to continue to be vital as hospitals try to prepare for the unknown future impact of COVID-19.

We suggest that cost report estimates are done monthly rather than quarterly to better estimate the large impact COVID-19 is having on a facility’s revenue. More cost report guidance is anticipated to be issued on how to handle the substantial amount of HHS funds and PPP loans that CAHs have received. If CMS decides that an adjustment to remove the expenses reimbursed by the HHS funds or the PPP loan is necessary, it could have a large negative impact on the cost report settlements. 

A template allows CAHs to adjust off expenses in the weeks after CMS makes their decision to quickly see the impact that adjustment will have on reimbursement and, ultimately, the settlement. The amount of time a CAH needs to obtain that knowledge will influence how the facility financially pilots through this pandemic. 

If you do not currently have a cost report estimate template and you are interested in having one set up for your monthly financial statements and planning, please contact us.

 

Contributor: Katie Roberts

  • Achiever, Learner, Strategic, Context, Individualization

Julianne Kipple

Healthcare Shareholder
Julianne Kipple is a Healthcare Shareholder at Lutz. She began her career in 2008. Her expertise is in accounting and consulting services for healthcare facilities, including outsourced CFO services, Medicare and Medicaid reimbursement, and Medicaid Disproportionate Share Surveys (DSH).

402.827.2075

jkipple@lutz.us

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