By statute, reclassifications allow Inpatient Prospective Payment System (IPPS) hospitals a means to reclassify to a nearby labor market for higher reimbursement, as long as they meet hospital-specific criteria for qualification. Reclassifying to a different Core Based Statistical Area (CBSA) involves preparing and filing applications to the Center for Medicare and Medicaid Services (CMS).

In order to qualify to reclassify, analytics must be focused on the desired area wage index testing and proximity criteria. In addition, revenue analytics need to be considered for the impact that could result from other non-wage index rate component changes that result from a reclassification.

As one of the most important components of an annual financial statement audit, the third party receivables and liabilities represent a portion of the balance sheet that is regularly scrutinized by audit firms. Third party reserves are a window into the financial health of an organization.

A comprehensive review of risk is essential. Reserves need to be categorized as current or long term and delineate between cash, changes in estimates and current year reserves. Year-over-year net retroactive changes can allow insight into management of an organizations bottom line.

Proper revenue recognition should be based on prospective and retrospective understandings of rates, contractual obligations, projected settlements, changes in reclassifications, knowledge of compliance risks, changes in capital reimbursement, etc.

Teaching hospitals must have an approved residency program in order to be eligible for Medicare GME reimbursement. Primary care and non-primary care program payments are intended to cover both direct and indirect costs. Medicare Direct Graduate Medical Education (DGME) payments are intended to reimburse providers for the direct identifiable costs and overhead related to the teaching program. Medicare Indirect Medical Education (IME) payments are intended to reimburse providers for incremental and inefficient care that is often associated with residents providing care.

DGME and IME reimbursement are each based on two different sections of the law. The methods of reimbursement vary. DGME is reimbursed based on a per resident amount. The rate is set after the completion of the first full year costs are reported on the Medicare cost report. DGME is paid as a bi-weekly payment and is settled through the annual filing of the Medicare cost report. IME is reimbursed as a rate add-on. IME is paid as a percentage of the federal base rate and is determined based on a ratio of the hospitals Intern and Resident to bed ratio.

CMS allows new GME programs five years to grow and establish a resident cap. To that end, a hospital must consider their intended size of the program, recruitment, and the cost of the program vs. the increase in GME revenue.

Integrated health systems with multiple teaching facilities can take advantage of sharing cap space. To transfer resident counts that are over an allowable cap, an affiliation agreement must be in place. Affiliation agreements allow hospitals in an affiliated group to share FTEs in order to maximize reimbursement.

The Medicare wage index rate component has a very material impact on revenue. The rate adjustment is a multiplier that increases or decreases reimbursement based on a providers wages and benefits. Each individual hospital’s wage index is compared to the average of all of the hospital’s across the country and assigned a value. The higher the individual hospital Average Hourly Wage (AHW), the higher the reimbursement.

The Medicare wage index calculation has a direct correlation with IPPS, OPPS, IPF, IRF, SNF, LTCH, Hospice and Home Health Service reimbursement. A small change in the AHW could result in a change of reimbursement equal to tens to hundreds of thousands of dollars.

A thorough review of wage index includes an evaluation of many components. Payroll reports should be reviewed, as wells the general ledger, invoices, and allocation methodologies. Physician time studies, contracted services, fringe benefits, home office allocations, reporting of paid hours, creation of new pay codes, policy changes, capitalized salaries and variances to the prior year, are all in need of evaluation for accuracy and reasonableness.

A Critical Access Hospital (CAH) is a hospital that is designated by CMS for cost-based reimbursement. CAHs are located in rural areas and are eligible to receive 101% of cost reimbursement. They must operate no more than 25 IP beds. The 25 IP beds can be used for acute or Skilled Nursing Facility (SNF) services (referred to in this instance as swing-beds). CAHs are also allowed to operate up to 10 IP psych and 10 IP medical rehab beds.

A CAH must have an annual average length of stay (ALOS) of 96 hours or less, per patient, for acute care. CAHs must provide 24 hour emergency care, 7 days a week.

CAHs must also evaluate statistical accuracy, billing methods, expense offsets and report-writing details. Canned reporting can lead to unintended loss of revenue. Failure to understand allocation methods and proper matching of expenses to revenues can lead to loss in revenue.

A Rural Health Clinic (RHC) receives cost-based Medicare and Medicaid reimbursement on a per visit basis. When analyzing cost-based reimbursement regulations there is a need for a very focused and detailed review of patient level detail. Improper report writing can inadvertently result in misrepresentation of data and potentially lead to a loss in revenue and reimbursement.

To qualify as a RHC, the primary care outpatient clinic must have a Nurse Practitioner (NP), Physician Assistant (PA) and Certified Nurse Midwife (CNM) available during the RHC hours of operation. In addition, over 50% of the primary care volume must be located in a rural area as defined by the American Census Bureau and CMS. Lastly, a RHC clinic must be located in a Primary Care Geographic Health Professional Shortage Area (HPSA), Primary Care Population-Based HPSA, Medically Underserved Area (MSU) or Government Designated and Secretary Certified Shortage Area.

A Sole Community Hospital (SCH) is eligible to be paid the higher of the following base years, trended to the current year: 1982, 1987, 1996 or 2006.

To be classified as a SCH provider, a hospital must be located 35 miles from other like hospitals, or be rural and be (1) between 25 and 35 miles from other like hospitals meeting certain inpatient thresholds, (2) between 15 and 25 miles from other like hospitals meeting certain topography or weather conditions, or (3) because of travel time are at least 45 minutes from the nearest hospital.

If a hospital meets the criteria to become classified as a SCH, they are eligible to be reimbursed based on a hospital specific rate. To be advantageous to the provider, the hospital specific rate should be higher than the IPPS rate.

A hospital that is designated as a SCH is also eligible for a 7.1% favorable adjustment to Outpatient Perspective Payment System (OPPS) payments. For purposes of 340b, a SCH only needs a DSH percentage of 8.0% to qualify.

A Medicare Dependent Hospital (MDH) is eligible to be paid the higher of the following base years, trended to the current year: 1982, 1987 or 2002.

To be classified as a MDH provider, a hospital must have (1) at least 60% of inpatient days or discharges attributed to Medicare patients, (2) be located in a rural area and (3) have under 100 beds.

If a hospital meets the criteria to become a classified as a MDH, they are eligible to be reimbursed based at 75% of the hospital specific rate. To be advantageous the provider, the hospital specific rate should be higher than the IPPS rate.

Lugar reimbursement is applicable to certain types of rural hospitals that are located in counties that Medicare deems eligible for the urban Medicare wage index adjustment. Medicare recognizes hospitals in counties that have a large number of employees commuting to and from a county with a higher wage index population density as being eligible for higher reimbursement.

However, a Lugar hospital has the option to waive its Lugar status and return to rural wage index status if a Medicare out-migration adjustment factor is high enough to result in an overall more favorable reimbursement. If a Lugar waiver is granted, it is effective for a three-year designation.

Medicare Nursing and Allied Health (NAH) reimbursement applies to Fee For Service and Managed Care payors. NAH programs are programs that are recognized by the Commission on Accreditation of Allied Health Programs, National League of Nursing Accreditation Commission, Association for Clinical Pastoral Education, and American Dietetic Association.

To be eligible for NAH reimbursement, the program must directly incur training costs, have direct control of the curriculum and have direct control of the administration of the program. Allowable costs for NAH programs must be offset by revenue received from tuition and student fees directly related to approved education activities.

The annual budget process can take 5 to 6 months. Between Medicare proposed and final rules, Medicaid state fiscal year initiatives, and open or evergreen contracts, the annual budget rate assumptions are ever evolving. Annual federal and state base rates are often trended at static rates for like providers. Hospital-specific rates for items like GME, DSH, Wage Index, and Quality must be projected for proper revenue recognition. Supplementarily to individual rate components are issues specific to contractual changes and prospective or retrospective settlements.

Providers that are subject to TRICARE DRG-based payments may request reimbursement for capital and DGME cost reimbursement. Requests must be made to the TRICARE contractor after the initial submission of the Medicare cost report. Subsequent filings are required after issuance of Notice of Program Report (NPR) and any applicable reopenings or appeals.