Cost Reporting: What Agencies are Getting Right and Wrong (and Why It Matters)

Wondering how much the Centers for Medicaid and Medicaid Services (CMS) will pay for telehealth visits when home health and hospice agencies are allowed to bill for these services in the future?

There’s no crystal ball to offer a definitive prediction, but it’s a safe bet the answer lies in the detailed cost reporting data CMS collects from Medicare certified home health and hospice agencies each year.

Agencies are required to show CMS the cost of doing Medicare business on numerous fronts, including salaries, benefits and contract pay to specific information on visits and patients by discipline.

“CMS uses cost reporting data to determine labor shares, future reimbursement rates, and recommend policy,” said Mike Simione, the SimiTree Healthcare Consulting Director of Financial Consulting who heads cost reporting.

The importance of accurate cost reporting was illustrated for home health two years ago when CMS built the Patient-Driven Groupings Model (PDGM) payment model using cost reporting data for its calculations.

Last summer, hospice providers saw similar proof that the cost reports they file each determine the future financial landscape. The Final Rule for Hospice FY2022 set out rebased and revised labor shares for all four types of hospice care, and CMS relied on 2018 Medicare cost report data to come up with those figures.

Telehealth is up next.

“Right now the scrutiny is on clinical salaries, benefits and telehealth equipment expenses,” Simione said. “We know CMS will use cost report data to determine reimbursement rates for telehealth in the future.”

The cost of providing telehealth services is a priority area because of legislation pending in Congress to allow agencies to bill Medicare for virtual visits. Legislation was introduced after the COVID-19 public health emergency prompted a sudden and significant increase in the number of non-billable telehealth visits across the health care spectrum, including home health and hospice.

Proposed legislation does not set any reimbursement amounts and services remain unbillable at this time. CMS is believed to be evaluating 2020 cost reporting data to determine the actual cost to agencies for telehealth services as a foundation for the rate setting process.

“This illustrates why accuracy is crucial for cost report preparation,” Simione said. “Every cost report needs to be an accurate accounting of the true cost of doing business.”

Common problems -- and why they matter.

As the nation’s leading preparer of cost reports, SimiTree Healthcare Consulting has a unique window of observation on what agencies are and aren’t reporting accurately, gaining perspective from the thousands of cost reports SimiTree consultants prepare each year.

A few common problems noted in cost reports for fiscal year 2020 include:

  • No longer including billable medical supplies after PDGM was implemented in 2020. PDGM incorporates Non-Routine Supplies (NRS) into the base payment rather than using a separate model – but that does not mean the cost of the supplies should be overlooked. CMS relies on cost reports to obtain NRS costs per period and develop its Cost per Minute (CPM) + NRS approach for calculating payment under PDGM.
  • Using cash-basis rather than accrual-based accounting methodology for cost report preparation. Even if an agency otherwise uses cash-basis accounting for financial reporting for IRS tax purposes, CMS requires the agency to convert to the use of accrual-based accounting for cost reporting purposes. Using the wrong accounting methodology is in direct violation of the Medicare guidelines.
  • Relying on financial statements that do not meet industry best practices because they do not contain the requisite detail including the breakout of both salaried and contract expenses by discipline. Take a deeper dive into accuracy.

The data mined from cost reports by CMS, the Medicare Payment Advisory Commission (MedPAC) and other entities is used on a federal level to determine Medicare policy, rebase and revise labor shares, and set reimbursement rates. On the agency level it’s used by leaders to guide critical business decision-making for growth and profitability.

“Cost report preparation can’t be just a matter of just checking the boxes,” Simione said. “It’s clear that what we report as an industry must be as accurate as possible to capture a clear picture of what’s really happening.”

Save preparation costs with us.

SimiTree can lower your cost report preparation cost while providing expertise for data extraction, analysis, and timely and accurate filing. To learn more, use the contact form provided below, call us at 1-844-215-8823 or email us at info@SimiTreeHC.com.

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