3 Tricks for Finding Hidden Cash in Medicare Cost Reports

If you’re looking to come out ahead with your hospital’s bottom line, then it’s important to realize that while at first blush it doesn’t seem possible that there is money in Medicare, there actually is—and it may be hiding in your cost report.

It’s not news to hospital CFOs that Medicare-certified institutional providers are required to submit an annual cost report to a fiscal intermediary. The cost report contains provider information such as facility characteristics, utilization data, costs and charges by cost center (in total and for Medicare), Medicare settlement data, and financial statement data. Nevertheless, as with all things Medicare, there are so many exceptions to the process that even the cost report, which should be straightforward, is an area where hospital-owed funds seem to magically disappear.

This Houdini act is costly for most facilities, however. So to find out how you can change this I checked in with Paul Soper, CPA and partner responsible for Medicare reimbursement services at the Philadelphia-based IMA Consulting. He says that aside from bringing in an experienced reimbursement director or qualified consultant, there are three areas where hospitals can wave their magic wands to make what’s owed reappear.

Trick #1: Coinsurance. Medicare anticipates that many of the patients who walk through your doors may not be able to pay the coinsurance or the deductible for which they are responsible. Hospitals that track to see which patients don’t pay and can demonstrate to Medicare that they’ve done everything possible to collect the amount—but couldn’t—will find that Medicare will reimburse them up to 70%. Generally, hospitals are already doing this type of tracking and reaping the benefits of it. Nevertheless, you’re likely missing more money than you realize in your Medicare bad debt.

Soper recommends reviewing your Medicare records as far back as five years looking at all of the Medicare deductible and coinsurance payment the hospital incurred and then matching it against your patient accounting information to see which claims were paid. If the claim wasn’t paid, did the hospital claim it as Medicare bad debt? If it didn’t claim it as bad debt, why didn’t they, and under Medicare regulations, are they allowed to claim it?

“[After going through this process] we found one large, inner city Detroit hospital was capturing $4-$5 million in Medicare bad debt, but they were still missing about a million dollars a year,” says Soper. “Everyone should do this review either internally or externally, to look for potentially unclaimed Medicare bad debt.”

Trick #2: Medicaid Disproportionate Share.  To maintain access for their low-income beneficiaries, Medicare added a special payment adjustment to its prospective payment system, the Medicaid disproportionate share hospital (DSH) designation. With the creation of DSH, hospitals are compensated for higher operating costs incurred for inpatient treatment of low-income patients.

The DSH payment is a percentage add-on to the basic DRG payment, and this percentage can be computed by totaling two ratios: the proportion of all Medicare days that are attributable to beneficiaries of supplemental security income and the proportion of all patient days for which Medicaid is the primary payer, and the formula used changes depending primarily on urban or rural location and hospital size.

Soper notes that while hospitals already track their Medicaid patients, they may be overlooking opportunities. For instance, hospitals may have patients who pay them through worker’s compensation or even through another insurance provider, however, that doesn’t mean that the hospital isn’t eligible to submit a claim to Medicaid. To find out if they are missing Medicaid payments, hospitals should go back a year in their files and run each of their patients through a state eligibility database. Once they’ve found all their DSH patients, they need to see how many days these patients were at the hospital to be sure they get the maximum allowable payment. The key criteria to watch for:

1. the patient must be Medicaid-eligible
2. the care must be inpatient
3. the patient cannot be a Medicare patient

“We worked with a large Michigan hospital that was missing between $3-$4 million, though typically [this type of review of Medicaid yields] $200k,” says Soper.

Trick #3: Wage Index. Medicare has

some complicated rules on compensating a hospital and they further complicated it with the wage index. What was the purpose of the wage index? To adjust Medicare payments to hospitals to account for area differences in wage costs. The formula is the relative hospital wage level for each geographic area compared to the national average, thus it varies significantly among areas.

Since the formula uses an average hourly wage of all hospital employees, there’s a potential for hospitals to be underpaid by Medicare. How? Soper explains that at one hospital with which he worked, all the on-call physicians were paid for eight hours, regardless of whether or not they were needed. The hospital was counting those unworked hours in their formula. However, Medicare regulations note that you only need to count hours worked in the average hourly wage.

Moreover, contracted physicians’ and nurses’ hourly wages should be counted in a hospitals’ average hourly wage—doing so can cause you to justifiably be geographically re-classed by Medicare, resulting in your hospital receiving all the money owed through this program.

There is plenty of money in Medicare and much of it is rightfully owed to hospitals—it just needs to be claimed. These three tricks aren’t quick, but by digging into your patient files and uttering a little “abracadabra” you just might levitate your bottom line.