Down to the wire: Cost reports are as close as five months away
Are you ready? Or are you one of the many procrastinators?
There are two kinds of taxpayers: those who file their returns well ahead of the mid-April deadline and those who wait until the last minute, scrambling to find the correct forms and rifling through their files in search of additional deductions and required information.
In that same vein, there are two types of hospices: those who are already prepared to file their first cost report and those who will be scrambling to reconstruct the necessary data to file a complete and accurate one. For hospices whose fiscal year ends this month, you have five months to gather the necessary data and submit your cost report by Nov. 30. For those whose fiscal year ends Dec. 31, your first cost report is due May 31, 2001.
For hospices that are part of an agency that already is required to file a cost report, the hospice cost report should be included with the larger agency’s cost report.
Your reimbursement depends on it
This marks the beginning of an annual ritual that hospices’ home health and nursing home counterparts have been participating in for years. By one expert’s estimation, most hospices fall into the latter category of cost report procrastinators.
"Unlike taxes, hospices believe there is no money involved in completing a cost report," says William Cuppett, CPA partner in Clarksburg, WV-based Doak, Cuppett & Poling, a home health and hospice consulting firm. "Too many hospices are not taking this thing seriously. They should be treating this as if their reimbursement depends on it."
That’s because their reimbursement does depend on it. Medicare carriers have made it clear that incomplete or improperly completed cost reports will be treated as a failure to submit a cost report, which will lead them to deem reimbursement received in the first five months of the year as overpayment, subject to being returned, and to withhold payments of subsequent claims.
While time is running out for hospices who haven’t made the necessary preparations, there is still time to get ready, says Teresa Craig, CPA, vice president of finance and information systems for The Hospice of the Florida Suncoast in Largo. But it’s not going to be easy.
"It’s going to be a difficult struggle," Craig says. "It’s going to take a lot of time to reconstruct the data you need."
Like federal income tax returns, there is always the option of filing for an extension. Hospices have that same option, but Cuppett says not to expect Medicare carriers to be generous in handing them out. "Extensions can be requested, but chances are slim that a hospice provider will receive one."
"Failure to file a timely cost report can cause all payments made to the hospice to be deemed overpayments," he says. "All subsequent payments may be withheld pending receipt of an acceptable cost report submission."
The basics
Like many taxpayers who find the federal tax code tantamount to a foreign language and seek the services of an accountant to prepare their taxes, hospices should seek a cost report preparer, says Craig.
"I think that is important," she says. "There are regulations that are specific to cost reports that hospices aren’t aware of. It can be very confusing."
The challenge, she adds, is finding a professional who is familiar with cost reports and their associated regulations. Because the hospice cost report is similar to those completed by home health agencies and nursing homes, she recommends hospices start looking for help among local home health agencies and nursing homes who may have hired a consultant, accountant, or attorney to handle their cost reports.
And hospices should consider cost report software that aids in gathering the required data and speeds up the preparation process. The Hospice of the Florida Suncoast developed its own and is marketing it to other hospices.
Still, professional services and software will not make up for a lack of gathered data. Hospices that have not spent the past year collecting data on visiting services, general services, and a host of other cost centers will have to go through the grueling task of doing so. (See related story on collecting cost center data on p. 65.)
For those starting from scratch, Cuppett and Craig recommend that hospices do the following to prepare:
• Educate your board and management. This should be the first step in hospice preparation, Cuppett says. Both management and a hospice’s board of directors need to know about the new requirement, when the first cost report deadline is, and the need to begin collecting data, which will affect information systems.
• Identify management personnel to further promote education. A hospice needs to identify individuals who need more detailed education about cost reporting, Cuppett says. Determine who will be responsible for the preparation and completion of the cost report and make those employees responsible for securing educational material about cost reporting.
• Determine future changes in financial accounting. Because of the new requirement, hospices will likely have to change the way they keep their financial records. These changes should be determined based on not only cost centers identified in the cost report, but also the hospice’s own internal reporting needs.
"You can’t design an accounting system just for the cost report," Cuppett says. "Hospices need to be able to use the data for their own purposes, to help them make business decisions."
• Rework your time-reporting system. This will allow hospices to secure needed data, Craig says. Time sheets will need to be detailed for staff that provide both direct patient care and other nonreimbursed services so costs can be allocated appropriately. Staff should report time by patient and program if nonhospice programs are provided. Bereavement and other nonreimbursed services will be reported separately.
• Determine data that need to be collected and the process for doing so. The cost report is first place you should look, Cuppett advises. The report and worksheets specify cost centers, providing direction in the kinds of data that the Health Care Financing Administration will expect you to collect. Its current data collection processes and information system will largely determine the process a hospice will use to collect the data.
Craig advises that hospices need to adjust their data tracking system to follow days of care by payer source, level of care, and location of care (patient’s home or nursing facility).
The cost report includes Worksheet S-1, which provides a guideline for how tracking systems should be set up, Craig says. The three-part worksheet prompts hospices to provide information on census, enrollment days, and payer source.
Hospices should also build a chart of accounts and revamp their accounting systems to track income and expenses required in Worksheet A, Reclassification of Trial Balance Expenses.
In addition to the cost centers specified in the cost report, hospices should be prepared to collect additional data for their fiscal intermediary or attach additional information to the Provider Questionnaire (Form 339). (See related story on elements of the cost report on p. 63 and above.)
Maintain permanent files
Cuppett and Craig advise hospices to create "Medicare Cost Report Permanent Files." These files represent information that requires updating from time to time, rather than the constant accumulation of data required for cost center data. The permanent file establishes a detailed approach to your cost allocations and other decisions made. While you are establishing your 1999 cost permanent file, start your 2000 permanent files to begin preparing for next year’s cost report.
These permanent files should include:
- organizational documents;
- chart of organization;
- job descriptions for all key personnel;
- square footage for each facility utilized, reflecting the dimensions of each room, each room’s use, and cost center classification of each room;
- identification of all related parties;
- copies of all long-term debt agreements;
- copies of all noncancelable lease obligations;
- capitalization policy;
- copies of all patient service contracts (such as nursing, physicians, hospitals and nursing homes);
- standard charge structure and prices.
• Prepare interim cost reports. Because preparing cost reports will be new to some administrators — aside from those who may have experience from other segments — a hospice should consider preparing quarterly cost reports for the first year. This will allow hospices to identify data collection problems and allow time to correct them before the year-end cost report must be filed with their fiscal intermediaries.
Hospices will likely spend a great deal of time collecting data and preparing the cost report in the administrative/general cost area. Hospices will be allowed to choose from three separate alternatives for handling administrative costs:
1. Allocation of administrative general costs on the basis of accumulated costs of all managed activities.
2. Segregation of administrative general costs into hospice administrative costs, nonhospice administrative costs, and organizational administrative costs.
3. Segregation of administrative general costs into multiple categories.
The first method requires no advance approval, but a hospice’s fiscal intermediary must approve the remaining two.
"It is imperative that the hospice determine the allocation impact of any alternative selected," Cuppett says. "This clearly indicates that the hospice should begin to look at the options available at the earliest possible date."
But with little time remaining to collect data, Craig says interim cost reports may be too cumbersome. Instead, she recommends doing a cost report based on 1998 data to gauge which pieces of data are missing. The hospice can then focus on gathering the missing data for 1999.
And there’s an added benefit: "A hospice can also compare the numbers from the two years to track trends," Craig says.
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