1. Cost Center I: Understanding the Cost Report and the TFC Role Alexsandra (Alex) Mullin Director of Reimbursement For the Health System UT Southwestern Medical Center And William (Bill) Vaughan Principal, Health Systems Concepts, Inc. TFCA Workshop October 21 st - 23 rd, 2009

2. 2 The cost report is the only mechanism to determine Medicare reimbursement for organs. Organ acquisition is reimbursed at cost. The managed care industry uses the data as a benchmark. Getting it right on the cost report gives everyone useful information in transplant Why, Why, Why Must I Understand the Cost Report?

3. 3 Medicare Reimbursement of Transplant Services at Every Stage StageDescriptionReimbursement Phase IPre- Transplant Evaluation, Listing, Maintenance, Organ Cost Based Phase IITransplantDRG Phase IIIPost Transplant & MonitoringAPC, Fee Schedule, DRG

4. 4 What Exactly Does Medicare Pay For at Cost? Program cost and time spent evaluating all patients referred to the center for transplant Program cost and time listing, managing and maintaining patients on transplant waiting list All ancillary testing and physician services needed to make an adequate decision on potential recipients and living donors All expenses necessary to obtain the organ All expenses necessary in harvesting organs at your facility regardless of whether or not one of your patients becomes the recipient

5. Does that Mean Carte Blanche Spending? Costs need to be reasonable and necessary in the delivery of patient care. Remaining competitive in the market dictates we must remain frugal about how we spend money. We must have policies and procedures in place that explain the need for the costs especially ancillary services testing. We must ensure that the cost is related to evaluation & management of the patient and the organ procurement during the pre-transplant phase. 5

6. What’s Reasonable and Necessary in Pre-Acquisition Cost? Salary & Benefits for Pre-Transplant time/ services Tissue Typing/ HLA cost All potential recipient evaluation & testing All living donor evaluation & testing Professional meetings & memberships Space & office cost for pre-transplant services OPO Organ Acquisition Costs OPTN new patient registration fees Square footage for pre-transplant space Donation related complications of a living donor Costs to administer the transplant programs according to licensing, certification and regulatory requirements 6

7. What’s Not Allowed in Pre-transplant? ItemHow will it get covered? Medical intervention for the donor or recipient during evaluation This service is billable to patient’s payor following an pre- authorization process Travel & Housing for living donorThis is between the donor & recipient Post transplant care of recipientThis service is billable to patient’s payor following an pre- authorization process Routine post transplant care of the living donor This service is billable to patient’s payor following an pre- authorization process Salary, benefits & program exp. involving post transplant activity These costs are covered under the services billed for this activity. Marketing CostNot covered/not allowed at all Recipient’s DrugsBillable to payor until coverage runs out, then not covered/ not allowed at all Write off of evaluation chargesThe evaluation charges are covered when their cost is computed in D – 6 Part I of the cost report 7

8. What is a Cost Center? According to CMS – PRM 15 2302.8, a cost center is: “An organizational unit, generally a department or its subunit, having a common functional purpose for which direct and indirect costs are accumulated, allocated and apportioned.” Generally a “cost center” involves:  Space where the service is provided.  Involves staff dedicated to provide the service within that space  Is a service which reports to hospital management and subject to facility policies. 8

9. What Expenses Are In An Organ Cost Center? Salaries & Benefits of program personnel OPO costs and other organ direct costs HLA /Tissue Typing Purchase services expenses (such as physician evaluation, outside ancillary testing) Dues and other charges from UNOS for participating in the OPTN Medical Director Expenses Incidental expenses involved in taking care of the patient such as office supplies, telephone, freight, equipment and/or space rentals, repairs & maintenance, staff education, etc. 9

10. Organ acquisition is one of the very few services left that are reimbursed at cost on the Medicare cost report. The transplant program’s involvement with a patient transcends through three different payment stages in the transplantation process. Special Analysis and cost redirection must occur in order to report pre-transplant and organ acquisition costs on the cost report. 10

11. CMS’ Expectations of Hospital Accounting The hospital has an accepted method for allocating cost correctly to the different areas of service within a transplant program. Time studies are the accepted method for cost allocation in the absence of dedicated personnel and services. Proper analysis of any amounts reported in the cost report as being pertinent to the providers operations and allowed under the Medicare program as a service related to the care of patients. Any information included in a Medicare cost report is subject to audit including non-ledger items such as statistics and the financials/ledger of anyone providing/ selling services to a Medicare Provider. 11

12. Other Organ Acquisition Expenses Other Ancillary Services, Donor Stays, Harvests  These are not included in the organ cost center but they get added to the organ cost through a cost report analysis based on the charges for these services and the ratio of cost to charges of these different hospital areas. For the room & board the formula is based on the cost per patient day. (D-6 Parts I & II) Indirect/ Overhead Costs  These costs are added to the direct expense of the organ cost center based on statistics that adequately demonstrate the use of the cost. (Example: Admin & general oversight, Cafeteria, Medical Records, Nursing Admin, etc. (D-6 Part III Line 51, w/organ direct expense) 12

13. 13 Sample D-6 Part I – Computation of Organ Acquisition Costs (Inpatient Routine and Ancillary Services KIDNEY Computation of Inpatient Routine Service Costs Applicable to Organ Acquisition RoutineCr LocPer-DiemOrgan Cost ChargesD-1Cost D-1Acq Days (Col 3x4) 1. 2. 3. 4. 5. 1. Adults & Pediatrics7,30038. 716.24107,162 2. ICU1,80043.1,445.41 11,445 3. Total9,100118,607 Computation of Ancillary Service Cost Applicable to Organ Acquisition Ratio ofOrgan Acq.Organ Acq. Cost/ChargesAnc ChargesAnc. Costs 1. 2.3. (Col 1x2) 4. Operating Room37..538023 70,086 37,708 5. Recovery Room38..625307 2,225 1,391 6. Radiology Diagnostic41..146996 318,369 46,799 ….. Total1,885,283378,509

14. Sample D-6 Part III – Summary of Cost and Charges KIDNEY -------Cost-------------Charges---- Part APart BPart APart B 48. Routine & Ancillary (Part I) 387,1161,894,383 49. Interns & Residents (Inpatient) 50. 51.Direct Organ Acquisition3,396,6612,250,000 53.Total (sum lines 48-52)3,783,7774,144,383 54.Total Usable Organs30 55.Medicare Usable Organs25 56.Ratio Medicare to Total0.833333 57.Medicare Cost/Charges3,153,1463,453,651 58.Revenue for Organs Sold 127,048 59.Subtotal3,026,0983,453,651 60.Organs Furnished Part B 61.Net Organ Acquisition3,026,0983,453,651 14

15. List of Transplant DRG’s DRG Number DescriptionDRG Weight Unadjusted Base Pymt 1 HEART TRANSPLANT OR IMPLANT OF HEART ASSIST SYSTEM W MCC24.8548 $ 139,618.61 2 HEART TRANSPLANT OR IMPLANT OF HEART ASSIST SYSTEM W/O MCC11.754 $ 66,026.57 5 LIVER TRANSPLANT W MCC OR INTESTINAL TRANSPLANT10.1358 $ 56,936.54 6LIVER TRANSPLANT W/O MCC4.7569 $ 26,721.27 7LUNG TRANSPLANT9.4543 $ 53,108.30 8SIMULTANEOUS PANCREAS/KIDNEY TRANSPLANT5.0615 $ 28,432.32 9BONE MARROW TRANSPLANT6.5419 $ 36,748.27 10PANCREAS TRANSPLANT4.2752 $ 24,015.38 652KIDNEY TRANSPLANT2.9736 $ 16,703.81 15

16. Questions? 16