1. BeyondYour Numbers CPA & Advisory Services Presented by Tim Wolters, CPA BKD Health Care Group 10 th Annual HFMA Region 11 Symposium, 1/29/08 Rural and Critical Access Hospital Medicare Reimbursement Issues

2. BeyondYour Numbers Agenda S. 2499 – Signed 12/29/07 Home Health Changes National Provider Identifier Potential Wage Index Changes Occupational Mix Survey Value-Based Purchasing Hospital-Acquired Conditions

3. BeyondYour Numbers Agenda (continued) DSH Change Physician Ownership and Coverage MS-DRGs Cost-Based DRG Weights CAH Relocation Issues CAH 2008 Changes

4. BeyondYour Numbers S. 2499 – Signed 12/29/07 Outpatient lab cost reimbursement extended one year – years beginning 7/1/07 MMA 508 wage reclasses extended to 9/30/08 Rehab rates frozen 4/1/08-9/30/09 Rehab “75% rule” frozen permanently at 60% 10.1% physician fee schedule cut changed to 0.5% increase through 6/30/08

5. BeyondYour Numbers Home Health Changes Effective 1/1/08  New case mix model expands payment groupings  OASIS scores early vs. late episodes differently  Three separate therapy thresholds (6, 14 & 20) with smoothing payments between thresholds  Case-mix creep adjustment of 2.75% per year  Unbundling of non-routine supplies with six payment levels

6. BeyondYour Numbers National Provider Identifier National NPI Roundtable on February 6 th, 1:30- 3:00 Central CMS urging providers to test submitting claims with only NPI 3/3/08 – NPI must be included in primary field 5/23/08 – Only NPI reported on claim

7. BeyondYour Numbers Potential Wage Index Changes 2006 Medicare/Tax Bill required… MedPAC to recommend alternatives to current wage index system by June 2007  MedPAC recommended replacing current system with one based on BLS, census & other data CMS must propose in Spring 2008 revision or replacement of current wage index system CMS is not required to adopt any changes

8. BeyondYour Numbers Occupational Mix Survey Revised Occupational Mix Survey will cover pay periods ending between July 1, 2007 and June 30, 2008  Refinements to categories will be made  Survey due September 1, 2008  Will be applied beginning with the FY 2010 wage index

9. BeyondYour Numbers Value-Based Purchasing Deficit Reduction Act requires CMS to implement VBP effective 10/1/08 11/21/07 report to Congress  Discusses potential pool of 2-5% of payments  Distributed based on attaining certain standards and improving over baseline

10. BeyondYour Numbers Hospital-Acquired Conditions Payment will not be increased if the MCC or CC is one of the specified hospital acquired conditions, effective 10/1/08 Claims will be returned to hospitals if proper Present on Admission (POA) indicators aren’t present, effective 4/1/08

11. BeyondYour Numbers Hospital-Acquired Conditions 8 conditions identified Object left in surgery Air embolism Blood incompatibility Catheter-associated UTI Decubitus ulcers Vascular catheter-associated infection

12. BeyondYour Numbers Hospital-Acquired Conditions Surgical site infection – mediastinitis after CABG surgery Hospital acquired injuries – fractures, dislocations, intracranial injury, crushing, burn & other unspecified effects of external causes More under consideration, stay tuned

13. BeyondYour Numbers DSH Change Effective 1/7/08, hospitals must submit no-pay bills to Medicare contractor for Medicare Advantage patients Already applies to teaching hospitals and hospitals with nursing/allied health programs Will affect SSI percentage used for DSH payments

14. BeyondYour Numbers Physician Ownership and Coverage CMS adopted new provision at 42 CFR §489.20(u) to require that all patients be given written notice that a hospital is physician- owned and that a list of physician owners is available upon request

15. BeyondYour Numbers Physician Ownership and Coverage CMS requires hospitals and CAHs that do not have a physician on site at all times to state this in a written notice to all patients, as well as how the hospital will meet the needs of any patient who develops an emergency medical condition at a time when there is no physician present

16. BeyondYour Numbers MS-DRGs MS-DRGs started two-year transition 10/1/07 MS-DRGs have 335 base DRGs split based on the presence of a major complication or comorbidity (CC), a CC, or no CC

17. BeyondYour Numbers MS-DRGs Subgroups Number of Base MS-DRGs Number of MS-DRGs No subgroups77 Three subgroups152456 Two subgroups: CC and major CC; non-CC4386 Two subgroups: non-CC and CC; major CC63126 TOTAL335745

18. BeyondYour Numbers MS-DRGs Increases in the CMI after adopting the system could be the result of improved coding rather than increases in actual patient severity  CMS will reduce the standardized amount to account for improved coding potential: 0.6% reduction for FY 2008 0.9% reduction proposed for FY 2009 1.8% reduction proposed for FY 2010

19. BeyondYour Numbers MS-DRGs – Limitations CMS admits it does not have the data or expertise to maintain DRGs in clinical areas that are not relevant to the Medicare population CMS encourages those who want to use MS- DRGs for patient populations other than Medicare to make relevant refinements to their system so it better serves the needs of those patients

20. BeyondYour Numbers MS-DRGs – Potential Impacts On average, the CMI for urban hospitals increases under MS-DRGs, and that for rural hospitals decreases Impact including 3.3% inflation adjustment, excluding potential coding improvements:  Overall – 3.1% increase  Urban – 3.3% increase  Rural – 1.7% increase

21. BeyondYour Numbers MS-DRGs: Example Old DRG 127, heart failure & shock is split into 3 MS-DRGs  291 – With MCC  292 – With CC  293 – Without CC/MCC

22. BeyondYour Numbers MS-DRGs: Example DRG NumberWeight Payment Amount CMS DRG 1271.0490$5,113.34 MS-DRG 2911.2585$6.280.67 MS-DRG 2921.0134$5,057.47 MS-DRG 2930.8765$4,374.26

23. BeyondYour Numbers Cost-Based DRG Weights Calculating weights  CMS combined cost reports into 15 cost centers to calculate global cost-to-charge ratios  CMS used MedPAR charge data to calculate the cost of actual claims based on the 15 cost centers’ cost-to-charge ratios

24. BeyondYour Numbers Cost-Based DRG Weights RTI analyzed the information and found:  Inconsistent reporting between cost reports and MedPAR claims data for charges in several ancillary departments (medical supplies, operating room, cardiology, and radiology)  Routine cost differences can not be calculated using cost report – standard room charges do not fully reflect utilization of nursing resources

25. BeyondYour Numbers Cost-Based DRG Weights RTI suggests new standard cost centers  Intermediate care units  Devices, implants and prosthetics  MRI  CT scans  Cardiac catheterization

26. BeyondYour Numbers Charge Compression Example Devices/ Implants Other Supplies Total Total Costs $ 250,000$ 500,000$ 750,000 Total Charges 500,000 2,000,000 2,500,000 Ratio 50% 25% 30% Medicare Charges 300,000 600,000 900,000 Medicare Cost $ 150,000 $270,000

27. BeyondYour Numbers Cost-Based DRG Weights AHA, HFMA and others encourage cost reports be prepared consistent with MedPAR data  Example: Report all supplies on Line 55 However, note that this may affect reimbursement elsewhere, e.g. CAH, state Medicaid plans

28. BeyondYour Numbers Cost-Based DRG Weights CMS Response  CMS recently began doing a comprehensive review of the Medicare cost report and plans to make updates that will consider its many uses  CMS stated it will give strong consideration to these recommendations

29. BeyondYour Numbers Cost-Based DRG Weights CMS Responses (cont)  Hospitals are not required to change how they report costs and charges if their current cost reporting practices are consistent with rules and regulations and applicable instructions, including Uniform charge structure Matching of costs and charges by cost center

30. BeyondYour Numbers CAH Relocation Issues 9/7/07 CMS released revised, revised interpretive guidelines In many ways a step in the right direction  Mountainous terrain & secondary roads definitions are better But, still go beyond what the law specifies  Relocation rules only apply to NPs  75% test applicable to total staffing with more flexibility  Many other improvements

31. BeyondYour Numbers CAH Relocation Issues Problems remain  No firm CMS approval until after the move Introduces uncertainty into financing  Requires the CAH to meet same NP criteria at new site as when first certified as a CAH What does “grandfathered” mean?

32. BeyondYour Numbers CAH Relocation Issues Problems remain  Specifically includes non-CAH services in the 75% of same services test  Does not address merger of 2 CAHs & building on neutral site  May require extensive documentation with attestation letter

33. BeyondYour Numbers CAH Relocation Issues If relocated CAH fails to meet all criteria  CMS considers the relocation a cessation of business (voluntary termination of provider agreement) & start of new business  Forfeit CAH status  May apply for new provider agreement

34. BeyondYour Numbers CAH 2008 Changes No new co-location arrangements after 1/1/08 Co-location provision applies only to necessary provider CAHs Can’t change type & scope of services offered for existing arrangements  Change of ownership is not considered a new co- location arrangement

35. BeyondYour Numbers CAH 2008 Changes New provider-based locations off campus must meet federal requirements effective 1/1/08  Over 35 miles from hospital or CAH  Over 15 miles if mountainous terrain or secondary roads Does not apply to RHCs

36. BeyondYour Numbers Closing Questions & Discussion Contact information for additional questions: Tim Wolters twolters@bkd.com 417-865-8701, ext. 551