Become more vigilant about Medicare cost reports

Bad data could lead to poor reimbursement

Some hospices pay too little attention to how they complete Medicare cost reports. The result? Bad data at a time when good information is critically needed, as the industry undergoes regulatory scrutiny, one expert says.

"The hospice information out there is only as good as what's been filed," says Robert Simione, principal of Simione Consultants, a financial and operational home care and hospice consulting company based in Hamden, CT. Simione is scheduled to speak about Medicare cost reports and financial benchmarks for hospice services at a National Association for Home Care and Hospice (NAHC) conference (the 2008 Home Care & Hospice March on Washington and Legal Symposium) to be held April 6-9, 2008, in Washington, DC. "We're trying to tell the industry that it's very important to fill out the hospice cost report accurately," Simione says.

Simione is working with NAHC on establishing a database of hospice cost reports with the goal of pulling out benchmarks, such as the average cost per day for medical supplies, durable medical equipment (DME), etc. "What we're trying to do is provide the hospice industry with the information it has been lacking in the financial area," Simione explains. "Our first step here is to use the one piece of information that's being filed with the federal government and that has to be filed by all Medicare-certified hospice agencies out there."

The goal is to develop national benchmarks that can be broken down into state, regional, and city comparisons, he says. "What we're trying to do is help the industry take a look at their data and compare it to national data," Simione adds.

Some hospices report bad data

However, as Simione has pored over the Medicare cost reports, he's found that some agencies report data that are likely inaccurate. "There is a major variance in costs, and sometimes there's no rhyme or reason for it," Simione says.

What appears to be happening is that some hospices take shortcuts in completing the Medicare cost report, he says. "Sometimes what happens is they lump the costs all together as ancillary services, putting everything into one category," Simione says. "At the end of the year, they have to go back to all of the invoices and break out the data."

Because re-tracking data is very time-consuming, and the Medicare cost report doesn't impact how hospices are paid, some hospices take the shortcut measure of putting data from a variety of cost items into one category, Simione explains. "That's why we get these outliers, and Medicare gets a distorted picture of hospice costs," he adds.

The problem is that some hospices may not understand the definitions on the cost report, so they don't know how to allocate the funds, says Dale O. Knee, MHCA, president and CEO of Covenant Hospice in Pensacola, FL. Knee was elected in December to the 2008 board of directors of the National Hospice & Palliative Care Organization (NHPCO) of Alexandria, VA.

"It's been a learning experience for all of us, and I don't believe there is a deliberate attempt to try to mislead or show costs allocated to one place when they should be allocated to another," Knee says. "But there's a general, continuing need to learn how to prepare the cost report accurately."

Hospice organizations need to understand the cost report's definitions, and then they should assign the costs based on the definition, Knee says.

Inaccurate information on the cost report could hurt the entire industry, Simione says. The greatest repercussion would be if the federal government decides to use the cost report data to establish new Medicare payment rates.

"The hospice industry probably is going to go through a major revision in reimbursement," Simione says. "The government is trying to come up with a database and good information so they can revamp the reimbursement system, and the cost report is one of the pieces of information they will use."

Detail all hospice expenses

Hospices that don't capture all of their expense details and report these accurately in the Medicare cost report could hurt their own industry down the road, he adds.

Also, agencies that provide inaccurate information to the cost report won't be able to benchmark their data with other hospice's data once these benchmarks are established, Simione says.

Simione offers these suggestions on how to improve Medicare cost reporting:

1. Look closely at cost report and its requested data.

Hospice executives and chief financial officers should make certain they know exactly what is needed in the cost report at the beginning of the financial year.

Many agencies group numbers together in the cost report, instead of breaking them out in detail, Simione says.

When invoices are paid, hospices should make sure the ledger provides details about those payments, he says.

"If I was the chief executive officer of a hospice, I'd ask the financial person to make sure expenses on the financial statement are broken out in such detail that I can track these costs," Simione says. "You want to know what your cost per day is for drugs and DME because these are high-cost items, and you want to make sure you are controlling those costs."

The goal is to look from month to month and year to year to make sure those costs are being controlled within the agency, he says. "If you see those costs going up, then you need to investigate why it's happening," Simione says. "It also helps when you do your budget."

Most hospice agencies determine their budget based on volume, average length of stay for the year, and they compute their revenue based on days because hospices are reimbursed on a per diem basis, Simione says. "If they know their days and cost per day for drugs and DME, then they can budget better," he adds.

2. Develop a chart of accounts that parallels the hospice cost report.

"Look at the line items you need to complete," Simione says. "Then take the general ledger and come up with a chart of accounts that parallel that."

The key is to bring the general ledger information over to the cost report, he suggests. Categorize expenses as they come in, and put these in a chart of accounts, Simione says. "Record the information in the proper categories."

At Covenant Hospice, there is a clear chart of accounts where the costs are allocated and reported, Knee says. "These can be easily translated and placed on the cost report," he says. "So we're continually assigning costs in an appropriate category, using the definition of that category."

That action is critical, Knee says. "But once again it starts out with having an understanding of the definition of the category," Knee explains. "If you don't understand, there is a tendency to put costs in the miscellaneous category."

The key is to have the hospice's chart of accounts parallel the Medicare hospice cost report. Thus, when you have an invoice for medical supplies, it should be keyed in as medical supplies in the general ledger, Simione explains.

Hospice agencies that use general ledger software packages can develop these parallel accounts quite easily, he notes. "Even smaller agencies have some type of software out there that they could utilize to break down the information," Simione says.

3. Break old bookkeeping habits.

It's not significantly time-consuming to record the data correctly if you do it up front, Simione says.

"If you're a new hospice or a small hospice agency, and you only file that Medicare cost report once, it has no bearing on what happens to you individually," Simione says. "You're trying to short-cut things for yourself up front."

However, it's better for these agencies and for the industry as a whole to break old habits and develop a more thorough record-keeping system. Hospice agencies that are doing this correctly are looking at their data on a monthly basis, Simione says. "They're breaking out the data because it's a management tool," he explains. "They use performance indicators within the industry to make sure they're managing their costs properly throughout the year."

For these agencies, it's not a mystery about why they are making or losing money because they have ready access to the details that explain where their financial strengths and weaknesses are, he says.

Even if the Medicare cost report were not used for benchmarking or if it is never used by Medicare to determine new payment costs, hospices should complete these accurately, Knee says."We need to make them as accurate as possible because it's the right thing to do, and we're required to do it," Knee says.

Need More Information?

  • Dale O. Knee, MHCA, President and Chief Executive Officer, Covenant Hospice, 5041 North 12th Ave., Pensacola, FL 32504. Telephone: (850) 433-2155.
  • Robert Simione, Principal, Simione Consultants, 4130 Whitney Ave., Hamden, CT 06518. Telephone: (203) 287-9288. E-mail: rsimione@simione.com.