Chicot Memorial Hospital
Enhancing Operating Margin thru Cost Report
Review & Revenue Cycle Improvements
Russ Sword, Former Interim CEO
Greg Britt, Consultant
Chicot County Arkansas
• Located in rural southeast Arkansas near the
MS River and on the banks of Chicot Lake
– A very rural area and largely a farming community
• The average household income of Chicot
County is $24,921
• 17.3% of the county residents are 65 years or
older
• Hospital census is 50+% Medicare and 20%
Medicaid
Chicot Memorial Hospital (CMH):
Background
• A county owned and operated CAH
• New patient wing was opened in 2006
• The old hospital was completely renovated
– Designated as a CAH in 2006 to coincide with the
opening of the new patient wing
– CMH had ~$2M in reserve funds when the wing opened
– All reserves were spent on renovations of the old facility
and the recruitment and income guarantees of a
general surgeon and an obstetrician / gynecologist
Other Healthcare Providers
in Chicot County
• Lake Village Nursing Home
• Southeast Rehabilitation Hospital:
– Leases space and purchases services from CMH
– Provides physical, occupational, and speech therapy services
– 3 physicians on CMH Medical staff have part ownership interest
• Mainline Health System:
– A system of 5 federally funded primary care clinics
– Mainline physicians have privileges at CMH
• Lake Village Clinic:
– A private RHC is located on CMH campus that has 3 family
practice physicians, 1 general surgeon, and 1 PA
Other Healthcare Providers
in Chicot County
• 1 general surgeon and 1 obstetrician / gynecologist in
private practice (Employed by CMH)
• McGehee-Desha County Hospital:
– Great non-competitive relationship between both CAHs
• Delta Regional Medical Center (DRMC):
– DRMC specialty physicians have clinics at CMH
• AR Depart of Health – Public Health Center
• AR Depart of Health Home Health Agency:
– Direct completion for home health services
• Hospice services are provided through Hospice Agency
from Pine Bluff, AR
CMH Financial Status
FY 2009
9/30/2009
Net Gain /
Loss
($0.4 M)
($0.5 M)
Accounts
Receivable
$4.5 M
$4.8 M
Days in AR
65
74
Accounts
Payable
$1.7 M
$1.8 M
Days Cash
On Hand
3
4
FY 2010
FY 2011
6/30/2011
INTERIM CEO
RUSS D. SWORD, FACHE
EFFECTIVE - OCTOBER 19, 2009
Key Observations
• Great Board, Medical Staff, and Employees
– Uninformed relating to Critical Access Hospital
operations and lacked confidence in the future
financial viability of the hospital
• Very supportive community – they approved:
– 1.0% sales tax to build the patient wing
– 1% to support operations
• Hospital was behind on payroll taxes
– ~ $185,000 to IRS + $62,000 in penalties
– ~$206,000 to Arkansas+ $40,000 in penalties
Key Observations
• Hospital was not participating in AR provider assessment
– Use1.0% of net revenues for federal Medicaid match
– Increase reimbursement by ~ $1.4 M per year.
• Venders required advanced payments
• Hospital was leasing offsite property
• Hospital did not provide rehab services
– Contractor withdrew from the hospital due to non-payment
• Home health services were at minimal level
– could not meet the patient needs for therapy services
• Hospital was receiving less than cost for rent and services
from the Southeast Rehab Hospital agreement
Initial Corrective Actions
• Frequent meetings to improve communications and build
confidence
• Changed to 501c(3) not-for-profit hospital
– Increased reimbursement by ~ $1.4 M annually
• Conducted education programs with the Board, Medical
and hospital staffs on cost based reimbursement
– Education on LOS, swing bed utilization, and use of
observation status
• Reduced staffing levels
– Saved ~ $350,000 per year
• Updated Southeast Rehab Lease and service
agreement
– Increased revenue by more than $125,000 per year
Initial Corrective Actions
• Paid federal and state taxes by mid-November 2009
• Reopened cost reports for 3 preceding years to correct
errors
– Received ~$517,000 in additional reimbursement and
revised the 2010 cost report for an additional $200,000.
($500,000 on the cost of employee health insurance)
• Established contract with Southeast Rehab for inpatient,
outpatient, and home health services
• Cancelled lease of offsite property for home health
services
• Established contract for mobile MRI services
• Requested CDM analysis and cost report review by
Greg Britt through the RHPI Project
Chicot Memorial Hospital
RHPI Project
Purpose
• Help the hospital achieve a sustainable operating margin
• Identify financial performance improvement opportunities
Objectives
• Identify opportunities to improve cost reporting
• Identify opportunities to improve the revenue cycle
• Identify specific cost reimbursement matters applicable
to the hospital for management education
Strategies to Complete
Objectives
Revenue Cycle Review
– Review focused on the Charge Description Master
(CDM) coding and analysis of non-cost based third
party reimbursement rates.
– Review processed claims remittances
Cost Report Review
– Reviewed cost report and supporting work papers.
– Review cost center assignment of salary and other
costs.
– Review Charge Master mapping of revenue.
Findings
• Opportunities related to Hospital organizational structure
included:
– Converting private physician offices to hospital provider
based clinics.
– Having the non-cost reimbursed home health agency report
to the CEO rather than to Nursing Administration.
• Opportunities related to cost reporting structure included:
– Adding cost centers to improve cost matching.
– Changes in the basis for statistical allocations.
• Cost report errors identified included:
– Allocation of cost to cost centers that are not served by the
allocating cost center.
– Square footage allocations.
Critical Access Hospital
CDM & Medicare Cost Reporting
Compliant Medicare cost reporting
depends on accurately mapping revenue
and costs to the correct cost center in a
way that it can be properly matched to
Medicare paid claims.
Medicare paid claims are summarized by
your fiscal intermediary and are provided
for cost settlement on your Provider
Statistical Summary report (PS&R).
Critical Access Hospital
Medicare Cost Reporting
Charges must be mapped internally to general
ledger accounts that are matched to the cost
center where the expenses corresponding to the
services provided are accumulated. This is
essential to accurate calculation of cost to
charge ratios.
A Revenue Code is assigned that determines
how your fiscal intermediary accumulates paid
claim data to match to the appropriate cost
center for settlement.
Revenue Crosswalk
PS&R Crosswalk
Critical Access Hospital
Medicare Cost Reporting
In oversimplified terms Medicare cost
reporting and settlement is a calculation of
the product of paid claims multiplied by a
cost to charge ratio.
Each series of Medicare cost report
schedules serves a purpose to this end.
Critical Access Hospital
CDM & Medicare Cost Reporting
The A schedules report allowable costs by cost
center.
The B schedules allocate all costs from nonrevenue producing cost centers to revenue
producing cost centers.
The C schedules report revenue by cost center
and calculate cost to charge ratios.
The D schedules calculate costs.
The E schedules report interim payments and
calculate a settlement.
Critical Access Hospital
CDM & Medicare Cost Reporting
The A schedules report allowable costs by cost
center.
The B schedules allocate all costs from nonrevenue producing cost centers to revenue
producing cost centers.
The C schedules report revenue by cost center
and calculate cost to charge ratios.
The D schedules calculate costs.
The E schedules report interim payments and
calculate a settlement.
Cost Report- WKST A
Summary of Costs
Cost Report- WKST B
Allocation of Indirect Costs
Cost Report- WKST B
Allocation of Indirect Costs
Cost Report- WKST B
Allocation of Indirect Costs
Cost Report- WKST C
Cost to Charge Calculation
Cost Report- WKST C
Cost to Charge Calculation
Cost Report- WKST D
Calculation of Medicare Costs
Cost Report- WKST D
Calculation of Medicare Costs
Cost Report- WKST D
Calculation of Medicare Costs
Cost Report- WKST D
Calculation of Medicare Costs
Cost Report- WKST D
Calculation of Medicare Costs
Cost Report- WKST E
Medicare Settlement Calculation
Cost Report- WKST E
Medicare Settlement Calculation
Cost Report- WKST E
Medicare Settlement Calculation
Cost Report- WKST E
Medicare Settlement Calculation
CDM Hard Coding
• ITEM MASTER LIST
• 5510707 PT EVALUATION 0-30 MIN
89.25
• (0424) INV.GL= EXP.GL= 31300055
• CPT CODE: 97001GP
Outcomes & Impact
• Improved Operating margin
• Improved financial performance.
Project Outputs
•
•
•
•
New cost accounting practices.
Cost reporting changes.
Revenue cycle revisions.
Calculated sustainable non-Medicare third party
payer contract pricing.
• Cost reimbursement educational references.
CMH Financial Status
FY 2009
9/30/2009
3/31/2010
FY2010
FY 2011
Net Gain /
Loss
($0.4 M)
($0.5 M)
$0.5 M
$1.9 M
Accounts
Receivable
$4.5 M
$4.8 M
$4.0 M
$4.2 M
Days in AR
65
74
61
59
Accounts
Payable
$1.7 M
$1.8 M
$1.5 M
$0.5 M
Days Cash
On Hand
3
4
5
43
6/30/2011
CHIEF EXECUTIVE OFFICER
DAVID CHUMLEY, FACHE
EFFECTIVE – JULY 12, 2010
(Russ Sword continues as Consultant, working
primarily on Financial Issues)
CMH Financial Status
FY 2009
9/30/2009
FY 2010
FY 2011
6/30/2011
Net Gain /
Loss
($0.4 M)
($0.5 M)
$0.5 M
$1.9 M
$0.3M
Accounts
Receivable
$4.5 M
$4.8 M
$4.0 M
$4.2 M
$4.2M
Days in AR
65
74
61
59
56
Accounts
Payable
$1.7 M
$1.8 M
$1.5 M
$0.5 M
$0.5M
Days Cash
On Hand
3
4
5
43
55
Benefits of Participation
& Next Steps
• Continue to educate Board, Medical Staff,
Employees and the Community relating to
hospital operations and cost report
• Development of new services (Wound Care
Clinic, Level III Trauma Center, 1.5T MRI,
Digital Mammography, etc.)
• Physician Recruitment (Internal Medicine,
Family Practice and Pediatrics)
• Foundation to support the hospital
• Balanced Scorecard and PMI Program
LESSONS LEARNED
1.
2.
3.
4.
5.
CEO MUST UNDERSTAND COST
REPORT AND TAKE CHARGE
BOARD/MEDICAL STAFF/ STAFF AND
COMMUNITY EDUCATION
ASSOCIATION INVOLVEMENT
WORK WITH AND QUESTION AUDITOR
AND COST REPORT PREPARER
GET A SECOND/THIRD LOOK AT COST
REPORT
Contact Information
Russ Sword
(870) 500-2524
russ.sword@att.net
J. Greg Britt
(502) 896-4175
jgregbritt@aol.com