☰ Menu

CHC in the Spotlight



Community Hospital Blog

Hospital Performance Improvement
The Far-reaching Impact of Your Hospital’s Cost Report

Guest blog by Chuck Green, Principal, Healthcare Reimbursement Partners


Ever-expanding in complexity, cost reports influence current and future reimbursement levels for your hospital. Think of a cost report as an annual report with numbers instead of words. Far-reaching in scope, mistakes can result in lost revenue that may profoundly affect your hospital’s sustainability and ability to effectively serve patients.


The Center for Medicare and Medicaid Services (CMS) requires Medicare certified hospitals and other Medicare reimbursable provider facilities to file cost reports annually that identify the costs and charges related to facility Medicare reimbursable activities. Acting as annual reconciliations, these financial reports disclose whether a facility has been underpaid or overpaid for reimbursable services.


Cost reports are filed with one of 12 third-party CMS-approved claims processors known as Medicare Administrative Contractors or MACS. It must be submitted 150 days after the hospital’s Medicare year concludes. Late and/or inaccurate filings can result in penalties.


Service Line Considerations


A cost report almost microscopically examines a facility’s service line and cost center charges throughout the care continuum. When compared with Medicare reimbursement, the hospital can determine a service line’s financial impact versus its community need and/or desirability.


From a business planning perspective, the cost report helps determine the financial consequence of offering a new service, continuing or expanding an existing one, or discontinuing one that is underused and/or unprofitable. Meanwhile, assigning a less profitable service to another hospital area allowing greater reimbursement may be a profitable option, whereas instituting an uncommonly large service increase could trigger a payment penalty.


Preparing an Accurate Report


The comprehensive patient treatment and financial data contained in the annual cost report, collected from multiple hospital-specific financial and operational reporting systems, must accurately mirror the hospital’s current performance. Cost reports are only as accurate as the information provided by each hospital’s system.


Who Should Prepare your Cost Report?


You may need expertise beyond your in-house financial team or CPA. Experienced consultants monitor ongoing changes in government reimbursement, keep your hospital on a timeline, assist with appeals and help ensure your hospital receives the most advantageous allowable Medicare reimbursement.


Example: In one instance, a cost report consultant enabled a hospital to recoup a $2 million MAC underpayment because he spotted a .02 percent rather than a .2 percent reimbursement calculation in the MAC’s compensation system.


Successful Steps to Gainful Cost Reporting


These pro-active, best-practices could help ensure a hassle-free and profitable process and gainful Medicare reimbursement.

  • Examine your systems. Are they programmed correctly? Do they receive complete and accurate information on a daily or regularly scheduled basis to prevent lost data or data pile-up resulting in data entry mistakes and potential lost reimbursement?
  • Convene an all-hands staff meeting to explain the importance of the cost report. Establish a service line suggestion box and ask employees for ideas to improve the data collection process. Consider offering an award for the best suggestion.
  • Conduct an information check list of cost report-related activities well in advance and compare to current system data reports. Establish new data collection categories and/or system enhancements or corrections as required.
  • Prepare an internal-use-only quarterly report that mirrors your annual cost report to avoid year-end surprises.
Tags: Compliance, Cost Report, Hospital Performance Improvement, Operational Improvement
Turn Around Efforts Start with a Look at Operations

by Wilson Weber, CHC Executive VP and COO 


Hospital leaders may recognize the need for improvement but may not know where to turn. Even before a hospital shows signs of financial distress, the responsible action is to take a close look at areas of operations. Since operations span the entire hospital, a head-to-toe operational assessment may be warranted to fully address financial and performance issues.


Taking a thorough look at operations may seem daunting. Consider starting with an evaluation of outsourced contracts; some may have been in place for years and can be renegotiated or even eliminated. Below are high-level best practice tips that serve as cost-reduction and revenue enhancement strategies, and can help redirect an ailing situation toward a partial or full turnaround.


Evaluate labor and its costs.

Labor costs typically account for 50 to 60 percent of a hospital’s operating revenue, so a thorough review of productivity is critical. While a productivity tool can help to set productivity targets, it also integrates a level of accountability toward helping to control labor expenses. Productivity evaluation can also indicate the right level of staffing by shift and day. Productivity standards, manager involvement, and executive oversight will move you toward your goals of greater efficiency while reducing labor costs.  


Analyze supply costs. 

Second only to labor costs, supply spend represents significant expense for hospitals. Often, small hospitals don’t have the negotiating power, so look to the expertise of a group purchasing organization (GPO), or evaluate whether you have the right GPO with your interests in mind. From our experience, the right GPO relationship can mean supply savings from 10 to 14 percent.


One key area to look at is your supply inventory. Have quantities been adjusted based on volumes, or types of procedures such as those performed in orthopedics or the cath lab? It may be possible to work with vendors to be charged for supplies when they’re needed (just-in-time delivery) versus overstocking for procedures that may be scheduled; this practice helps to free up dollars for other purposes. Also examine inventory “turns,” the number of times per year that supplies are being replaced. Based on our experience, a reasonable level of inventory turn is 9 to 12 times per year. This examination could indicate unnecessary items in your inventory.


Examine revenue cycle management.

Because the revenue cycle is a complex function, points in the process may be overlooked or broken. Your hospital may also face common challenges such as keeping your chargemaster current and competitively priced, and keeping up with each payer’s unique rates and payment methodology.


Additional areas to evaluate and address:

  • Have managed care contracts been updated or renegotiated?
  • Compare charges to reimbursement. Although you may be charging for an item at a fixed cost, it doesn’t necessarily mean that you will be reimbursed at that level. Depending on the managed care plan, or Medicare or Medicaid, reimbursement could equate to 25 cents on the dollar. 

Move ahead with greater confidence.

Your overall action plans should identify who is responsible and accountable for each area of evaluation and opportunity. The discipline of frequent review helps to ensure that you are not drifting off the plan and that progress is occurring across all areas. A new level of accountability across team members is one indication that you have arrived. Be mindful that it does take time and diligence to impact turnaround efforts.


Tags: Hospital Performance Improvement, Operational Assessment , Operational Improvement, Productivity Assessment, Revenue Cycle, Supply Chain, Supply Spending, Turnaround
How-to Basics for an Effective Hospital Compliance Program

By Doug Kent, CHC VP Internal Audit/Compliance Officer


As healthcare becomes more complex, there is also more emphasis being placed on financial considerations, and on preventing and detecting violations of state and federal healthcare laws. What can your hospital do? Start by creating a compliance program to self-police your hospital and staff activities.


Since its inception in 1976, the Office of Inspector General (OIG) of the U.S. Department of Health and Human Services (HHS) has led the charge to fight waste, fraud, and abuse in Medicare, Medicaid, and more than 100 other HHS programs. In 2010, as part of the Affordable Care Act, OIG mandated that all healthcare providers have a Corporate Compliance Program in place as a condition of enrollment for Medicare, Medicaid, and Children’s Health Insurance reimbursement.


Along with assuring that needed dollars go to patient care, compliance programs serve to engage and inform employees and community members that your hospital is committed to “doing the right thing.” It’s also key to have compliance policies in place should you ever face regulatory review or inquiry.


Here are some best practice recommendations to develop or enhance your hospital compliance program.


1. Assemble a compliance committee representing a cross-section of employees. Compliance “belongs” to everyone. It’s a team effort and extends beyond the role of the designated compliance manager or leader. C-suite members, case management, revenue cycle, IT/security, and other employee representatives should serve on your compliance committee. Establish a group charter, meet at least quarterly, and ensure confidentiality of information shared with this group.


2. Develop a robust education and training program. Provide compliance education/information as part of new employee orientation. Offer online education courses to meet yearly training requirements on topics including billing and collections, Medicare rules, HIPAA, compliance issues, EMTALA, and conflicts of interest.


3. Establish a compliance hotline. Make sure employees know the hotline is an anonymous reporting system assuring the confidentiality and protection of individuals who may come forward; communicate the purpose of this hotline (it’s not an employee “complaint” line).


4. Include sanction screenings in your compliance plan. The hospital is required to check state and federal exclusion lists monthly to identify if employees, contractors or third-party vendors have had adverse actions taken against them by federally funded programs. Screenings demonstrate you have a routine process in place to monitor potential compliance issues.


5. Define and document conflicts of interest. To protect patients’ well-being and ensure public trust, board and management team members should sign a conflict of interest statement as part of the compliance plan. Keep these documents on file.


6. Manage compliance risk issues through ongoing monitoring and auditing. Make sure your compliance work plan includes a continuous control process to keep current on changes in rules, regulations and laws. Your work plan should outline internal controls to comply with these guidelines. For auditing, the approach is more proactive. Steps could incorporate chart review to examine how codes are being used and applied, or charge tracking for certain procedures or supplies.


7. Measuring compliance programs. It’s important to measure the effectiveness of your existing hospital compliance program. Authorities recommend that you conduct an internal evaluation yearly to assess your program’s effectiveness, and an external audit every other year with a report back to you that outlines program improvements.


For additional compliance education materials see the OIG Compliance 101 resources.

Tags: Hospital Management, Hospital Performance Improvement, Operational Improvement
Rethinking Supply Costs: Good to Great

by Philip Trent, VP of Business Development, CHC Supply Trust


Many rural hospitals today — health care providers whose mission is to serve their community’s health care needs — are apprehensive about their own financial health. Increasing expenses, decreasing reimbursement and declining patient populations and hospital admissions place these hospitals at risk, threatening financial viability.


Behind salaries, supplies are the second-highest expense for hospitals. By reducing supply costs and better managing the supply chain, a hospital can move its savings margin from good to great.


CHC Supply Trust, the supply chain services arm of Community Hospital Consulting, works with hospitals to help them evaluate potential savings opportunities by uncovering “hidden” dollars to offset shortfalls due to reimbursement cuts and reduced payments. Unlocking supply chain savings can support mission-critical objectives such as equipment upgrades, development projects or hiring additional staff as necessary.


Supply chain support services to help hospitals reduce costs while prioritizing clinical quality and patient safety through CHC Supply Trust include:

  • Supply Chain Consulting
  • GPO Access Only (a GPO for community hospitals with preferred pricing formerly available only to their bigger counterparts)
  • Customized Support Services Agreement
  • Outsourced Materials Management.

CHC Supply Trust delivers access, savings, and support


Teaming up with community hospitals, CHC Supply Trust offers a Complimentary Supply Spend Analysis. Whereas annual savings have averaged greater than 10 percent, recent CHC supply spend analyses have identified savings opportunities reaching 15 to 20 percent. Along with 100 percent of GPO rebates returned to participating facilities, CHC Supply Trust hospitals can keep their bottom lines healthy.


For example, 25-bed Community Hospital in McCook, Nebraska previously bought its supplies and services from a nationwide hospital network. As part of the network’s supply contracting company and GPO, Community Hospital was subject to volume-based tier pricing and paid approximately 35 percent more than larger hospitals for orthopedic implants. By purchasing those same items through CHC Supply Trust in FY 2013, savings on orthopedic implants alone totaled $334,000. Today Community Hospital continues to see approximately 18 percent savings annually on its supply spend.


About the Supply Spend Analysis process


It’s easy to get started on your Complimentary Supply Spend Analysis. Follow these simple steps:

  1. Sign the CHC Supply Trust confidentiality agreement (we protect the confidentiality of your data).
  2. Provide 12 months of medical and surgical supply data in Excel format (easily available by contacting distributers who have this information in a standardized report already).
  3. Provide 90 days of pharmacy supply data in Excel format (from their wholesaler).

With this information, CHC Supply Trust will conduct your Complimentary Spend Analysis and calculate how much your hospital can save by accessing preferred pricing through our GPO for the exact same items you already buy. No MMIS mining is required. We will provide you with a letter template requesting your pharmaceutical wholesalers’ and med/surg distributors’ reports, which can be generated with a few mouse clicks.

Tags: Hospital Performance Improvement, Supply Chain, Supply Spending
Billing and Collections: Whether or Not to Outsource

by Alice Fleetwood, CHC VP Revenue Cycle


Many rural hospitals find it a struggle to achieve positive cash flow and maintain enough days cash on hand to meet their capital and operational needs. This intensifies the importance of ensuring that patient accounting processes, especially billing and collection, are performing at optimal levels.


One option many turn to for managing this process is to outsource billing and collections functions. This effort may be seen as a way to improve accurate and timely billing of patient accounts, lower costs, and improve collections. The CHC Consulting Revenue Cycle team is often called upon to evaluate the pros and cons of outsourcing compared to maintaining a hospital-based employed business office.


CHC’s experienced staff has assisted hospitals in improving the entire Revenue Cycle process by helping to determine the best solution, avoid common pitfalls, and achieve a hospital’s cash goals. Here are some insights and best practice tips for evaluating whether outsourcing is right for your facility.


Define the Need.


Based on your business needs and in-house capabilities, determine what can be improved and maintained internally and what would benefit from outsourcing. For instance, evaluate each of the following functions:

  • Billing 
  • Cash posting
  • Account Follow-up
  • Appeals
  • Patient balances
  • Credit balances

Assess Departmental Billing Skills.


A keen understanding of Medicare and Medicaid billing requirements is essential, supported by regular claims management system edits. Having an experienced and strong Medicare biller is essential.


Review your organization’s billing and collections functions – determine which tasks could benefit from outsourcing.


  • Examine insurance balances. Go over payments and payer mix, starting with Medicare and Medicaid A/R to assess the percentage of payments made in less than 30 days. Because these payers are prompt when billing is handled correctly, timely collection is a good indicator of your hospital’s internal capabilities.
  • Appeals. Will you handle the first appeal in-house? For a second appeal, could an outsourcing group provide services not offered locally, such as an attorney or clinical services support?
  • Which categories of A/R might be the most appropriate to subcontract? Motor vehicle accidents (MVAs) for patients without a third-party payer, or workers’ compensation accounts with pending legal concerns are often outsourced due to legal filing and state compensation laws.
  • How long will you need outsourcing services and why? Do staffing concerns or system conversions make outsourcing selected services a reasonable alternative for a specified period?
  • Consider the responsibilities, which will remain at the hospital level. Some of the most common needs for outsourcing include support for customer service, financial counseling, scanning and managing correspondence, and coordination with other departments to resolve concerns.

Evaluate Results.


Managing your vendor extends beyond relationship management. Measure the results. Is your outsourcing partner collecting the needed cash? They should be accountable for all accounts you’ve agreed on — not just the “easy” ones. — Follow up through tracking metrics, audits and surprise on-site visits.


Consider the Cost.


For hospitals with strong internal resources, it’s key to weigh potential staff reduction savings against the loss of revenue the hospital will experience with outsourced collections. Compensation arrangements vary and may include:

  • A percent of total collections. These are typically based on the age of the account and the effort needed to achieve collection.
  • The number of accounts. A fee based on the number of accounts worked (not often preferred by vendors).
  • Hourly rates. The challenge with this method is in assessing and evaluating effectiveness of collections vs. cost.

Choosing the “right” outsourcing partner is rooted in trust. Select a team who understands your needs – ; an organization committed to a shared relationship. Discuss the scope of the outsourcing and define specific Revenue Cycle metrics with your contractor. They must be able to meet or exceed the stated goals, including cash targets and A/R aging metrics.


Learn more about CHC Financial Improvement Services including assistance with outsourcing.

Tags: Hospital Performance Improvement, Outsourcing, Revenue Cycle

CHC in the Spotlight