Critical Access Hospital Medicare Reimbursement Update and Financial Improvement Tools

acumen Critical Access Hospital Medicare Reimbursement Update and Financial Improvement Tools Presented by Ann King White, CPA & Tammy Rivera, CPA BKD, LLP January 16, 2018 insight ideas attention reach expertise depth agility talent Western Symposium Region 10 & 11

Agenda Reimbursement Update Current Status for Critical Access Hospitals (CAH) Medicare Inpatient PPS Final Rule - FFY 2018 Final Rule CY 2018 for OPPS and Other Providers Preparing for the Future CAH Metrics and Financial Measures 1. Profitability 2. Revenue 3. Liquidity 4. Capital Structure 5. Operational Measures

Conference Hospital Analysis Analysis of Western CAHs including Hospital s attending the conference with CHA Comparative for 13 Western States: Medicare cost reports from FYE 2016, obtained on-line Western CAH Hospital census = 285 Alaska (AK) =14 Arizona (AZ) = 14 California (CA) = 34 Colorado (CO) = 29 Hawaii (HI) = 8 Idaho (ID) = 27 Montana (MT) = 47 New Mexico (NM) = 9 Nevada (NV) = 12 Oregon (OR) = 25 Utah (UT) = 11 Washington (WA) = 39 Wyoming (WY) = 16

Conference Hospital Analysis Western CAH Average Bed Size = 20 Individual State Averages: Alaska = 16 Arizona = 21 California = 20 Colorado = 19 Hawaii = 10 Idaho = 19 Montana = 20 New Mexico = 24 Nevada = 17 Oregon = 22 Utah = 20 Washington = 22 Wyoming = 20

Reimbursement Update Inpatient PPS (IPPS) FFY 2018 Final Rule

Reimbursement Current Status for CAHs Hospitals CAH hospitals on holding pattern, same as PY Sequestration at 2% cut all Health Care Cost Reimbursement still at 101% less 2% = 99% But this is an area that has brought discussion to reduce by 1% So From 101% reimbursement to 100%, then with 2% sequestration would mean reimbursement at 98%

CAH HOSPITALS IN FCHIP DEMO PROJECT Last year CMS selected CAHs to participate in the Frontier Rural Community Health Integration Project Demonstration (FCHIP) Developed to test new models for the delivery of health care services, improve access, and better integrate delivery of acute care to Medicare beneficiaries Period of performance August 1, 2016 July 31, 2019 Goal is to maintain budget neutrality for the demonstration project Any increase in Medicare payments will be recouped from all CAHs through a reduction in Medicare payments over a three year period of cost reporting years, beginning in calendar year 2020. So CMS notes there is no impact on FY 2018.

REVIEW OF CAH 96-HOUR CERTIFICATION REQUIREMENT CMS to direct QIOs, MACs, SMRCs and RACs to make the 96-hour cert. a low priority for medical records reviews. Effective for review conducted after 10/1/2017 Covers the rule where a physician certifies patient can be discharge/transferred in 96-hours Unless there is probably fraud, waste or abuse Other reviews, such as by OIG, DOJ or ZPICs are not effected

PPS Hospital Rates FFY 2018 Impact for Quality Reporting and MU FFY 2018 Submit Quality Data & meets MU Submit Quality Data & does not meet MU Did not submit Quality Data & meets MU Did not submit Quality Data & does not meet MU Market basket update 2.70% 2.70% 2.70% 2.70% Productivity Cut - ACA -0.60% -0.60% -0.60% -0.60% Add Cut ACA (1886) -0.75% -0.75% -0.75% -0.75% Two-midnight policy Adj -0.60% -0.60% -0.60% -0.60% Documentation & Coding Cut restoration +0.45% +0.45% +0.45% +0.45% Total Increase PPS Rate 1.20% 1.20% 1.20% 1.20% Adjustment if no quality data submitted Adjustment if not meaningful user Net change to standardized 9 amount -0.70% -0.70% -2.00% -2.00% 1.20% -0.80% 0.50% -1.50%

FINAL REBASING & REVISING OF THE HOSPITAL MARKET BASKETS FOR ACUTE CARE HOSPITALS Rebasing and Revising the Hospital Market Basket Cost weights Rebasing means moving the base year for the structure of the cost of an input price index. 2014-based (i.e. cost reporting periods beginning 10/1/2013-9/30/2014) data proposed as the base period for the construction of the market basket cost weights, previously the base was FY 2010-based which follows the established rebasing frequency of every 4 years. Revising means changing the data sources or price proxies used in the input price index. WHAT ABOUT Medicare Rebasing SCH Base Year Rates? Important Discussion and Considerations

Wage Index Issues Does not Apply to CAH s No Proposed changed to the Frontier Policy Frontier states (Montana, North Dakota, South Dakota, Wyoming & Nevada) guaranteed 1.0 WI National average hourly wage $42.0564 in 2018 or Annual 2080 hours = $87,477 Prior year final was $41.07 or 2.4% increase or $85,426 Methodology If a hospital terminated data remains in the WI unless not reasonable If a hospital has become a CAH before 1/23/17, data excluded Reclassification 11 Currently 906 hospitals are reclassified For FFY 2019 must apply by 9/1/17

DSH & UNCOMPENSATED CARE Uncompensated Care FY 2018 and after Does not apply to CAHs but CAHs do complete the cost report schedule Western CAH Average for: Uncompensated Costs = $1.9M Bad Debt Uncompensated Costs = $0.8M Total Uncompensated Costs = $2.7M To begin using S-10 data for allocation of uncompensated care beginning in FY 2018 To be consistent with FY 2017 proposed changes, use 3 years of cost report data for S-10 allocation Medicaid days from FY 2012 and FY 2013 cost reports FY 2014 and FY 2015 published SSI ratios. FY 2014 S-10 uncompensated care data

RURAL DEMONSTRATION PROJECT Cost Reimbursement for Inpatient Services only for Hospitals under 50 beds. Maximum of 30 participating hospitals. (Prior participants can extend) Selection made and notified Sept 2017 for FYE starting after October 1, 2017 Any rural community hospital in any State could submit an application. But, priority granted to hospitals in the 20 states with the lowest population densities. Alaska, Arizona, Arkansas, Colorado, Idaho, Kansas, Maine, Mississippi, Montana, Nebraska, Nevada, New Mexico, North Dakota, Oklahoma, Oregon, South Dakota, Utah, Vermont, and Wyoming Western State Hospitals in the Rural Demo: Alaska = 2, Colorado = 5, New Mexico = 1 and Wyoming =1 Other states include: IA, KS, ME, MS, NE, OK, SD

LOW VOLUME ADJUSTMENT Hospitals must submit request to MAC by September 1, 2017 Criteria for FFY 2018: No longer based on ACA criteria Less than 1,600 MEDICARE Discharges Reverts back to FY 2005 criteria Less than 200 TOTAL Discharges But Pressure to make an LVA Fix from the IPPS Rule through an Extender Bill but uncertain Other Requirements: Mileage more than 25 miles from nearest like hospital Discharges based on total discharges less than 200 and is no longer payor specific Discharges based on most recent submitted cost report rather than MedPar data due to change to total discharges

MEDICARE COST REPORTING AND PROVIDER REQUIREMENTS Electronic Signature and Submission: Under final rule the provider will be able sign the certification page of their cost report via electronic signature or original signature (as previously completed) A checkbox will be added to indicate if signing electronically on the settlement page If signed electronically, the provider can submit the Certification and Settlement Summary page in the same manner the MCR cost report is submitted (electronically versus hard copy and with the cost report) Certification must be signed by the Provider s Administrator or Chief Financial Officer Effective for cost reporting periods that end on/after 12/31/2017

MEDICARE COST REPORTING AND PROVIDER REQUIREMENTS Clarification of Limitations on the Valuation of Depreciable Assets disposed of on or after 12/1/1997 Final Rule clarifies that Medicare does not recognize a provider s gain or loss on the sale or scrapping of an asset that occurs on or after December 1, 1997, regardless of whether the asset is sold incident to a provider s change of ownership or is otherwise sold or scrapped as an asset of the Medicare participating provider.

Acute Care Volume Indicators Western Analysis of CAH: Acute Care CAH Average Acute Days Medicare Acute Days = 676 (54%) Medicaid Acute Days = 160 (12%) ---- Both 66% Total Acute Days = 1,352

Acute Care Average Days by State State * Medicaid Expansion States MC MC MCD Days % Days MCD % Total Days Total % MC & MCD Alaska * 417 41% 207 21% 1,007 62% Arizona * 563 39% 323 23% 1,432 62% California * 977 53% 150 8% 1,847 61% Colorado * 515 52% 163 16% 992 68% Hawaii * 55 27% 63 21% 305 48% Idaho 666 51% 161 12% 1,304 63% Montana * 465 52% 129 14% 895 66% New Mexico * 685 42% 175 11% 1,650 53% Nevada * 841 53% 234 15% 1,573 68% Oregon * 993 48% 154 7% 2,083 55% Utah 499 48% 148 14% 1,038 62% Washington * 844 52% 147 9% 1,621 61% Wyoming 694 57% 105 9% 1,221 66%

Acute Care Reimbursement Western Analysis of CAH: Acute Care CAH Acute Reimbursement (at Median) M/C Acute = $2,336 (45%) M/C Ancillary = $2,892 (55%) Total Reimbursement = $5,228

Medicare Acute Care Reimbursement per Day State MC Acute MC Ancillary Total MC Reimbursement Alaska $3,252 $1,544 $4,796 Arizona $1,467 $2,211 $3,678 California $2,150 $4,918 $7,068 Colorado $2,761 $3,018 $5,779 Hawaii $3,105 $1,221 $4,326 Idaho $1,969 $3,045 $5,014 Montana $1,904 $1,564 $3,468 New Mexico $1,774 $3,981 $5,755 Nevada $1,901 $3,211 $5,112 Oregon $2,272 $3,071 $5,343 Utah $2,318 $2,463 $4,781 Washington $2,869 $3,151 $6,020 Wyoming $2,023 $3,138 $5,161

Swing Bed Comparison CAH -- What is your utilization? SWB M/C Days range from 1 to 4,807 36 CAHs had Zero Western CAH s Average = 459 M/C Utilization 32% to 100% Does it help your bottom line? What are the threats to this good reimbursement? What are opportunities to collaborate related to CJR Comprehensive Care for Joint Replacement and other upcoming payment bundles? OIG Report March 2015 Medicare Could Have Saves Billions Potential Cost Savings for Medicare Extender Bills?

Reimbursement Regulations CY 2017 Final Rule for Outpatient OPPS and Other Providers

FY 2018 OPPS Final Rule Conversion factor update of 1.35% after productivity and other adjustments CY13: $71.131 (1.59% increase) CY14: $72.672 (2.17% increase) CY15: $74.173 (2% increase) CY16: $75.582 (1.9% increase) CY 17: $76.829 (1.65% increase) CY 18: $78.636 (1.35% increase)

Outpatient Indicators & Reimbursement Outpatient Ratios for Western CAHs Outpatient M/C Cost to Charge Ratios - Overall CAH Range 14% to 223% -- Average 55% Outpatient Medicare Revenue per Calendar Day CAH - $18 to $174,672 Average $28,713 Outpatient Medicare Cost to Allowable Cost CAH - 16%

Medicare Outpatient Indicators State OPT MC Cost/Charge % OPT MC Revenue Per Calendar Day OPT MC Cost to Allowable Costs Alaska 80% $11,324 9% Arizona 35% $24,082 14% California 40% $50,919 16% Colorado 56% $27,210 19% Hawaii 72% $2,991 5% Idaho 57% $22,870 19% Montana 67% $12,401 13% New Mexico 43% $39,218 17% Nevada 40% $42,527 18% Oregon 52% $48,057 20% Utah 56% $11,589 15% Washington 54% $35,800 18% Wyoming 61% $22,160 18%

RHC Rates -- CY 2018 Upper Payment Limit per visit (Does not apply to CAHs) Increase, rates in: 2016 = $81.32 2017 = $82.30 2018 = $83.45 Reflects a 1.4% payment increase Western CAHs with RHCs (Limit does not apply) Average Per Visit cost CHA = $218 (over limit get + $136 ) IMPORTANT Billing Changes and Reimbursement Opportunities for RHCs and Rural Providers including Chronic Care Management (CCM) and Advanced Care Planning (ACP)

Rate Changes for Other Providers 2018 SNF - Overall rate increase = 1.0% HHA Overall rate decrease = (0.4%) Hospice Overall rate increase = 1.0%

Preparing for the Future CAH Metrics and Financial Measures

Financial Indicators and Comparison Benchmarks 1. Profitability 2. Revenue 3. Liquidity 4. Capital Structure 5. Operational Measures

Profitability

Profitability

Goals for Profitability Hospitals need to look for ways to be More Efficient Cost Effective In the delivery of Services Keep in mind the Triple Aim: Increase efficiency in providing care Improve the patient experience Improve outcomes

Western CAH Profitability Cost Report data FYE s in 2016 Net Operating Income -Net Patient Revenue less Expenses CAH s 81 out of 285 CAHs or 28% had Net Operating Income Average Net Income $3 Million 204 CAHs or 72% had Net Operating Losses -- Average Loss ($2.3 Million)

Western CAH Profitability Cost Report data FYE s in 2016 Net Income Including Other Income CAH s 193 out of 285 CAHs were Profitable or 68% 92 CAHs or 32% had Net Losses -- Average Loss ($1.2 Million)

Total Margin % -- Western CAH Average Compared to S&P Small Hospitals 10 9 8 7 6 5 4 3 2 1-5 Western CAH Average 5 S&P A 2 S&P BBB

Total Margin % By State 14 12 10 8 6 4 2 - (2) 11 9 7 4 8 5 5 4 3 1 1 0 AK AZ CA CO HI ID MT NM NV OR UT WAWY

Total Margin % Region 10 14 12 10 8 6 4 2 0-2 11 5 5 4 4 3 1 1 AVE AZ CO ID MT NM UT WY

Total Margin % By State 14 12 10 8 6 4 2 - (2) 9 8 7 5 5 0-2 AVE AK CA HI NV OR WA

EBIDA Margin % -- Western CAH Average Compared to S&P Small Hospitals 15 10 11 12 9 5 - Western CAH Average S&P A S&P BBB

20 EBIDA Margin % By State 15 10 14 11 14 15 6 7 11 15 10 8 7 5 2 3 - AK AZ CA CO HI ID MT NM NV OR UT WAWY

EBIDA Margin % 20 Region 10 15 10 11 14 14 6 7 11 8 10 5 - AVE AZ CO ID MT NM UT WY

EBIDA Margin % 20 Region 11 3 15 15 15 11 11 10 10 5 2 3 - AVE AK CA HI NV OR WA

Revenue

Acute Medicare Utilization By State 100 80 60 40 54 44 38 55 55 29 57 61 44 56 51 48 58 63 20 - AVE AK AZ CA CO HI ID MT NM NV OR UT WA WY

100 Acute Medicare Utilization Region 10 80 60 40 54 38 55 57 61 44 48 63 20 - AVE AZ CO ID MT NM UT WY

100 Acute Medicare Utilization Region 11 80 60 54 44 55 56 51 58 40 29 20 - AVE AK CA HI NV OR WA

Acute Medicaid Utilization By State 100 80 60 40 20 12 21 23 8 16 21 12 14 11 15 7 14 9 9 - AVE AK AZ CA CO HI ID MT NM NV OR UT WA WY

100 Acute Medicaid Utilization Region 10 80 60 40 20 12 23 16 12 14 11 14 9 - AVE AZ CO ID MT NM UT WY

100 Acute Medicaid Utilization Region 11 80 60 40 20-21 21 12 15 8 7 9 AVE AK CA HI NV OR WA

Outpatient Revenue to Total 100 80 60 40 70 65 83 68 78 45 73 66 77 74 78 71 74 51 20 - AVE AK AZ CA CO HI ID MT NM NV OR UT WA WY

100 80 60 Outpatient Revenue to Total Region 10 83 78 70 73 77 71 66 51 40 20 - AVE AZ CO ID MT NM UT WY

100 Outpatient Revenue to Total Region 11 80 70 65 68 74 78 74 60 45 40 20 - AVE AK CA HI NV OR WA

Outpatient Medicare Utilization 50 40 30 20 30 21 23 32 30 14 32 29 28 33 32 27 31 39 10 - AVE AK AZ CA CO HI ID MT NM NV OR UT WA WY

50 Outpatient Medicare Utilization Region 10 40 30 30 23 30 32 29 28 27 39 20 10 - AVE AZ CO ID MT NM UT WY

50 Outpatient Medicare Utilization Region 11 40 30 30 32 33 32 31 20 21 14 10 - AVE AK CA HI NV OR WA

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Take a closer look at Medicare Payments Re-examine that all Medicare payments are correct Verify the relationship between coding and payments

How Do Your Third Party Payers pay... Depends on the payer and services provided to the patient Fee for service Fixed payments Payments based on Medicare methodology Contracts with payer AUDIT these payments

Acute Other Utilization By State Who are your other patients? 100 80 60 40 34 38 38 39 32 52 37 34 47 32 45 38 39 34 20 - AVE AK AZ CA CO HI ID MT NM NV OR UT WA WY

Acute Other Utilization Region 10 Who are your other patients? 100 80 60 40 34 38 32 37 34 47 38 34 20 - AVE AZ CO ID MT NM UT WY

Acute Other Utilization Region 11 Who are your other patients? 100 80 60 40 34 38 39 52 32 45 39 20 - AVE AK CA HI NV OR WA

Outpatient Other Utilization 100 90 80 70 60 50 40 30 20 10-70 79 86 77 68 70 AVE AK AZ CA CO HI 68 71 72 67 68 73 69 61 ID MT NM NV OR UT WA WY

100 90 80 70 60 50 40 30 20 10 - Outpatient Other Utilization 70 77 Region 10 70 68 71 72 73 61 AVE AZ CO ID MT NM UT WY

100 90 80 70 60 50 40 30 20 10 - Outpatient Other Utilization 70 79 Region 11 68 86 67 68 69 AVE AK CA HI NV OR WA

Who are the Local Employers Erica s Story, HR Director at a Denver Corporate Office Company in 3 rural locations Local employees total 800, 75, 60 What if family size is an average of 3 = 2,400, 225, 180 Industry under a bust 3 years ago, now getting better Had to cut costs to survive and looked at Healthcare Needed local Hospitals to partner with them Chose to direct patient s elsewhere Making the Local Hospital out of network BE PROACTIVE. Find Solutions to keep patients LOCAL

Improve Revenue Realization Analyze charge payer % s by procedure Restructure charges to take advantage of procedures with higher % of charge payers OR consider reducing charges to capture market share for competitive pricing and consumer shopping Update the hospital s Charge Description Master (CDM)

Medicare Bad Debts - CAHs All Medicare Bad Debts are reimbursed at 65% Western CAH s Average for Inpatient Deductibles & Co-Insurance Average = $208,860 Average Bad Debts $18,834 or 9% Western CAH s Average for Outpatient Deductibles & Co-Insurance $1,847,985 Average Bad Debts $136,166 or 7% Hospitals with No M/C Bad Debts- 65 out of 285 CAH s or 23%

Medicare Bad Debts CAH Bad Debts No Bad Debts 17% 23% Under $25,000 Under $50,000 19% 16% Under $100,000 Under $250,000 Over $250,000 14% 11% Bad Debts to Deductibles & Co-Insurance is 8%

Medicare Bad Debt Averages State CAH Average Claimed State All Hospitals Claimed Alaska 4% 4% Arizona 5% 6% California 15% 19% Colorado 3% 9% Hawaii 2% 5% Idaho 6% 3% Montana 3% 2% New Mexico 6% 6% Nevada 14% 17% Oregon 6% 10% Utah 3% 5% Washington 6% 11% Wyoming 2% 2%

Liquidity Cash is still King

Western CAH Liquidity Current Ratio CAH Average 3.88 (State Range 2.41 to 6.92) Days Cash & Investments on Hand range CAH Average 106 Days (State Range 64 to 182) Net Days in Accounts Receivable CAH Average 54 Days (State Range 37 to 65 Days)

Current Ratio 10.0 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0-3.9 4.5 4.6 2.9 3.7 2.4 AVE AK AZ CA CO HI 6.9 6.3 5.2 4.5 3.6 3.6 3.4 3.7 ID MT NM NV OR UT WA WY

10.0 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 - Current Ratio Region 10 6.9 6.3 4.6 4.5 3.9 3.7 3.6 3.7 AVE AZ CO ID MT NM UT WY

10.0 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 - Current Ratio Region 11 5.2 3.9 4.5 3.6 2.9 3.4 2.4 AVE AK CA HI NV OR WA

Days Cash on Hand Including Investments 300 250 200 251 167 150 100 106 50 0 Western CAH A Rated BBB Rated

Days Cash & Investments 200 175 150 125 100 75 50 25-106 80 64 103 139 AVE AK AZ CA CO HI 87 90 107 156 142 89 182 104 114 ID MT NM NV OR UT WA WY

200 175 150 125 100 75 50 25 - Days Cash & Investments Region 10 182 139 142 106 90 107 114 64 AVE AZ CO ID MT NM UT WY

175 150 125 100 75 50 25 - Days Cash & Investments Region 11 156 106 103 104 87 89 80 AVE AK CA HI NV OR WA

Net Days in Accounts Receivable 60 50 54 47 44 40 30 20 10 0 Western CAH A Rated BBB Rated

Net Days In Accounts Receivable 75 50 54 47 49 52 56 40 51 65 37 62 46 55 53 58 25 - AVE AK AZ CA CO HI ID MT NM NV OR UT WA WY

Net Days In Accounts Receivable 75 50 Region 10 65 54 56 58 51 55 49 37 25 - AVE AZ CO ID MT NM UT WY

Net Days In Accounts Receivable 75 50 Region 11 62 54 52 53 47 46 40 25 - AVE AK CA HI NV OR WA

Capital Structure

Debt to Capitalization (%) 60 50 40 30 34 27 38 20 10 0 Western CAH A BBB

Debt Financing A word of caution Typical financing structures (i.e. long-term revenue bonds) for major facility improvements can generate strong cash flow in early years but could have insufficient cash flow to make the payments in later years CHA cost reimbursement higher in early years from Depreciation and Interest Important to understand your forecast model

Operational Measures

10.0 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 - Average Daily Census Acute Beds & Swing Beds 7.0 4.2 5.4 7.2 6.3 3.1 AVE AK AZ CA CO HI 5.2 9.0 5.3 5.6 7.2 7.7 9.8 6.3 ID MT NM NV OR UT WA WY

10.0 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 - Average Daily Census Acute Beds & Swing Beds Region 10 7.0 5.4 6.3 5.2 9.0 5.3 7.7 6.3 AVE AZ CO ID MT NM UT WY

10.0 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 - Average Daily Census Acute Beds & Swing Beds Region 11 7.0 4.2 7.2 3.1 5.6 7.2 9.8 AVE AK CA HI NV OR WA

Staffing Levels Hospital s largest cost Average FTE s Western CAH s = 191 (Average Salary per FTE = $65,902) Prepare an FTE analysis If you cannot benchmark yourself get help Then take action with a Staffing Plan Then budget to the agreed plan Reduce/eliminate agency staffing Goal is to manage staffing

Other Cost Report Data Salary % of Total Costs Western CAH Average 44% Cost Report Adjustments of Total Expenses Western CAH Average 6% Non Reimbursable Cost Center (NRCC) to Total Expenses Western CAH Average 4%

Medicare Cost Report Worksheet S-10 Uncompensated Care Uses overall Cost to Charge Ratios (CCR) But we know excludes: Selected costs to do business that Medicare does not share in Physician services Other sub-providers part of organization Western CAH s overall average CCR = 66% 93

Prepare for the Future Fine tune operations Revenue Cycle Medicare Cash Flow Staffing Levels Adequate Medical Staff Evaluate & consider eliminating unprofitable services, carefully evaluate new services Consider Service Line Analysis or Cost Accounting

How do you increase revenues without increasing costs? If the future is keeping patients well thus less health care costs? What resources do you need? Is the future focus on Community and Health?

Thank You Contact Information Ann King White, CPA Tammy J Rivera, CPA aking@bkd.com tjrivera@bkd.com