Preparing Medicare and Medicaid cost reports is considered a chore by most hospitals and nursing home operators, especially since they believe there is little they, or their CPAs, can do in compiling the reports to influence reimbursement rates.
That is certainly true with Medicare, which uses the reports to adjust rates across a region – not for an individual reporting provider. But with Medicaid, the picture is more nuanced, and in some states, with proper ongoing cost monitoring, providers may be able to have an impact on their reimbursement rate in the following year.
Unlike Medicare, which has a uniform process across the country for setting reimbursements, Medicaid procedures vary from state to state. Typically, providers have their CPAs prepare cost reports to meet state deadlines, and receive an estimate of the reimbursement rate for the following year. It’s akin to an individual waiting to hear back from their accountant about whether they will be receiving a refund or will owe additional taxes.
But more sophisticated accounting firms can help providers use the cost-reporting process to generate insights that will guide operational planning. This type of proactive reimbursement consulting throughout the year is becoming more and more critical as providers face reimbursement cuts.
Proactive consultants track trends in reimbursement rates throughout the year, and offer guidance about how various types of expense reductions – or increases – will likely impact the next year’s rates, since not all categories of expenses have the same impact on rates.
Determining the appropriate course of action for a provider is complex because of the many state-by-state variations in the factors considered when setting rates. For nursing home operators particularly, generating these insights in-house is very challenging, since a large portion of the industry is comprised of “mom and pop” operators who lack the resources to stay on top of reimbursement trends. For example, reductions in expense on direct care for patients will often impact reimbursement rates more than reductions in indirect spending, such as housekeeping, although this is not uniformly true because some states make adjustments for case mix based on patient acuity.
But with good intelligence and analysis, providers can strategically select cost cuts to maximize savings and minimize rate reductions.