HD46 - Nursing Facility Cost Reporting Study


Executive Summary:
The 2006 Appropriation Act (Chapter 3, Item 302.QQ) requires the Department of Medical Assistance Services (DMAS) to work with representatives of the nursing facility provider associations to develop a revised cost reporting methodology which improves the timeliness and efficiency of the current process and to report to the Governor and Chairmen of the Senate Finance Committee and House Appropriation Committee by September 1, 2006. DMAS is also required to evaluate whether the time savings associated with the enhanced cost reporting process would make feasible the use of more current data in the biannual rebasing of ceilings used in the reimbursement methodology for nursing facility direct and indirect operating costs.

Despite the adoption of electronic technology in some aspects of the cost reporting process, many aspects of the reporting process are paper oriented and time consuming. DMAS and the nursing facility industry are committed to “modernizing” the cost reporting process. Both parties recognize that the adoption and integration of technology in the nursing facility cost reporting process has the potential to produce a more timely, more cost effective, and more efficient cost reporting process.

DMAS convened a workgroup, which has met four times. This report covers the areas studied by the workgroup to date. The report reviews the current cost reporting process in section 2. The report then focuses on three ways to improve the cost reporting process in sections 3, 4, and 5. Finally, the report reviews whether the enhancements would make more current cost report data available for rebasing in section 6.

The first way to improve the cost reporting process is to improve the availability of reports produced by DMAS and used by nursing facilities to prepare cost reports. Although DMAS currently furnishes some data on its web page, these data do not include the facility specific data that are used for cost reporting. The data for cost reporting are produced electronically, but then printed and mailed to providers. While the data is usually mailed timely, it sometimes does not immediately get to the person or persons who need it for preparing the cost report. It then takes additional time and effort to respond to requests for replacement or duplicate copies. This can also delay the nursing facility’s preparation of the cost report. The workgroup considered options to either post provider specific reports on the web or e-mail reports to providers. The workgroup will need to make a decision on the most advantageous approach by the end of the year and DMAS will implement it by next July. This will result in small efficiencies at both nursing facilities and for DMAS. DMAS will also work to implement the electronic pre-population of cost reports with the facility specific data, eliminating an additional data entry step by the facility.

The second way to improve the cost reporting process is to improve the cost report submission process. Currently, DMAS provides an electronic Excel spreadsheet for cost reports with a separate worksheet for every schedule of the cost report. Providers must tab from worksheet to worksheet to enter data. After completing the cost report, providers print the cost report and submit it on paper to DMAS. After reviewing for completeness, DMAS’ contractor, Clifton Gunderson, enters the data by hand in DMAS’ Oracle cost reporting database.

Nursing facilities want to be able to map data electronically from their own data systems to a single worksheet or “input sheet” in a file that can then automatically pre-populate all the schedules in the cost report. For its part, DMAS wants a standard format it can use to upload data from the electronic spreadsheet to its Oracle database. A single change will accomplish both of these goals. DMAS will implement these enhancements by the end of the year. However, DMAS and the industry are interested in additional enhancements, including automatic validation checks and variance warnings that would speed the completeness review and the actual settlement process. These improvements could be achieved either through an enhanced Excel spreadsheet or through a web-based application. The workgroup will continue to work on these and provide input to DMAS with the goal to implement additional improvements by the end of 2007. DMAS may need additional resources to do this, and if so will request funding.

The third way to improve the cost reporting process is to improve the management of documents. Under the current process, there is a paper file two inches thick on average for each completed desk audit. Utilizing a process or application that allows for the electronic submission of cost report data in a specific predefined format into a centralized database repository is the first step in a paperless cost reporting process. The next step is to review, analyze, and compare submitted cost report data electronically and then store the “file” electronically along with any supporting documentation submitted electronically. Electronic files would improve access to the files by all parties, including field auditors on site. Finally, the use of electronic notifications would speed up communications. The workgroup will need to continue researching document management systems for recommendations by July 2007. There may be some additional up-front costs, but there will also be savings of storage and retrieval costs and printing costs.

Finally, the workgroup discussed the feasibility of using more current data in the biannual rebasing process. The stated goal is to reduce the “look-back” from 3½ to 2½ years. Regulations require that DMAS use the most recent complete database of settled cost reports available in September of the year prior to the effective date of rebasing. This deadline allows DMAS to complete the rebasing calculation in time to include it in its budget request for the coming year. However, most providers have fiscal years ending in December, and the cost reports for the calendar year ending prior to any given September are not initially settled until about three months after the September deadline. This forces the use of cost reports from one full year earlier.

December cost reports are not considered settled until the following November because nursing facilities have five months to file cost reports and DMAS has six months to settle them. For the FY 2007 rebasing, the cost reports to be used had to be settled by September 2005, and at that point the December 2004 cost reports were not yet settled. Therefore, DMAS used 2003 cost reports. The majority of December 2004 cost reports were not settled until three months after September 2005.

Given the September deadline, the filing and settling of cost reports would have to be shortened by three months if the look-back period is to be reduced. Provider representatives have said they would be willing to file cost reports one month earlier if certain conditions are met and if DMAS can commit to shortening the audit process by two months so that the September deadline can be met. At the time of this report, the time savings from anticipated and potential process improvements in cost reporting are too uncertain for DMAS to immediately commit to a reduction of two months. The workgroup will continue to meet, and as process improvements are implemented the parties will evaluate further what can be accomplished.

The additional alternative that is mentioned for sake of completeness is the one that was discussed last year but never acted upon. This would authorize DMAS to apply a 2½ year look-back by using as-filed cost report data to develop its budget request, and then substitute settled data later when calculating final rates. Since DMAS requires that nursing facilities include audited financial statements along with other supporting documentation when they submit their Medicaid cost report, the overall variance in allowable provider cost between as-filed and settled cost report data is historically small and consistent from year to year.

This approach was offered for consideration previously and it must be acknowledged that this method introduces an additional element of uncertainty in the budgeting process. Provider representatives consider this uncertainty to be insignificant from a financial materiality perspective and very consistent when the historic variance is measured.

As should be apparent, this report concerns a work in progress. There remains much work to be done, and many decisions to be made, before the cost reporting process reflects all the changes that the parties intend. DMAS will continue to work with the workgroup to accomplish these changes.