s Mr. Douglass M, Richard Regional Representative I Bureau of Health Insurance Social Security Administration Department of Health, Education, and Welfare 50 Seventh Street, N,E,, Room 404 jpx>’ cbg-6 [ jj Atlanta, Georgia 30323 Dear Mr. Richard: Herewith is a report on our review of Nedicare cost reimburse- ments to hospitals by the Georgia Hospital Service Association, Inc. (Georgia Blue Cross). The purpose of our review was to examine th%>~~ki~~~;~~R, practices and procedures followed by Georgia Blue Cross in making cost settlements with hospitals. 0.z review was made at the offices of Georgia Blue Cross in Columbus, Georgia, and selected hospitals in the State of Georgia for which Georgia Blue Cross acted as the fiscal intermediary. We also performed a limited amount of work at the Georgia State Department of Family and Children Services in Atlanta, Georgia. Our review of Medicare cost reports submitted by three hospitals, which had been audited by public accountants under a subcontract with Georgia Blue Cross, showed that: --The hospitals charged certain unallowable costs to the Medicare program which resulted in a net overstatement of Medicare’s share of the costs by $13,340. (See pp. 6 through 10.) --The hospitals tended to overallocate costs to inpatient cost centers for which Medicare shares a greater percen- tage of allowable costs than it does for other cost centers. As a result, Medicare’s share of the costs was overstated by $22,300. (See pp. IQ through 17. ) --Hospitals and intermediaries used incomplete and erroneous data in computing cost settlements. As a result Medicare”s share of costs was overstated by $46,510. (See pp. 17 through 20. ) --The hospitals ’ Medicare billings for services of hospital- based physicians exceeded reimbursable costs for such ser- vices. by z&out $72,950 because excessive professional component percentages were used to compute that portion of total hospital charges applicable to professional services cd the physicians,. (See pp. 21 through 25.) 5OTH ANNIWERSARY 1921- 1971 Our review of Georgia Blue Cross settlements with Medicare praviders disclosed that errors were made for various reasons in computing settl.cments with 21 hospitals, As a result, IL hospitals were overpaid a total of $45,LOO and I.0 hospitals were underpaid a total of $510. (See pa 263 We noted also that 1967 Medicare payments to six hospitals serviced by Georgka Blue Cross included $4,,250 for bad debts which should have been paid by the Georgia OBd Age Assistance program. (See p. 27) We recommend that consideration be given to (I) adjusting the hospitals’ Medicare cost reports, where appropriate; (2) seeking recoveries accordingly; and (3) making changes in audit procedures where necessary. Because excessive reimbursements for the services of hospital-based physicians were noted in connection with all. three cost reports included in our review, we axe also recommending that a21 Georgia Blue Cross settlements with hospitals be re-examined to determine whether si.mil.ar excessive reimbursements have occurred, Su8ch re-examinations should be undertaken with a view toward taking recovery action, where appropriate. Copies of this report may be made available to the Blue Cross Association @CA), Georgia Blue Cross, and the three hospitals, We would appreciate being advised of any action tsken by the Social Security Administration, $C.A, and Georgia Blue Cross regard- ing the matters discussed in this report. Very truly yours, 3 Enclosure ” i contents Chapte I 1 mTRODUCTI ON 2 FEATURESOl?MEDICARE PRCMI;RAM PERTINENT TO THE SETTLEMNT PROCESS Use of intermediaries to administer part A Use of carriers to administer part 23 I Method of payment to providers of service Preparation of Medicare cost reports 3 DEFICIENCIES IN FREPARLNGMEDICARE COST REPORTS 6 Overstatements and understatements of allowable costs 6 Ov8erallocation of hospital costs to inpatient cost centers 10 Incomplete or erroneous data used in computing hospital reimbursement settPements 17 EXCESSIVE REIMBURSEMENTFQR PROFESSION#J., SERVICES OF BOSPRTAL-USED PIQY[SICIANS 21 The Macon Hospital 22 Medical Center 22 Memorial Medical Center 23 ERRO!4EOUSFINAL SETTLEMENTS AND IMPROPER HANDLING OF BAD DEBTS 26 Final settlement payment errors 26 Medicare reimbursement for bad debts which should have been paid by the Georgia Old Age Assistance program 27 CONCLUSIONS AND RECQHMENDATIONS 28 Conclusions 28 Recommend&tions 28 7 SCOPE QF REVIEW 28 II I HEW Department of Health, Education, and Welfare BCA Blue Cross Association * SSA Social Securitry Administration EKG Electrocardiogram / ‘;‘, ,/ . / ,I The General Accounting Office has made a review of Nedicare cost reimbursements to hospita.ls by the Georgia Wospjltal Service Association, Ike. (Georgia Blue Cross), a Medicare fiscal intermediary servicing about 100 hospitals in Georgia. The Secretary of the Department of Realth, Education, and W#elfare (HEW) contracted with the Blue Cross Association @CA) to carry out certain functions under the Medicare program. The contract is achin- istered by the Social Security Administration (SSA). Georgia flue Cross has been operating under a subcontract with BCA to make payments to providers of service under the Medicare program. Our review was made primarily at the offices of Georgia blue Cross in Columbus, Georgia; The Macon Hospital in Macon, Georgia; the Medical Center in Columbus ) Georgia; and the Memorial Medical Center in Savannah, Georgia. The cost reports we reviewed covered I%-month reporting periods ending December 31, 1367, for The Macon Hospital and the Medical Center, and ending December 31, 1968, for the Memorial Medical Center. In addition, a limited amount of work was performed at the Georgia State Department of Pamiky and Children Services in Atlanta, Georgia. The hospitals ? cost reports were audited by a public accounting firm under a subcontract with Georgia Blue Cross, The purpose of the audits was to provide a basis for making settlements of the pay- ments due the hospitals for the reasonable costs of providing covered services to Medicare beneficiaries. The following schedule summarixes the Medicare program costs claimed by the hospitals and those allowed by the intermediary on the basis of qhe audits. Medicare Intermediary Medicare Hospital costs claimed costs allowed The Maean Hospital $1,437,618 $1,437,618 Medical Center 1,072,786 1,082,699 Memorial Medical Center 1,457,014 1,421,584 Totals $3,967,418 $3,9_41,9’0& -- CHAPJ.‘ER 2Ire The Medicare program was estab%ished by the Social Security Amendments of I965 (42 U.S.C. 1395-1395 El), This program which became effective on JuIy I, 1.966, provides two basic forms of pro- tection against the casts of health care for eIigibIe persons aged 65 and ovmer. One form9 designated as Hospital Insurance Benefits for the Aged (part A), which is the principal subject of this report, covers inpatient hospital services and post-hospital care in extended care facilities, and in the patient’s home6 The second form of protection, designated as the Supplementary Medical. Insurance Benefits for the Aged Program (part B)) is a voluntary program, and c~overs physicians ’ services and a number of ather medical and health benefits, including outpatient hospital. services and certain home care. USE OF INTEKMEDIARIES “1,“-----“- TO ADMINISTER PART A e-mw4"-,-..-.h,<- Section 1816 (a) of the Social. Security Act authorized the Secretary of HEW to enter into agreements with pubXic and private organizations and agencies which have been nominated by the providers to act as fiscal intermediaries in; the administration of benefits under part A. Among other things, these EiscaI intermediaries are responsible for (I) making payments at least monthly on an estimated basis to providers for covered services furnished Medicare beneficiaries; (2) furnishing consultative services to providers to enabLe them to develop accounting and cost-f inding procedures which wiII insure providers equitable payment under the program; (3) communicating to providers any information or instructions furnished by the Secretary of MEW and to serve as a channel of communication from providers to the Secretary ; (4) making such audits of the records of the providers as may be necessary; and (5) on the basis of such audits, making final determinations, on an annual basis, of the amounts of payments t’o be made. USE OF CARRIERS TO ADMINISTER FART 53 Section 1842 (a) of the Social Security Act authorized the ..!I Secretary elf HEW to enter into contracts with public and private 1 ,, ,,,,,,,,/,,,, ); * organizations and agencies to act as “carriers” in the administration of benefits under part B, Among other things, these carriers are responsib%e for making determinations of the rates and amounts of payments for physiciansZ services on the basis of reasonable charges. jMlETHOD -I------- OF PAYMENT TO PROVIX3ERS OF SERVICE- According to section WI.4 (b) of the Social Security Act, pay- m’ents to providers of service are to be made for the ““reasonab3.e COSt” of services furnished to Hedicare beneficiaries as determined under sectalan I.861 (w) of the same law. Section 1861 (v) authorizes the Secretary of MEW to prescribe regulations establishing tbe method or methods of payment to be used and furthea: states that such regexla- ti.CKLS should provide for making suitable retroactive corrective adjustments where, for a provider of services for any accounting period, the aggregate reimbursement proves to be either inadequate or excessive. In carrying out these requirements, SSA issued regulations entitled “7W.ncipI.es of Reimbursement for Provider Costs” which established guidelines and procedures to be used by providers of service and fiscal intermediaries in determining reasonable cost. SSA intended that these reimbursement principles would recognize all necessary and proper costs incurred by providers in furnishing services to Medicare patients and would avoid absorbing any costs of providing care to non-Medicare patients. Interim payments on an estimated cost basis are made to pro- viders during the year. These payments are intended to approximate as nearly as possible the actual costs in order to minimize the amounts of adjustments at the time of final settlement. To facilitate making scttbements, providers are required to submit annual cost reports covering a 12smonth period of operation. During the first year of the program, the provider had the option of submitting a report covering the period July 1, 1966, to the end of its accounting year if such report covered at Least 6 months . A provider may select any U-month period for Medicare cost- reporting purposes regardLess of the reporting year it otherwise uses, Cost reports are required to be submitted to the intermediary within 90 days after the end of the provider’s reporting period. PREPARATI~ OF i?EDICARE COST REPORT The principal. document used in the settlement process is the Medicare cost report. This report was developed by SSA in consultation -3- with pmvider and intermediary groups and was designed to show what p’ortion of a providerPs total all.lowable costs was applicable to covered services. Although th’e SSA princip%es of reimbursement ‘offer providers several alternatives in arriving at the amount to be reimbursed, preparation of a cost report essentially consists of four steps: 1. Determin~Jion of allowable YPU.I-NsmII costs Under the SSA principles of reimbursement, direct and indirect costs which are reasonable and necessary for providing patient care are all’owable. Certain specific costs ) however) are unallowable and must be excluded for reimbursement purposes e These una1lowabll.e costs include (1) amounts attributable to physiciansP care to individual patients which are reimbursable under part B; (2) bad debts applicable to non-bledicare patients; (3) fund-raising ex- penses; (4) costs of activities unrelated to patient care, such as cafeterias and gift shops; and (5) costs of personal convenience items, such as telephone, radio, and tejlevision services e 2. Allocation of allowable -,“-,--m*- costs to revenue-producing UI--*-*I- -- activities W-Y- After a provider has determined its total allowable costs for Hedicare reimbursement purposes, the second step in the preparation of the cost report is to allocate these costs to those activities or services for which the hospital makes charges, This process, which is cm-manly referred to as “cost finding”‘, involves the allocation of the costs of nonrevenue-producing activities or depart- ments (such as administration, laundry, and housekeeping) to those activities or departments which produce revenue (such as operating rooms 2 pharmacies, laboratories, and routine daily services) m lowable costs between After the provider has allocated its allowable costs to its revenue-producing activities, the third step in the preparation of the cost report is to apportion these costs to the Medicare program on the basis of charges applicable to Medicare patients. For example, if 40 percent of the charges of a hospital’s X-ray department was applicable to the X-ray services provided to Medicare beneficiaries, then 40 percent of the allowable costs allocated to the Xwray department would be apportioned to the Medicare program for reimbursement purposes. Although the SSA principles of -4- /(,, (, reimhrsement offer a number of alternatives in making sumch apportionnH2nts, the use of charges as the basis for appor- tioning casts represents a principal feature of the methods of reimbursement under the Medicare program. After the provider has apportioned its al1owabl.e costs to the Medicare program, it must then consider deductible and coinsurance amounts payable by tifedicare patients and .interim-payments due from the intermediary for services provided to Medicare patients during the provider’s reporting pMA0d. The difference between allowable costs and the sum of the payments received or due from patients and the inter- mediary represents the amount of final adjustmene; due to or from the program. I,(’ ,,’1 ‘;, ,,, ” ,,,,; -5- . ’ . we fourad mlt deficiencies in preparsfng Medicare COSt. reports resulted in botz1-k overstatements and understatements of amounts reimbursed by the p’ogram, The overstatements and uaderstatements of Medicare ‘s share of hospital costs resulted in part because the hospitals, the auditors, and Georgia B%me Cross did not adhere closely to SSA’s principI.ee af reimbursement and rel.ated ir~structiores an the preparation and audit of ccast reports and settlement of reimbursabIe costs, The three hospitals covered by our review charged certain unallowabLe costs to the Medicare program, In addition, certain alEowable costs had been omitted from the costs charged ko the Medicare p%32graTl1. The net overstatement of costs claimed by the three hospitals amounted to about $E3,34.0 O A wxnmary of the tests we! questfoned and their estimated net effect on Medicare”s share of hospit:aI costs is shown below e Part B professional component for hospital-based physicIan services included in Medicare costs under ptwt A $14,550 $14,550 c .I, .I. Xnterest en bonded debt not offset by interest huxme 3,6001 .I 2 ) Q4.Q Bad debr:s 500 Research costs laterest on hospital bonded debt paid by the city not claimed as am al’lowable cost: llepreciallon expernse understated Met effect on Medicare CQStS In Jwle k9G9, the Pleanaria1. fledPca’9. centen: submi.ttecl its i9GS Medicare close repoxt whixh included the $650 ahlld $4,‘600 for PZedicare8s share of part I3 costs previously excfuded from the 4.935 and $967 cost repon?ts 0 Tlae hospital also included iw Ets I.968 part A costs $9,300 which represented ~k.dicare”s share of tlae palrt E professim~3% compane21t of sa3l.aq costs paid -ix hospital-based physicians 0 we were farformed y hQwewer) by a number of these phyralcians that they had billed part B of Medicare, as welLI. as Medicaid,, private i.nsurers, and individua% patients for thez%r professional servi.ces to inpatiemts and outpatients * Further, we noted that the hospita18s emplloyment contracts wjith certain of’ these physicians provided foa: payment to the hospital. of physicians* professionab fees in excess of apeclfied amounts b Under these circumstances, we beliewe that, if the hmp3ital wants to recover the previously agreed-apon gor:tion of the physiciansc compensation appI.fcabEe ix their professional services to individua% patients, such recowerles should be made frm the physixia2as who had biI.fed for the services rather than from retroactive charges to pact A of the Medicare program, The three hospitals included interest expens’e on current indebtedness in allowabke hospital costs, The interest expense. was overstated because Medicare current financisag (advance) payments to the hospitals were not conslldered in the determFn&tion of allowable bterest expense claimed on working capital loans as required by Intermediary Letter No. 62 dated June 211, 1966, and by the Provider Reimbursement Manual. According to our camputations, int’erest expense on current indebtedness claimed by the hospitaJbs shou1d have been reduced by $21,390 with a resultant reduction of $4,54.0 ia tfedicare’s share rof hospital ccastsl as shown oln the foJ.fowing page. Reduc t ion in Reduction in Hospital11s- total allowabl.e “-wYm.-- costs Medicare ---.I”-I”NNImm”I”YC ts CQS The S3com Hospital $ 6,290 $1,310 Medica% Center 790 1.60 Nemorial HedicaI Center &3110_ 3~.--.... 070 Total CJJ~~~~~ $4mu-*-, y540 -mIIIML UYIIIIY~~IYYI” Interest on bonded debt not --~,-I_~““---“~-,~.“~~,,,,,“,-~ offset -YIU-.-- byIUm.%a”..I~UIYUI--IGm in.terest income Interest expense totaling $9’6,900 on Ian, 0 -term bonded debt claimed by the MemoriaI. Medical Center should have been offset by $16,800 of interest incom?earned by the bond sinking frand. The reduction in allowabEe interest expense would reduce Medicare’s share of hospital. costs by $3,600. This matter was discussed with the Ilospitajl Accounting Branch Chief, Bureau of Health Insurance, SSA, who agreed that interest income earned on sinking fund deposits should be used to offset interest expense on the bonded debt. D-kscounts on drugs Imvw!.wIIYII- Mmmm-l sold to .m-- employeesm-u- The Memorial. Medical. Center sold drugs to hospital employees at discounted prices clrhich were greater than the costs of the drugs but were 1ower than the prices charged to hospital patients. The amownts of the discomts were then al.loca.ted to the administrative and general expense account, a partion of which was charged to the Medicare program. In our opinion, the amount of the drug discount should not be an allowable expense because the discounted prices exceeded the drug costs. We are also of th’e opinion that the sale of drugs to employees shouhd have been considered as nonpatient care transactions and the sales revenue should have been treated as a reduction to alkowabJte costs. The treatment of Doug discounts as an aI.LowabTe expense to be al.lacated to the Medicare program had several offsetting effects on the calculation of tb.e Medicare reimbursement; however, the net effect was to increase the costs charged to the Medicare program by $2,040. Section 5QQof the Pmwider Reambur3ement Manual srates chat costs incurted for research p.lrploses 9 OVCK and above usual patient care p are not FncI.uaable as allowable costs, n-I Our oplniun, costs associated l;jrLth the experkrne~atal ilog Eabarakory were not attributable to usual patient care, We found that, in a%locating: hospital costs to the various revenue-producing act~fwities~ there was a tendency to averallocate scosts to inpatient cost txmtersr The Medicare program shares a greater percentage of allowable inpatient costs than it does for b ather ctrst centers. This practice resulted in a net overstatement of about $22,300 in costs to be reimbursed to the three hospitals inc‘kuded in our review, . . The Macon Hospital used the combination method (estixnated per- centage basis) to apporticm allowable costs to Medicare and non- Hedicare patients:, Under this method, hwspital costs were to be al%ocated between inpatierat am3 outpatient sewices on logical bases. The impatiene: expenses were then to be al.locsted bemeen routine inpatient expenses and special service (anciRlary) i.npat2en.t expenses 0Fp. the basis of percentages agreed to by the intermediary, Far I967, about 24 percent of The Macon H~spFta%~ s rotatirae inpatient costs r about 22 percent of its irtpaticnt atacilla~y costx atad about 2 percent of its outpatient costs were apportimed to the Medicare program. Therefore, aray averallocarisn of hospital . wsts trs inpatient services resul.ted in iancreases in costs charged to the Medicare program. and their. estimated nest effect on the Medikare reimbursement is shown below. Net overstatement Type of of Medicare -^_111I..I---I- cost hospita’. Reimburscmcnt -m.u- --V”WwIIUI#w Plant operation and depreciation $6,7J.O Housekeeping Medical records and library Ambulance service and related costs Lauuidry service TOtXZ Plans: m- ovation and depreciation I-- The hospital plant operation and depreciation expenses were allocated. between inpatient and outpatient services based on the square footage of space used in providing these services, In deter- mining the number af square feet allocable to outpatient services, the emergency rocm end the outpatient clinics wlere considered entirely applicable to outpatient services. Howcv’er , the square flootage of those departments which provide~d both inpatient and out- On the basfs wE an arbitrary estimate, the hNospitaI. a%Iocated 95 pcrccnf aE medfcal records aaxl library expenses to dnpatient services and 5 parcesat to ovtpatierht services. rCXfXdS I These employees f time represente'a 9 percent of all time spent working an medical records and Iibrary activities. Dy usizrg 9 percent instead of 5 percent, ani additional $4.,850 would be transferred from inpati.errt to ou.tpafient costs, and the costs apportioned to Medicare. would have been rr’educed by $99111. ISI deveLoping the case: report, the hospital” s chauges for ambulance services appEicabIe tu Medicare patients admitted to thR hospitaa. as inpatients were classified as outpatient charges. The chalcges for such services appl.icab2c to Aon-Nedicare patieats were classif Fed as inpatiertt charges. The costs of the hospital “s ambulance service were allocated between inpatient and uutpatient services on the basis of these charges. The inconsistent traatmerrl: of ambu2ancR service charges applicable to Medicare and non-Medicare patients had severa off-, setting effects on the c~alculation of the Medicare reimbursement; btever * the net: effect was to increase by $450, tlze costs charged to the Nedicare program a Laundry .-w*- service Y-- Laundry department costs were allocated between inpatiant and outpatient on the basis nf pounds of launzdry processes. ISI deter** mining the pounds of laundry processed whisch were allocable to out- patient services, the hospital included only the Psundry prcpcessed far the ou.tpatient clinics and the emergency room. The weight af laundry processed for other department s w’saich provided both inpatient alrsd autpatient services was ablocated entirely ta inpatient services. Bospital xecords of laundry processed for the various departments during 1967 had been destroyed. H0wewer:, on the basis of our anshysis of Iaumdry records for the first hl mcanths of 1969, it appears that Medicarc”s share of the 1967 hospital. costs was over- stated by as much as $420. Georgia Blue Cross officials and thRir auditors advised us that, in their opinion, our fi.rvdLngs relating to The Macon Hospital. i.nvoJ.ved the u3e 05 methads for allocating cssts between inpatient and out- patient s~ervices which were more sophisticated than SS.Aqs principles ‘of reimnbursemenk and related instructions had intended. We believe, lwweve 1”p that, when hospital statistical data is readily ~aii2able for use in making mmre accurate cost allocatAons, the data should be considered in eomection with the preparation and intermediary audits af EIPedieax-e co3t repolrts. Overal.lo~ation of mm”m”e.- hos5 expenses. ent -.w-- cosfls at the Medical. I1I”m-v.w Center and the ‘MemosriaE Medical __YI-m%-,“Y-I---I”U-~~-~ Center The tiedical Center and the Memorial. Bkdical ‘Center used the c~ombination method (wit% cost finding) to appo?ction allowable cost3 between Medicare and non-Medicare patients. Our review of the Medical. Center”s cost report for 1967 showed that the Medicam program absorbed about 23 percent of the hospital’s routine inpatient costs, about 19 percent af its special. service inpatienl: cmst3, about IE percent of its outpatient msts, no nursery costs; and no costs applicable to concession areas. Our review of the Memorial Hedicaf. Center’s cost report for 1968 showed that the Hedicare program absorbed about 25 percent of th’e hospital’s inpatient routine msts, 24. percent of its inpatient special service costs, and 10 pelrcent af it3 outpatient costs. The program absorbed no costs applicable to the nursery, nursring home, and concession areas. Consequently, any overallocation of hospital costs to inpatient services resulted in the apportionment of increased costs to the Medicare program. The net overstatement of hospital costs charged to the Medicare pragram amounted to $12,140 because the costs were overdlocated to inpatient services O A summary of the costs we questioned and their estimated net effect on the lledicare reimbursement is shown below. Net overstatement of Medicare reimbursement --mYI Memorial Type of Medical ldedical Total Center Center Nursing administration $ 5,610 $ 910 $4,700 Dietary and supplies 2,270 2,270 -o- General service 1,760 1,530 230 Ikdical records 1,100 -'cl- l,l.QQ Laundry service 730 -O- 730 Pharmacy 670 -Q- 670 Total $12,140 $4,710 $7,430 -x4- m Nurs inistratlon -a ..-a---“-&,...l, Medicare’s share of nl~rsing admknistratio~~ costs at the two hospitals was overstated by $5,610 because aLI nuxsixag administration costs were alkocated to routine inpatient: services, thereby urader~~ stating nursing coasts to otiaer cost centers where either no costs were appsortionedto the Medicare program, 011 where the prwgramEs #share of the costs was lower than its share of inpatient routine service costs. A statistical basis avaikabLe at the time of our review for allocating nursing admini~3tration costs was the daily average number af nursdis employed at the hospitals during ttae year in each cost center where nur3es were assigned for duty. This distribution of nursing time is summarLzed below: Cost center gedica3.. Center bfemorial --N-L’ Medi eal Center m-m.“m__Iu Medical stipplies and expense 15 21 Operating and recovery rooms 46 28 Delivery rooms 314 7 fnpatient routine services 370 245 Eaursery 21 18 oL!tpatielat clinfcs 14 22 Emergency rooms 16 20 IMursing home 2 25 If the allocation of nursing administration costs had been made cm the basis of the daily average number of nurs~es assigned, as shown above, the costs charged to the Medicare program would have been reduced by $9110 at the Medical Center and by $4,700 at the Memorial. MedicaE Center, At the Medical Center, we identified $10,130 in dietary expenses, supplies, and other expenses which were included in the allowable costs apportioned to the Medicare program which should have been allocated to the nursery. Because none of the costs allocated to the nursery was applortioned to the Medicare program, the total amount of expenses shared in by the program was overstated. Bad the $20,130 been allocated to the nursery, the costs charged to the Medicare program would have been reduced by $2,270. L”‘)” General service.mmIYI Costs apportioned to the Medicare program by the Medical Center and the Memorial Medical Center were overstated by $1,760 because general service expenses (depreciation, administrative and general, operatian of plant, and housekeeping) were not equitably allocated to gift shops and other areas used. by volunteer workers. Because the hospitals did not receive any income from the operation of gift shops and other concession areas, reimbursable costs were not reduced by the income from these operations. III Bsecember 1967, SSA instructed its intermediaries that, under the foregoing circumstances ) general service expenses should be allocated to gift shops and must be excluded in determining the costs to be charged to the Kedicare program. Medical. -- records Medical records costs at the Memorial Medical Center were allo- cated to other cost centers on the basis of estimates of employees” time spent maintaining the records. We noted, however, that all medical records costs applicable to the nursery, an ineligible cost center J had been allocated to inpatient routine services. We also not’ed that the costs allocated to the emergency room had been under- stated. The percentages of time spent in maintadning medical records shown in the cost report and the revised percentages which we obtained are shown below. il Cost center Cost report percentages Revised percentages - I Inpatient routine services 92 86.5 Emergency room 5 G.0 Nursery 0 4.5 mlrs ing home 3 3.0 Total. 100 1QO.O - Had medical records costs been allocated to cost centers using the more accurate estimates of the time expended, the costs charged to the Medicare program would have been reduced by $l,ltOO. Memorial Medical Center’s 1968 laundry costs were allocated to the. various hospital cost centers on the basis of estimated weight of laundry processed. Hospital reeords for laundry actually processed for the various departments in 1968 were not available, However, on the basis of our analysis of statistics gathered for 1969, it appeared that Medicare% share of hospital costs flor 1968 was overstated by as much as $730 because inaccurate estimates were used to allocate laundry costs to the various hospital cost centers, Pkmorial Medical Center”s pharmacy expenses were to be allocated to other cost centers in proportion ko the cost of drugs issued, to the centers for general hospital use or sold tc3 patients. In making the allocation, the hospital (1) established, the total cost of drugs issued for hospital use or sold to patients, (23 determined the cost of drugs issued to the various departments for hospital usot, and (3) considered the difference between these two costs as the test of drugs sold to patients, We observed that the hospital made errors in each of the above three categories, In the first, the totd cost was not limited to the cmt of drugs issued for hospital use or sold to patients but included cost of drugs sold to employees, salaries, supplies and other expenses, and about $75,000 in costs which had been allocated to the pharma’cy from other cost centers, In the second, the cost of drugs issued to the operating rooms, anesthesia, X-ray, laboratory, outpatient, and emergency room cost centers was not included. Also, the cost of drugs issued to the inpatient routine services cost center was understated, In the third, the cost of drugs sold to patients was overstated because of the erroneous data developed in the first two categories. Had correct statistical bases been used in the allo’cation of pharmacy expenses) costs charged to the Medicare program would have bean reduced by $670, Our review showed that data used in computing cost settlements for the three hospitals included in our review was incomplete or contained errors. The incomplete and erroneous data used to compute hospital reimbursement settlements resulted in a net overstatement of about $46,510 in reimbursable costs due the hospitals from the Medicare program, The estimated net effect that the incomplete and erroneous data had on Medicare reimbursements is shown on the following page, -17- ...-...-.. .I,,,I.. -... _ .-,, ,,,,I,,,, “,, ,” ,,1,,.“.,,,,,,, ,q ,,1, Net overstatement p--- (understatementl w”Ue.--ll of Medicare Costs m,- MQdical Memarial. Item Medical ----uI- Center Computer errors $40,040 $ -0" $40,040 mldersratement of data used in cost settle- i merit process 7,330 1,200 -O- 6,130 Failure of the intermediary’s auditors to make aI.1 adjustments 9,870 -O- 2,110 7,760 OverstatemSent of patient Liabi’Eity for part A diagnastic deductible (10,2701) (8403 (5,900) (3,53Q) Overstatement of part R payments received -O- -Iyu-- -VW---O- v-tit!z!a i 10 I Net effect on Medicare costs ma $49,940 vl , Medicare costs claimed by the Nemoria’l. Medical Center were over- stated by $40,040 because of errors in data used in the calculaeion I of the program’s share of total costs. II Because of a probable computer error, Medicare charges were overstated for four outpatients by a total. of $20,000. As a result, the Medicare program’s share of outpatient costs was overstated by $13,4.80. Because of another computer error, outpatient deductibles were understated by $33,200. This error occurred because deductible amounts frequently were not printed in the proper coEumn in the computer printout, As a result, the patients’ contributions to reimbursable costs were understated. The net effect was a $26,560 overstatement of Nedicare costs. Georgia Blue Cross officiaki stated that action is being taken to prevent errors and. omissions in computer printouts used in the calculation of reimbursement settlements. Understat-ement ofW.--v data used in sett Certain data pertaining to Medicare patients used in cost settle- ment computations for The Macon Hospital and the Hemorial. Medical. Center was understated. The understated data included (I) the amount of interim payments received, (2) the amount of deductibles and cofnsurance payable, (3) covered charges, and (4) inpatient days, As a result, the amount due front the Medicare program was overstated by $1,200 fo;r The Macon hospital and by $6,130 for the Memorial. Medical Center. The data used by the hospitals was taken from Georgia Blue Crass computer printouts which were dated about 3 months after the end of the hospitals’ reporting periods. The data shown on the computer printouts2 however, was not adjusted to include trans- actions occurring after the date of the printouts which were applicable to the reporting periods covered by the cost reports, Since we found that pertinent data had not been considered in the reimbursement calculation for two of the three hospitals, it is probable that similar omissions existed in data used in the computations of Medicare payments to other h0spitaJ.s. Further, under procedures which were in effect at the time of our review, the omitted data would not have been considered in the computation of costs reimbursable by the Medicare program for subsequent years, Georgia Blue Cross officials advised us that corrective action is being taken to assure that appropriate consideration is given to all pertinent data in reimbursement calculations, Failure of intermediary” s auditors to make all adjustments Costs reimbursable to two of the three hospitals included in our’review were overstated by $9,870 because required adjustments to cost statements noted in working papers prepared by the public accounting firm were not included in recommended adjustments furnished to the hospitals for incorporation into revised statements, We were informed that adjustments apparently were not included because of an oversight by the public accountants. Overstatement (understatement) of Medicare costs Nemoria 1 Medical Medical Adjustment Total Center Center Overstatement of Medicare special service charges $7,760 $7,760 Understatement of Medicare special service charges WQ3 Overstatement (understatement) of Medicare costs -I- Mf3lOKial Medical Medical Total -_IIu Center Center Understatement of interim payments received from Georgia Blue cross $1,760 $1,760 Overstatement of Medicare deductible and coinsur- ance Qverstatement m-mm- of patient liability -9m.c deductible -m-.mI Costs reimbursable to the three hospitals were understated a total of $10,270 because deductibles billed to part A Medicare patients were overstated,s Until April. 1968, the Medicare law provided that outpatient bospital services which were diagnostic in nature were covered under pal;42 A* Those outpatient services which were therapeutic in nature were covered under part B. The part A diagnostic services were subject to a $20 deductible and a 2Gpercent coinsurance for expenses above the deductible r( Part B therapeut5.c services were subject to a $50 deductible and a 20-percent coinsurance for expenses above the deductible; however, the $20 diagnostic part A deductible was considered as a covered expense under part 13 and could be applied to the part B $50 deductible or tieimbursed subject to the 20-percent coinsurance. All outpatient part A diagnostic deductibles were classified as recet.ved or receivable from patients; however, some of these deductibles were treated as reimbursable expenses under part B which should have reduced the patients’ liabilities for the part A deductibles. As a result, the deductible amounts shown as received ‘or receivable from patients were overstated. Overstatement of pi In making an adjustment ko its cost report, the Memorial Medical Center overstated by $460 excess part B payments received for services of hospital-based physicians for the g-month period ended December 31, 1968 (See p. 23). As a result, the amount reimbursable to the hospital was understated by $460. EXCESSIVE ------.p-m.“* REfMBURSE~NT FOR PROPESSIQNAL SERVICES OF uI-~--Iy*uyyI- HOSPITAL-BASED PH?rZ%CIAl\JS The three hospital’s included in our review charged part B of the Medicare program about $32,950 more than the hospitals” cost for services provided to Medicare patients by hospital-based radiol.ogists and pathologists. These excess charges included the part B deductible and coinsurance amounts which should have been paid by Medicare patients. The excess charges occurred because the hospitals’ charges to the part B carrier and Medicare patients exceeded their payments to the physicians for professional services performed for the patients. As a result, the three hospitals realized substantial windfalls or profits. We do not believe that it is the intent of SSA’s principles of reimbursement to permit hospitals to realize such profits in connec- tion with the portion of their charges applicable to the professional services of hospital-based physicians (the part B professional com- psonent > o, Section 405.485 of the Principles of Reimbursement for Provider #Costs and for Services by Mospital-Based Physicians provides that: “Once the portion of a physician”s compensation attributable to professional services to supplementary medical. insurance beneficiaries has been determined, aFschedule of charges can be developed. To be deemed reasonable the charges should be designed to yield in the aggregate, as nearly as possible, an amount equal to such portion of his compensation,~~*” According to SSA instructions, information supporting the estab- lished schedule of charges should be reviewed by both the intermediary and the carrier making part B payments. The intermediary is respon- sible for obtaining from the hospitals data supporting hospital-based physic ians ’ compensation for professional services as reflected in the schedule of charges. The intermediary is also responsible for approval of the allocation of compensation between administrative services [part A) and professional services (part BP. In so doing, the inter- mediary should review all of the information for completeness and reasonableness and then turn the information over to the carrier for use in determining the proper reimbursement for charges by physicians for their services. Because nefther the intermediary nor the part B carrier app’eared to adequately fulfill their responsibilities in this regard, part B charges billed by the three hospitals were considerably more than Medicare’s share of the professional component portion of the physicians” compensation paid by the hospitals as shown on the cost reports. -[El- The excessive reimbursements at The Macon Hospital and the Medical Center pertain only to inpatient services by hospital-based physicians in 1967. We were unable to obtain sufficient data to enable us to estimate the excessive part 3 charges for outpatient services at these hospitals. The excessive part B charges by the Memorial Medical Center were for both inpatient and outpatient services in 1968. In 1967, The Hacon Hospital billed-part B and Medicare patients $26,540 for professional services rendered by its hospital-based pathologists, These charges were about $11,110 more than the amount paid by the hospital to the pathologists for the same services which had been deducted from costs reimbursed under part A. The excess charges resulted because the If,4 percent of hospital charges used to bill for the physicians’ part B professional component applicable to laboratory and electrocardiogram (EKG) services was too high, Zn our ‘opilzion, this could have been determined at the time the percentage was initially established in July 1966 and should have been corrected at the time the 1967 cost report was audited in 1968. In July 1966) in support of the 11.4 percent part B professional component percentage used to bill for laboratory and EKG services, the hospital advised Georgia Blue Cross that, for the 5-month period ended May 1966, a total of $50,330, or 60 percent of the $83,880 in fees the hospital paid to its pathologists during the period, was applicable to the physicians ’ professional services to patients e The $50,330 was 11.4 percent of the hospital’s total laboratory and EKG charges of about $442,000. We found, however, that the hospital. had actually paid the pathologists only $45,830 during the period. The amount paid included $43,780 for laboratory services and $2,050 for EKG services o Assuming that 60 percent of these payments was allocable to part B professional services rendered to patients, the part B pro- fessional component initially established in 1966 should have been about 6.5 percent for laboratory services and about 4..7 for EKG services, rather than 11.4 percent for both services. In making adjustments to the hospltal”s 1967 cost report to deduct part B professional component costs from allowable costs reimbursable under part A, the hospital used rates which were equivalent to 6.5 percent of hospital charges for laboratory services and 4.7 percent of hospital charges for EKG services. Because the hospital billed Medicare for these services during 1967 at the rate of 11.4 percent of charges, the amounts deducted from the part A Medicare reimbursement, $15,430, was about $11,110 less than the $26,540 billed by the hospital for the pathologists’ services. In 19167, the Medical Center billed part B and Medicare inpatients about $36,520 for the professional services of hospital-based pathologists. -22 - These charges were about $16,110 more than the amount paid by the hospital to pathologists for the same services which bad been deducted from costs reimbursed under part A. The hospital Charged part B for laboratory services at the rate of 20 percent of the hospital’s charges. We were unable to obtain from either the hospital or Georgia Blue Cross computations or docu- mentation to support the 20 percent rate used to bill part B; however) it was apparent from information available in 1966 that the percentage used to bill for the pathologists’ services was excessive, The patho- logists were compensated by the hospital on the basis of a guaranteed annual fee and a percentage of the net revenues of the hospital”s Pathology Department. For the 6-month period ended December 31, 1.966, the hospital’s Medicare cost report showed that the pathologists’ part B professional component was about 10.8 percent of laboratory charges as contrasted with the 20 percent used by the hospital to bill for part HI services in 1967. In the hospital’s 1967 cost report, the deduction from the allow- able costs reimbursable under part A for the pathologists” part B professional component applicable to all inpatients was $102,560, or about 11.2 percent of the hospital’s charges. Medicare’s share of this deduction was $20,420, or $16,100 less than the $36,520 in part B charges billed by the hospital for pathologists’ services to Medicare inpatients, In our opinion, the intermediary and the carrier should have obtained and evaluated sufficient data to assure that the part B professional component percentage being used was designed to yield to the hospital its approximate costs for the pathologists’ services. 1n the absence of such assurance, we believe that Georgia Blue Cross should have adjusted the hospital’s cost report to recapture that portion of part B billings which was in excess of the hospirafs pathological costs, MEMORIAL MEDICAL CENTER The Memorial Medical Center billed part B and Medicare patients about $62,370 for professional services of hospital-based pathologists and radiologists during the first 3 months of 1968 for inpatient and outpatient services. These charges were $45,730 more than the hospi- tal”s payments to the physicians for the same services which had been deducted from the costs reimbursed under parts A and B. The hospital’s 1968 cost report was adjusted to offset the part 3 overpayment for services during the last 9 months of the year against the costs claimed on the cost report. The a d justment was made in accordance with instructions pertaining to those hospitals using th’e combined billing method which the Memorial Medical Center had elected to use. The combined billing method was authorized pursuant to the Soci.al Security Amendments of 1967, which provided, eff’ective April 1, 1968, ‘a simplified method for reimbursing hospitals -23 - for radiology and pathology services furnished by hospital-based physicians to inpatients. Under the simplified method, it was not necessary to break down the hospital’s charges,for services by these physicians ) on a patient-by-patient basis, into the portions covered by part A and the physicians’ professional component covered under part B, Adjustments to the hospital’s 1968 cost report were not made for overpayments applicable to part 8 services during the first 3 months of the year. The excess payments occurred because part R billings by the hospital for the professional services of its radiologists and path- ologists were significantly greater than the amount deducted by the hospital from its reimbursable costs for payments to the physicians for the same services, The following table compares the percentage of charges generally used to bill part B and the percentage of charges that were equivalent to the amounts that had been deducted from the hospital”s inpatient and outpatient costs reimbursed under parts A and B. Professional Professional component component percentages applicable percentages to amounts deducted used to bill from reimbursable part B costs *at iexit Pathologists 60 5 5 Radiologists 41 20 36 We were unable to obtain computations or documentation from either the hospital or Georgia Blue Cross to support the professional component percentages used to bill. part B; however, it was apparent from data available in 1967 that the percentage used to bill. for the pathologists r services was excessive, Pathologists were compensated by the hospital on the basis of a formula which feetured various percentages of gross laboratory charges and adjusted gross charges.1 We noted that, for the 6-month periomd ended December 31, 1967, the hospital”s paym’ents to pathologists for both administrative (part A) and professional (part E;) services amounted to about 21 perc’ent of laboratory charges as contrasted with the 60 plercent of charges generally used by the hospital during 1968 to bill for professional (part B> services only. We noted that the hospital later determined that I of the total compensation paid to pathologists, 81 percent was for administrative (part A] services and 19 percent was for professional (part IS] services. a. . -2 Zk- Radiologists were compensated by the hospital at rakes of 41 percent of adjusted gross charges’ for inpatient services and 613 per- cent of adjusted gross charges for outpatient services. AEth0Llgh these rates approximated the 41 percent of gross charges used to bill for professional @art B) services, the hospital’s 196S cost report showed that only about 5.5 percent of the radiologists* compensation was allocable to part B services which was deducted from the hospital’s costs reimbursed under parts A and B. XII our opinion, the intermediary and the carrier should have obtained and evaluated sufficient data to assure that the part B pro- fessional component percentages being used were designed to yield to the hospital its approximate costs for the services. In the absence of such assurance, we believe that Georgia Blue Cross should have adjusted the hospital”s cost report to recapture that portion of part B billings which were in excess of the hospitaf”s costs. We discussed the excessive reimbursements with the intermediary and with the intermediary’s auditors. Georgia Blue Cross officials advised us that SSA instructions were not clear as to the intermediary”s responsibilities concerning accuracy of the part B professional componet for hospital -based physicians. The auditors advised us that they were aware of the situations discussed in this chapter, but that they were anly responsible for the accuracy of the hospitals’ cost reports and had no responsibility to adjust excessive payments to the hospitals by the part B carrier. ‘Adjusted gross charges excluded (a) charges applicable,to charity and welfare patients and (b) an allowance for bad debts. -25- 1,1,1,,,,, , CHAPTER 5 ERRONEOUS FINAL SETTLEMENTS AND IMPROPER HANDLING OF BAD DEiE During our review, we developed data in two other areas. The additional data revealed that (1) for a variety of reasons 11 hospitals were overpaid a total of $45,100 and 10 hospitals were underpaid a total of $510 by Georgia Blue Cross, and (2) about $4.,250 for bad debts should have been paid by the Georgia Old Age Assistance program (@IA) rather than by the Medicare program. FIEAL SETTLEMENT PAYMfINT ERRORS During a period of almost 3 years after the inception of the Medicare program in July 1966, Georgia Blue Cross made final settle- ment overpayments totaling $45,100 to 11 hospitals and underpayments totaling $510 to 10 hospitals. Cverpayments were made because : (1) previous tentative settle- ments were not considered in computing final settlement amounts; (2) an erroneous amount was considered as the amount of a previous tentative payment; (3) final settlement payments to hospitals were made of amounts actually owed by the hospitals to the Medicare program; (4) a duplicate final settlement payment was made; (5) a final settle- ment amount due from a hospital for a long period of time had not been requested or received; and (6) an error was made in the calculation of an outpatient settlement amount. The underpayments were made because: (1) the total amount of bad debts claimed by one hospital was erroneously considered as an . amount due the Medicare program; and (2) errors were made in the calculation of outpatient settlement amounts, The payment errors resulted from the absence of effective pro- cedures to maintain adequate control over, and to assure the accurate computation of, tentative and final settlement adjustments. We discussed the erroneous payments with Georgia blue Cross officials and recommended that they investigate the need for insti- tuting a system to control the determination of tentative and final settlement payments. Georgia Blue Cross accepted our recommendation and instituted a system to control tentative and final settlement payments. Using the system, their personnel reviewed tentative and final settlement pay- ments made on cost reports received through June 25, 1969, recovered $45,100 in overpayments, and issued checks to hospitals for $5LQ in underpayments for a net recovery of $44,590. -26- We examined into bad debts claimed on 1.967 cost reports by six hospitals. As shown in the following schedule, we found that, of $25,040 in deductible and coinsurance bad debts claimed, $4,25Q or about 17 percent, should have been paid by the Georgia Old Age Assistance program. Pad -- debts Hospital .I___ Claimed -Ymm The Macon Hospital $Bl,540 $1,720 Medica Center 4.,010 1,270 University Wospital 6,080 1,000 City-County Hospital L,SOO 40 Hemorial Hospital. - Waycross 1,020 60 Pineview General 890 1613 Total $$&ij&gg $Zi-=TT m=nAa-- -- Although we recognize that in Georgia about SO percent of funds paid by the State Old Age Assistance program was furnished by the Federal Government, we believe that deductible and coinsurance amounts which are the responsibility of the State program should not be charged to and paid by the Medicare health insurance program. We believe there is a need for improved audit procedures we- such as screening hospital admissions or screening patients not paying their deductible and coinsurance amounts -- which would enable the intermediary and the hospitals to identify those patients who are eligible to have their Medicare deductible and coinsurance amounts paid by the State. b GHAPTER 6 For the three hospitals included in our detailed review, it is our opinion that the SSA principles of reimbursement and related instructions were not always closely adhered to by the hospitals, the auditors, or the intermediary in the preparation, audit and settlement of the hospitals’ Medicare cost reports, The failure to adhere to these principles resulted in (1) costs being overstated and (2) overallocations of costs to inpatient cost centers. In addition, we noted that incomplete or erroneous data had been used in computing the hospitals” reimbursement settl’ements. At the time of our review, Georgia Blue Cross had made final settlements with The Macon Hospital and the Medical Center. The Memorial Medical Center’s cost report had been audited by the intermediary’s auditors, but final settlement hnd not been made. Georgia Blue Cross officials advised us that the costs we questioned would be considered before making final settlement with the Memorial Medical Center. We also noted that charges billed by the three hospitals for services of hospital-based physicians exceeded the hospitals” cost for such services because excessive professional component percentages ware used to compute that portion of total charges applicable to professional. services of the physicians. Further, because excessive reimbursements for services of hospital-based physicians were &ted in connection with all three hospital cost reports included in our review, we believe that similar excessive reimbursements may have been made to other hospitals serviced by Georgia Blue Cross. CHAPTER _I-- 7 SCOPE OI? REVIEW Qur review was made at the Georgia Blue Cross office in Columbus, Georgia; the Medical Center, Columbus, Georgia; The Macon Hospital, Macon, Georgia, and the 'Memorial Medical Center, Savannah, Georgia. We also performed a limited amount of work at the Georgia State Depart- ment of Family and Children Services in Atlanta, Georgia. We reviewed Medicare legislation and related regulations pre- scribed by the Secretary of Health, Education, and Welfare for the administration of the program. We also examined applicable audit reports and working papers prepared by the intermediary's auditors. In addition, we reviewed pertinent records, reports, and documents and interviewed officials of Georgia Blue Cross and the three hos- pitals concerned. . -29”
Review of Medicare Cost Reimbursements to Hospitals by the Georgia Hospital Service Association, Inc.
Published by the Government Accountability Office on 1971-03-18.
Below is a raw (and likely hideous) rendition of the original report. (PDF)