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)

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,


                                                                                                               ” i
         Chapte I

            1       mTRODUCTI ON

                       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

                       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
                       SERVICES OF BOSPRTAL-USED PIQY[SICIANS                                21
                         The Macon Hospital                                                  22
                         Medical     Center                                                  22
                         Memorial       Medical   Center                                     23
                       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
HEW   Department    of Health,     Education,   and Welfare

BCA   Blue Cross Association          *

SSA   Social   Securitry   Administration

EKG   Electrocardiogram

                                                              ‘;‘, ,/
                      .                                                  /
        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.

                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.

       FART 53

             Section 1842 (a) of the Social    Security     Act authorized     the
..!I   Secretary elf HEW to enter into contracts       with public    and private
                                                                                                                          ,,   ,,,,,,,,/,,,,   );


    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.


            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.


           The principal.   document             used in the settlement               process        is the
    Medicare   cost report.      This            report was developed               by SSA in        consultation

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

                      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

                                                                                                         /(,,   (,

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.


                                                                                                      ” ,,,,;

        .   ’


                        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
                    physicIan       services
                    included      in Medicare
                    costs under ptwt A               $14,550                                      $14,550



      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

      Met effect        on Medicare
        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

The S3com Hospital                                   $ 6,290                               $1,310
Medica% Center                                              790                                   1.60
Nemorial    HedicaI       Center                      &3110_                                 3~.--....
      Total                                          CJJ~~~~~                              $4mu-*-,
                                                      -mIIIML                                 UYIIIIY~~IYYI”
Interest         on bonded debt not
-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
.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
            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

                                                                Net    overstatement
                   Type of                                            of Medicare
               -^_111I..I---I- cost
                hospita’.                                          Reimburscmcnt
                                                                -m.u-       --V”WwIIUI#w

               Plant    operation           and
                  depreciation                                              $6,7J.O


               Medical       records        and library

               Ambulance         service       and
                 related         costs

               Lauuidry      service


               m-         ovation          and depreciation

               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

            .-w*-              service

        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.
               -.w--  cosfls   at    the    Medical.
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
      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

        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
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.

               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.

               --         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-

          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

        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,


                                                                                                 ...-...-..     .I,,,I..   -...   _   .-,,   ,,,,I,,,,   “,,   ,”   ,,1,,.“.,,,,,,,
                                                                                                                                                        ,q   ,,1,

                                                             Net overstatement
                                                             p---                            (understatementl
                                                                                                    w”Ue.--ll           of Medicare            Costs
                                                                                                   MQdical             Memarial.
           Item                                                                                                   Medical

           Computer        errors                                   $40,040     $     -0"                              $40,040

           mldersratement of data
             used in cost settle-
             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       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.
                          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

                            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-
                                                               Medical                 Medical
                                               -_IIu           Center                  Center

Understatement         of interim
  payments       received     from
  Georgia      Blue cross                      $1,760                                  $1,760

Overstatement        of Medicare
  deductible        and coinsur-

Qverstatement m-mm- of patient     liability
                -9m.c          deductible

         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.
                        ------.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

        “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.

         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

        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,


        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.


                                                                                                            -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.

                                                                                                                       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.


             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.

        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.

                                                                                      --  debts
        Hospital .I___                                                      Claimed

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
         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.
                                       _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.