Changes in Medicare capital PPS rates and rules - prospective payment system

Healthcare Financial Management, Dec, 1992 by Paul Grimaldi

Medicare cost report

The Medicare cost report has been modified substantially to collect the statistical and financial information needed to identify a hospital's old and new capital costs. A draft of the report for 1992 (Form HCFA 2552-92) contains the following capital-specific revisions:

Worksheet A (and others) now has five cost centers for capital costs in place of the customary two centers. There are now two cost centers for old capital (buildings, fixtures, and movable equipment) and two comparable cost centers for new capital. The fifth cost center is for other capital costs (for example, insurance and license fees) which are apportioned (on Worksheet A-7 Part III) between old and new capital based on the ratio of gross old capital assets to gross total capital assets. Associated reclassifications are made on Worksheet A-6.

Worksheet A-7 has changed dramatically and has been expanded to include three parts that require an analysis of acquisitions and disposals, a summarization of fully depreciated assets for both old and new capital, and calculation of the ratio of old assets to gross total assets, exclusive of capitalized leases.

Worksheet A-8 requires apportionment of investment income to old, new, and other capital. Depreciation has been expanded from two to four accounts for old and new capital.

Worksheets B and B-1 are used to document the allocation statistics to step-down old and new capital and the step-down amounts. Part II of Worksheet B apportions old capital costs to other cost centers and revenue-producing departments. Part III does the same for new capital costs.

Worksheet D now contains five parts. Part I allows for the computation of Medicare inpatient routine service and old and new capital costs. Part II enables comparable calculations for Medicare inpatient ancillary service capital costs. The remaining three parts are for the apportionment of pass through costs, and the costs of outpatient ambulatory surgery, radiology, and other diagnostic services.

Worksheet G requires separate cost information for old and new capital assets including land, building, leasehold improvements, fixed equipment, automobiles and trucks, major movable equipment, and minor equipment.

Worksheet L is entirely new; it is used to determine a hospital's final capital payments based on information extracted from the PS&R. Part I calls for calculation of capital payments according to the fully prospective method; Part II, requires the calculation of capital payments according to the hold harmless method. Part III derives capital payments based on reasonable costs (for example, new or PPS-excluded hospitals). Part IV is used to record exception payments, including the minimum payment level and additional payments for extraordinary circumstances. Supplemental worksheets must be completed to determine Medicare's share of these capital costs.

As the new cost-report requirements suggest, hospitals must maintain detailed and separate records for old and new capital, subdivided into various cost centers. HCFA has indicated that Medicare intermediaries may accept summary information of plant ledgers in lieu of copying hundreds or thousands of pages. However, the hospital must maintain adequate records and make them available if the intermediary requests them. Detailed records also may be necessary for a hospital to justify using different cost-to-charge ratios to allocate old and new capital costs across ancillary services.