The Medicare Cost Report Domino Effect: What It Is & How to Mitigate It

What Is the Domino Effect?

The domino effect, or the “downstream impact,” refers to the interconnectedness of data points within the Medicare cost report preparation process. If a correction, change, or analysis of an issue is made in one section of the report, it can trigger subsequent changes throughout the rest of it.

Preparers must be aware of the ripple effects of their actions to ensure the integrity and accuracy of the entire cost report. Identifying and understanding all the downstream impacts of any information analysis or issue is crucial to maintaining compliance and producing a comprehensive and accurate cost report by the end of the process.

The Domino Effect & The Medicare Cost Report: At-Risk Areas

A-6 Reclasses

The A-6s, particularly reclasses, represent a high-risk area in Medicare cost report preparation due to their significant downstream impact. When expenses are moved from one department or cost report line to another, as occurs in A-6 reclassifications, it triggers changes throughout the report. 

For instance, consider the example of medical supplies. Reclassifying medical supply expenses alters the cost-to-charge ratio, affects B1 statistics, requires revenue mapping adjustments on Worksheet C, and influences settlement revenue allocations. Furthermore, simple reclasses like equipment rent or utility reclassification can indirectly impact subsequent reclassifications such as labor delivery or dietary cafeteria. 

A/C/Settlement Grouping Mismatches

A/C/Settlement Grouping Mismatches are a critical challenge in Medicare cost report preparation, emphasizing the importance of adhering to the matching principle. Achieving consistency across Worksheet A, Worksheet C, and settlement requires meticulous attention to detail and proactive measures to manage factors such as differing department numbers and potential domino effects from last-minute changes. This ensures accurate cost-to-charge ratios and proper revenue allocation, which is critical for Medicare cost report preparation.

S-3 Patient Days Utilized in Multiple Locations

Although initially unaffected by cascading effects, patient days can still pose challenges in Medicare cost reporting due to data integrity issues and adjustments like observations or labor and delivery. Varying figures from multiple sources, such as revenue usage files, midnight census, and patient accounting systems, require careful selection and consistency to prevent inaccuracies. Ensuring accuracy and consistency in patient day reporting is crucial to maintaining integrity in downstream calculations and statistics in the cost report, affecting areas like departmental statistics or A-6s.

Template Work Papers from PY

Template work papers from previous years serve as the basis for updating information in current cost reports, akin to a domino effect, as changes ripple across interconnected data points. While not directly labeled as such, this process involves updating consistent values over multiple years, such as interest expenses, patient TV usage percentages, and dietary/cafeteria meal splits. Neglecting to update these values accurately risks perpetuating inaccuracies in subsequent cost reports, underscoring the need for meticulous detail to maintain financial data integrity over time.

D-3 or D Part 5 Charge Errors

Neglecting to include charges on Worksheet D-3 or D Part 5 due to revenue allocations can cause significant discrepancies in cost reporting. Providers typically use internal revenue and usage data to allocate revenue codes accurately. Still, this process may trigger a domino effect, affecting charges and patient classifications between inpatient (IP) and outpatient (OP) settings. 

These reclassifications require careful adjustments in settlement analyses to meet cost report requirements and avoid unaccounted revenue, which could impact future rate settings. Ensuring scrupulous identification and reconciliation of these allocations is crucial for maintaining compliance and accuracy in cost reporting.

A-6s or A-8s That Utilize CCRs

A-6s and A-8s relying on Cost to Charge Ratios (CCRs) present a unique challenge in cost report preparation. These ratios are pivotal for converting charges to costs, affecting various items like medical supplies and intercompany lab services. 

However, their usage triggers a domino effect, altering the ratios used for adjustments and creating circular logic issues, thus complicating cost calculations. While some opt for prior-year CCRs, this approach isn’t foolproof due to potential rate changes, necessitating ongoing management to navigate this complexity effectively.

How to Know Whether an Issue Will Have a Domino Effect

Experience is crucial in determining whether an issue will have a domino effect. However, you can ask vital questions to assess a problem’s potential impact.

First, consider whether the issue is patient treatment-related, as such areas tend to have more significant downstream effects than non-patient treatment areas. Then, evaluate if the issue is administrative in nature. Additionally, analyze whether there are any statistics, revenues, or other reclasses or adjustments that the issue will influence. 

By asking these questions and anticipating the potential ripple effects, you can better prepare to address and mitigate any downstream impacts effectively.

Tips to Prevent the Cost Report Domino Effect

Healthcare administrators can effectively identify issues and ensure they don’t miss any impacts by following several key strategies:

Deal With One Issue At a Time

It’s crucial to deal with one issue at a time and thoroughly analyze all its downstream impacts. For instance, administrators should consider all associated expenses, such as salaries and FTEs, if addressing labor delivery and assess their impact on various aspects of the cost report, including B1 statistics and revenue changes on worksheet C and settlement. 

Organize All Related Analyses in One Location

Organizing all analyses related to a particular issue in one location, such as a dedicated work paper, can serve as a guiding light, ensuring administrators can easily track and manage the impacts. Additionally, maintaining a list of work papers with a domino effect can help administrators stay organized and ensure nothing is overlooked. Before submitting the cost report, administrators should conduct a last-minute verification to ensure all downstream data is correct and accurately reflects the impacts of the identified issues. 

Thoroughly Prepare & Process Work Papers

Finally, taking the time to thoroughly prepare and process work papers, using tools like VLOOKUP or copy and paste functions, can help administrators effectively manage and mitigate downstream impacts in the cost report.

Solutions for the Most Common Cost Report Errors

Understanding the most common cost report errors is the first step to mitigating the domino effect. Below are recommended solutions to each error:

• WS A/C/Settlement Grouping Mismatches: Perform a comparison at the end of your cost report process to ensure consistency between Worksheet A, Worksheet C, and Settlement groupings by department. Use tools to reconcile and validate the groupings, ensuring that change doesn’t create a domino effect.
• Downstream Impact of A-6 Reclasses: Consolidate all downstream impact analysis for A-6 reclasses in one location. Utilize automation tools for efficiencies, such as BESLER’s Easy Work Papers or work paper referencing, to ensure consistency and accuracy across all downstream workpapers.
• S-3 Patient Days Issues: Use the same data source for patient days across different analyses. Copy and paste or use VLOOKUP to transfer the data, ensuring it reconciles with S-3 before adjusting for specific analyses.
• Template Workpapers from PY: Lock formula cells and highlight/bold cells requiring annual updates in template workpapers. Maintain a list of static inputs needed for updates, ensuring all necessary data is refreshed for each reporting period.
• D-3 and D Part 5 Charge Errors: Review the revenue usage file for settlement allocation, identifying and regrouping error-prone revenue to appropriate cost report lines based on revenue codes. Ensure consistency between charge errors and settlement allocation to prevent revenue discrepancies.
• A-6s and A-8s that Utilize CCRs: Process these items towards the end of the report cycle. Save the current year cost report to a PDF and use the CCR from that report for A-6s and/or A-8s. Attach the PDF to work paper sets for documentation and verification purposes.

Gain Confidence in Your Medicare Cost Reports with Easy Work Papers

BESLER’s Easy Work Papers web-based software offers healthcare administrators a comprehensive Medicare and Medicaid Cost Report preparation solution. Built by reimbursement professionals, Easy Work Papers ensure accurate and consistent reporting by providing access anywhere, anytime. By leveraging this technology, administrators can reduce the time spent preparing Medicare Cost Reports by up to 75%, streamlining the entire process and enhancing efficiency.

As an HFMA peer-reviewed solution, BESLER’s Easy Work Papers is trusted by healthcare organizations nationwide. The software’s user-friendly interface and intuitive features empower administrators to easily navigate the complexities of cost report preparation, offering peace of mind and confidence in their reporting accuracy.

To learn more about mastering the Medicare Cost Report and preventing the domino effect, we invite you to watch our webinar and listen to our podcast. With expert insights and cutting-edge technology solutions tailored to your hospital’s needs, BESLER is your trusted ally in achieving excellence in hospital reimbursement.