Improving cash flow: a focus on Medicare.

Beginning with this issue of NURSING HOMES, Financial Consultant will appear as a regular, reader-responsive department. Ron Present, Manager of the Tampa, Florida office of Ernst & Young, the financial consulting and accounting firm, will answer your questions pertaining to financial management of your facility by contacting appropriate Ernst & Young resources. Send your financial management questions to Mr. Present, c/o Editor; Nursing Homes; 629 Euclid Avenue, Suite 500; Cleveland, OH 44114. The following essay kicks off the series.

It's no secret that lagging reimbursement and the effect of competition on rates is squeezing cash flow at many long-term care organizations. Cash flow is always important, but it seems even more crucial today. Medicare Part A rates can range from under $100 per day to over $300 per day. The difference between low rates and high rates depends on billing elections each provider makes and the quality and types of records kept. For organizations participating in the Medicare program, these tips may lead to improved cash flow:

Filling out a Medicare claims form (UB-82) will never rank among the top 10 of anyone's favorite pastimes. However, accurate completion of Medicare billing forms is essential for timely turnaround of payments. Medicare must pay so-called "clean claims" within 24 hours.

Cut Down Collection Delays

File Claims Quickly: Bill claims within 10 working days after month end. Coordinate with nursing for appropriate data.

Provide Training: Update bookkeepers on Medicare billing requirements. Intermediaries provide periodic training. This is particularly important with turnover.

Avoid Denials: Denials result from primarily two sources: human errors in completing forms and inadequate documentation. When using manual processing, pay attention to the completion of all required "fields." Get help with questions concerning whether fields apply. Do not leave applicable fields blank. Electronic claims software provides "edit" checks to reduce the likelihood of inaccurate or incomplete claims. Make sure all required attachments to the UB-82 are filed and are accurate. Example: Some intermediaries require therapy questionnaires with all therapy claims. Make sure nursing understands the requirements, which are typically outcome oriented and require clear progress statements.

Ancillary Billing Options

Certain ancillary services, such as therapies, typically use outside contractors. Providers have two options in billing for these ancillaries. Option 1: The supplier provides services "under arrangements" where the supplier bills the facility and the facility "marks up" the service and bills the Medicare program. Option 2: The supplier bills Medicare directly; the provider incurs no cost and no revenue.

Benefits: Option 1 can increase cash flow because Medicare pays not only for the direct cost of the therapy, but also a portion of a provider's overhead costs. The increase in reimbursement needs to be evaluated in conjunction with the billing terms of the supplier. Option 1 typically provides a significant net cash flow benefit to the provider.

Part B Participation

Many providers who participate in Medicare Part A do not participate in Part B. The Part B program pays the cost of most ancillary services, including therapies and medical supplies. Medicare "picks up" a portion of a provider's overhead costs in addition to direct costs of supplies and services. Key: Participating in Part B means a greater portion of overhead will be reimbursed. Moreover, Medicaid residents generally have Medicare Part B benefits from each state's payment of Part B premiums for Medicare beneficiaries. Consequently, the direct cost of billable supplies typically absorbed by a provider that does not participate in Part B would be billable to the Medicare program.

Record Keeping

Both direct costs (routine and ancillary costs) and overhead (general and administrative expenses) are reimbursed by Medicare. Overhead costs are typically fixed. That is, they do not vary significantly in relation to resident volume or ancillary utilization. However, the determination of "Medicare's share" can vary depending on the records kept.

How it works: Medicare's share of overhead costs is determined through the annual cost reporting process, using statistics maintained by the provider and a complex allocation methodology. Statistics need to be accurate, complete, and prepared on a timely basis during the year. Examples of commonly used statistics are: pounds of laundry; nurse staffing assignments for certified units (distinct parts); meals served; square footage (updated for periodic changes); housekeeping hours of service; resident days

Benefits: Maintaining accurate statistics can improve Medicare program reimbursement by more accurately allocating costs to routine and ancillary services that are paid by the Medicare program.

Bottom Line

In preparing the organization to meet the challenges of lean economic times, any opportunity to increase cash flow is important. Good billing practices, coupled with the appropriate records and ancillary contracting methods, can help ensure that cash flow provided by the Medicare program is at its highest potential.

J. Talbot Land is Ernst & Young's Regional Director of Long Term Care Consulting Services located in Tampa, Florida.