Medicare maximization: its effect on accounting and auditing in the nursing home industry.by Feder, Mel
This article explores various accounting, reporting, and auditing matters affecting the nursing home industry as a result of: 1) changes in Medicare coverage for skilled nursing facility (SNF) services arising from implementation of the Medicare Catastrophic Coverage Act of 1988 (MCCA); and 2) participation in related state Medicare optimization programs. These are matters that should be given consideration in current audits of nursing facilities.
Background and Impact of MCCA
SNFs earn revenue by providing health care services. Revenue is received primarily from the following payor sources: * Third party payors: Medicaid and Medicare Part A; * Self pay/private payors. MCCA resulted in an increase in Medicare Part A coverage and accompanying revenue for SNF services.
In 1988, Congress enacted MCCA to protect Medicare beneficiaries from catastrophic costs associated with acute illnesses. One of the important provisions of the Act extended coverage of Medicare approved stays in an SNF from a previous maximum of 100 lifetime days per spell of illness to an annual maximum of 150 days, regardless of the spell of illness. Additionally, the previous requirement of three days prior hospitalization was eliminated.
These provisions altered historical payor utilization trends in the industry by significantly increasing the number of days covered by Medicare Part A and concomitantly reducing both Medicaid and private covered days.
State Medicare Maximization Programs
Because Medicaid is partially funded by state and local governments, it is important to those entities that Medicare funds, a 100% federal program, be maximized. New York State will be used as an example of what states are doing to assure maximum use of federal funding.
New York State law requires SNFs to seek maximum reimbursement from all other sources prior to seeking Medicaid coverage (payor of last resort). With respect to potential Medicare beneficiaries, Chapter 76 of the Laws of 1976 states that until a Medicare claim is formally denied, no Medicaid payment will be made on behalf of a patient who could reasonably be expected to have that care paid for by Medicare.
In order to mitigate the potentially adverse financial impact of this law on SNFs, New York implemented a Medicare Optimization Program (MOP). The first program, MOP I, included the following provisions: * Payments to SNFs for all Medicaid claims were continued, uninterrupted; * SNFs were required to seek Medicare approval of claims for all Medicaid- eligible patients; and * Refunds of the Medicaid payment were required for a patient if Medicare subsequently approved payment.
MOP I was doomed to failure because of: 1) the excessive paperwork burden placed on SNFs; and 2) the financial disincentives of the program for the SNFs whose Medicaid reimbursement rates exceeded the Medicare rates. This same situation exists for the majority of the state's SNFs.
In 1987, the MOP II program was developed, which streamlined the paperwork for SNFs and included financial incentives for Medicare maximization. The provisions of MOP II include the following: * Permitting SNFs to bill Medicaid for accelerated payment for all dually Medicare/Medicaid-eligible patients; * Allowing SNFs to seek Medicare reimbursement only for patients whom they determine to be clinically and technically eligible for Medicare; * Allowing SNFs to resubmit reconsiderations of rejected Medicare claims only for those cases that they determine likely to be successfully covered; * Permitting SNFs to retain the larger of the Medicaid or Medicare payment if a patient was dually covered; and * Requiring quarterly reporting to the state and submission of the appropriate refund for duplicate payments received.
In 1989, as a result of MCCA, participation in MOP II attained a level of approximately 80% of the SNFs in the state.
Effective July 1, 1989, MOP II was terminated and the Medicare maximization effort was altered by introducing a Medicare "carve-out" in the Medicaid reimbursement rate. This carve-out was designed to account for Medicare revenue which was anticipated to be received by SNFs and to refund those amounts to Medicaid on a continuous basis. However, due to litigation challenging the process by which the carve-out methodology was to be implemented, the Medicare carve-out was repealed. In its place the state required bi-weekly remittances for duplicate payments received through December 31, 1989, and a continuation of the Medicare optimization requirements.
In view of the repeal of MCCA effective January 1, 1990; the financial incentives of the optimization approach have not yet been developed. However, it can be expected that some of the financial inceptive concepts of MOP II will surface in the successor program.
Accounting and Reporting Issues
The Medicare optimization programs and their focus on dual billing for Medicaid/Medicare-covered patients have created various accounting and reporting concerns for the industry, including the reporting of patient census days, payor revenue recognition, accounts receivable recording, and determination of liabilities to Medicaid.
The author's views on these matters are discussed below. These views are outlined at each stage of the Medicare determination process under the premise that the Medicaid rate is higher than Medicare and that Medicaid has been billed for the accelerated payment and full payment received.
Stage 1. Positive determination of Medicare coverage. * Medicare Part A days are recorded and Medicaid days are deleted from census count; * Medicare accounts receivable recorded; * Medicare patient service revenue recorded; and * Liability to third party payors (i.e., Medicaid) is recorded for the amount of Medicare billing (with the offset against Medicaid patient service).
Stage 2. Medicare denial but reconsideration filed. * No accounting changes are necessary to reflect these events unless the monetary amount of claim is to be adjusted.
Stage 3. Medicare denial but no reconsideration filed. * Medicare Part A days are voided from census count and Medicaid days are reinstated; * Recording of Medicare receivable and reversal of patient services revenue; and * Reversal of recording of liability to third party payors.
Stage 4. Payment received from Medicare. * Payment applied to Medicare accounts receivable; and * Liability to third party payors now reflects an actual amount due to the state.
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