Home Health & Hospice Week

Sloppy cost reports will come back to haunt the home care industry.

The feds' new effort to scrutinize cost reports isn't just bad news for the home health agencies being audited, but for all HHAs.

All three HHH Medicare Administrative Contractors are conducting cost report audits for the purposes of rebasing prospective payment system rates, providers across the country report. HHAs have received letters from NGS, CGS, and Palmetto GBA, as well as auditing contractor Ca-haba Safeguard Administrators, informing them that their cost reports for the 2010 fiscal year are under audit.

Background: The Affordable Care Act requires home health PPS rebasing starting in 2014. Groups such as the Medicare Payment Advisory Commission have advocated starting the rebasing process, which will presumably lower payment rates, even sooner. One reason rates are expected to drop is because visit utilization has decreased significantly since PPS began in 2000.

Financial expert Pat Laff with Laff Asso-ciates in Hilton Head Island, S.C. was hoping CMS would use 2011 cost reports for rebasing purposes. But the audit letters indicate 2010 will be the year utilized.

The letters from the various contractors contain slightly different information. For example, NGS says the providers will receive a "Notice of Correction -- Program Reimbursement" informing them of the results. The letter from Cahaba says it will conduct a desk review. Palmetto's letter makes no mention of communication with the provider, points out consultant Tom Boyd with Rohnert Park, Calif.-based Boyd & Nicholas.

The letters mention appealing adjustments made as a result of the audits. However, "if the revised NPR has no money effect, no appeal is permitted or accepted by CMS," Boyd points out. "Now what?"

Even if they could appeal, the appeals would not be concluded in time to be used in the rebasing for 2014, points out William Dombi with the Na-tional Association for Home Care & Hospice.

Many home care providers are unlikely to spend their time and resources on appealing cost report audits anyway, expects financial consultant Rick Ingber with VantaHealth Consulting in the Philadelphia area. That's because "they won't care too much about the results," which don't financially impact them directly.

That's unfortunate, because experts fear the audits will be far from accurate. For one thing, "few of the MAC auditors took part in the cost reimbursement audits of the last century" -- under cost-based reimbursement before PPS began, Boyd notes. "Their training ... will be lacking and result in errors," predicts Boyd, himself a former auditor.

And CMS policies won't rule certain costs allowable that really should be, Laff contends -- particularly costs for current technology such as telehealth. Other legitimate costs for items such as compensation, advertising, and marketing will likewise be disallowed, he expects.

HHAs Already Understate Their Own Costs

Before auditors even get a hold of the cost reports, many of them are likely to have problems, financial experts predict. That's because numerous HHAs have been loathe to sink time and resources into preparing an accurate report when the report has no direct financial impact on them under PPS.

"HHAs have been less than conscientious in the quality of cost reporting," Dombi observes.

"Cost reports aren't considered to mean anything," Laff laments. That's despite the fact that CMS already has used cost report data for things like setting supplies reimbursement levels under PPS, and MedPAC uses cost report data to calculate agencies' (sky-high) Medicare profit margins.

"I don't think things are accurate at all" on many current cost reports, Ingber worries. And "when people are sloppy, they tend to understate costs."

Agencies "self-disallow" items such as telehealth, marketing, and other legitimate business costs, Laff believes.

Ingber has seen reports that went in without basic items such as drugs and supplies, he tells Eli. "That goes into the database the government uses to set rates," he stresses.

A Lot More Audits May Be On Deck

So far, only a handful of providers have reported receiving audit requests. That's because CMS is using them as test audits, Dombi tells Eli. The agency wants to find out what it can learn about rebasing and then decide whether audits should be a part of the rebasing effort.

"CMS has not yet decided if it will do a national audit," Dombi explains. If CMS does decide to launch a full cost report audit effort for rebasing, the procedures will be decided then.

Watch out: If CMS opts to use widespread audits for rebasing, a lot more agencies will receive audit requests. CMS audited nearly 700 agencies' 1998 cost reports when setting up PPS, Dombi points out.

"We have concerns about using audited cost reports," Dombi says. The combination of cost report data quality problems and appeals issues causes doubts.