Home Health & Hospice Week

Intermediaries have to play by the rules, and one of those rules is not switching cost allocation tactics retroactively.

So decided the Provider Reimbursement Review Board in Aug. 22 Decision No. 2003-D48, regarding cost allocations for Springfield, PA-based Mercy Home Health.

Mercy's parent also included private duty, staffing and durable medical equipment components. In 1995 and 1996, the HHA used a methodology approved by its then-fiscal intermediary to allocate costs. When its FI informed Mercy that methodology was no longer acceptable, the agency switched to a different methodology for 1997 through 1999, according to the decision.

The new system Mercy used involved excluding the supplies costs from the home office center. "The costs associated with acquisition, storage, maintenance and distribution were incurred directly by the DME at the subsidiary level and were not supported in any manner by the home office," Mercy argued to the PRRB.

When regional home health intermediary Cahaba GBA became Mercy's intermediary and performed an audit of the cost reports, it reallocated costs based on cost-to-total cost methodology required in Centers for Medicare & Medicaid Services regulations.

"The Provider had used a method specifically approved by the FI for 1995 and 1996, but the new FI - Cahaba - decided well after the fact that it would not follow the prior approval," points out attorney Liz Pearson with Covington, KY-based Pearson & Bernard.

Mercy appealed, arguing that its former intermediary approval should remain in force, and that the 1997 through 1999 methodology was more accurate than CMS' system.

Cahaba simply stated that it had to follow the Medicare rules set out in regulation, regardless of what previous intermediaries had allowed.

The PRRB sided with Mercy on its 1995 and 1996 methodology, ruling that once approved, it was allowable until the intermediary informed the provider differently. "The Board is not convinced that the Intermediary's caveat 'subject to verification at audit' leaves the door open for the current Intermediary to retroactively rescind the prior Intermediary's approval," the decision says.

But the Board didn't endorse Mercy's 1997 through 1999 approach to cost reporting, which was neither approved by an intermediary nor consistent with Medicare guidelines, it said.

"This is the first time I can recall the PRRB ruling the [intermediary] must adhere to a prior allocation," which makes the decision significant, notes cost report expert Jim Plonsey with Chicago-based Medicare Training & Consulting.

Pearson applauds the Board's decision, noting that "Cahaba's conduct here is consistent with what we are seeing." Pearson claims the intermediary is "arbitrarily denying costs in their auditing of the current cost reports."

Mercy and its legal representatives didn't return calls for comment.