Home Health & Hospice Week

When it comes to cost reporting, it's Medicare's way or the highway.

That's the lesson one Kansas home health agency recently learned the hard way, when the Provider Reimbursement Review Board upheld $211,000 in cost report disallowances for 1997 and 1998.

Wichita-based ProActive Home Care Inc. decided to go about cost reporting using a discrete costing methodology rather than the step-down methodology spelled out in Medicare regulations, according to the Nov. 23, 2003 decision in Pro-Active v. Cahaba (Decision No. 2004-D4). Proactive separated out the costs of its private duty counterpart, ProActive Associates Inc., which shared the same office building and phone system, before reporting costs. The HHA's separated costs included those for the human resources director, scheduler, phones, and rental and building costs.

That didn't fly with regional home health intermediary Cahaba GBA. The RHHI reintegrated those costs, created a non-reimbursable cost center for the private duty operation, and used the usual step-down methodology to arrive at new cost report figures - figures that cost ProActive $211 K. Cahaba also added the salary of director and co-owner Dr. Gerald Lessard and job recruiting advertisement costs to the list of items shared between the agencies.

In its appeal, ProActive argues its costing methodology is more accurate than step-down methodology and that Lessard spent only one hour a month on Associates matters.

ProActive's discrete costing methods "were based on unsupported estimates that were neither auditable nor verifiable," the Board said in its decision. "For example, there were no contemporaneous time records or other documentation of Lessard's or the human resource person's time spent performing duties related to the Provider or Associates."

"The intermediary does not have to challenge the use of non-traditional cost finding or allocations which the provider used and tried to get the intermediary to accept," notes cost report expert Tom Boyd with Rohnert Park, CA-based Boyd & Nicholas. "The provider has to prove that their cost finding is a better way than the cost report cost finding" - something ProActive failed to do, points out Boyd, a former RHHI auditor.

ProActive did try to offer some time studies to justify its treatment of Lessard's and the HR director's salaries, but the studies were inadequate, the PRRB noted. Regulations are very specific on what types of time studies are acceptable, Boyd says. "The use of continuous time records is the only way to beat the specific requirements."

ProActive's legal counsel did not respond to requests for comment.