Program Memorandum
Department of Health and Human Services (DHHS)
Intermediaries
HEALTH CARE FINANCING ADMINISTRATION (HCFA)
PM Rev. A-00-63
Date: SEPTEMBER 8, 2000
CHANGE REQUEST 1310
SUBJECT: Cost-to-Charge Ratios (CCRs) for Calculating Certain Payments Under the Hospital Outpatient Prospective Payment System (OPD PPS)
The purpose of this Program Memorandum (PM) is to provide information concerning calculation of the CCRs that will be used for services furnished during CY 2000 for determining outlier payments, interim transitional corridor payments, and device pass-through payments under the OPD PPS. The PM provides criteria for considering requests from hospitals for recalculation of CCRs, details concerning these calculations, and instructions to calculate CCRs for community mental health centers (CMHCs). However, we have not provided criteria for recalculating CCRs for home health agencies and comprehensive outpatient rehabilitation facilities that receive payment under the OPD PPS for certain services.
There are two attachments to the PM. The first provides hospital specific data to be used if requests for recalculating the CCR [that] are accepted. The second attachment lists all hospitals that were assigned a default CCR and the reason for that designation.
Advise your providers of the procedures contained in this PM immediately.
CRITERIA FOR CONSIDERING REQUESTS TO RECALCULATE CCR
Individual hospitals may question the validity of the CCR that has been calculated for them or question their assignment to the default CCR for their area. Under the following criteria, fiscal intermediaries (FI) should access the cost reports as described in this memorandum and calculate the CCRs for requesting hospitals if:
1. A hospital has been assigned a default CCR because HCFA did not have access to a FY 1996 or 1997 cost report, but the FI can access a valid cost report for these years;
2. A hospital was assigned a default CCR because it was incorrectly classified as an all inclusive rate hospital;
3. A settled cost report used by HCFA to calculate the CCR has been reopened and settled in a manner that could affect the CCR; or
4. A hospital was assigned a default CCR because their calculated CCR was outside the trim points described below. After recalculating the CCR, the FI may determine that such ratio is valid even though it is outside the trim points and substitute that CCR for the default value.
HCFA-Pub. 60A
When CCRs are recalculated under these criteria, they are to be applied prospectively only. That is, claims processed using existing CCRs do not have to be reprocessed. If a hospital’s recalculated CCR is lower than its assigned CCR, the hospital will retain its assigned CCR. In addition, the recalculated CCR and the provider number should be sent to HCFA so that new default values can be calculated for the next year. This information should be mailed to:
Jana Petze
Health Insurance Specialist
Division of Practitioner and Ambulatory Care
Mail Stop: C4-03-06
Health Care Financing Administration
7500 Security Boulevard
Baltimore, MD 21244-1850
Jpetze@hcfa.gov
CLARIFICATIONS
In the case of hospital mergers, acquisitions or other such changes, the CCR for the surviving provider number should be used. That is, the CCR provided by HCFA, or one recalculated under the criteria provided above. For 2000 and 2001, new providers (defined for this purpose as a hospital that did not have a provider number for the FY 1996 or FY 1997 cost reporting period) should be assigned the default CCR as described below. Hospitals that had 1996 or 1997 cost reports, but now have a new provider number are to be treated as new providers for purposes of the CCRs.
In addition, if a hospital or CMHC has a short cost reporting period, use the latest full year cost report.
CCR FOR CMHCs
FIs should access fiscal year 1997 cost reports for CMHCs and calculate a CCR for each facility. The calculation can be made using Form HCFA 2088-92, Worksheet C, page 2. Costs are Line 39.01, Column 3 and charges are Line 39.02, Column 3. For CMHCs that do not have 1997 cost reports, use the most recent cost report available. If in the judgment of the FI, the 1997 cost report does not yield a valid or usable CCR, a more recent cost report may be used. If none are available, the applicable hospital default ratio should be used. CCRs are not necessary for HHAs and CORFs. The CCRs calculated in this manner can be used directly for determining reimbursement--they do not require the other adjustments used for the hospital CCRs (for example, adjustment to 2000 or the submitted-to-settled factor).
DETAILS FOR CALCULATING HOSPITAL CCR
The CCR is used to reduce hospital/provider charges into a simulated cost. HCFA calculates a simulated cost since provider/hospital charges are not necessarily based on cost.
Explained below are the steps that HCFA performs to calculate the CCR.
STEP 1: EXCLUDE SELECTED CATEGORIES OF PROVIDERS:
HCFA did not calculate the ratios for hospitals that reported being all-inclusive rate providers on their cost reports and hospitals that are part of the Kaiser or New York City Health and Hospital Corporation.
Additionally, HCFA did not calculate an adjustment amount for hospitals considered an outlier, as will be described below in Step 6.
STEP 2: DETERMINE THE COST REPORTING YEAR:
HCFA used the most recently available cost report for the OPD PPS. (See Excel file A00-63a.xls for a list of hospitals and the cost report year used in the Hospital Outpatient PPS.)
STEP 3: DETERMINE THE SETTLED-TO-SUBMITTED FACTOR:
Look-up the hospital’s "settled-to-submitted" factor on the Excel file A00-63a.xls. If the most recently available cost report was one that had been submitted but not settled, we calculated a "settled-to-submitted" factor to adjust for the difference that generally exists between "settled" and "as submitted" cost reports. This factor is calculated by taking the hospital’s total facility CCR from a settled cost reported and dividing by the corresponding CCR from a submitted cost report in the most recent year for which both are available. If the hospital-specific "settled-to-submitted" factor is not found in the data file, then the settled cost report should be used if available for this calculation. If the settled report is not available, use a factor of one.
STEP 4: GATHER COST DATA:
Use the following schedules and outpatient cost centers from the Form HCFA 2552-96 to calculate the ratios:
4a) Worksheet C, Part 1--column 8 "total charges," use these lines and all subscripts thereof: 37, 38, 39, 40, 41, 42, 43, 44, 44.01, 44.02, 45, 46, 47, 48, 49, 50, 51, 52, 53, 54, 55, 56, 57, 58, 59, 60, 61, 62, 63.
4b) Worksheet C, Part 2--column 2 "capital costs" and column 3 "operating costs," use these lines and all subscripts thereof: 37, 38, 39, 40, 41, 42, 43, 44, 44.01, 44.02, 45, 46, 47, 48, 49, 50, 51, 52, 53, 54, 55, 56, 57, 58, 59, 60, 61, 62, 63.
STEP 5: CALCULATE THE CCR:
5a) Total Operating CCR: Multiply the hospital’s total operating costs from Step 4b by the "settled-to-submitted" factor from Step 3. Then divide this amount by total charges from Step 4a.
5b) Total Capital CCR: Multiply the hospital’s total capital costs from Step 4b by the "settled-to-submitted" factor from Step 3 above. Then divide this amount by total charges from Step 4a.
5c) Overall OPD CCR: Add the hospital’s Total Operating and Total Capital CCR from Steps 5a and 5b.
STEP 6: PERFORM STATISTICAL TRIM ON CCR DATA:
Compare the hospital’s Total Operating CCR from Step 5a above to the national average. HCFA considered CCR to be outliers if the hospital’s Total Operating CCR fell above or below 3 standard deviations from the geometric mean of all hospitals (excluding those described in Step 1.) If a hospital’s Total Operating CCR is below .116 or above 1.375, then its data was excluded from the OPD PPS model and the statewide urban/rural default for outlier payment purposes was given. (Skip this step if the reason to re-calculate the hospital’s ratio is to by-pass this trim.)
STEP 7: ADJUST CCR TO 1996:
Calculate an adjusted CCR for CY 1996. Such an adjustment was made only when the most recent cost report for a hospital began on or after October 1, 1996, in order to have made costs consistent with the CY 1996 claims data. We calculated an adjustment by comparing the Overall OPD CCR from Step 5c above to the Overall OPD CCR that was used in the Correction Notice. The majority
of cost reports used in the Correction Notice were from fiscal year 1995, but any prior year cost report can be used to make this adjustment.
We did not calculate an adjustment amount for hospitals excluded from the PPS model, i.e., hospitals that reported being all-inclusive rate providers or that were considered outliers as described in Step 6. An adjustment amount can be calculated as follows:
7a) Use the fiscal year beginning dates of each cost report to calculate the number of months between them. For example, if the FY beginning date on the post-1996 report is January 1, 1997, and the FY beginning date on the prior year report is January 1, 1995, then 24 is the number of months over which you will estimate the average change in the CCR. You will find that in most cases the post-1996 CCR is lower than the CCR from a prior year, resulting in a negative monthly change; in a smaller number of cases, the post-1996 CCR is higher than the CCR from a prior year, resulting in a positive monthly change.
7b) Estimate the number of months the post-1996 cost report period falls beyond CY 1996, that is the months the fiscal year ending date falls beyond December 31 1996. For example, if the report period ends on September 30, 1996, then the number of months beyond CY 1996 is nine.
7c) Estimate the total change between the cost report periods by dividing the Overall OPD CCR calculated in Step 5c by the Overall OPD CCR calculated from a prior year cost report (in most cases the cost report is used in the Correction Notice).
7d) Divide the number of months from 7b by the number of months from 7a.
7e) Raise the quantity from 7c to the power of the quantity from 7d. For example, the CCR from the cost report period beginning 10/1/96 is .421. The CCR from a cost report period beginning 10/1/94 is .493. The step would require the following: (.421/. 493)9/24 .
7f) Divide the OPD CCR from 5c by the amount calculated in 7e.
STEP 8: UPDATE THE CCR TO CY 2000:
Estimate the CY 2000 overall OPD CCR by multiplying the estimated CY 1996 CCR from Step 7 above by .94954. This factor represents the change in outpatient costs divided by the change in outpatient charges from CY 1996 to CY 2000 as estimated by HCFA’s Office of the Actuary.
STEP 9: PERFORM STATISTICAL TRIM ON CY 2000 CCR DATA:
Compare the hospital’s CY 2000 overall OPD CCR calculated in Step 8 above to the national average. For outlier payment purposes, we consider an overall OPD CCR as an outlier if it fell outside of 3 standard deviations from the geometric mean of all hospitals (excluding those described in Step 1 and those hospitals whose data was already considered outlier as described in Step 6.) If the CY 2000 Overall OPD CCR is below .159 or above 1.109 then the statewide urban/rural average was given. (Skip this step if the reason to re-calculate the hospital’s ratio is to by-pass this trim.)
Advise your providers of these procedures immediately.
INFORMATION REGARDING PROVIDERS WITHOUT 1996 COST REPORTS
Providers that did not have a cost report ending during CY 1996 are not eligible for transitional corridor payments (TOPS). We will be making system modifications to assure that such providers do not receive interim TOPS payments in the future. In anticipation of this change, all FIs should compile a list of hospitals and CMHCs that did not file a cost report ending in CY 1996. This
includes hospitals that filed cost reports under a different provider number in that year. This list will be used to recoup interim TOPS payment if necessary, as well as to modify the system.
The effective date for this PM is August 1, 2000.
The implementation date for this PM is September 8, 2000.
These instructions should be implemented within your current operating budget.
This PM may be discarded after August 1, 2001.
If you have any questions, contact Steve Sheingold at 410-786-5896 or Ssheingold@hcfa.gov.
