Industry Insights

The Uncertain Nature of Current Cost Report Instructions &
S-10 Compliance

July 2016
Authors:  Michael Thomas

Michael Thomas

Director

Consulting

Health Care

600 N. Hurstbourne Parkway, Suite 350
P.O. Box 22127
Louisville, KY 40252-0127 (40222)

Louisville
502.581.0435

 & Adam Blackwell

Adam Blackwell

Senior Managing Consultant

Consulting

600 N. Hurstbourne Parkway, Suite 350
P.O. Box 22127
Louisville, KY 40252-0127 (40222)

Louisville
502.581.0435

In its fiscal year (FY) 2014 Final Rule, the Centers for Medicare & Medicaid Services (CMS) acknowledged that information reported on Worksheet S-10 (S-10) is inaccurate throughout the industry. However, the FY 2017 Proposed Rule stated that S-10 information correlates to IRS Form 990 and is more consistent between years than Medicaid and Supplemental Security Income data. While this may be true, it’s important to highlight that information reported between hospitals can be inconsistent.

The inconsistency partly stems from the current cost report instructions, which are confusing or don’t align with practical reimbursement principles. Hospitals are challenged to interpret cost report instructions while remaining compliant with the intentions of reporting accurate uncompensated care costs. 

The example chart below examines cost report instructions in relation to charity, bad debt, patient payments and uncompensated care and calculates portions of the S-10 according to current cost report instructions for a non-Medicare patient with the following criteria:

  • $20,000 total charges
  • $2,000 deductible
  • $800 charity write-off
  • $750 patient payment
  • $450 bad debt write-off

The chart illustrates multiple ways in which cost report instructions can lead to potential issues:

  • Charities, bad debt and patient payments not reconciling to the patient responsibility
  • Incorrect reporting of uncompensated care cost (red)
  • Noncompliance with Medicare requirements (orange)

Chart Option One

Current cost report instructions lead many professionals to record amounts represented in this scenario; however, two critical issues arise:

  • Cost of charity care is negative
  • Cost of uncompensated care is understated

Hospitals with a sliding scale charity policy where patients often pay on an outstanding balance are the most susceptible to understating cost of charity.

Chart Option Two

Cost report instructions for line 20 state that for patients with insurance, the amounts to report are “the deductible and coinsurance payments required by the payer.” However, the patient's initial payment obligation could be interpreted to be only the portion approved for charity. The potential problem with this option is that the cost of charity and uncompensated care is negative.

Chart Option Three

This approach is similar to option two; however, in an attempt to resolve the noted potential problem of understating uncompensated care costs, it records patient payment amounts on Line 22 in violation of cost report instructions. In theory, the patient didn’t make a payment on an amount qualified for charity. The potential problem with this option is that CMS requires providers to record amounts using literal interpretation of instructions.

While this option doesn’t appear to comply with current cost report instructions, the goal of accurately reporting uncompensated care cost for the patient might be best represented under this methodology.

Conclusion

This example highlights the importance of CMS clarifying S-10 instructions or revising the form entirely. In the meantime, hospitals are tasked with completing the worksheet to the best of their ability. BKD’s approach to completing S-10 includes analyzing patient-level detail and categorizing amounts, which would allow hospitals to adapt to the likely upcoming revisions in the CMS Final Rule. Quantifying amounts using various interpretations would allow hospitals to meet CMS requirements and document potential appeal opportunities or re-openings as necessary.

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