Industry Insights

Changes to Cost Report Worksheets Affecting Wage Index

March 2017
Author:  Chad Tysdahl

Chad Tysdahl

Senior Managing Consultant


Health Care

1201 Walnut Street, Suite 1700
Kansas City, MO 64106-2246

Kansas City

Recent Transmittal 10 Provider Reimbursement Manual (PRM) instructions are included in Publication 15-2, Chapter 40, and affect provider Medicare cost reporting forms. The effective date for these changes are for cost reporting periods ending on or after September 30, 2016. View the complete Centers for Medicare & Medicaid Services (CMS) PRM guidelines for Publication 15-2 and the instructions in Chapter 40.

Changes Specific to Wage Index Reporting Lines

Worksheet S-3, Part II:  CMS has added Lines 14.01 and 14.02 to enhance the wage index data collection related to home offices and related organizations. All home office and other related organization salaries, hours and wage-related costs were previously included on Line 14. Line 14.01 now only will include the home office salary and hour data, while Line 14.02 only will include other related organization salary and hour data. As mentioned below, wage-related costs will be reported on separate lines. Line 14 will no longer be used.

Worksheet S-3, Part II:  CMS has added Lines 25.50, 25.51, 25.52 and 25.53 to separately report the wage-related costs related to home offices and related organizations. Home office and related organization wage-related costs were previously lumped together with salaries on Line 14. This transmittal now requires the home office wage-related costs to be included on Line 25.50. Related organization wage-related costs will now be included on Line 25.51. In addition, Line 25.52 has been added to include the wage-related costs in regard to any home office Part A physician administrative salaries reported on Line 15. Similarly, Line 25.53 has been added to include the wage-related costs related to any home office contract Part A teaching physicians reported on Line 16. Lines 15 and 16 now only will include the salary component of these categories.

Worksheet S-3, Part IV:  Regarding Lines 25.50 through 25.53, Worksheet S-3, Part IV instructions state, “if a wage-related cost associated with the home office is not ‘core’ and is not a category included in ‘other’ wage-related costs on Line 18, the cost must not be included on Line 14, or subscripts.” This isn’t a change, but a clarification that home office wage-related costs follow the same guidance as hospital wage-related costs.

Worksheet S-3, Part IV:  CMS has eliminated the wage index pension cost schedule Exhibit 3 and the corresponding instructions from the cost reporting instructions. The transmittal now directs providers to use the latest published wage index pension cost schedule on the CMS website. For hospitals that have historically used their own version of the pension computation, it will be important to use the CMS form going forward.

Worksheet S-3, Part IV:  CMS added Lines 8.01, 8.02 and 8.03 to accommodate various categories of health insurance. Line 8.01 will apply if the hospital is self-funded for health insurance without a Third Party Administrator (TPA). Line 8.02 will be completed if the hospital is self-funded with a TPA. Line 8.03 will be completed if the hospital purchased health insurance. Previously, all health insurance expenses were included on Line 8, which will no longer be used.

In addition to the reporting line changes, CMS offered additional guidance within the transmittal instructions. Primary changes are detailed below.

Worksheet S-3, Part II, Line 5:  The instructions for reporting the salaried Part B physicians were modified to add that not only salaries billed to the Part B program are reported on this line, but also on-call physicians.

Worksheet S-3, Part II, Line 6:  The instructions specifically state to include Lines 88 and/or 89 for nonphysician on-call salaries and salaries for any hospital-based Rural Health Clinic and Federally Qualified Health Center included on Worksheet A.

Worksheet S-3, Part II, Contract Labor:  The instructions reiterate that only contract labor costs reported on the hospital trial balance on Worksheet A, Column 2 are included with the wage index. In addition, the instructions were modified to add that contract labor not reported in the proper cost center will be disallowed from the wage index calculation. This change could affect the reporting of Administrative & General (A&G) under contract. Such costs should be properly grouped on Worksheet A or reclassified on Worksheet A-6 to include the costs on Line 28, A&G under contract.

Furthermore, the changes indicate that “attestations or declarations from the vendor of hospitals are not acceptable in lieu of supporting documentation for wage, hours, wage-related costs and nonlabor costs.” Hospitals that have historically obtained an attestation from a vendor need to work with that vendor to obtain acceptable documentation, including, but not limited to, providing the hours on the invoice.

Finally, the contract labor instructions clarified that on-call wages and hours related to providing Part B services may not be included. Hospitals may still include on-call contract labor if the regular scheduled dollars and hours meet the definition of contract labor. The on-call hours wouldn’t be included in this instance. We’ve noticed this change primarily relates to the ability to claim contract physician services when the physician’s other duties—besides being on-call—would be excluded as Part B time.

Worksheet S-3, Part II, Hours:  When employees or contracts are on-call, the hours aren’t reported if the person is off site. If the provider is only being paid to be on-call and doesn’t work a regular schedule, the contract information wouldn’t be reported as noted above. Furthermore, the instructions clarify that if the employee or contractor is actually called into work, the dollars and hours would be reported.

Worksheet S-3, Policy Section, Pension Plan:  For a hospital with a defined benefit pension plan that covers multiple entities, the hospital must report its own three-year average pension cost, i.e., each year the hospital’s allocated share of total plan contributions is calculated. This is a change that was effective this past year, but was added to the current transmittal instructions. The new transmittal provides several examples related to the pension plan computation.

If you have questions or need clarifications regarding guidance from the Medicare Administrative Contractor or would like to discuss further, contact your BKD advisor. We welcome the opportunity to answer questions or concerns.

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