Opinion ID: 75767
Heading Depth: 2
Heading Rank: 1

Heading: Overview of Programs

Text: 2 Medicare is a federal health insurance program designed to provide medical services, medical equipment, and supplies to persons 65 years of age and older and to blind and disabled persons. Congress established Medicare through Title XVIII of the Social Security Act, 79 Stat. 291 (1965) (current version at 42 U.S.C. §§ 1395-1395vv (1994)). The United States Department of Health and Human Services (HHS) funds and administers Medicare. The Health Care Financing Administration (HCFA), an agency within HHS, manages the Medicare program. Medicaid and the Civilian Health and Medical Program of the Uniformed Services (CHAMPUS) provide similar coverage, respectively, for the indigent and armed services retirees and dependents of active duty members. The three programs function essentially the same. To illustrate their function, we will discuss the Medicare program. 3 Medicare Part A covers the cost of hospital services and related care, and reimburses hospitals for services provided to its beneficiaries by means of a prospective payment system (PPS). Medicare groups standardized medical codes for patients, diseases, and procedures into diagnostic related groups (DRG) that provide the basis for PPS. The average cost of care for each DRG determines the reimbursement amount, rather than the actual cost of care to a beneficiary. A hospital that elects to participate in the Medicare Part A program is known as a provider. The provider enters into a contract with HCFA in which the provider agrees to conform to the provisions of the Social Security Act (SSA) and applicable sections of the Code of Federal Regulations (CFR) during its participation in the program. 4 Under the Medicare program, a provider files annual cost reports setting forth information and calculations identifying the Medicare costs that the hospital claims should be reimbursed by Medicare for that year. The cost reports include a certification that each cost report filed is true, correct, complete, and prepared from the books and records of the provider. The cost reports also contain an acknowledgment of the following statement: INTENTIONAL MISREPRESENTATION OR FALSIFICATION OF ANY INFORMATION CONTAINED IN THIS COST REPORT MAY BE PUNISHABLE BY FINE AND/OR IMPRISONMENT UNDER FEDERAL LAW. In preparing cost reports, providers often utilize outside accounting firms as consultants. 5 The cost reports allocate portions of overhead costs, such as employee salaries and benefits, supplies, and utilities to each of the reimbursable costs as administrative and general (A&G) costs. Medicare factors these A&G costs into the PPS/DRG reimbursement and administers the reimbursement throughout the fiscal year in periodic interim payments (PIPs). Other costs which secure real property or other capital assets, such as depreciation, interest on certain long term debt, and lease expenses, are capital related costs. Medicare reimburses capital costs in a different manner, and as a result, these costs are more financially beneficial to the provider. The breakdown and reclassification of certain capital costs occur in schedules known as worksheets A-6 and A-8 in the cost reports. 6 The providers file the cost reports with insurance companies that contract with HHS to be fiscal intermediaries (FI). The FI administers the Medicare program and distributes Medicare funds based upon the claims included by the providers in their cost reports. The FI is responsible for reviewing the cost reports and processing payment of claims. After an audit process, the FI's cost report review culminates in a Notice of Program Review (NPR), or final settlement. Both the FI and the provider have a three-year period in which to reopen a cost report in order to make changes. In the event of a claims dispute between the FI and the provider, the provider can either appeal an audit adjustment, or claim the disputed cost. If the provider claims the disputed cost, it must disclose to the FI the claimed item in the cost report itself, on the protest line or the settlement page, or in the transmittal letter that accompanies the filed cost report.