How to Complete NASHP’s Hospital Cost Tool
Updated April 20, 2021
All Medicare-certified hospitals are required to file an annual MCR, using the Centers for Medicare & Medicaid (CMS) 2552-10 format, comprised of a series of worksheets and schedules that describe a hospital’s characteristics, financial information, costs, and charges.
The MCR includes hospital utilization data, costs, and charges by cost centers and payers, related party and home office costs, and hospital reimbursements. In addition, it includes Medicaid costs, charges, and supplemental payments as reported by the hospital.
To gain access to a hospital’s MCR, there are five options:
- States may require hospitals to submit MCRs to specific state agencies. Each state is different, so an inquiry to the state agency that oversees hospital reporting will confirm if the MCR is filed with the state and if public access to the report is permitted.
- Individual hospital MCRs may be requested from Medicare administrative contractors through the Freedom of Information Act (FOIA). For more information on this process, visit the CMS FOIA
- CMS maintains MCR data in its Healthcare Provider Cost Reporting Information System (HCRIS), which is the only government national database available for all types of hospitals (nonprofit, for-profit, and government). Downloading hospitals’ cost report data in SAS dataset format is available from CMS here.
- Private businesses have also developed databases to house the HCRIS data, format MCRs, and provide analytics. A subscription fee is required and fees vary depending on access levels requested (e.g., a single hospital report or all hospital reports.)
Why Use the Medicare Cost Report?
MCRs are required filings for Medicare-reimbursable facilities, such as hospitals, skilled nursing facilities, home health agencies, home offices, hospices, rural health clinics, federally qualified health centers, and comprehensive outpatient rehabilitation facilities. The facility must complete and file a cost report on a yearly basis, due five months after its fiscal year end. NASHP’s Hospital Cost Tool (HCT) is designed for hospital reporting only, using CMS 2552-10 format.
The Medicare Payment Advisory Commission (MedPAC) is a non-partisan commission of 17 health care economists who examine and independently report on Medicare payment adequacy annually to Congress. The commission considers the relationship of Medicare’ payment to hospitals’ costs for both average and relatively efficient hospitals. The March 2021 MedPAC report reconfirmed that Medicare reimbursements on average cover a hospital’s variable costs, plus 8 percent. The report projects hospitals’ Medicare margin will increase in 2020-2021, as Affordable Care Act statutory reductions expire and Medicare sequestration is suspended during the first half of fiscal year 2021.
Critics of the MCR often argue that MCR reports disallow appropriate costs for hospitals. The rules rely on the basic definition of allowable costs as established in federal code, 42 CFR 413.9(c)(3). Only operating costs related to hospital patient care are reimbursable under the program. Furthermore, if operating costs include amounts for luxury items or services – more expensive than those generally considered necessary for the provision of needed health services – such amounts are not allowed.
The MCR instructions disallow these operating cost adjustments:
- Those needed to adjust costs to reflect actual costs incurred;
- Items that constitute recovery of expenses through sales, charges, fees, etc.;
- Items needed to adjust costs in accordance with the Medicare principles of reimbursement; and
- Items that are provided for separately in the cost apportionment process.
The largest disallowed cost may be physician costs, and the MCR places these costs in one of three buckets:
- Non-reimbursable services: (Medicare-disallowed)Research is the most common component as these services do not provide patient care and are usually reimbursed through other funding.
- Professional services to individual patients:(Medicare-disallowed) Professional service reimbursement is provided through other channels, such as resource-based relative value scale (RBRVS), Medicaid/Medicare fee schedules, and commercial network agreements, etc.
- Provider services that benefit hospital patients in general:(Medicare-allowed) General services may include emergency room, intensive care unit, and other areas of general care that are not reimbursed through another channel.
To address concerns of disallowed costs, the NASHP tool calculates the full spectrum of hospital costs. First, the tool calculates hospital break-even points for commercial payments to cover commercial patient costs (using cost-to-charge ratio) and any balance from government programs, charity care, care for the uninsured, and bad debt. Next, the model includes more break-even points to consider, including Medicare-disallowed costs and hospital non-operating income/expenses.
How to Fill Out the Tool
The tool’s Excel workbook has six tabs. Tabs 1 and 2 are reporting tabs only and do not require specific entries in their cells. Tabs 3 through 6 include fields for data input and calculation. Cells requiring data entry are shaded, with the MCR references to the right of the cell.
Tab 1 State Government: The purpose of this tab is to present an overview of hospital financial performance, as reported in the MCR, for state government agencies and decision-makers to utilize as a resource.
- Government Programs, Charity Care/Uninsured Payments, and Operating Costs
- Summary of payments, operating costs, and profit/loss for government programs.
- Payments received as a percentage of associated costs for government programs.
- Payer mix for government programs, shown as the percentage of each payer’s charges, compared to total hospital charges.
- Profit margin for each program, expressed as net profi/loss divided by total payments for the program.
- Charity Care, Bad Debt, Uninsured Payments, and Operating Costs
- Summary of payments, donations, operating costs, and profit/loss for charity care, bad debt, and uninsured.
- Payments received as a percentage of associated costs for the programs.
- Payer mix for the programs, shown as the percentage of each payer’s charges, compared to total hospital charges.
- Commercial Payments and Operating Costs
- Commercial includes all hospital business not included above, this includes commercial insurers, employer self-funded plans, federal employee health plans, Veterans Administration, self-pay, and TriCare, etc.
- Costs are calculated using the hospital cost-to-charge ratio (CCR) applied to the balance of charges after government programs, charity care, bad debt, and uninsured care.
- Patient revenue is calculated as the balance of net patient revenue reported, less government programs, charity care, bad debt, and uninsured care.
- Payments as a percentage of related costs is presented.
- Commercial payer mix represents the percentage of hospital services attributed to this segment.
- Profit margin is expressed as net profit/loss divided by payments.
- Additional Financial Information. Additional information from the MCR hospital-reported financial statement is included.
- Hospital reserves represent accumulation of hospital profits and losses, with related party distributions or receipts.
- Hospital operating income is calculated from net patient revenue, less hospital operating costs (including Medicare-disallowed operating costs).
- Hospital non-operating income represents income derived outside of standard operations, and may include investment income, related party distributions, donations, cafeteria income, etc.
- Hospital net income is the profit or loss remaining after including other income and other expense to operating income. Comparison to hospital operating income shows the amount of non-operating income/expense is attributed to the hospital.
- Profit margin represents the percentage of overall profit or loss for the hospital.
- Percentage of hospital operating costs for charity care costs – this calculation includes only the actual costs of charity care under the hospital’s policy.
- Percentage of hospital operating costs for bad debt and care for the uninsured – This calculation includes only the costs and does not include payer discounts.
- Wages and benefits as the percentage of operating costs represent the portion of operating costs that pertain to direct staffing.
- Overhead staffing costs as a percentage of total staffing costs.
- CCR is calculated to show what percentage of the chargemaster rates are the hospital’s actual costs of providing the services.
- Markup on cost is another way of expressing the CCR, by showing the percentage costs that make up chargemaster rates. A markup of 100 percent represents break-even and any amount above it represents charges in excess of costs.
- Inpatient occupancy rate is calculated from the total inpatient bed days utilized compared to total bed days available.
- Commercial payments for hospital break-even. Three scenarios are presented to show hospital break-even points. Allowance for hospital profit margins is in addition to the amounts calculated as break-even. The references below mirror the tool’s reporting data.
- Level 1 calculates commercial payments required to cover commercial hospital patient costs and government programs, charity care, and uninsured balances. Required payments are reported as total dollar amount; percentage of commercial patient hospital costs covered, and conversion to a multiple of Medicare rates (i.e., payment stated as a percentage to apply to the Medicare rates).
- Level 2 calculates commercial payments required to cover those listed in Level 1, plus disallowed MCR operating costs. Disallowed costs are adjusted to not include physician-direct professional services to individual patients or physician private offices, as those costs are reimbursements through other channels (RBRVS, fee schedules, etc.) Required payments are reported as total dollar amount, percentage of commercial patient hospital costs covered, and conversion to a multiple of Medicare (i.e., payment stated as a percentage to apply to the Medicare rates).
- Level 3 calculates commercial payments required to cover those listed in Levels 1 and 2, plus hospital other income and expenses. Required payments are reported as total dollar amount, percentage of commercial patient hospital costs covered, and conversion to a multiple of Medicare (i.e., payment stated as a percentage to apply to the Medicare rates).
- Supplemental information provided as informational only. As noted for Level 2, physician-direct professional services and physician private office costs are not included in the break-even calculation, as these costs are reimbursed through other payment channels not included in the MCR. Many hospitals include these costs in Medicare-disallowed costs, but do not include the related reimbursements. As additional information, the supplemental break-even calculation includes physician-direct professional services and physician private office costs that were included in the hospital’s MCR
Tab 2 Health Plan: The purpose of this tab is to serve as a resource for employee health plans to better understand hospital inpatient and outpatient break-even points to utilize in managing plan costs or negotiating with third-party administrators (TPAs), insurance carriers, or directly with hospitals. The MCR provides the inpatient and outpatient split for Medicare patient utilization only. This Medicare split was applied to Medicaid, a State’s Children’s Health Insurance Program (SCHIP), and other government programs, and charity care, bad debt, and uninsured patient care. The inpatient and outpatient split for commercial is calculated using the remaining inpatient and outpatient charges, applying the hospital CCR.
- Government programs, charity care, bad debt and uninsured payments, and operating costs:This provides a summary of payments, operating costs, and profit/loss for government programs, charity care, bad debt and uninsured, divided into inpatient and outpatient categories.
- Inpatient break-even analysis:Calculation of commercial required payments for inpatient services to allow hospital to break even for Level 1. Required commercial payments for inpatient services are reported as percentage of commercial patient costs and conversion to a multiple of Medicare (i.e., payment stated as a percentage to apply to the Medicare rates).
- Inpatient break-even analysis with full costs:Calculation of commercial required payments for inpatient services to allow hospital to break even for Level 3. Required commercial payments for inpatient services are reported as a percentage of commercial patient costs covered and conversion to a multiple of Medicare (i.e., payment stated as a percentage to apply to the Medicare rates).
- Outpatient break-even analysis:Analysis for outpatient services, using the format presented for inpatient section of this tab.
- Outpatient break-even analysis with full costs:Analysis for outpatient services, using the format presented for the inpatient section of this tab.
- Blended inpatient and outpatient analysis:Analysis for weighted inpatient and outpatient. The tool’s Health Plan tab, Cell C61 will tie to State Government tab, Cell B49.
- Blended inpatient and outpatient with full costs: Analysis for weighted inpatient and outpatient. Health Plan tab, Cell B69 will tie to State Government tab, Cell B68.
Tab #3 Medicare Data Entry
To alleviate confusion between the MCR and the tool’s fields, the references will note MCR for the Medicare Cost Report and will note the HCT for NASHP’s Hospital Cost Tool. HCT cells requiring data entry are shaded in green, with the MCR reference to the right, identifying the specific MCR worksheet location for the data. For example, “Reserves” is found on Worksheet G-1, sum of columns 2, 4, 6, and 8 entries on Line 19.
|Financial Statement Items||Source (Medicare Cost Report)|
|Reserves||$ 3,090,127,907||Worksheet G-1, Sum of Columns 2, 4, 6, 8, Line 19|
Data is entered exactly as found in the MCR field. If the number includes a minus sign, then the minus sign is included in the workbook data entry. The formulas handle the calculations.
- Hospital Identification:
- HCT, Column B, Line 5 identifies the hospital’s name.
- HCT, Column B, Line 6 identifies the CMS Certification Number (CCN). The hospital will have a six-digit numeric identification number.
- HCT, Column B, Lines 7 through 14 capture additional hospital information for reporting and calculation purposes.
- Reserves, Revenue, and Net Income:
- Data entry from MCR G-Worksheets, which include the hospital’s financial statements.
- Data entry from MCR C-Worksheet, reporting Costs and Charges for the hospital facility, Costs divided by Charges = Cost to Charge Ratio (CCR), which will be utilized in HCT calculations.
- Medicare Program:
- Data Entry in HCT Columns 1–3 pertain to Medicare Inpatient payments and costs.
- Data Entry in HCT Columns 4–6 pertain to MedicareOutpatient payments and costs.
- Costs entered on HCT Line 31 – 37 (Inpatient) and Lines 31-34 (Outpatient) include only Medicare Allowed Costs.
- Inpatient and Outpatient payments are provided on MCR E-Worksheets. Hospitals will be classified by CMS depending on the payment method(s) utilized. The most common classifications are:
- PPS = Prospective Payment System
- IPPS = Inpatient Prospective Payment System
- CAH = Critical Access Hospital
- MDH = Medicare Dependent, Small Rural Hospital
- SCH = Sole Community Hospital
- A hospital may change from one classification to another during a reporting period. If so, the hospital reimbursements will be reported in more than one column (Column 1.0, 1.01, 1.02, etc.). Entering data, sum all the columns for the specified line number.
- There is one exception to summing the columns – MCR Worksheet E-2. Column 1 is used for Part A Inpatient and Column 2 is used for Part B Outpatient. The worksheet requires entry under separate sections for Inpatient and Outpatient.
- Medicare sequestration is a penalty created during The Budget Control Act of 2011, reducing reimbursements by 2 percent. HCT worksheets identify Medicare revenue streams, with reductions for sequestration.
Tab 4 Medicaid and Other Program Data Entry: MCR Worksheet S-10 includes all data points to complete Tab 4. The hospital is required to complete this worksheet, including CMS supplemental payments, donations for charity care, accurate calculation of uncompensated care at cost (not charges), and reporting for Medicare bad debts.
- Data entry for Medicaid program financial information.
- Medicaid Supplement Payments are funded by CMS and states. The number is self-reported by the hospital. In some states, it is possible to verify the number by contacting the specific state agency that oversees the Medicaid program.
- State Children’s Health Insurance and Other State and Local Programs:
- Data entry for SCHIP and other state and local programs for low income financial information.
- Charity Care:
- Data entry for Charity Care financial information.
- Bad Debt and Uninsured:
- MCR includes information related to the hospital’s costs for bad debt and uninsured, services for which the hospital was not compensated. This does not include the discounts provided to government programs or commercial payers, as actual payment was rendered at the contracted amount. Related charges are calculated using the hospital CCR.
Tab 5 Payer Mix Calculations: The purpose of the HCT worksheet is to perform the calculations needed for the Reporting tabs.
- Data Entry for Inpatient and Outpatient Charges, for both Medicare Program and the hospital complex in total.
- Calculation of Payer Mix based on percentage of charges calculated through data entry in Cells B4 through B18.
- Calculation of percentage of Costs covered by Payments.
- Calculations of allocation percentages for Charges, Costs and Payments. MCR does not include the IP/OP Split for other payers, so HCT applies the Medicare allocations to the other payers.
- Calculation of Payer Mix based on percentage of charges; Calculation of Cost to Charge Ratio for Medicaid; Charges, Costs, and Payments (Including Supplemental Payments) from data entered in Medicaid & Other Data Entry Tab; Allocation of IP/OP split using Medicare allocations.
- Calculation of percentage of Costs covered by Payments.
- SCHIP and Other Low-Income Programs:
- Calculation of Payer Mix based on percentage of charges; Calculation of Cost-to-Charge Ratio for SCHIP and Low-Income Programs; Charges, Costs, and Payments from data entered in Medicaid and Other Data Entry Tab; Allocation of IP/OP split using Medicare allocations.
- Calculation of percentage of Costs covered by Payments.
- Charity Care:
- Calculation of Payer Mix based on percentage of charges; Calculation of Cost to Charge Ratio for Charity Care; Charges, Costs, and Payments from data entered in Medicaid and Other Data Entry Tab; Allocation of IP/OP split using Medicare allocations.
- Calculation of percentage of Costs covered by Payments.
- Bad Debt/Uninsured:
- Charges calculated by applying overall Hospital CCR to reported Costs; Charges and Costs from data entered in Medicaid & Other Data Entry Tab; Allocation of IP/OP split using Medicare allocations.
- Because Bad Debt/Uninsured will not have payments, the results will be 0 percent, but are calculated only for reporting.
- Commercial: Commercial includes all payers not captured above, so includes commercial insurers, employer self-funded plans, Federal Employee Health Plans, Veterans Administration, Self-Pay, TriCare, etc.
- Calculation of payer mix is based on percentage balance of charges after Medicare, Medicaid, SCHIP, Other Low Income Programs, Charity Care and Bad Debt/Uninsured charges are subtracted from Total Charges.
- Calculation of costs is the result of applying the CCR ratio to the calculated Commercial Charges.
- Allocation of IP/OP split using Medicare allocations.
- Commercial Payments are calculated to tie to “Net Patient Revenues” recorded on Worksheet G-3, less payments received by Government Programs, Charity Care, Bad Debt/Uninsured.
- For break-even calculations, amounts are captured for balance of Unallocated Medicare Allowed Operating costs, Medicare Disallowed Costs (excluding Physician Direct Care costs, Excess over RCE limits, and Physician Office Costs), and Hospital Other Income and Expenses.
- Plus, inclusion of Hospital Other Income and Income for Total Costs.
- A reconciliation is automatically calculated to ensure calculated costs equal the Hospital reported Operating Costs.
Tab 6: Additional Data: The purpose of Additional Data tab is to capture summary information of MCR allowed and disallowed costs to support the various levels of break-even payment calculations.
- Data Entry: All data for this tab is entered under this section in Cells B5 through B29.
- Adjusted MCR Disallowed Costs:
- An adjustment is entered to reduce Disallowed Costs for physician direct services to individual patients and physician private office costs.
- Check Figures and Reconciliations are included to insure the workbooks balance. All yellow highlighted cells should show zero.
|Bad Debt/Uninsured||Costs for insured and uninsured patients determined to be uncollectible. Does not include discounts given to Commercial/Other, nor the difference between Charges and Fee Schedule or negotiated amounts for Government Programs. Medicare program pays the hospital 70 percent of allowable Medicare patient bad debt, so these hospital costs are not included as Bad Debt/Uninsured, as the 70 percent has been paid.|
|Break-even||Revenues and expenses are equal, for $0 profit. Break-even points are commonly used when setting prices, determining an appropriate mark-up over break-even point for profit.|
|Charges||Total of chargemaster rates for services provided by the hospital during a reporting period. Chargemaster rates are set by hospitals.|
|Charity Care||Hospital services provided to patients qualifying for care under the provisions of the Hospital’s Charity Care Program. Charity Care Costs are calculated by applying CCR to Charity Care Charges. Payments made under the Hospital’s Program and Donations are classified as Payments.|
|CMS||Centers for Medicare & Medicaid Services|
|Commercial/Other||Private payers, includes commercial insurers, employer self-funded plans, federal employee health plans, Veterans Administration, self-pay, TriCare, etc.|
|Cost-to-Charge Ratio (CCR)||Costs divided by charges. Result indicates the percentage of charges that are costs.|
|Costs||Total costs for patient services and hospital operations for a specific reporting period. May also be called operating costs or expenses.|
|Inpatient (I/P)||Procedures requiring patient to be admitted to hospital. Medicare Part A payments and benefits pertain to inpatient care.|
|Markup on Costs for Charges||Using the cost-to-charge Ratio, the calculation divides the difference between charges and costs (markup) by the costs. The result is the percentage a costs are marked-up to balance to charges.|
|MCR||Medicare cost report. Hospitals participating in the Medicare program must file annual cost reports. (42 U.S.C. § 1395g; 42 C.F.R. § 413.20(b). Since May 1, 2010, CMS reporting format 2552-10 is utilized for the cost report submission.|
|MCR-Allowed Costs||Hospital operating costs that are eligible for reimbursement per Medicare federal regulations.|
|MCR-Disallowed Costs||Hospital operating costs that are not eligible for reimbursement per Medicare federal regulations.|
|Multiple of Medicare||Payment is shown as a multiple of the associated Medicare rate.|
|Outpatient (O/P)||Procedures that do not require hospital admission and may also be performed outside the premises of a hospital. Medicare Part B payments and benefits pertain to outpatient care.|
|Payer Mix||Hospital services consumed by different payers, with 100 percent representing total hospital services. Charges reported for payer types are used for calculating payer mix.|
|Percentage of Costs covered by Payments||Specific payer or procedure payment divided by related costs to determine percentage of costs covered by payment.|
|Profit Margin||Net Income/Loss divided by Revenue (Payments). Represents the percentage of Revenue (Payments) that is profit.|