How to Complete NASHP’s Hospital Cost Tool
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 cost, charges, and supplemental payments as reported by the hospital.
To gain access to a hospital’s MCR, there are five possible options:
- States may require hospitals to submit their MCRs to a state agency. Each state is different, so an inquiry with the specific 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 via the Freedom of Information Act (FOIA). For more information on this process, visit the CMS FOIA page.
- CMS maintains MCR data in the 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 data in SAS dataset format is available from CMS here.
- Nonprofit associations or organizations, such as the National Bureau of Economic Research (NBER), have developed their own databases from HCRIS data. Additional information on NBER access is available 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 annually examine and independently report to Congress on Medicare payment adequacy. The commission considers the relationship of Medicare’ payment to hospitals’ costs for both average and relatively efficient hospitals. The March 2020 MedPAC report noted Medicare reimbursements are intended to cover the hospital’s variable costs, plus 8 percent.
Critics of the MCR often argue that MCR reports disallow appropriate costs for the hospital. The rules rely on the basic definition of allowable costs set 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 summarize disallowed operating cost adjustments as follows:
- 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. The model then includes more break-even points to consider, including Medicare unallocated costs, 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, not requiring specific entry 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 profit/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 and bad debt/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/Other Payments and Operating Costs
- Commercial/Other includes all hospital business not included in the two above, so 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/care for the uninsured. Patient revenue is calculated as the balance of net patient revenue reported, less government programs, charity care/bad debt/care for the uninsured payments.
- Payments as a percentage of related costs is presented.
- Commercial/Other 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/losses.
- Hospital operating income is calculated from net patient revenue, less hospital operating costs (including Medicare-disallowed operating costs).
- Hospital Net Income is the profit/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/loss the hospital received.
- Percentage of hospital operating costs for charity care costs. 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. Calculation includes only the costs and does not include payer discounts.
- CCR is calculated to show what percentage of the chargemaster rates are the actual costs of providing the services.
- Mark-up on cost is another way of expressing the CCR, by showing the percentage costs that makes up chargemaster rates. A mark-up of 100 percent represents break-even and any amount above 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. Four scenarios are presented to show hospital break-even points. Allowance for hospital profit margins are in addition to the amounts calculated as break-even. The references below mirror the tool’s reporting data.
- Commercial/Other payments required to cover Commercial/Other hospital patient costs and Government program/Charity Care/Uninsured balances. Required payments are reported as total dollar amount; percentage of Commercial/Other patient hospital costs covered; and conversion to a multiple of Medicare (i.e., payment stated as a percentage to apply to the Medicare rates).
- Commercial/Other payments required to cover those listed in section a., plus unallocated MCR operating costs. Because Commercial/Other costs are calculated using the Hospital’s CCR, there may be a negative or positive balance remaining in Medicare allowed costs. This section assumes this remaining balance is applied to Commercial/Other payment requirements. Required payments are reported as total dollar amount; percentage of Commercial/Other patient hospital costs covered; and conversion to a multiple of Medicare (i.e., payment stated as a percentage to apply to the Medicare rates).
- Commercial/Other payments required to cover those listed in sections a. and b., plus disallowed MCR operating costs. Disallowed costs are adjusted to not include professional services to individual patients, as related reimbursements are processed through other channels (RBRVS, fee schedules, etc.) Required payments are reported as total dollar amount, percentage of Commercial/Other patient hospital costs covered, and conversion to a multiple of Medicare (i.e., payment stated as a percentage to apply to the Medicare rates).
- Commercial/Other payments required to cover those listed in sections a., b., and c., plus hospital other income/expense. Required payments are reported as total dollar amount, percentage Commercial/Other patient hospital costs covered, and conversion to a multiple of Medicare (i.e., payment stated as a percentage to apply to the Medicare rates)
Tab 2 Health Plan: The purpose of this tab is to serve as a resource for employee health plans to 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, Children’s Health Insurance Program (SCHIP), and other government programs, and charity care/bad debt/uninsured patient care. The inpatient/outpatient split for commercial/other is calculated using the remaining inpatient/outpatient charges, applying the hospital CCR.
- Government Programs, Charity Care, and Bad Debt/Uninsured Payments and Operating Costs: This provides a summary of payments, operating costs, and profit/loss for government programs and charity care/bad debt/uninsured, divided into inpatient/outpatient categories.
- Inpatient break-even analysis: Calculation of Commercial/Other required payments for Inpatient services to allow hospital to break even covering commercial/other patient operating costs allowed by MCR and covering government program/charity care/bad debt/uninsured balances. Required commercial/other payments for inpatient services are reported as percentage of commercial/other 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/Other required payments for Inpatient services to allow hospital to break even covering related operating costs allowed by MCR and covering Government program/Charity Care/Bad Debt/Uninsured balances, Unallocated MCR costs, Disallowed MCR costs (adjusted for Professional services provided to individual patients, and hospital reported other income/expense Required Commercial/Other payments for Inpatient services are reported as percentage of Commercial/Other 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 format presented for Inpatient section of this tab.
- Outpatient Break-even analysis with full costs: Analysis for Outpatient services, using format presented for 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 B41.
- Blended Inpatient and Outpatient with full costs: Analysis for weighted inpatient and outpatient. The tool’s Health Plan tab, Cell B79 will tie to State Government Tab, Cell B45. The tool’s Health Plan tab, Cell B69 will tie to State Government tab, Cell B72.
Data Entry Tab: 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.
Tab #3 Medicare Data Entry
- 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. Additional numbers may be present for hospital segments that are reimbursed under separate MCR Worksheets E-3, Parts I though VII or not reimbursed. The identification number will utilize the hospital’s CCN number, with an alphabetic character in the third position. Additional numbers are not entered in the tool.
- HCT, Column B, Lines 7 through 14 capture additional hospital information for reporting 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 4–5 pertain to Medicare Outpatient payments and costs.
- Costs entered on HCT Line 30 and 31 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.
- The only exception to the above is MCR Worksheet E-2, where Column 1 is used for Part A Inpatient and Column 2 is used for Part B Outpatient. However, the same rule applies for Data Entry, in summing both columns for the specified line number.
|Worksheet E, Part A||Inpatient Services (Medicare Part A)|
|Worksheet E, Part B||Outpatient Services (Medicare Part B)|
|Worksheet E-3, Part I||Hospital utilizes services furnished by Outside Supplier, with reimbursement allowed under Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA)|
|Worksheet E-3, Part II||Hospital-Based Psychiatric Facility|
|Worksheet E-3, Part III||Hospital Based Rehabilitation Facility|
|Worksheet E-3, Part IV||Long Term Care Hospital|
|Worksheet E-3, Part V||Critical Access Hospital|
|Worksheet E-3, Part V1||Skilled Nursing Facility Services under Medicare Part A|
|Worksheet E-3, Part VII||All other Health Services covered under Titles V or XIX|
|Worksheet E-1, Part 2||Health Information Technology (HIT)|
|Worksheet E-2, Title V, XVIII, XIX||Swing Beds for CAH|
- 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.
- Children’s Health Insurance and Other State/Local Programs:
- Data entry for SCHIP and other state/local programs for low income financial information.
- Charity Care:
- Data entry for Charity Care financial information.
- Bad Debt/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 CCR for Swing Bed Calculations. CAH and SCH hospitals are compensated differently for swing bed utilization. MCR provides the costs for swing beds but does not provide the related charges. The appropriate CCR is calculated, using the General Routine Care Total Inpatient Costs and Charges from Worksheet C.
- Calculation of Payer Mix based on percentage of charges calculated from Cells B4 through B10; Allocation of Inpatient/Outpatient (IP/OP Split) for CCR, Costs and Payments from data entered in Medicare Data Entry Tab.
- 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.
- Swing Beds:
- Calculation of Charges applying CCR calculated in Cell B16 to reported costs; Calculation of Payer Mix; Inpatient Costs and Payments from data entered in Medicare Data Entry Tab.
- Calculation of percentage of Costs covered by Payments.
- 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 from cells included in Columns B through D, Lines 26 through 28.
- 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 from cells included in Columns B through D, Lines 26 through 28.
- 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 from cells included in Columns B through D, Lines 26 through 28.
- 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 from cells included in Columns B through D, Lines 26 through 28.
- Calculation of percentage of Costs covered by Payments. Because Bad Debt/Uninsured will not have payments, the results will be 0 percent, but are calculated only for reporting.
- Commercial/Other: Commercial/Other 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 % 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/Other Charges.
- Allocation of IP/OP split using Medicare allocations from cells included in Columns B through D, Lines 26 through 28.
- Calculation of payments is completed for several levels within the Payer Mix Calculation Tab and the Reporting Tabs. Commercial/Other Payments are calculated to include:
- Balance of “Net Patient Revenues” recorded on Worksheet G-3, less payments received by Government Programs, Charity Care, Bad Debt/Uninsured.
- Plus, balance of Unallocated Medicare Allowed Operating costs
- Plus, Medicare Disallowed Costs, adjusted for Physician Direct Care costs and Physician Office Costs.
- Plus, inclusion of Hospital Other Expense/Income for Total Costs.
- Worksheet Column D, Line 83 shows calculation of Total Costs. A reconciliation is automatically calculated on Lines 86-91, to ensure calculated costs equal the Hospital reported Operating Costs. Cell D91 will equal zero, noting the worksheet is in balance.
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.
- MCR Allowed Costs:
- Total Operating Costs are captured from the hospital reported income statement in Cell B29, with entries for Disallowed Costs and Non-Reimbursable Cost Centers to arrive at the total MCR Allowed Costs.
- HCT Worksheet Cell B33 includes a subtotal of the entries, which ties to MCR reference reported in Cell B25.
- HCT Worksheet Cell B36 includes a total of the entries, which ties to the MCR reference reported in Cell B26.
- Adjusted MCR Disallowed Costs:
- MCR Disallowed Cost Total is calculated as the difference between Hospital reported Operating Costs and MCR Allowed Costs.
- An adjustment is entered to reduce Disallowed Costs for Physician services to individual patients and Physician office costs. To calculate the model including these costs, enter zero in Cells B40 and B41. All formulas will then include these costs in allowed reimbursement calculation.
- MCR Other Income/Other Expense:
- Hospital Other Income/ Expense is populated from Medicare Data Entry Tab.
- A reconciliation to MCR Worksheet G-3 Net Income is included to ensure numbers tie. Cell B61 must equal zero, reconciling the entries on this tab with the reported Income Statement.
- 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 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.|
|Mark-up on Costs for Charges||Using the cost-to-charge Ratio, the calculation divides the difference between charges and costs (mark-up) 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.|