Reimbursement Services



Hospital Management Services (HMS) has been providing a full range of Medicare reimbursement services to Acute Care Hospitals, Skilled Nursing Facilities and Home Health Agencies for over 40 years. Since 1969, HMS has provided services to over 175 acute and skilled nursing hospitals, ranging in size from 13 beds to 2000 beds where the facility complexity ranges from the simple general acute hospital to one providing an all encompassing range of intensive care and routine care daily nursing and diagnostic services coupled with a complex structure of administrative support departments located on multiple campuses.

In addition to cost reporting we have assisted clients in response to Medicare Audits and Appeal challenges including Medicare disproportionate share (DSH) Eligible Days verification, Improving the accuracy of Medicare Bad Debt Logs, Establishing internal systems to assist in the monthly recording of Medicare contractuals and looking ahead at the financial picture to be sure the next fiscal period data will be accurate.

We have extensive experience in the Medicare appeal process. We believe the best approach to appeals is to be certain our clients completely understand the process to resolve disagreements resulting from audit adjustments in their cost report. We work hard to provide each client with a full understanding of the financial implications of the appeal, the commitment and timing necessary to be successful and to weigh the benefits against the “total” cost (both in time and dollars) of the appeal.

When the commitment to proceed is made, we work hard to fully prepare documentation to support the client’s position and exhaust all possible administrative resolution and mediation processes prior to taking an appeal to a hearing at the Provider Reimbursement Review Board (PRRB), thereby minimizing the expense of the appeal process.

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MEDICAID (MEDI-CAL in California)

Hospital Management Services (HMS) has been providing Medi-Cal reimbursement services concurrently with Medicare. Our expertise can help a client with monitoring the complex relationships encountered when non-contracting with Medi-Cal, where the client has financial exposure from a “cost based” reimbursement relationship, subject to caps through Maximum Inpatient Reimbursement Limitation (MIRL) and Peer Group Inpatient reimbursement Limitation (PIRL) requirements and the collateral impact to Medicare DSH when non-contracting options are used.

For the contracting facility our expertise gives us the ability to help clients monitor the costs benefits from operating their facility to the ever increasing pressure of providing care to a growing under-insured / un-insured patient population.

The appeal process under Medi-Cal is greatly abbreviated from the process under Medicare and regulatory time restrictions are much shorter than Medicare requiring a quick response to a finalized cost report. The Medi-Cal appeal process is basically two levels, the Informal Hearing, where a Hearing Auditor hears verbal argument and reviews documentation to support a change to an adjustment and then renders a decision based solely upon the documentation. Challenges to rules or regulations are not heard at the Informal Hearing level. The second appeal level is the Formal Hearing. At this level the validity and application of law is heard by a judge and a decision is rendered that can result in a facility being allowed to claim costs or use a special cost finding process in their cost report.

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Non-Crossover Bad Debts:

The audit of non-crossover bad debts for inconsistent collection efforts is one of the most complex and perplexing areas of reimbursement.

Intermediary Auditors have taken inconsistent positions on what defines inconsistency and under what circumstances these bad debts should be allowed. Not only has the position been inconsistent between Fiscal Intermediaries (FI) but also between individual audit managers within a single FI. The unfortunate part of this whole issue is the root definition of “inconsistent”. When appealing for this issue to try and subsequently claim these bad debts is by the very definition inconsistent. We believe the only route available to reverse an inconsistent finding is to disprove the perceived inconsistency seen by the Auditor. This can be very difficult; however, HMS believes that if the Client is willing to dig through the documentation and develop the data to prove the point then an appeal should be filed.

Historically our clients have had a very difficult time producing the detailed information to successfully appeal non-crossover bad debts. Additionally, the FI was unwilling to reopen or resolve through mediation these claims forcing the issue to the PRRB. Unless the dollar amount involved is significant the Client may decide not to spend the dollars necessary to take the appeal to the PRRB because the expense would meet or exceed the dollar benefit from a successful appeal.

For the hospital desirous of claiming non-crossover bad debts in the future there must be strict adherence to the hospital’s bad debt policy. This policy must be implemented “blindly” to the financial classification of every patient. In addition there must be a strict adherence to the policy implemented by the collection agency as well for all patients including Medicare. One other element must be followed before claiming Medicare non-crossover bad debts on the cost report, and that is all (both Medicare and non Medicare) patient collection activity must be returned to the hospital from the collection agency confirming the account has been deemed uncollectable. The mere act of having the collection agency mark or code these bad debt accounts as inactive and/or uncollectable, retaining the account data on their system for “skip-trace” does not satisfy the Medicare requirement to deem an account as uncollectable.

The most common error resulting in an auditor finding “inconsistent” collection effort is in the collectors’ failure to adequately document all collection activity in the patient financial record. If the Medicare auditor samples your non-crossover listing and finds just one error in failing to follow your policy then all non-crossover bad debts can be eliminated from the cost report. As an example, your policy may say you make 3 phone calls and send out 3 notices. Let’s say only one phone call is made and it’s a wrong number. This is recorded in the patient financial file. A notice is sent out. A second notice is sent out and it is returned as a bad address but the returned letter is not documented in the patient financial file. A third notice is not sent since the second notice was returned. Because the file does not contain a narrative and time line of all collection efforts this sample Medicare non-crossover bad debt would be denied by the Medicare auditor.

In logging the Medicare non-crossover bad debts we provide our clients with an Excel spreadsheet that captures all of the columnar information necessary to meet the intermediary’s requirement for listing.

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Crossover Bad Debts

Medicare crossover bad debts are relatively easy to capture.

This process is a matter of logging information off of the Medi-Cal (Medicaid) remittance advice (RA). The requirements for what is to be included is spelled out on an Excel spreadsheet we provide our clients. In addition to that information taken from the Medi-Cal (Medicaid) RA, the log must show the Medicare RA date for each patient listed and the date the account was written off on the hospital records.

All bad debt information (the logs you keep) is to be submitted electronically to the Medicare Administrative Contractor (MAC)/FI. Once we have received a copy of the electronic submission (the log) we take it through a scrubbing process looking for errors and inconsistencies. These errors are sent back to the hospital for correction. Examples of errors might be Medi-Cal (Medicaid) RA dates outside the fiscal year in question, the write-off date outside the fiscal year, the bad debt amount is greater than the combined total of the patient’s deductible and coinsurance, a larger than normal amount being claimed as a bad debt, missing Medicare RA dates, wrong Remittance Advice Details (RAD) codes, etc.

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HMS has subscribed to “ShareFile” by Citrix, a more secure method of transferring sensitive information, such as Protected Health Information (PHI).  To utilize this service, our clients submit a request to their HMS representative.  Please do not email PHI information to HMS or anyone else unless it is in an encrypted manner.

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The initial number of Medi-Cal days to be used in the “As Filed” Medicare cost report is based upon data from hospital records. This data is compared to prior year audited and/or filed cost reports to insure the level of Medi-Cal activity appears appropriate.

The identification of eligible Medicare disproportionate share (DSH) days is a multi-step process.


Complete the re-verification of Medicare DSH Eligible Days thirteen (13) months after the fiscal year end.

This process will require the Hospital supplying Hospital Management Services (HMS) a download of specific data for all inpatients during the fiscal year in question. The gathering and handling of this data is highly confidential and, therefore, must adhere to the strictest of security. HMS has a secure file transfer system on its website. The use of this system must be prearranged, via a written agreement, between our clients and HMS. If you are an HMS client, please contact your HMS representative for further information on this service.

The data elements consist of such items as a list of every patient (last name and first name) who received inpatient services during the year in question, their dates of service, their social security number, Medi-Cal ID number, date of birth, and gender.


The patient data is then submitted by HMS to the State of California for matching to Medi-Cal eligibility information.


When the State sends the response file to HMS, we then “scrub” (review for errors and inconsistencies) the data to re-determine the number of Medicare DSH eligible Medi-Cal (Medicaid) days.


After “scrubbing” it may be necessary to resubmit the data back to the State for another pass through their data base to insure a maximum level of accuracy. This “scrubbed” data and response file are then provided to the Hospital’s Medicare intermediary for purposes of finalizing the cost report.

It is at this point we believe that the Hospital and HMS will have accounted for the significant majority of Medicare DSH eligible days. If there are any additional days to be gleaned from more intense “scrubbing” of the data beyond this point we believe it is a better use of time and resources to engage a specialty firm on a contingency basis, to collect any additional days or for appealing the determination of the Supplemental Security Income (SSI) ratios.

Our prior successes have resulted in over $1,000,000 of additional reimbursement coming to one hospital from additional days realized through the re-verified day process.

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Some of our clients qualify for Medi-Cal disproportionate share (DSH). Some of our clients come close to qualifying.

Those acute care hospitals who serve a large population of Medi-Cal patients are entitled to additional compensation from the State of California if they meet one of two criteria. To qualify the hospital must have a ratio of Medi-Cal patients to total patients in excess of 40% plus one standard deviation from the mean (usually around 40.7 %). If the hospital does not qualify based on patient days then they may qualify based on a percentage of net revenue. In this case the total net revenue paid on behalf of Medi-Cal patients plus indigent care activity divided by the total net revenue of the hospital must equal or exceed 25%.

The calculations are cumbersome and complex. We have taken the trouble to replicate the calculations in an effort to determine if our clients qualify or not. If they do not qualify we go back over the facilities disclosure report to evaluate the classification of information in determining the proper placement of that information to see if any such changes would change the hospital’s status in qualifying for Medi-Cal DSH or not.

This reevaluation of the placement of financial information within the Office of Statewide Health Planning and Development (OSHPD) disclosure report may also increase the amount of reimbursement as well to the hospital.

The calculation is based on the hospital’s disclosure report. Information is extracted from that report and to that information is added payments made to the hospital from Electronic Data Services (EDS) and from Health Maintenance Organizations (HMOs) on behalf of Medi-Cal patients for gross program revenue, net amount paid and patient days. An example as to the workings, a hospitals 2008 disclosure report will be used in the Medi-Cal DSH payments for the States 2010-2011 fiscal year. The EDS and HMO information comes from the calendar year (regardless of the hospital’s fiscal year) 2009. The logic of mixing and matching may appear illogical but that is the way it was developed.

Assuming the hospital qualifies for Medi-Cal DSH, we go to the next step. The calculation also looks at how much the hospital was paid (this would be net cash payments) from Medi-Cal and indigent and cash paying patient activity. That number is matched up against the percentage of gross revenue from Medi-Cal activity plus that of indigent and cash paying patients to total gross revenue of the hospital. That percentage is then multiplied times the total patient care related expenses. This expense is then subtracted from the cash collected to determine if the hospital realized a profit in treating these classes of indigent patients. This is referred to as the OBRA limit (The Omnibus Budget Reconciliation Act of 1993 [OBRA 93]) added section 1923(g) of the Act to require that states pay no more in DSH payments than 100 percent of each hospital’s uncompensated care costs.

If there is a profit then there is no Medi-Cal DSH due the hospital even if the hospital qualifies for DSH. On the other hand, if there is a loss then the Medi-Cal DSH cannot exceed the amount of this loss.

On behalf of our clients, when we finish preparing the OSHPD disclosure report we run the Medi-Cal DSH calculation to see if the hospital qualifies or is close to qualifying. If the hospital qualifies or is close to qualifying we review the calculation with the client in making sure all information is in its proper place in order that the hospital is in a position to receive the maximum payment they would be entitled to receive.

The regulatory aspects are found in the Welfare & Institutions Code Section 14105.98. The W & I Code can be found on the internet at the portion dealing with Medi-Cal DSH can be found under Division 9, Part 3, Chapter 7, Article 3 entitled “Administration”.

The most current Medi-Cal DSH Eligibility List, Formulas for Medicaid Utilization Rate (MUR), Low Income Utilization Rate (LIUR) and OBRA Limit can be found at

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In certain sets of circumstances a hospital may choose not to contract with Medi-Cal.

In making such a choice there are a number of factors one must be aware of before making that decision. We at Hospital Management Services can help you in that process. But there are numerous items to consider.

When terminating a contract with Medi-Cal you will be switching from being paid a per diem to being paid a percent of charges. At the end of the year you will be paid Medi-Cal’s share of your “reasonable” and “necessary” cost via the Medi-Cal information off of the Medicare cost report. Thus it is important in going back to the days of cost based reimbursement to accurately classify your expenses and accurately record your statistics for cost allocation purposes.

When terminating your contract with Medi-Cal be aware that anytime you increase your charges greater than any increase in patient expenses you are going to be over paid by Medi-Cal and thus owe money back to the program. Medi-Cal is not aware of your changes in revenue and therefore does not adjust your rate of pay to match their share of your costs. For this reason it is wise to prepare an interim cost report to determine just how much have you been over paid or under paid.

One of the biggest factors will be your decrease in Medi-Cal patient days. No longer will elective services be provided to Medi-Cal patients at your facility as they will be directed by the program to other facilities in your area. This will have an impact on your Medicare disproportionate share (DSH) calculation. Thus part of the evaluation in making the switch from contract to non-contract will be the increase in payments from the program as you would be receiving more from Medi-Cal on a cost based reimbursement than under contract (otherwise why make the switch) plus the decrease in Medicare DSH, versus a per diem rate (lower than your cost per day) plus a higher Medicare DSH.

Another factor will be whether or not you will be hit with the PIRL calculation set forth in the California Administrative Code, Title 22, section 51546 which states:

“(a) For provider fiscal periods beginning on or after the effective date of this section, reimbursement for in-state hospital inpatient services provided to Medi-Cal program beneficiaries not fully covered by a negotiated contract as allowed in W& I Code Section 14081, shall be the least of the following four items except as stated in (b), (d), (f), (g), and (h) for each provider:

(1) Customary charges.

(2) Allowable costs determined by the Department, in accordance with applicable Medicare standards and principles of cost based reimbursement, as specified in applicable parts of 42 Code of Federal Regulations (CFR), Part 413 and HCFA Publication 15-1.

(3) All-inclusive rate per discharge limitation (ARPDL).

(4) The peer grouping rate per discharge limitation (PGRPDL).

(b)The following adjustment shall be made to items (1) and (4) above:

(1)Providers shall also be reimbursed for disproportionate share payments if applicable.

(2)The least of the four items listed in (a)(1) –(4) above shall be reduced by the amount of third-party liability.

(c)Amounts determined under (3) or (4) above may be increased only by an AA or appeal.

(d)New hospitals and rural hospitals shall be exempt from the provisions of this Article relating to the MIRL and PIRL. New and rural hospitals shall be reimbursed in accordance with the lessor of subsection (a)(1) or (a)(2) above, and subject to any limitations provided for under federal law and/or regulation.

(e)Each provider shall be notified of the ARPDL and PGRPDL at the time of tentative and/or final PIRL settlements. If only a final PIRL settlement is issued, it shall take the place of both the tentative and final PIRL settlement.

(f)Payments for Medicare covered services provided to Medicare/Medi-Cal crossover patients shall not be subject to the limitations specified in this section. These services shall be reimbursed only for the Medicare deductibles and co-insurance amounts. The deductibles and co-insurance amounts shall not exceed the state reimbursement maximums. State reimbursement maximums shall be the interim rate times charges after consideration of the Medicare payment.

(g)Payment for skilled nursing facility services shall be made in accordance with Section 51511.

(h)Payment for intermediate care facility services shall be made in accordance with Section 51510.

(i)Payment for transitional inpatient care administrative days shall be made in accordance with Section 51542.

(j)Payment for transitional inpatient care days shall be made in accordance with Section 51511.3.

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