Cost to Charge Ratios

20.1.2.1 - Cost to Charge Ratios (Rev. 12594; Issued:04-26-24; Effective: 10-01-24; Implementation:10-01-24) For discharges before August 8, 2003, Medicare contractors used the latest final settled cost report to determine a hospital’s cost-to-charge ratios (CCRs). For those hospitals that met the criteria in part I. A. of PM A-03-058 (July 3, 2003), effective for discharges occurring on or after August 8, 2003 Medicare contractors are to use alternative CCRs rather than one based on the latest settled cost report when determining a hospital’s CCR (to download PM A-03-058, visit our Web site at http://www.cms.gov/Regulations-and- Guidance/Guidance/Transmittals/CMS-Program-Memoranda. https://www.cms.gov/regulations-and- guidance/guidance/transmittals/downloads/a03058.pdf). For all other hospitals, effective October 1, 2003, Medicare contractors are to use CCRs from the latest final settled cost report or from the latest tentative settled cost report (whichever is from the later period) to determine a hospital’s operating and capital CCRs. A. - Calculating a Cost-to-Charge Ratio For IPPS outlier calculations, Medicare’s portion of hospital costs is determined by using hospital specific cost-to-charge ratios (CCRs). At the end of the cost reporting period, the hospital prepares and submits a cost report to its Medicare contractor, which includes Medicare allowable costs and charges. The Medicare contractor completes a preliminary review of the as-submitted cost report and issue a tentative settlement. The cost report is later final settled, which may be based on a subsequent review, and an NPR is issued. The Medicare contractor shall update the PSF using the CCR calculated from the final settled cost report or from the latest tentative settled cost report (whichever is from the later period). The following methodology shall be used to calculate a hospital’s operating and capital CCRs for cost reports using Form CMS-2552-2010: Inpatient PPS Operating CCR 1) Identify total Medicare inpatient operating costs from the Medicare cost report, from Worksheet D-1, Part II, line 53. (If a positive amount is reported on line 42 for nursery costs, subtract this amount on line 42 from the amount on line 53). 2) Identify total Medicare inpatient operating charges (the sum of routine and ancillary charges), from Worksheet D-3, column 2, the sum of lines 30 through 35 and line 202. 3) Determine the Inpatient PPS operating CCR by dividing the amount in step 1 by the amount in step 2. Inpatient Capital CCR 1) Identify total Medicare inpatient capital cost from Worksheet D Part 1, column 7, sum of lines 30 through 35, plus Medicare inpatient ancillary capital costs from Worksheet D Part II, column 5, line 200. 2) Identify total Medicare inpatient capital charges (the sum of routine and ancillary charges), from Worksheet D-3, column 2, the sum of lines 30 through 35 and line 202. 3) Determine the Inpatient PPS capital CCR by dividing the amount in step 1 by the amount in step 2. B. - Use of Alternative Data in Determining CCRs For Hospitals Effective August 8, 2003, the CMS Central Office may direct Medicare contractors to use an alternative CCR if CMS believes this will result in a more accurate CCR. Also, if the Medicare contractor finds evidence that indicates that using data from the latest settled or tentatively settled cost report would not result in the most accurate CCR, then the Medicare contractor shall notify the CMS Regional Office and CMS Central Office to seek approval to use a CCR based on alternative data. For example, CCRs may be revised more often if a change in a hospital’s operations occurs which materially affects a hospital’s costs and/or charges. The CMS Regional Office, in conjunction with the CMS Central Office, must approve the Medicare contractor’s request before the Medicare contractor may use a CCR based on alternative data. Revised CCRs will be applied prospectively to all IPPS claims processed after the update. Medicare contractors shall send notification to the Central Office via email at outliersIPPS@cms.hhs.gov. C. - Ongoing CCR Updates Using CCRs From Tentative Settlements For Hospitals Subject to the IPPS The Medicare contractor shall continue to update a hospital’s operating and capital CCRs (in the Provider Specific File) each time a more recent cost report is settled (either final or tentative). Revised CCRs shall be entered into the Provider Specific File not later than 30 days after the date of the latest settlement used in calculating the CCRs. Subject to the approval of CMS, a hospital’s operating and/or capital CCR may be revised more often if a change in a hospital’s operations occurs which materially affects a hospital’s costs or charges. A revised CCR will be applied prospectively to all hospital claims processed after the update. D. - Request for use of a Different CCR by CMS, the Medicare Contractor or the Hospital Effective August 8, 2003, CMS (or the Medicare contractor) may specify an alternative CCR if it believes that the CCR being applied is inaccurate. In addition, a hospital will have the opportunity to request that a different CCR be applied in the event it believes the CCR being applied is inaccurate. The hospital is required to present substantial evidence supporting its request. Such evidence should include documentation regarding its costs and charges that demonstrate its claim that an alternative ratio is more accurate. After the Medicare contractor has evaluated the evidence presented by the hospital, the Medicare contractor notifies the CMS regional office and CMS Central Office of any such request. The CMS Regional Office, in conjunction with the CMS Central Office, will approve or deny any request by the hospital or Medicare contractor for use of a different CCR. Medicare contractors shall send requests to the CMS Central Office via email at outliersIPPS@cms.hhs.gov. E. - Notification to Hospitals Under the IPPS of a Change in the CCR The Medicare contractor shall notify a hospital whenever it makes a change to its CCR. When a CCR is changed as a result of a tentative settlement or a final settlement, the change to the CCR can be included in the notice that is issued to each provider after a tentative or final settlement is completed. Medicare contractors can also issue separate notification to a hospital about a change to their CCR(s). F. - Hospital Mergers, Conversions, and Errors with CCRs Effective November 7, 2005, for hospitals that merge, Medicare contractors shall continue to use the operating and capital CCRs calculated from the Medicare cost report associated with the surviving provider number. If a new provider number is issued, as explained in §20.1.2.2 below, Medicare contractors may use the Statewide average CCR because a new provider number indicates the creation of a new hospital (as stated in 42 CFR 412.84 (i)(3)(i), a new hospital is defined as an entity that has not accepted assignment of an existing hospital’s provider agreement). For non-IPPS hospitals (e.g., long term care, psychiatric, or rehabilitation hospitals) that convert to IPPS status, or IPPS hospitals that maintain their IPPS status but receive a new IPPS provider number the Statewide average CCR may be applied to that hospital. However, as noted in part C above, the Medicare contractor or the hospital may request use of a different CCR, such as a CCR based on the cost and charge data from the hospital’s cost report before it converted to IPPS status, or received a new provider number. The Medicare contractor must verify the cost and charge data from that cost report. Use of the alternative CCR is subject to the approval of the CMS Central and Regional Offices. In instances where errors related to CCRs and/or outlier payments are discovered, Medicare contractors shall contact the CMS Central Office to seek further guidance. Medicare contractors may contact the CMS Central Office via email at outliersIPPS@cms.hhs.gov. If a cost report is reopened after final settlement and as a result of this reopening there is a change to the CCR, Medicare contractors should contact the CMS Regional and Central Office for further instructions. Medicare contractors may contact the CMS Central Office via email at outliersIPPS@cms.hhs.gov. G. - Maintaining a History of CCRs and Other Fields in the Provider Specific File When reprocessing payments due to outlier reconciliation, Medicare contractors shall maintain an accurate history of certain fields in the provider specific file (PSF). This history is necessary to ensure that claims already processed (from prior cost reporting periods that have already been settled) will not be subject to a duplicate systems adjustment in the event that claims need to be reprocessed. As a result, the following fields in the PSF can only be altered on a prospective basis: -23 -Intern to Bed Ratio -24 --Bed Size -25 -Operating Cost to Charge Ratio -27 -SSI Ratio -28 -Medicaid Ratio -47 -Capital Cost to Charge Ratio 49 - Capital IME and 21 -Case Mix Adjusted Cost Per Discharge. A separate history outside of the PSF is not necessary. The only instances a Medicare contractor retroactively changes a field in the PSF is to update the operating or capital CCR when using the FISS Lump Sum Utility for outlier reconciliation or otherwise specified by the CMS Regional Office or Central Office.