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TO: All Providers
FROM: CareFirst of Maryland, Inc.
DATE: September 1, 2001
SUBJECT: CMS Audit and Cost Report Settlement Expectations Program Memorandum A-01-82

The purpose of this bulletin is to advise providers as to CMS' (formally HCFA) expectations of how intermediaries will manage, audit and settle Medicare cost reports. The following are issues that directly effect providers with regard to filing and settling Medicare cost reports. These guidelines will become effective September 1, 2001.

Cost Report Submission

All providers are required to submit an acceptable Medicare cost report within 5 months of the cost reporting fiscal year end or 30 days after a valid PS&R is sent, whichever is later. If the provider fails to submit an acceptable cost report timely or if the cost report is rejected, all payments will be suspended and a demand letter issued for all previous payments.

An acceptable Medicare cost report means that all of the items in Part I of the Acceptability Checklist have been included in the submission. This includes:

From all providers filing electronic cost reports (ECRs):

1. A diskette of the ECR utilizing a CMS-approved vendor with the current specification date submitted.

2. An ECR that passes all Level 1 edits.

3. A submitted print image file of the cost report except when using CMS free software.

4. The certification page (Worksheet S) of the ECR file with the actual signature of an officer (administrator or chief financial officer).

5. An exact match of the encryption code, date and time for the ECR displayed on the certification page to that of the ECR file encryption code, date and time.

6. An exact match of the encryption code, date and time for the print image displayed on the certification page to that of the print image file encryption code, date and time except when using CMS free software.

7. For teaching hospitals, a complete Intern and Resident Information System (IRIS) diskette that will pass all IRIS system edits.

8. Agreement of the settlement summary on the electronic certification page with the settlement summary on the Medicare cost report produced from the electronic file.

9. A completed, signed and submitted Form HCFA-339 with an original signature.

From all other providers:

1. A completed and legible cost report on the proper forms.

2. A general information and certification page which includes the original signature of an officer (administrator or chief financial officer).

3. A completed, signed and submitted Form HCFA-339 with an original signature.

For all providers as appropriate, ensure that the items from Part II of the Acceptability Checklist are present. This includes:

1. Correctly updated graduate medical education (GME) per resident amounts.

2. All applicable documentation required per Form HCFA-2552-96 (Complete Exhibit A of the Acceptability Checklist to verify the submissions).

3. All required documentation per Form HCFA-339 (Complete Exhibit B of the Acceptability Checklist to verify the submission).

4. Documentation supporting exceptions to level 2 ECR and hospital cost report information system (HCRIS) edits.

5. A copy of the working trial balance.

6. A copy of the audited financial statements where applicable.

7. Where applicable, the supporting documentation for reclassifications, adjustments, related organizations, contracted therapists, and protested items.

The intermediary will reject a cost report package that does not contain all items identified above. If the last seven items above are not received with the cost report an additional 15 days will be given to submit the items. If the provider fails to provide the required documentation within this timeframe, the cost report will be rejected and the demand letter process will begin.

The intermediary will never accept a cost report package that is materially incomplete. Materially incomplete means any of the items 1-9 and 1-3 above and items 1-7 above that are not received in the time allowed.

Home Office Cost Statements

Home office cost statements must be submitted within 150 days of the chain home office’s fiscal year end. If the chain home office fails to submit a cost statement within that time frame, the chain home office will be notified of its failure to submit a cost statement and the servicing intermediaries will issue a demand notice requiring repayment of home office costs. The servicing intermediaries are required to reduce interim payments to the providers to reflect the disallowance of any home office costs.


Field Review Scheduling
When scheduling a field review (audit or focused review) the provider will receive an engagement letter from the intermediary a minimum of four weeks before the field review is to begin. The provider will be notified in the engagement letter of documentation that is required by the intermediary to conduct the field review. The engagement letter must include the following:

  • A list of the required documents that are to be made available by the provider on the first day of the audit.


  • Date of the entrance conference and a suggested time.


  • Projected time that the intermediary will need to conduct fieldwork at the provider location.


  • A request for a contact person from the provider for the field audit.


  • A tentative exit conference date that allows the intermediary sufficient time to review any additional documentation submitted by the provider after the pre-exit.


  • Notice to the provider that all documentation and records requested prior to and during the field work time must be given to the intermediary in a timely manner and that failure to produce the documentation will result in non-negotiable audit adjustments. As a general rule the intermediary will not honor any reopening requests for the “lack of documentation” adjustments nor will the intermediary administratively resolve any appeal request for the same "lack of documentation” adjustments. This policy has no impact on the normal provider appeal rights with the Provider Reimbursement Review Board.


CMS is mandating that the following policy be utilized for obtaining appropriate documentation from a provider during all audit or focused review fieldwork visits:

  • At the start of the field review, the intermediary will inventory the documentation submitted by the provider, noting any items missing from the initial engagement request. The intermediary will notify the provider in writing of all missing items and request that these items be made available as soon as possible. All additional documentation requests made during the field review will also be made in writing.

    NOTE:  If little or none of the requested information is available at the start of the field review, the intermediary will contact CMS to obtain approval to suspend provider payments.

  • Conduct an entrance conference with the provider explaining the purpose of the field audit and stress the need for cooperation especially concerning the release of documentation by the provider. The intermediary must also inform the provider that if supporting documentation is not received as a general rule the costs will be disallowed and the intermediary will not reopen the cost report for these adjustments after the notice of program reimbursement (NPR) is issued.


  • Schedule a pre-exit conference for the last day that the audit team will be conducting fieldwork. The intermediary should have made the provider aware of the adjustments that are proposed on a flow basis. A copy of all adjustments including those being proposed due to lack of documentation will be give to the provider. The intermediary will discuss all tentative adjustments with the provider. The provider will also be given a list of any outstanding documentation that was requested but has not been received to date. The provider will be informed that they will have 4 weeks to provide any additional documentation to the audit staff. An exit conference date will be established that will allow the intermediary sufficient time to review any additional documentation that the provider may submit. The pre-exit and exit conferences can be performed telephonically.


  • The intermediary will review any additional documentation that the provider submits within the 4-week timeframe. No documentation that is received after the timetable provided at the pre-exit conference will be considered, unless prior arrangements between the intermediary and provider have been made. Where appropriate the intermediary will make changes to the audit adjustments and prepare the final draft adjustment report for release to the provider at the exit conference. All providers must be given an exit conference unless the provider specifically waives the exit in writing.


  • All adjustments must be given at the exit conference. At this time, all adjustments are final and no further documentation will be considered for inclusion in the final settled and NPR'd cost report.


  • Within 75 days of the exit conference, the intermediary will issue an NPR and a final adjustment report to the provider.


The provider may still appeal any documentation-related issues to the Provider Reimbursement Review Board. The intermediary is to handle all other requests that do not relate to the “lack of documentation” issue described in this section, using your normal process.


Requesting Documentation Held by an Independent Auditor or CPA

  • When documentation lies not with the provider, but with an independent CPA firm, at CMS' direction, the intermediary is to insist that the provider obtain the information from the entity.

  • Since the law and regulations are directed to providers, not their auditors or CPA firms, CMS requires the provider to have the independent auditor release the documentation to the agency/intermediary/federal contractor. If the provider is not able to produce the documentation from the auditor, the intermediary will suspend payments until the documentation is provided, or disallow all of the provider's cost associated with the cost report under review if appropriate reimbursement can not be determined without the information.


Settlements

  • For all field reviews (audits and focused reviews), the NPR and final adjustment report are to be issued 75 days after the exit conference.

  • For non-field reviews, the NPR and final adjustment report are to be issued within 12 months of acceptance of the provider's cost report.

  • All reopened cost reports should be settled within 180 days of receipt of any remaining information/data necessary to resolve the issue. Under normal circumstances the provider should submit documentation within 60 days of notice from the intermediary.




NOTE: CMS has given all intermediaries 24-30 months from October 1, 2001 to achieve currency in settlement of all cost reports. As such, the above settlement guidelines, with the exception of settlement for re-openings, are being phased in over this time. Settlements must be current and meet the above guidelines by mid-FY September 30, 2004.




These guidelines will become effective September 1, 2001. If you wish to obtain a copy of the complete Program Memorandum A-01-82, it can be found at CMS' (formally HCFA) website, www.hcfa.com