Provider options for maximum reimbursement under the medicare program;

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by John F. Brockschlager, Jr.
The Medicare insurance program for the aged has
imposed certain cost finding requirements upon hos­pitals,
home health agencies and extended care facili­ties
which have qualified as providers under the
Medicare program. Beginning January 1, 1967, nursing
homes that qualify must also meet these requirements.
Cost finding is the; systematic allocation of total
institutional costs to revenue producing centers. The
rationale for the cost finding requirements is that the
Social Security Amendments of 1965 require that the
amount paid to the provider, for services rendered to
beneficiaries, will be the "reasonable cost" of such
services. Thus, the intent of the law is that only those
costs incurred by institutions, which relate to patients
covered by the program, will be born by the program.
The Department of Health, Education and Welfare has
established "principles of reimbursement" which pro­vide
guidelines to be used in determining reasonable
cost. These principles will be applied locally by Blue
Cross and certain private insurance companies acting
as fiscal intermediaries for the Department.
Essentially it is these intermediaries who will deter­mine
whether a provider has (1) properly allocated
cost to Medicare patients and (2) included only those
costs allowed by the "principles of reimbursement."
One of the most important problems facing provider
institutions is how critical the fiscal intermediary is
going to be in assessing the institutions' bases and
methods of cost allocation. All indications are that the
intermediaries will take a reasonable approach so long
as the institutions use generally acceptable cost ac­counting
methods in their cost allocation procedures.
There is another aspect to the reimbursement ques­tion,
namely: the "principles of reimbursement" make
available to the provider certain options which can be
used to determine reimbursable costs. It is of utmost
importance that the provider determine its reimburs­able
costs under all options available in order to
obtain maximum reimbursement.
DEPRECIATION OPTIONS
One of these options involves depreciation. The
principles state that depreciation on all assets
acquired after December 31, 1965 must be based on
cost. However, straight-line or accelerated deprecia­tion
methods may be used. In addition the provider
MARCH, 1967 15