340B and the Medicare Cost Report

JANUARY 24, 2018
Ashley Mains Espinosa, PharmD, MS, CPHIMS; Chad Johnson, PharmD, MBA; and Sarah Lee, PharmD, MS
Certain institutional providers are required to file a Medicare cost report annually to CMS, which uses that information to set prospective payment rates and determine if Medicare overpaid or underpaid a given institution during the submitted fiscal year.1 These reports are due to CMS 5 months after the institution’s fiscal year ends and include data such as facility characteristics, financial information, costs, and charges.2 Cost report sections are separated as worksheets, with each containing distinct pieces of required information.

For many hospital-covered entity types, the Medicare cost report plays an integral role in the 340B Drug Pricing Program by establishing eligibility for the parent and child sites. Individuals responsible for an organization’s 340B program can ensure appropriate eligibility and registration by learning to interpret certain data within the cost report.

Establishing Hospital Eligibility
Two of the 3 requirements for eligibility can be found within the Medicare cost report. Hospitals are considered eligible based on their government ownership or operation or contractual arrangements with the government to provide care to low-income individuals, as well as their disproportionate share percentage.3 Line 21 of Worksheet S-2, Part I, shows the ownership and nonprofit status of the hospital necessary to meet these eligibility requirements. With the exception of critical-access hospitals, all hospital-covered entities must also meet or exceed a minimum threshold for disproportionate share adjustment percentage (see Table), found on Worksheet E, Part A, line 33.



Establishing Child Site Eligibility
All clinics located outside the hospital’s walls must register as child sites if they provide care resulting in 340B drugs for their patients. These locations are eligible if listed as reimbursable on the hospital’s most recently filed cost report. Typically, lines 50 to 118 are potentially reimbursable on Worksheet A. Reimbursable clinics must also show outpatient charges in column 7 of Worksheet C.

Expert tip: When determining site eligibility, the Health Resources and Service Administration will look at the most recently filed full cost report, found on Worksheet S. New child site registrations and any terminations should be consistent with that report, and covered entities may want to coordinate with their finance departments to ensure that site changes happen at times that appropriately coincide with cost report filings.

Digging Deeper
If the Medicare cost report serves as the official reference document, a hospital’s trial balance serves as supporting evidence. Some hospital service lines may be aggregated, meaning the financial information for multiple areas is combined into 1 line on the cost report. Worksheet A acts as a summary of the expenses reflected in the trial balance, and Worksheet C summarizes the revenue associated with care areas. The trial balance data populate the Medicare cost report, so it is advisable to obtain this document to perform validation of eligibility for certain areas during registration and subsequent self-audits.

Establishing 340B's Impact on the Community
Although multiple methods exist to demonstrate how the 340B program helps patients and local communities, the Medicare cost report can assist in this endeavor. A lesser-known use of the cost report involves quantifying a hospital’s uncompensated care, including the cost of treating charity care patients, underpayment by public payers, and other potentially relevant information. For example, Worksheet S-10, line 31, details the total unreimbursed and uncompensated care cost. These data may not tell the whole story of how the 340B program supports the institution’s ability to care for underserved populations, but it offers a place to start.

Working with Finance
A hospital’s finance department should be able to provide access to all documents and reports mentioned in this article. Establishing a 340B stakeholder within the department will ensure timely access to the Medicare cost report and trial balance, proper interpretation of values, and confirmation of assumptions before taking action, such as registering a hospital or child site. The Medicare cost report holds a wealth of information about an organization’s identity and financial activity. Having a strong grasp of the contents and their meaning can ensure that covered entities maintain compliance while maximizing their 340B programs.
 

Ashley Mains Espinosa, PharmD, MS, CPHIMS, is the system pharmacy manager at SCL Health in Denver, Colorado. She completed her PharmD degree at Ohio Northern University and the 2-year health system pharmacy administration residency and master’s program at the University of Kansas. Chad Johnson, PharmD, MBA, is the 340B program manager at Froedtert Hospital in Milwaukee, Wisconsin. He completed his PharmD and MBA degrees at Drake University and 2-year health system pharmacy administration residency at Froedtert Hospital. Sarah Lee, PharmD, MS, is a manager within the education compliance and support team at Apexus. She earned her PharmD at the University of Iowa and completed the 2-year health system pharmacy administration residency and master’s program at the University of Kansas.

References
  1. Asper, F. Introduction to Medicare cost reports. Research Data Assistance Center website. resdac.umn.edu/sites/resdac.umn.edu/files/Introduction%20to%20Medicare%20Cost%20 Reports%20(Slides)_0.pdf. Accessed October 11, 2017.
  2. Centers for Medicaid & Medicare Services Research. Cost reports. www.cms.gov/Research-Statistics- Data-and- Systems/Downloadable-Public- Use-Files/Cost- Reports. CMS website. Updated July 25, 2017. Accessed October 11, 2017.
  3. Legal Information Institute. 43 U.S. Code § 256b—limitation on prices of drugs purchased by covered entities. Cornell Law School website. law.cornell.edu/uscode/text/42/256b. Accessed October 11, 2017.
  4. Apexus 340B University. 340B hospital eligibility criteria. docs.340bpvp.com/documents/public/resourcecenter/Hospital_Eligibility_Criteria.pdf. Published May 6, 2015. Accessed October 20, 2017.


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