SPECIALIZED REPORTING AREAS

Section 442.24 - Direct assignment of costs

SPECIALIZED REPORTING AREAS

442.24 Direct assignment of costs. (1610) (a) The direct assigning of costs is the process of identifying and assigning costs directly to the functional cost center generating those costs. Only those costs which meet the definitions and guidelines established within this section and in section 444.7 of this Article will be directly assigned.

(b) Buildings and fixtures. (1611) The cost of all depreciation or rent/lease of buildings and fixtures is to be charged to the Depreciation and Amortization Cost Center (account 8810) and to the Leases and Rental Cost Center (account 8815), respectively, and not reported as a direct expense of specific cost centers.

(c) Salary- and payroll-related employee benefits. (1612) (1) The salaries and wages cost must be assigned directly to the functional cost center to which the employee is assigned (see Natural Classification Accounts, section 444.23(b) of this Article). For example, for reporting purposes the salary cost of direct nursing services, including float nurses, must be directly assigned to the patient care cost centers receiving the service. This assignment may be based on each employee's actual nursing services, hours performed within each patient care cost center multiplied by that employee's hourly salary rate while performing the direct nursing service, or based on an analysis of salary and wage expense including time and cost studies.

(2) Payroll-related employee benefits must be reported in the cost center where the applicable employee's compensation is reported. This assignment can be performed on an actual basis or upon the following basis:

(i) FICA - actual expense by cost center;

(ii) pension and retirement and health insurance (non-union) - gross salaries of participating individuals by cost center;

(iii) union health and welfare - gross salaries of participating union members by cost center;

(iv) all other payroll-related benefits - gross salaries by cost center.

(3) Non-payroll-related employee benefits are to be reported in account 8830 (Employee Benefits--Non-Payroll-Related).

(d) Medical supplies and durable medical equipment. (1613) (1) The invoice/inventory cost of all medical and surgical supplies for which a separate charge is made, except home program dialysis supplies, must be reported as a cost of the Medical Supplies--Sold cost center (account 7110). The related revenue must be reflected in the Medical Supplies--Sold revenue center (account 4110). Home program dialysis supplies must be reported as a cost of the appropriate home program dialysis center.

(2) Medical and surgical supplies and materials issued by Central Services and Supplies for which a separate charge is not made must be reported at invoice/inventory cost as a cost of the cost center using the supplies and materials.

(3) Effective for cost reporting periods beginning January 1, 1982, the invoice/inventory cost of all durable medical equipment sold must be reported as a cost of the Durable Medical Equipment--Sold cost center (account 7130). The related revenue must be reported in the Durable Medical Equipment--Sold revenue center (account 4130).

(4) Effective for cost reporting periods beginning January 1, 1982, the depreciation expense associated with durable medical equipment leased or rented must be reported in the Durable Medical Equipment--Leased/Rented cost center (account 7140). The related revenue must be reported in the Durable Medical Equipment--Leased/Rented revenue center (account 4140).

(5) The overhead associated with the issuance of medical supplies and durable medical equipment must be reported in the Central Services and Supplies cost center (account 8460). The cost of reusable patient chargeable supplies must remain in the Central Services and Supplies cost center.

(e) Drugs. (1614) Pharmaceutical supplies and materials (including IV solutions, admixtures, blood derivatives, etc.) issued by the Pharmacy cost center for which a separate Pharmacy charge is made must be reported for as a cost of the Drugs Sold cost center (account 7150). The related revenue must be reflected in the Drugs Sold revenue center (account 4150).

Pharmaceutical supplies and materials (including IV solutions, admixtures, blood derivatives, etc.) issued by the Pharmacy for which a separate charge is not made must be reported at invoice/inventory cost as a cost of the cost center using the supplies and materials.

The overhead associated with the issuing of pharmaceutical supplies and materials (including IV solutions, admixtures, blood derivatives, etc.) must be reported in the Pharmacy cost center (account 8470). The cost of reusable patient chargeable items must remain in the Pharmacy cost center.

(f) Data processing. (1615) (1) All the direct costs incurred in operating an electronic data processing center, in purchasing data processing services, and/or in obtaining such services from related organizations, must be reported in the using cost centers. Direct cost which cannot be directly identified with specific functional cost centers must be assigned to the functional cost centers using such services based on each hospital's own determination of a fair and equitable assignment or allocation concept which gives appropriate recognition to the types of data processing costs incurred in their data processing center, under contract, and/or from related organizations. (2) Effective for cost reporting periods commencing January 1, 1981 or thereafter, this cost assignment or allocation concept must be agreed to by the medical fiscal intermediary prior to the end of the reporting period. Once a basis has been approved, it will remain in effect until the provider initiates a subsequent request to change it.

(3) No prior approval is required for cost reporting periods ending December 31, 1980 or before.

(g) Central patient transportation. (1616) (1) Because patient transportation costs are relatively minor in most hospitals, direct assignment of this expense is not required. Such expense may be reported where incurred. However, since no patient transportation cost center is provided, those hospitals which maintain a central patient transportation department must report such expenses in the appropriate ancillary services cost centers. Patient visits or some other valid basis may be used for reclassifying such expenses.

(2) The expenses incurred in transporting patients to the Daily Hospital Services areas at the time of admission are to be assigned to the Inpatient Admitting cost center (account 8524). The expenses incurred in transporting patients who have been discharged are to be assigned to the Daily Hospital Services functional cost center from which the patient was discharged.
 

Doc Status: 
Complete

Section 442.25 - Hospital research and education costs

442.25 Hospital research and education costs. (1630) All direct costs incurred in conducting hospital research and formal educational activities (as opposed to in-service education) must be recorded in Unrestricted Fund cost center accounts 8010-8199 (Research Expenses) or 8220-8299 (Education Expenses).

(b) Grant accountability. (1631) When separate accounting is required by law, grant contract, or donations restricted for research and educational activities, separate cost centers must be maintained. Transfers from restricted funds to match the expenditures for these activities must also be segregated into separate accounts in the series 5020-5199 (Research) or 5280-5300 (Education). Thus, accountability is maintained for all restricted research and educational activities.

(c) Overhead allocation. (1632) (1) No allocation of indirect overhead is to be made on the books prior to cost reporting unless such allocation is required by grant contract. When a grant contract calls for the payment of direct costs plus an overhead factor, the overhead factor should be included in billing, but no allocation should be made in the hospital's accounting records.

(2) The following example illustrates the accounting treatment of restricted grant activity:

(i) Assume that a hospital received a specific research grant on December 1, which called for payment of direct costs incurred, plus an overhead allocation of 10 percent of such costs. At December 31 (the hospital's year-end), $150 of direct costs had been incurred. The following entries would be made in the hospital's accounting records at December 31:

(ii) Unrestricted Fund.

Account Dr. Cr.

Research 8010 $150

Cash 1010 $150

Due from Specific Purpose Fund 1074 $165

Transfer from restricted funds for research expenses 5020 $165

To record specific research direct costs and to set up receivable and

other operating revenue from restricted fund for direct costs, plus overhead allocation.

(iii) Specific Purpose Fund.

Fund balance - Transfers to Operating Fund for Operating

Purposes 2797 $165

Due to Operating Fund 2781 $165

To record liability to Unrestricted Fund for direct research costs and overhead allocation.

(3) If direct overhead must, by grant contract, be recorded in the Unrestricted Fund cost centers used for the recording of the direct costs of the grant activity, the natural expense classification .89 (other expenses) must be used. A separate cost center entitled "Overhead Applied" should be established in the Unrestricted Fund and credited with the amount of such overhead allocation. For reporting purposes the balance in the "Overhead Applied" cost center must be offset against the grant activity cost center, so costs remaining in the grant activity cost center are direct costs only.

(d) Affiliated school contracts. (1633) Education costs incurred relative to affiliated school contracts must be reflected in the Education series of accounts (8220-8299) in the Unrestricted Fund. Salaries, wages and stipends paid to students on approved programs (including interns and residents) must be reflected in this series of accounts. Salaries, wages and stipends paid to interns and residents must be reflected in the appropriate natural classification of the Postgraduate Medical Education cost centers (Approved account 8240 and Non-Approved - account 8250). Fees paid to physicians involved primarily in approved education programs must also be recorded in the Education series of accounts, in the appropriate cost center.
 

Doc Status: 
Complete

Section 442.26 - In-service education--nursing

442.26 In-service education - nursing. (1660) (a) Nursing in-service education activities are defined as educational activities conducted by the hospital for hospital nursing personnel. The cost of time spent by nursing personnel as students in such classes and activities must remain in the cost center in which their normal salary and wage costs are charged (i.e., the cost center in which they work). However, the cost (defined as salary, wages and payroll-related fringe benefits) of time spent in such classes and activities by those instructing and administering the programs must be included in the Nursing Administration cost center (account 8750). For those hospitals that want to account for these costs separately, an In-service Education - Nursing subaccount (account 8751) has been provided.

(b) If instructors do not work full-time in the in-service programs, the cost (as defined above) of the portion of time they spend working in the in-service education program must be included in the Nursing Administration cost center. This may be accomplished by direct distribution of these costs (by natural classification of expense category) each payroll period based upon actual hours worked.

(c) The costs of nursing in-service education supplies (such as cassettes, books, medical supplies, etc.) and outside lecturers must also be reflected in the Nursing Administration cost center. Nursing in-service education does not include orientation of new employees. Such orientation costs must be charged to the cost center in which the new employees are, or will be, assigned.
 

Doc Status: 
Complete

Section 442.27 - In-service education--nonnursing

442.27 In-service education - nonnursing. (1670) All expenses, including student and instructor salaries, associated with nonnursing in-service education activities must be included in the functional cost center to which the participating employees' salaries and wages are assigned, as such in-service educational activities will rarely apply to more than one functional activity.
 

Doc Status: 
Complete

Section 442.28 - Physician remuneration

442.28 Physician remuneration. (1680) (a) Due to the numerous types of financial and work arrangements between hospitals and hospital-based physicians, comparability of costs between hospitals may be significantly impaired. This section deals with the methods to be used in recording costs and revenues related to the services of hospital-based physicians.

(b) Financial arrangements. (1681) (1) Although the variations in financial arrangements between hospitals and hospital-based physicians are endless, there are five general types of such arrangements:

(i) Agency arrangement. The hospital bills patients for the physician's professional services, but records these billings as liabilities and the subsequent payment to the physician as a reduction of that liability. The hospital reflects no operating revenue or expense relative to the professional component.

(ii) Compensation arrangement. The hospital bills patients for the physician's contractual professional services, including this amount as hospital revenue. All cost center expenses are paid by the hospital. The hospital remits a fee or pays a salary to the physician which is included in hospital expense. The compensation arrangement can be either fixed or variable. Under a fixed compensation arrangement the physician is paid a specific dollar amount (salary) unrelated to volume of services rendered. Under the variable compensation arrangement the physician's compensation will be a percentage of departmental gross charges or net collections. The actual compensation received by the physician will vary in proportion to the number of procedures performed and to the total charges made by the hospital. This arrangement includes those physicians providing patient services in the Daily Hospital Services cost centers.

(iii) Contracted arrangement. Under this arrangement, the physician may pay any or all expenses of the cost center. The hospital bills patients for the departmental services and remits a fee to the physician. This fee would typically be designed to cover the expenses incurred by the physician and are recorded as Professional Fees (Natural classification of expense .31) regardless of the expenses incurred by the physician.

(iv) Rental arrangement. The physician bills the patients for certain of the Part A and Part B component (as defined by Medicare) and incurs all substantial direct expenses. The physician remits a fee to cover certain hospital expenses. This fee is recorded as operating revenue in the appropriate revenue center.

(v) Independent/separate arrangement. The functions are provided by an independent physician or group of physicians. Neither revenues nor expenses are incurred by the hospital. The hospital refers patients and/or specimens to the physician or group, which is usually located on separate premises. No costs are incurred and no revenue is received under this arrangement.

(2) Note. Compensation paid to interns and residents is not to be included in the revenue producing cost centers, but must be charged to the Postgraduate Medical Education cost centers, accounts 8240 and 8250.

(c) Work arrangement. (1682) (1) The services provided by hospital-based physicians may be categorized into six general types.

(i) Professional component--providing direct patient care.

(ii) Education--teaching and supervising student activity in educational programs.

(iii) Research--working on research projects.

(iv) Medical care review--serving on the hospital's Medical Care Review Committee.

(v) Hospital administration--administering overall hospital activities (including hospital committees).

(vi) Cost center supervision--supervision and other activities of the cost center.

(2) When physicians are involved in more than one of the above functional activities, their remuneration, if any, must be recorded in the cost center for which services are paid. Prior to a trial balance under the Federal uniform reporting system, their remuneration must be reclassified to the appropriate cost centers.

(3) For example, if a physician is paid and spends 40 percent of his time in direct care of patients, 10 percent in educational activities, 15 percent in research, 5 percent in medical care review activities, 10 percent in administrative duties outside the department, and 20 percent in supervision of the department, the reclassification of his remuneration would be as follows:

(i) Distribution.

40 percent Physician's Professional Component (this amount must be reported in the Medical Staff Services cost center, account 8730).

10 percent Education Costs (to account 8220-8299).

15 percent Research Projects (to account 8010-8199).

5 percent Medical Care Review (to account 8740). 10 percent Hospital Administration (to account 8610).

20 percent Cost Center Supervision (remains in the cost center).

(ii) Computation. If the above physician is assigned to the Coronary Care cost center and is paid $50,000 annually, including employee benefits, the following reclassifications would be required for reporting purposes:

Professional Component 40% of $50,000 = $20,000--to account 8730

Education 10% of $50,000 = $5,000--to account 8220-8299

Research 15% of $50,000 = $7,500--to account 8010-8199

Medical Care Review 5% of $50,000 = $2,500--to account 8740

Hospital Administration 10% of $50,000 = $5,000--to account 8610

Cost Center Supervisor 20% of $50,000 = $10,000--remains in assigned cost center.

(4) The reclassification of the professional component from the assigned cost centers to the Medical Staff Services cost center, account 8730 is necessary in order to obtain comparable direct costs between hospitals which employ physicians and hospitals which do not.

(5) The reclassification of the other components is to obtain functional comparability.

Doc Status: 
Complete

Section 442.29 - Periodic interim payments

442.29 Periodic interim payments. (1690) (a) Periodic interim payments are made biweekly to a hospital on the PIP program and are based on the hospital's estimate of applicable Medicare reimbursement for the current cost report period. When such payments are received, a cash account in the Unrestricted Fund is debited and a PIP Clearing Account (account 1051) is credited for the amount of the payment. When applicable Medicare charges are billed to the intermediary, the PIP Clearing Account is debited and patient accounts receivable is credited. At year-end, adjustments must be made to eliminate any remaining balance in the PIP Clearing Account and to reflect the amount receivable from, or due to, the Medicare intermediary.

(b) To illustrate these entries, assume the following facts:

(1) PIP payments during the year totaled $100,000, and applicable Medicare charges billed during the year were as follows:

Total charges $98,000

Noncovered charges 4,000

Deductibles and coinsurance 8,000

and

(2) Applicable unbilled Medicare charges and in-house patient balances were as follows at year-end:

Total charges $10,000

Noncovered charges 500

Deductibles and coinsurance 1,200

and

(3) Applicable reimbursable costs per the Medicare cost report prepared for the year were $92,000.

(c) In summary form, the accounting entries necessary to properly reflect the above transactions would be:

Account Dr. Cr.

(1) Cash 1010 $100,000

PIP Clearing Account 1051 $100,000

To record the receipt of PIP

payments during the year.

(2) Inpatient Receivables--

Discharged & Unbilled 1032 108,000

Various Revenue Accounts 108,000

To record applicable Medicare revenue for the year.

(3) PIP Clearing Account 1051 86,000

Inpatient Receivables--Other 1035 12,000

Inpatient Receivables--

Discharged & Unbilled 1032 98,000

To record the billing of Medicare charges to the intermediary ($86,000) and to Medicare patients for noncovered charges and deductibles and coinsurance ($12,000).

(4) PIP Clearing Account 1051 8,300

Inpatient Receivables--

Discharged & Unbilled 1032 8,300

To transfer the amount of applicable unbilled Medicare receivables at year-end to the PIP Clearing Account

($10,000 - $500 - $1,200).

(5) PIP Clearing Account--Medicare 1051 5,700

Contractual Adjustments--

Medicare 5910 5,700

To transfer the balance in the PIP Clearing Account at year-end to the Contractual Adjustments account (the PIP Clearing Account must be zero at year-end).

(6) Contractual Adjustments

Medicare 5910 17,200

Reimbursement Settlement 2071

Due--Medicare $17,200

To record the amount of cost report reimbursement settlement due, based upon cost report filed (total PIP payments of $100,000 and deductibles/coinsurance in the amount of $9,200, less $92,000 reimbursable inpatient costs per the cost report).

(d) Although the preceding illustration reflects year-end adjustments, similar entries should be made at the end of each month in order to properly reflect the amount of contractual adjustment during the year. In order to do this, cost reimbursement settlement must be estimated. When done at month-end, entries 4-6 would be reversed at the beginning of the next month.

(e) The above example adheres to the principle that, at year-end, the entire amount receivable from or payable to the intermediary by a provider under the PIP program must be reflected in account 1052.00 or 2061.00. There are no receivables "in-transit" under the PIP program. Although more complex systems of accounting for periodic interim payments and related billings are permissible--such as establishing separate subaccounts for: (1) PIP cash received; (2) Medicare PIP billings, including amounts unbilled at year-end; and (3) PIP contractual allowances--this basic principle must be followed.

Doc Status: 
Complete