North Carolina Desk Reviews, Field Reviews and O/P Settlements

1

• North Carolina Desk Reviews, Field Reviews and
  O/P Settlements
• Presentation for the
• North Carolina
• Healthcare Financial Management Association
• Clifton Gunderson LLP
• November 9, 2006

2
Who is Clifton Gunderson?

• 13th largest CPA and consulting firm
• Over 1,600 total personnel
• Offices in 15 states and Washington, DC

3
Who is Team Health Care?

• Team Health Care (THC) is the health care
  compliance and consulting practice of CG which
  focuses on services delivered to federal and
  state government agencies.

4
Who is Team Health Care?

• THC offices include
• Baltimore, MD
• Richmond, VA
• Raleigh, NC
• Indianapolis, IN
• Austin, TX
• Des Moines, IA

5
Areas of Expertise

• Compliance Services
• Health Care Consulting
• Fraud and Abuse

6
Services Performed

• Cost report audits/reviews (all provider types)
• Cost settlements
• Performance audits (MCOs)
• MMIS audits (IT based)
• DSH audits
• Litigation support (DOJ/FBI)
• Other consulting

7
Clients

• We serve clients in each of the states in which
  we have THC offices (MD, VA, NC, IN, IA, TX). In
  addition, we count the following among our
  clients
• CMS
• Department of Justice
• Federal Bureau of Investigation
• Ohio Medicaid
• Illinois Medicaid
• Mississippi Medicaid
• South Carolina Medicaid

8
Raleigh Office Key Staff

• Bob Bullen, Contract Partner
• Based in Baltimore
• Chuck Smith, Senior Manager-in-Charge
• Based in Raleigh
• Also oversee hospital reviews

9
Raleigh Office Additional Staff

• David McMahon, Manager
• Raymond Johnson, Manager
• Cheryl Morant, Senior Associate
• Vivian Shi, Associate
• Evelyn Massey, Associate

10
Staff from Other Offices

• Tim Forry, Sr. Manager, Baltimore
• Lucille Devore, Manager, Baltimore
• Betty Morgan, Manager, Baltimore
• Marcia Cole, Manager, Richmond
• Others may assist depending on scheduling needs.

11
Staff from Other Offices

• All individuals from other offices have
  been/will be trained on North Carolina specifics.
  
• In addition, all work is reviewed by Raleigh
  office prior to issuance.

12
Review Process Desk Reviews

• Desk Reviews (Issuing Agreed Upon Procedures
  Report)
• DMA notification
• CG initial request for information
• Perform procedures on submitted information
• Develop follow questions and requests

13
Review Process Desk Reviews

• Communicate follow up questions and requests
• Incorporate additional information into desk
  review/complete procedures
• Develop draft adjustments and communicate to
  provider
• Give provider time to respond
• Communicate changes to provider

14
Review Process Desk Reviews

• Management Review process
• Detailed review performed by Manager or Senior
  Manager
• Second review performed by Senior Manager or
  Partner
• Sometimes lead to requests for additional
  information.
• Any changes to adjustments will be communicated
  with opportunity to respond.
• Prepare draft report and submit to DMA

15
Review Process Desk Reviews

• DMA reviews
• DMA review could require further procedures.
• In most instances, draft report cleared for
  final product.
• Final report issued

16
Review Process Field Reviews

• Field Reviews (Issuing Agreed Upon Procedures
  Report)
• DMA notification
• CG scheduling
• Dina Pickens
• Attempt to be a two/three months ahead
• CG scheduling letter/initial documentation request

17
Review Process Field Reviews

• Contact from in-charge auditor
• A week or two prior to fieldwork start date
• Set-up time for arrival
• Give information regarding audit team
• Request GL detail (and AP if necessary) for
  accounts selected for substantive testing
• Objective is to be able to select GL transactions
  for vouching (reviewing invoices) prior to
  arrival so those items may be available on the
  first day of field work.

18
Review Process Field Reviews

• 5. Fieldwork
• Will range from one-week to two weeks depending
  on complexity of procedures
• Audit team will consist of one in-charge auditor
  and one or two assistants

19
Review Process Field Reviews

• 6. Exit Conference
• Typically to be held on the last day of field
  work
• At times the exit conference may be delayed if
  significant test work has not been completed
  during the course of our on-site visit.
• Arrangements will be made for alternate date
  based on circumstances.
• Will discuss each proposed adjustment

20
Review Process Field Reviews

• Will provide you with copies of workpapers
  supporting adjustments or will send them the next
  working day
• Will provide you a list of outstanding
  information requests
• Will agree on a date when outstanding information
  is due

21
Review Process Field Reviews

• 7. Upon receipt of outstanding information,
  will incorporate into workpapers, making any
  necessary changes.
• Revised adjustments will be communicated, with an
  explanation of why any adjustment for which
  information was sent was not changed.
• Will give a period of time to review and offer
  any additional evidence - typically two weeks

22
Review Process Field Reviews

• 8. Any additional submissions will be
  incorporated
• If adjustments changed, the revised adjustments
  will be communicated.

23
Review Process Field Reviews

• 9. Final Steps
• Draft report issued to DMA
• DMA reviews workpapers
• DMA review could require further procedures.
• In most instances, draft report cleared for
  final product.
• Final report issued

24
Review Process Field Review

• Goal is to complete this process 2-3 months
  after exit conference
• Depends on schedule of in-charge auditor
• Depends on any outstanding information to be
  considered.
• Unpredictable items

25
Desk Reviews Materiality

• Investigation Threshold
• Used to determine what changes from the prior
  year are material
• Will request an explanation from provider as to
  why there was a material change
• Will review explanation for reasonableness

26
Desk Reviews Materiality

• Adjustment Threshold
• Used as a guide on what questionable accounts
  need to be pursued further
• Also used as a guide to determine which as-filed
  A-6 reclassifications and A-8 adjustments require
  further review.

27
Desk Reviews Reconciliation

• Reconcile w/s A to WTB
• Will ask for both summary WTB grouped by cost
  center and a detailed WTB
• Reconcile w/s C to WTB
• Will ask for both summary WTB grouped by cost
  report cost center and a detailed WTB
• Any material reclassifications of charges between
  cost centers will be reviewed to ensure proper
  matching of costs and charges

28
Desk Reviews Reconciliation

• Reconcile w/s A and w/s C to audited financial
  statements
• Purpose To identify any costs that should not
  have been included on the cost report, and/or any
  cost items that should have been included as a
  NRCC. To identify any charges to have been
  omitted from the cost report.
• We may request this be performed by the provider
  if we are unable to reconcile within tolerable
  limits.

29
Desk Reviews WTB Review

• Will review the WTB for the following
• Any questionable material departments.
• Inquiries will be made regarding the nature of
  these departments
• Response to inquires will be reviewed for
  reasonableness
• Further information may be requested

30
Desk Reviews WTB Review

• Any questionable accounts
• Inquiries will be made regarding the nature of
  these accounts
• Response to inquiries will be reviewed for
  reasonableness
• Further information may be requested

31
Desk Reviews Cost-to-Charge Ratios

• Will question any cost-to-charge ratios that
  either very high or very low that have large
  Medicaid charges associated with them
• May inquire, or may perform additional procedures
• Will perform an analysis of a sample of cost
  centers to ensure that costs and charges are
  matched
• This is done utilizing department numbers and/or
  descriptions
• May lead to questions

32
Desk Reviews Worksheets A-6, A-8, and A-8-1

• Material reclassifications and adjustments will
  be reviewed
• Will trace to supporting workpaper
• Supporting workpaper will be reviewed for
  mathematical accuracy, traced to WTB, and
  reviewed for overall reasonableness

33
Desk Reviews Worksheets A-6, A-8, and A-8-1

• Inquires will be made regarding any significant
  discrepancies
• The prior year adjustments and reclassification
  will be compared against current year to
  determine if there are any material items that
  were not made in the current year

34
Desk Reviews Other Income

• Other income from WTB, or other listing, will be
  reconciled to audited financial statements to
  ensure completeness
• Any material items not offset on as-filed cost
  report for which the reason is not clearly
  evident will be questioned

35
Desk Reviews Other Income

• Responses to inquiry will be reviewed for
  reasonableness
• This includes investment income - CMS Pub. 15-1
  Section 202.2(C)
• Investment income for offset is the aggregate
  net amount realized from all investments of
  patient care funds in non-patient care related
  activities and may include interest, dividends,
  operating profits and losses, and gains and
  losses on sale or disposition of investments.

36
Desk Reviews Statistics

• Any material changes from the prior year will be
  questioned
• Response to inquiry will be reviewed for
  reasonableness

37
Desk Reviews W/S A-8-2

• Will reconcile total remuneration to the WTB to
  ensure that all physician fees have been
  accounted for
• Will inquire as to why certain accounts that
  appear to be physician fees have been excluded
• Will review response for reasonableness. May
  request additional documentation such as Medical
  Director Agreement

38
Desk Reviews W/S A-8-2

• Any splits between professional and provider
  components will be compared to signed time
  summaries submitted with CMS-339
• If nothing submitted with CMS-339, alternate
  information will be requested and reviewed.
• If CMS-339 information is not signed, we may
  request other supporting information.
• Any remuneration considered 100 provider
  component will be questioned. May request
  additional documentation to support such
  treatment (if not CAH).
• Medical Director
• ER Stand-by fees

39
Desk Reviews W/S A-8-2

• Provider component hours will be agreed to
  CMS-339 or any alternate documentation obtained.
  They will be reviewed for reasonableness.
• RCE limits will be compared to the Federal
  Register

40
Desk Reviews Depreciation

• As-filed depreciation expense will be reconciled
  to a summary depreciation schedule
• Verifies that such expenses are supported by a
  fixed asset accounting system
• A schedule of fixed-asset additions for the
  fiscal year under review will be reviewed to
  ensure proper treatment
• Year of acquisition depreciation methods are
  consistent
• Useful lives are reasonable

41
Desk Reviews PSR Data

• Days, charges and payments (both inpatient and
  outpatient) will be agreed to the updated PSR
• To extent possible, provider crosswalk will be
  utilized
• If Outpatient settlement had been previously
  performed, then that will be used

42
Desk Reviews PSR Data

• Lab fee schedule charges and payments will be
  included
• Zero-paid claims will not be included
• CRNA charges and payments should be excluded

43
Field Reviews Materiality

• Investigation Threshold
• Used to determine what changes from the prior
  year are material.

44
Field Reviews Materiality

• Adjustment Threshold
• Used as a guide on what questionable accounts
  need to be pursued further
• Also used as a guide to determine which as-filed
  A-6 reclassifications and A-8 adjustments require
  further review

45
Field Reviews Reconciliation

• Reconcile w/s A to WTB
• Will ask for both summary WTB grouped by cost
  center and a detailed WTB
• Reconcile w/s C to WTB
• Will ask for both summary WTB grouped by cost
  report cost center and a detailed WTB
• Any material reclassifications of charges between
  cost centers will be reviewed to ensure proper
  matching of costs and charges

46
Field Reviews Reconciliation

• Reconcile w/s A and w/s C to audited financial
  statements
• Purpose To identify any costs that should not
  have been included on the cost report, and/or any
  cost items that should have been included as a
  NRCC. To identify any charges to have been
  omitted from the cost report.
• We may request this be performed by the provider
  if we are unable to reconcile within tolerable
  limits.

47
Field Reviews Prior Year Comparison

• Will review material changes from the prior year
• Used to determine accounts to vouch and
  departments to review
• May also include inquiries of the provider

48
Field Reviews Prior Year Review Results

• Review any prior desk and/or field reviews and
  determine if same adjustments apply to the
  current year

49
Field Reviews Cost-to-Charge Ratios

• Same as desk reviews, except can be used to
  identify expenses and/or charges that warrant
  substantive testing

50
Field Reviews Worksheet A-6 and A-8

• Done to ensure accuracy and validity of as-filed
  adjustments and reclassifications
• Same as desk reviews except supporting workpaper
  will be audited. Where applicable, information
  will be traced to source documentation. This
  includes an audit of any percentages used to
  determine amount to reclassify and/or adjust.

51
Field Reviews Entrance Conference

• Designed to the following
• Introduce audit team to provider
• Discuss the process
• Answer any provider questions/concerns
• Determine the availability of previously
  requested information
• Set protocol for obtaining additional information
  and answering questions
• Who
• When

52
Field Reviews Tour

• Designed to review the following
• Questioned areas after review of square feet
  information
• Identify existence of sampled asset additions
• Obtain general knowledge concerning provider
  facilities
• Should occur towards the middle of fieldwork to
  allow time for audit team determine what needs to
  be reviewed, and to allow time to follow-up on
  any issues that might have come up as a result of
  the tour.

53
Field Reviews Board of Directors Minutes

• Purpose to is identify any activities that may
  have a reimbursement impact, and where further
  procedures are necessary
• Can affect the extent of procedures to be
  performed
• Will request that they be reviewed on the first
  day of the on-site visit

54
Field Reviews Internal Control Questionnaire

• Will be sent with initial request package
• Ask that it be completed
• Will be used to assess control environment and
  assist in the determination of the extent of
  substantive testing

55
Field Reviews Patient Days

• Objective To ensure that patient days are
  accumulated properly and accurately.
• Obtain an understanding of the patient days
  accumulation process.
• Will request a summary supporting reported
  patient days, showing information by month.

56
Field Reviews Patient Days

• A sample month will be selected and detailed
  census information will be requested. The detail
  will be reconciled to the summary. The detail
  will be reviewed for any unusual items.

57
Field Reviews Charges

• Will obtain an understanding of provider
  practices and processes
• Routine
• Request charge master
• Analytical procedures will be performed by
  dividing routine charges per WTB by patient days
  and comparing the resulting per diem to charge
  master for reasonableness
• Any unreasonable results will be discussed

58
Field Reviews Charges

• Ancillary
• Based on risk analysis (comparison to prior year,
  unusual cost-to-charge ratios), a sample of
  departments will be chosen
• For those departments, the charge master and
  revenue and usage reports will be requested
• Revenue and usage reports will be reconciled to
  WTB and will be reviewed for reasonableness,
  taking into consideration charge master
• Any discrepancies will be discussed

59
Field Reviews Other Income

• Other income from WTB, or other listing, will be
  reconciled to audited financial statements to
  ensure completeness
• Any material items not offset on as-filed cost
  report for which the reason is not clearly
  evident will be questioned

60
Field Reviews Other Income

• Responses to inquiry will be reviewed for
  reasonableness. Further information may be
  requested.
• This includes investment income. CMS Pub. 15-1
  Section 202.2(C)
• Investment income for offset is the aggregate
  net amount realized from all investments of
  patient care funds in non-patient care related
  activities and may include interest, dividends,
  operating profits and losses, and gains and
  losses on sale or disposition of investments.

61
Field Reviews Expense Vouching

• Purpose is to verify that reported expenses are
  accurate, allowable, and supported by adequate
  documentation.
• GL accounts will be selected for expense vouching
  based on the following
• Prior year comparisons
• Critical review of WTB
• Prior year review results
• Cost-to-charge ratio review
• Materiality

62
Field Reviews Expense Vouching

• At least a 17 sample (equivalent of two months)
  of GL transactions will be selected.
• If GL system summarizes AP transactions to GL,
  will request AP for several sample months and use
  it to select sample for vouching.
• If selected account involves inventory
  transactions, will request GL detail for
  inventory account. Should be able to agree
  credit entries in inventory to debit entries in
  expense. Will vouch a sample of debit entries in
  inventory account.

63
Field Reviews Expense Vouching

• Sampled GL transactions will be traced to vendor
  invoices or other appropriate source
  documentation.

64
Field Reviews Expense Vouching

• Some routinely selected accounts that involve
  alternative procedures
• Self-insured health insurance
• We would audit a sample of claims paid from plan
  administrator.
• Property and liability insurance
• We would like to obtain premium information from
  insurance company.
• Retirement/pension, etc.
• We would like to obtain actuary report, if one
  exists.

65
Field Reviews Salaries

• 1. Objective is to ensure that payroll system
  is accurately reporting salaries
• 941 reconciliation
• Used to identify the possibility that salaries,
  in total, are overstated on the cost report
• If 941s are consolidated, can use
  provider-prepared breakdown, if available.
• If we are unable to reconcile, we will ask
  provider to assist.
• No response adjustment

66
Field Reviews Salaries

• Payroll Testing
• Will select two pay periods for a sample of
  departments
• Request payroll register, labor distribution, or
  equivalent
• Register will be traced to the GL
• A sample of employees will be selected and
  payroll information will be verified against
  personnel files
• Pay rate
• Classification
• Existence

67
Field Reviews Use of Financial Auditors Payroll
Testing

• Use of financial auditors payroll testing
• Can be done in certain situations
• Notify us in advance of field work
• We will want to review auditors workpapers to
  assess the extent of testing performed and
  conclusions reached to determine if reliance can
  be placed on work.
• May only lead to a reduction of substantive
  testing

68
Field Reviews Depreciation

• Trace depreciation schedule to the WTB.
• Obtain capitalization and depreciation policies
• Select a representative sample of current year
  fixed asset additions from the additions listing
• Agree amount to vendor invoice
• Agree lives to AHA guidelines
• Ensure consistent application of year of
  acquisition depreciation determination
• Verify existence during tour

69
Field Reviews Interest Expense and Income

• Expense
• Will only review further if after offset of
  interest income a material amount of expense
  remains
• Tie amount per GL to debt documents (notes,
  bonds)
• Will review current interest rates for
  reasonableness
• Any current year borrowings will be reviewed for
  necessity
• Funded depreciation activity will be reviewed to
  ensure that those funds were applied before
  borrowing.

70
Field Reviews Interest Expense and Income

• Income
• Determine the extent of interest and investment
  income (dividends, receipts from sale of
  investments, etc.)
• Verify the amount of any board designated funds
  for capital improvements
• Reconcile amounts to investment account statements

71
Field Reviews Interest Expense and Income

• Perform analytical procedure comparing such
  income against restricted funds
• Verify that the board indeed designated such
  funds
• Board minutes
• Audited financial statements
• Written assertions from board member

72
Field Reviews Statistics

• First step is to identify the bases used and
  determine that they are acceptable
• Compare statistics to the prior year
• Change in basis must be supported by prior
  approval

73
Field Reviews Statistics

• For those statistics for which further
  substantive testing is necessary, will obtain
  supporting documentation
• Square Feet Square feet survey to be reviewed
  during tour
• Dollar Value Should be able to reconcile to
  depreciation schedule
• Meals Served Should agree to meal counts/
  system to track meals
• FTEs Should be supported by payroll system
• Nursing Hours Should be supported by time
  studies or payroll system
• Others Should be supported in similar manner

74
Field Reviews Worksheet A-8-2

• Same as desk review, except extent of procedures
  are greater
• Hours will be audited to system of tracking
  physician hours
• ER stand-by fees will be audited against logs

75
Field Reviews Related Parties

• Prior to fieldwork, research potential related
  parties on the Secretary of State Corporations
  Web site.
• Will inquire about extent of transactions with
  related parties
• Will also review audited financial statements for
  any disclosures concerning related parties

76
Field Reviews Related Parties

• If material transactions with related parties are
  identified, we will ask for one of two items
• Financial information necessary to determine
  profit percentage of related party which will be
  used to reduce expense on cost report. In the
  instance of related party rent, we will request
  information to support the cost of ownership.
• Information to support an assertion that the
  related party should be treated as an exception
  to the related party rule

77
Field Reviews Medicaid Days and Charges

• Same as Desk Reviews

78
Field Reviews Interns and Residents

• Objective is to ensure that non-allowable
  rotations have been accounted for
• If accomplished through step-down, we will want
  to verify the statistics against detailed
  supporting documentation

79
Field Reviews Transplants

• Will verify information reported on worksheet
  D-6, with respect to Medicaid transplants,
  against logs

80
Outpatient Settlements

• As-filed CMS 2552-96 and NCDMA E-5 are sent to
  Clifton Gunderson
• PSR information is also obtained
• Submitted documentation is reviewed for
  provider-prepared outpatient cross-walk
• If cross-walk not found, one will be requested
  from the provider.

81
Outpatient Settlements

• Outpatient ancillaries per updated PSRs will be
  mapped according to provider cross-walk
• If cross-walk cannot be obtained, the total
  outpatient ancillary charges will be allocated
  based on as-filed charges.

82
Outpatient Settlements

• 5. Updated mapped charges are applied to as-filed
  cost-to-charge ratios, unless a desk/field review
  for the same fiscal year has been performed
• If the turnaround is greater than 50,000, the
  provider will be contacted to review the proposed
  outpatient settlement calculation.

83
Other Items CG Issues

• New management structure now allows for adequate
  guidance and oversight
• Should make audit process more efficient and
  effective
• Adequate resources now being given
• Asking for more than a week of field work for
  more complex audits.
• Adjusting staffing levels based on perceived
  complexity of review
• Utilizing available resources from other office
  to help correct any backlog

84
Other Items CG Issues

• Planning more timely and effective
• Goal is to be able to select samples prior to
  fieldwork to minimize any idle time while in the
  field
• NC-specific knowledge gained through experience

85
Other Items Common Adjustments

• Lack of documentation/response
• Marketing as a NRCC as opposed to being removed
• Outpatient pharmacies to a NRCC instead of income
  offset
• Investment income as opposed to just interest
  income

86

• Thank you!!
• Questions?

87
Contact Information

• Chuck Smith, CPA
• Senior Manager-in-Charge
• Clifton Gunderson LLP
• 3200 Beechleaf Court, Suite 900
• Raleigh, North Carolina 27604
• Phone [phone]/ Fax [phone]
• Chuck.Smith_at_cliftoncpa.com
• www.cliftoncpa.com