Hospital Cost Reporting

Peer Group 1

• Rate Development and Updates

Medicare Cost Reports are used to support the development and maintenance of Critical Access Hospital reimbursement methodologies. Cost report data is used to establish hospital-specific cost-to-charge ratios for payment for peer group 1 hospitals.

• Inpatient hospital services transitioned from the MS-DRG methodology to a percent-of-charge reimbursement methodology.
• Outpatient hospital services continue to be reimbursed using a percent-of-charge reimbursement methodology.
• Annual rate reviews are designed to maintain reimbursement at no less than 100% of allowable Medicaid costs for combined inpatient and outpatient services.
• Hospital-specific Payment-to-Cost Ratio (PCR) ceilings are evaluated annually. A hospital's PCR ceiling may remain the same or decrease based on annual cost report review but will not increase.
• Hospital-specific reimbursement rates are reviewed annually using accepted Medicare Cost Report data and updated, as applicable, following the annual review process in accordance with DSS program timelines.

Peer Group 2

• Inpatient hospital services are reimbursed at 95% of billed charges.
• Outpatient hospital services are reimbursed at 90% of billed charges.
• Cost reports are reviewed annually to monitor cost coverage levels.
• Reimbursement methodology remains consistent with the established peer group structure.

Cost Settlements

Cost reports are used to reconcile interim Medicaid payments with allowable Medicaid costs. Following review and acceptance of the Medicare Cost Report, DSS calculates cost settlements where applicable to determine whether additional reimbursement is due based on applicable reimbursement methodologies.

• Results are reviewed and approved by program staff.
• Final rate impacts and/or settlement results are issued to the provider for review and, when applicable, signature.
• Providers have 30 days to respond or request clarification.
• If no response is received, results are finalized according to program timelines.
• Once payment is issued, settlements are considered final.

To ensure consistent, accurate, and transparent reimbursement methodologies, the Department follows standardized processes when developing hospital payment rates and performing reimbursement analyses.

During rate development, the Department:

• Maps hospital revenue codes to the appropriate Medicare Cost Report cost centers using provider-submitted or standardized crosswalks.
• Uses hospital-specific cost-to-charge ratios and other Medicare Cost Report data to estimate allowable costs.
• Analyzes Medicaid claims and hospital cost data to evaluate reimbursement adequacy and cost coverage.
• Calculates hospital-specific reimbursement percentages and prospective payment rates using approved methodologies for peer group 1.
• Performs calculations using standardized workbooks and quality review procedures to ensure consistency across providers.
• Reviews results for accuracy before finalizing reimbursement rates or settlement calculations.

Amended cost reports may be submitted to correct material errors or reflect applicable changes before final settlement has been completed.

APR-DRG Outlier Payments

Medicare Cost Reports provide hospital-specific cost-to-charge ratios used in the calculation of inpatient outlier payments under applicable Medicaid reimbursement methodologies.

DSSFinancePRA@state.sd.us