Hospital Annual Report Newsletter

A section ranked as more difficult in the recent Hospital Annual Report (HAR) survey was section 9, Natural Expense Summary.  For hospitals with multiple non-hospital services such as nursing homes and clinics, this section can be more challenging since an allocation methodology must be determined.  To help resolve some of the issues in expense allocation, there are three resources the preparer can reference.

Calculating the hospital specific portion of expenses can be difficult at times

Expense Allocation Methodology

Volume 1, Issue 4

April 25, 2006

The Medicare Cost Report and Supporting Documentation May Provide Answers

The second place a HAR preparer can look for answers on allocation methodology is the Medicare Cost Report and its supporting documentation.  During the process of completing the Medicare Cost Report, the MCR preparer invariably will have dealt with expense allocation for the hospital and whatever clinics or nursing homes that are associated with it.  Reviewing the documentation of how they calculated expenses from general journal entries, trial balances, and other reports should give the HAR preparer a good foundation for an allocation methodology for the Hospital Annual Report. 

Worksheet B in the MCR, and the hospital’s paperwork for it, can provide detailed information on how to derive the proper numbers for the HAR expense accounts.  If possible, discuss with the MCR preparer Worksheet B and what they did to complete it.  They will more than likely be able to assist you in arriving at the numbers needed on section 9 of the Hospital Annual Report, or at the very least give you the means by which to get it.

The first resource is last year’s HAR documentation.  If this is the preparer’s first time, looking through paperwork associated with the expense section should provide insight into the methodology used to arrive at the numbers reported in the HAR.  This paperwork may include notes, internal reports, trail balance figures, or other calculations used to arrive at the hospital specific expenses. 

It is strongly recommended that all preparers review this section’s documentation to ensure that same methodology is used from year to year.  Changing allocation formulae may result in inconsistencies in the numbers reported compared to previous years, and may result in a longer and more in depth audit process for the hospital.  However, if it is determined that the work previously done was inaccurate or the documentation is limited, develop a sound methodology and footnote it in Attachment A (page32) of the HAR.

Review Previous Year’s Documentation

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Questions or comments? E-mail us at jpeters@mnhosptials.org or call (651) 659-1422.

 

To contact the Minnesota Department of Health with questions or comments, e-mail amy.camp@health.state.mn.us or call (651) 201-3575.

Statewide Numbers for Top 5

1. Salaries—$3,602,051,121

2. Supplies—$1,402,977,945

3. Benefits—$931,806,850

4. Other—$888,749,630

5. Purchased Services—$856,644,388

 

If, after reviewing the previous year’s documentation, looking through the Medicare Cost Report, and talking to the MCR preparer (if possible) it is still not clear on how to arrive at hospital specific expenses, call or e-mail the Minnesota Hospital Association.  Jonathan Peters (651-659-1422) or Joseph Schindler (651-659-1415) may be able to provide help in arriving at the correct numbers for the HAR.  Before calling or e-mailing with questions concerning expense allocation, please make sure that both the hospital’s audited financial statement and Medicare Cost Report have been sent in.  If you are struggling with this section and are unable to reasonably fill it in, please call MHA first before submitting the HAR so that any issues can be resolved before the audit process begins.

If All Else Fails