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COMPTROLLER GENERAL OF THE UNITED STATES
WASHINGTON, D.C. 20548
B-164031(4)JANV 2 0 1975 0 C
The Honorable Walter F. Mondale
United States Senate
Dear Senator Mondale:
At your request we have examined into the appropriateness and
equity of the methods of allocating costs between Holy Trinity A ]ZA
I Hospital in Graceville, Minnesota, and its attached board and care
facility for Medicare reimbursement purposes.
The administrator of the hospital had stated that a change in
Medicare cost reporting requirements for small hospitals would
reduce its Medicare reimbursement. Holy Trinity Hospital is a comn-
bined hospital and nursing home. The nursing home does not partici-
pate in Medicare and therefore no portion of the costs allocated to
the nursing home would be reimbursed by the program. The administra-
tor stated that, under the new Medicare cost reporting requirements,
more costs would be allocated to the nursing home and less to the
hospital than would be allocated under the previously authorized
allocation methods. Because hospital costs would be less, Medicare's
share of the combined hospital and nursing home costs would be less.
We talked with Mr. Patrick Finn, Manager, Third-Party Reimbursement,
for Robert G. Engelhart and Company, a firm of certified public account-
ants which serves Holy Trinity Hospitaland other small hospitals in
Minnesota and in other States.
Mr. Finn advised us that other hospitals were losing money because
of the change in Medicare cost reporting requirements. He noted that
the losses were greatest to hospitals, such as Holy Trinity, with
nursing homes. Mr. Finn provided us with additional data which is
discussed later.
Some background on Medicare reimbursement would be beneficial in
understanding the problem.
BACKGROUND
Hospitals participating in Medicare are paid for the cost of their
services based on cost reports prepared using cost allocation'methods
specified by Medicare regulations and instructions.
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