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Methodology for Allocating Costs

Costs are allocated on a patient-by-patient basis.  Each patient's bill contains charges by revenue center.  We convert these charges to costs using a cost-to-charge ratio (RCC) for each revenue center.  The corresponding RCCs are derived from the hospital's cost report per the chart below.

For example,  if a patient had $300 in pharmacy charges and the hospital's RCC for pharmacy was 0.5000, then the cost would be allocated as $150 (300 x 0.5000 = 150). 

Revenue center costs are then totaled to determine the total costs for each patient.  Patients are subsequently summarized for reporting by DRG, by Medical Service, etc.  

The following information details how revenue (from patient bills) and cost to charge ratios (from hospital cost reports) are cross-referenced for cost allocations:


ROUTINE SERVICES

Routine Accommodations (Private, Semi-Private, and Wards)

  • Revenue Codes:  10X - 19X

  • Cost Center:  Worksheet C, Part I, line 30

ICU Accommodations

  • Revenue Centers: 20X

  • Cost Center: Worksheet C, Part I, lines 31, 33 - 35

CCU Accommodations

  • Revenue Centers: 21X

  • Cost Center: Worksheet C, Part I, lines 32

ANCILLARY SERVICES

Ambulance

  • Revenue Centers:  54X

  • Cost Centers: Worksheet C, Part I, line 95

Anesthesia

  • Revenue Center: 37X

  • Cost Centers: Worksheet C, Part I, line 53

Blood

  • Revenue Centers:  38X

  • Cost Centers:  Worksheet C, Part I, lines 62

Blood Administration

  • Revenue Centers:  39X

  • Cost Centers:  Worksheet C, Part I, lines 61, 63

Cardiology Catheterization

  • Revenue Centers:   481

  • Cost Centers:  Worksheet C, Part I, lines 59

Cardiology Non-Catheterization

  • Revenue Centers:   48X (Excluding 481 Cardiology Catheterization) and 73X

  • Cost Centers:  Worksheet C, Part I, lines 69

Clinic

  • Revenue Center:  51X

  • Cost Centers:  Worksheet C, Part I, lines 88 - 90

CT Scan

  • Revenue Center: 35X

  • Cost Centers:  Worksheet C, Part I, lines 57

Dialysis

  • Revenue Centers:  80X, 82X - 88X

  • Cost Center:  Worksheet C, Part I, line 74

Durable Medical Equipment

  • Revenue Centers:  29X

  • Cost Centers:  Worksheet C, Part I, lines 96, 97

Emergency Room

  • Revenue Center:  45X

  • Cost Center:  Worksheet C, Part I, line 91

Implantable Devices

  • Revenue Center: 275, 276, 278, 624

  • Cost Center:  Worksheet C, Part I, line 72

Lab, EEG

  • Revenue Centers: 30X, 31X, 74X, 75X

  • Cost Centers:  Worksheet C, Part I, lines 60, 70

Labor and Delivery Room

  • Revenue Centers:  72X

  • Cost Centers:  Worksheet C, Part I, lines 52

MRI

  • Revenue Centers:  61X

  • Cost Centers:  Worksheet C, Part I, lines 58

Occupational Therapy

  • Revenue Centers:  43X

  • Cost Centers:  Worksheet C, Part I, lines 67

Operating and Recovery Room

  • Revenue Centers:  36X, 71X (Excluding 716), 79X

  • Cost Centers:  Worksheet C, Part I, lines 50, 51

Organ Acquisition

  • Revenue Centers:  81X, 89X

  • Cost Centers:  Worksheet C, Part 1, lines 105 - 112

Outpatient Services

  • Revenue Centers:  49X, 50X

  • Cost Centers:  Worksheet C, Part 1, lines 75

Pharmacy

  • Revenue Centers: 25X, 26X, 63X

  • Cost Centers: Worksheet C, Part I, lines 64, 73

Physical Therapy

  • Revenue Centers:  42X

  • Cost Centers:  Worksheet C, Part I, lines 66

Radiology

  • Revenue Centers 28X, 32X, 33X, 34X, 40X

  • Cost Centers:  Worksheet C, Part I, lines 54 - 56

Repiratory Therapy

  • Revenue Centers:  41X, 46X

  • Cost Centers:  Worksheet C, Part I, lines 65

Speech Therapy

  • Revenue Centers:  44X, 47X

  • Cost Centers:  Worksheet C, Part I, lines 68

Supplies

  • Revenue Centers:  270 - 274, 277, 279, 62X (Excluding 624)

  • Cost Centers:  Worksheet C, Part I, line 71

Other

  • Revenue Centers:  002-099, 22X, 23X, 24X, 52X, 53X, 55X - 60X, 64X - 70X, 76X - 78X, 90X - 95X, 99X

  • Cost Centers:  Worksheet C, Part I, line 76, 92 - 94, 98, 99

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TECHNICAL NOTES:
Cost allocations are based on a hospital's cost reporting period most closely coinciding with the federal fiscal year of its Medicare claims data.  Costs are not allocated for hospitals that do not have a recent cost report (i.e. a cost reporting period ending no more than 30 months prior to the federal fiscal year end of claims data) or that do not have sufficient data (i.e. a recent reporting period of at least six months with both costs and charges reported).  If a departmental cost-to-charge ratio is zero, indefinable, or unreasonable then a national median ratio is used.