Review of Select Medicare Conditions of Participation and Costs Claimed at Richards Memorial Hospital from October 1, 2004, Through September 30, 2007

Our review found that Richards Memorial Hospital (the hospital) was noncompliant with a Medicare Condition of Participation (CoP), reported unallowable costs in its Medicare cost reports, and did not properly disclose related-party rental costs. Contrary to Federal regulations, the hospital did not comply with a Medicare CoP because it did not maintain current and active network agreements with other hospitals during our audit period. The hospital also reported approximately $1 million of unallowable costs in its FYs 2005, 2006, and 2007 Medicare cost reports. Specifically, the hospital reported $804,000 in unsupported costs, $198,000 in unallocable costs, and $58,000 in costs unrelated to patient care. Additionally, the hospital did not properly disclose $213,000 in related-party rental costs in its Medicare cost reports.

We recommended that the hospital (1) establish and maintain network agreements with other hospitals; (2) revise and resubmit its FYs 2005, 2006, and 2007 Medicare cost reports to properly reflect the exclusion of the $1 million of unallowable costs and the disclosure of $213,000 of related-party rental costs; and (3) ensure that it reports only allowable costs and properly discloses related-party transactions in future Medicare cost reports. In written comments on our draft report, the hospital disagreed with our first recommendation, did not specifically address our second recommendation, and concurred with our third recommendation.