Guide to Cost Report Preparation

Why Medicare Cost Reports Are Crucial

Medicare cost reports are foundational documents for healthcare providers. They serve several critical purposes:

• Determining Reimbursements: Accurate cost reports directly impact current and future payments from programs like Medicare and Medicaid.
• Shaping Policy: Congress and the Centers for Medicare and Medicaid Services (CMS) rely on cost report data to set reimbursement rates and develop healthcare policies.
• Driving Operational Decisions: Insights from cost reports help hospitals and healthcare organizations assess financial performance and make strategic decisions.

Errors or delays in filing can lead to significant financial repercussions, making precise and timely preparation essential. These reports are tools that can enhance economic stability and operational efficiency when managed correctly.

Key Steps for Effective Cost Report Preparation

Creating precise and compliant cost reports begins with a clear strategy. Below are four core areas to address:

1. Understand Your Facility’s Unique Needs

Every healthcare facility is different. Tailoring your approach starts with understanding your organization’s specific reporting requirements:

• Required Forms: Identify the correct CMS forms for your facility type. For instance, hospitals use CMS 2552-10, while home health agencies rely on CMS 1728-20.
• Facility Classification: Determine whether your organization qualifies for special designations, such as Critical Access Hospital (CAH) or Disproportionate Share Hospital (DSH) payments.
• Operational Changes: Evaluate recent changes in your facility’s operations, such as added or closed services, bed size adjustments, or changes in ownership structure. Updates like these can significantly impact cost report data and reimbursement.

Facility characteristics, from service lines to classifications, directly influence reporting requirements. A thorough understanding lays the groundwork for an accurate and compliant cost report.

2. Master Your Data

Comprehensive data collection is the backbone of cost report preparation. Key data sources to analyze and include are as follows:

• General Ledger: A summary trial balance capturing the financial activities of your facility, with fields like department/accounting unit, YTD amount, company ID, and related information.
• Payroll Records: Detailed reports of salaries, hours worked, and job classifications.
• Revenue and Usage Reports: Insights into patient census, service utilization, and financial performance.
• Provider Statistical and Reimbursement (PS&R) Data: Essential for reconciling claims and Medicare payments.
• Specific Purpose Data: Data points such as MAC or Internal Payment Notifications, allocation statistics, intern and resident data, CMS exhibits, transplant and rural health clinic/home health agency/hospice/renal data.

Equally important is verifying data accuracy. Regular reconciliations between your general ledger, payroll data, and PS&R reports help ensure consistency and will lead to easier preparation. 

For instance, discrepancies between payroll data and reported salaries can lead to audit complications or reimbursement delays. By addressing these issues early, you’ll set a strong foundation for the rest of the process.

3. Use Technology for Efficiency

Automation can significantly reduce the burden of cost report preparation. Leverage tools like Excel or specialized software for data processing, analysis, and reconciliation. While manual processes may be necessary for unique cases, automation ensures uniformity and saves valuable time.

Some tools to consider include:

• Cost Report Preparation Software: Cost Report Preparation Software, such as BESLER’s Easy Work Papers, streamline data compilation and offer error-checking capabilities to ensure compliance with Medicare requirements.
• Workflow Management Platforms: Tools like project management software can help track progress, assign tasks, and ensure your team meets deadlines.
• Cost Report Forms Software: Software for Cost Report Forms such as BESLER OMNIA for Hospital 2552-10 is required for electronic filing of the Hospital Cost Report.
• Electronic Submission Platforms: Medicare Cost Report Electronic Filing (MCReF) expedites the submission process.

Efficient tools paired with a well-trained, experienced team can transform an overwhelming process into a manageable one.

4. Focus on High-Impact Areas

Some areas of your cost report require special attention due to their potential financial impact:

• Disproportionate Share Hospital (DSH) Payments: Ensure Medicaid days and uncompensated care amounts are accurately reported.
• Wage Index Adjustments: Include all relevant labor costs, such as contracted labor and related organization salaries.
• Medical Education Costs: Document changes to FTE caps, resident counts, and affiliation agreements.
• Organ Acquisition Costs: Pay close attention to transplant-related data and special worksheets.

Ignoring these critical areas can lead to lost reimbursement opportunities or compliance risks. A focused review ensures your report is both accurate and financially optimized. BESLER’s experienced subject matter experts are also here to help, providing in-depth cost report reviews and assistance.

Overcoming Common Challenges

Preparing Medicare cost reports introduces unique obstacles, from managing complex data to meeting tight deadlines and addressing staff turnover. Implementing clear strategies for reconciliation, training, and planning can help you overcome common hurdles and ensure accurate, timely submissions.

Data Complexity

Cost reports require integrating data from various sources, including general ledgers, payroll systems, and usage reports. Without a precise method for reconciling these inputs, inconsistencies can arise. For example, discrepancies between the general ledger and trial balance can lead to total salary misreporting or incorrect departmental expenses.

To overcome data complexity challenges, consider employing the following strategies:

• Cross-check key data sources: Reconcile your general ledger with payroll data and PS&R reports to ensure alignment across systems.
• Use standardized allocation statistics: For elements like square footage or FTEs, adopt consistent methodologies as outlined in Worksheet B-1.
• Account for adjustments: Review the prior year’s audit findings or CPA adjustments for impacts on current cost reports, ensuring how you treat new accounts aligns with Medicare requirements.

Accurate reconciliations not only improve reporting accuracy but also build confidence in your organization’s financial data.

Time Constraints

Medicare cost reports are due within five months of an organization’s fiscal year-end, a deadline that leaves little room for error or delay. While Medicaid state reports vary from one to the next, they are also generally due at the same time as the Medicare cost report. Facilities often struggle with time management due to late data availability or unresolved questions about reportable items.

A clear timeline is essential. Below is an example of a structured plan:

• Weeks 1-4: Begin with data collection, including your general ledger, payroll, and revenue usage data. Simultaneously, verify accuracy and address known gaps.
• Weeks 5-6: Conduct a preliminary data review, emphasizing PS&R reports and identifying sections that require follow-up.
• Weeks 7-11: Process individual report sections, apply allocation statistics, and prepare preliminary drafts.
• Weeks 12-13: Address any unresolved issues and incorporate feedback from internal reviews.
• Weeks 14-17: Finalize key sections, order updated PS&R data, and prepare for the audit trail.
• Weeks 18-20: Review the draft report comprehensively, resolve any outstanding items, and submit the final report.

By adhering to a timely plan, facilities can reduce stress and meet deadlines without compromising accuracy.

Staff Turnover and Knowledge Gaps

Turnover in key financial and reimbursement roles can severely impact your organization’s cost report preparation. Inexperienced staff may overlook critical details, such as nuances in Medicaid-eligible days or wage index calculations.

To mitigate this risk, perform the following:

• Document workflows: Develop detailed checklists and guides meeting your facility’s unique needs to ensure continuity regardless of staffing changes.
• Leverage prior-year notes: Historical records, including past audits and cost report findings, provide valuable context and help prevent recurring errors.
• Invest in training: Equip new team members with the knowledge to navigate key components like Worksheet S-10 for uncompensated care or A-6 salary reclassification entries.

Cross-training staff also ensures institutional knowledge is shared broadly, reducing the impact of turnover on future reporting cycles.

Building a Comprehensive Plan

Laying the groundwork for cost report success involves early organization, clear, aligned goals, and in-depth reviews. Leveraging tools and aligning teams can help your healthcare organization stay compliant, maximize reimbursements, and reduce audit risk.

Organize Early

Preparation should begin well in advance of the fiscal year-end. Start by gathering documentation, including prior-year reports, internal review notes, and audit findings. Identify vital data sources, such as revenue codes and patient days, and ensure responsible teams align on expectations.

Use Checklists

Checklists can simplify the preparation process. For instance, BESLER’s Medicare cost report checklist outlines essential tasks, such as:

• Reviewing cost allocation methods.
• Reconciling internal and external financial reports.
• Ensuring completeness of Medicaid-eligible day listings and charity care documentation.

Establish Goals

Set specific objectives for your cost report preparation. These might include:

• Achieving compliance by submitting a timely, accurate report.
• Maximizing reimbursements through detailed documentation of wage index adjustments or organ acquisition costs.
• Reducing risks by creating a robust audit trail.

Conduct Thorough Reviews

Meticulous review processes are essential to avoid costly mistakes. Tasks include validating allocation statistics (e.g., patient meals or square footage) and reconciling payroll records with reported wage costs. Be sure to cross-reference supporting documents like Exhibit 2A for Medicare bad debts and Exhibit 3B for charity care charges.

Simplify Your Cost Report Preparation with BESLER

Navigating Medicare cost reporting can be challenging, but with the right resources and guidance, it becomes manageable. BESLER offers comprehensive solutions tailored to your organization’s unique needs. From detailed checklists to expert-led webinars, we provide the tools and insights necessary to ensure compliance and maximize your reimbursements.

Are you ready to take control of your cost report preparation process? Sign up for our newsletter to stay informed about the latest trends, best practices, and industry updates. 

You can also schedule a meeting with one of our experts to discuss how we can support your organization with tailored reimbursement strategies.