Medhealth Review

The Value of an Independent Cost Report Review

An accurate and complete Medicare Cost Report should be a top priority for hospital CFOs and Chief Compliance Officers.

The Medicare Cost Report continues to play a critical role in the determination of Medicare reimbursement to hospitals and health systems. With the appropriate understanding and review, this report can assist management in future budgeting, decision support and strategic planning.  

Having an expert review your Cost Report can identify missed revenue opportunities and uncover errors prior to submission, among other benefits.

The hospital administrator must certify that its Cost Report is compliant with Medicare regulations. Any misrepresentation could jeopardize the facility’s participation in the Medicare program. 

In addition, fraudulent certification supports an action under the False Claims Act (FCA). A cost report review can provide additional peace of mind around cost report compliance.

The Medicare Cost Report Explained

Providers that participate in the Medicare program must submit an annual Medicare Cost Report to their Medicare Administrative Contractor (MAC).   

The Medicare Cost Report includes patient statistics (visits, discharges and days) along with details on the provider’s revenue and expenses. Information regarding the provider’s payer mix is another important part of the Medicare Cost Report.  

This data is submitted and separated by hospital services. The Medicare Cost Report determines each provider’s total costs and charges associated with all patients and allocates a portion of these costs and charges to Medicare patients. The amount is then compared to the payments received by the provider from Medicare and then a settlement is calculated. 

Common Errors and Potential Loss of Revenue

Although the software used by most hospitals will prevent many arithmetic errors, the Cost Report can be complicated to complete, and some simple errors can have a substantial impact on any payment required by the provider.  

Common errors include:

  • Incomplete or incorrect answers on worksheet S-2 can impact which worksheets the software makes available for you to complete, possibly leading to the submission of an incomplete Medicare Cost Report and an incorrect settlement calculation.
  • Improper entry of bad debt or charity care amounts on the S-10 is common and can impact uncompensated care payments.
  • Entering incorrect resident FTEs or not accurately reporting prior year resident-to-bed ratios can impact Indirect Medical Education (IME) payments. Note: In the FY2023 IPPS Final Rule, there was an update to FTE cap calculation. This is especially impactful for hospitals operating over their cap.

Although none of the above errors are reason to reject a hospital’s cost report, an experienced cost report reviewer can identify these kinds of errors as well as more severe ones. 

Many errors can be fixed before submission which would allow the hospital to receive a corrected payment without having to wait for final settlement of the Medicare Cost Report. Sometimes a hospital will have to file an amended cost report – adding more work for their staff.

A Source of Additional Revenue

During a proper cost report review, you should expect the reviewer to point out potential opportunities to increase revenue. 

Examples of potential revenue opportunities include:

  • Pass-through Payments
  • CBSA Reclassification
  • Disproportionate Share (DSH) Eligible Days
  • Medicare Bad Debt Cases
  • S-10 

Making More Efficient Use of Staff Time

A Medicare Cost Report Review can have a number of positive impacts on hospital staff time.

After a Medicare Cost Report, which should include the delivery of a detailed report explaining the reviewer’s findings and suggested changes, hospital staff should be better educated and more likely to properly prepare the Cost Report in future years.

A more complete and compliant Medicare Cost Report may result in fewer questions during an audit and fewer audit adjustments. This reduces hospital staff time required to review and respond to audit requests (clarifying issues, compiling additional data, etc.).

Ultimately, after a thorough Medicare Cost Report review, hospital staff should have more time to dedicate to other priorities.

Because the Medicare Cost Report continues to play a critical role in the determination of Medicare reimbursement to hospitals and health systems, it’s important for these entities to have their Medicare Cost Reports reviewed annually.  

In the current environment, hospital staff are very often challenged to allocate their time and resources toward the preparation and thorough review of the Medicare Cost Report.  

A thorough review can identify common errors and uncover opportunities for additional revenue, while ensuring that potential appeal issues are preserved.

Finally, the C-level certification required on the Medicare Cost Report and the associated False Claims Act and compliance ramifications make it a wise choice to implement an independent Medicare Cost Report review.


By Christina Brown, Director of Reimbursement Services, Besler

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