Cost Report Update 2022



Ahhh…the cost report. The mere mention of completing and filing a cost report excites every person in hospital finance. It’s almost like mentioning pumpkin spice when Fall rolls around.

Ok, so while this statement may not be entirely true, we all know that a cost report needs to be filed every year, and it is just part of the process of being a hospital. One can argue that every single part of the cost report is important – from the matching principle of getting all costs and charges reported in the same department, to every A-6 reclass, every A-8 adjustment, all of the B-1 statistics to get costs allocated properly, RHC costs and visits, and so on.

All the aforementioned topics are extremely important, but when the entity reviewing cost reports tells you something important, you pay just a little more attention. If the IRS issues a memo saying that they are going to be auditing tax returns, concentrating on a handful of issues, you can be sure every tax preparer in the country would be spending just a little more time to ensure that those issues are properly reported. The same is true for the Medicare cost report. So, while the issues are not new, the emphasis on these issues bears repeating.


Paperwork Reduction Act – New Cost Report Documentation Requirements

We all know that when we hear the words government and paperwork reduction, there is a whole pile of work added to our already busy schedule. In this case, we are referring to the specific topics of interns and residents, Medicare bad debts, disproportionate share hospital eligible days, and home office costs. In each of these cases, the documentation requirements are being newly required, have been tweaked, or are being enforced in a manner that they may not have been before.

Individually, we could spend a whole day or multi-page directive on the requirements of each of these issues. The requirements for bad debts and the changes of the last couple of years are the most impactful for most of you. These changes and the detail in which Medicare has addressed bad debts are significant. If you are claiming Medicare bad debts on the cost report, ensure that these bad debts have been properly classified and the proper collection and reporting procedures for each classification have been followed. Here is a brief synopsis from the 2021 IPPS Final Rule:

CMS has established definitions of three types of MBD.

1. Non-indigent beneficiary: A person who has not been determined to be categorically or medically indigent by a State Medicaid Agency

  • Collection effort must be similar to the effort used for non-Medicare accounts
  • Issue a bill within 120 days of the remittance advice date
  • Reasonable collection effort
  • “120-day Rule – Collection effort must last at least 120 days from the date of the initial bill before write-off; Clock starts over with every payment
  • Documentation required:
    • Bad Debts collection policy
    • Patient account history
    • The beneficiary’s file with copies of the bill(s) and follow-up notices

2. Dual eligible beneficiary: A person who is enrolled in Medicare (Part A, Part B, or both) and is also enrolled in Medicaid

  • Must-bill policy – Provider must have Medicaid RA to be allowable

3. Indigent by provider: A person who is non-dual eligible and has been determined to be indigent under the provider’s P&P for determining indigency per the PRM

  • Provider must use its P&P using the requirements of PRM §312 A – D
    • The beneficiary must not be eligible for Medicaid as categorically or medically indigent,
    • Benficiary declaration may not be used as sole proof of indigence or medical indigence,
    • Must take into account the analysis of BOTH the beneficiary’s assets AND income
    • Must determine that no source may be legally responsible
    • Must maintain and, upon request, furnish the MAC with the provider’s indigence determination policy and method of determining indigence

Other Considerations:

  • Effective for MCRs beginning on/after 10/1/2020, charity and courtesy allowances represent reductions in revenue.
  • Effective for MCRs beginning before 10/1/2020, Medicare bad debts must not be written off to a contractual allowance account but must be charged to an expense account for uncollectible accounts.
  • Effective for MCRs beginning on/after 10/1/2020, Medicare bad debts must not be written off to a contractual allowance account but must be charged to an uncollectible receivables account that results in a reduction of revenue.


Provider-Based Physicians

On the Medicare cost report, the time/cost physicians spend in direct patient care activities must be offset on worksheet A-8-2 and removed from allowable costs. These physician compensation situations require clear contractual delineations or allocation agreements, including actual time records or valid time studies. The only exceptions to this reporting and documentation requirement are if the arrangement is for a 100% physician component (entirely offset on the cost report) or 100% provider component (with evidence of no reassigned billing rights).

Conducting a valid time study or tracking 100 percent of the time in this scenario helps facilities track how much time the providers are spending directly related to patient care. Absent these items, Medicare may offset the entire ER physician cost instead of only the cost associated with time directly related to patient care. Time records and physician signatures must be contemporaneous with the cost reporting period (cannot use a time study from another fiscal year or time period). This issue is an area of emphasis from CMS and the MACs. Work with your cost report preparer to ensure you are properly prepared to submit this data on your cost report.

If you have any questions on these topics or would like assistance preparing or reviewing your Medicare Cost Report, please contact us.





Kirk Delperdang is a Healthcare Director at Lutz with over 28 years of experience. He provides healthcare enrollment services to clients with a focus on Medicare providers and reimbursement analyses. In addition, he is responsible for leading Lutz's cost report service line.

  • Healthcare Financial Management Association - Nebraska Chapter, Member
  • Nebraska Society of Certified Public Accountants, Member
  • Certified Public Accountant
  • BA in Accounting, University of Northern Iowa, Cedar Falls, IA
  • St. Vincent de Paul, Knights of Columbus, Member
  • Active in various youth sports leagues: Aldrich Elementary, Millard Athletic Association, Millard North Schools, Omaha FC, Skutt Catholic High School and YMCA


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