cost reporting



Bad Debts – General

Eligible Medicare bad debts can be claimed for reimbursement through the Medicare cost report. For Critical Access Hospitals (CAHs), the reimbursement percentage was at 100% before FY 2013 – since then, in FY 13, it was reduced to 88%, 76% in FY 14, and 65% in FY 15 (the current rate as of this article).

Certain rules that need to be followed in order to claim Medicare bad debt on the cost report. First, bad debt can only be claimed on a cost report that is deemed “uncollectible,” as defined by CMS. Second, it must be related to covered services derived from the deductible and coinsurance amounts. Lastly, sound business judgement should establish that there was no likelihood of recovery at any time in the future.

A provider must also submit the Medicare bad debt in a specific template (more to come), including all data elements such as:

  • Patient identification
  • Date the first bill was sent to the beneficiary
  • The date collection efforts ceased
  • Deductible or coinsurance amount


Bad Debts – Cost Report Documentation Requirements & Templates

On August 17, 2018, a new Federal Register requirement was implemented, impacting bad debts for all cost reporting periods beginning on or after October 1, 2018 – specifically the documentation and submission requirements.

Excerpt from 83 FR 41677 (August 17, 2018)

“Effective for cost reporting periods beginning on or after October 1, 2018, for providers claiming Medicare bad debt reimbursement, a cost report will be rejected for lack of supporting documentation if it does not include a detailed bad debt listing that corresponds to the bad debt amounts claimed in the provider’s cost report.” 

Prior to this new requirement, inappropriate or inaccurate bad debt support “only” resulted in a desk review adjustment.  Now, unreconciled bad debt amounts may lead to a rejected cost report.


Home Office/Related Party

Just as Home Offices and management agreements have been around for decades, CMS Pub. 15-I Chapter 10 has been in place, governing the reporting of costs to related organizations.  These related organizations often take the form of a Home Office.  However, these may also be organizations that furnish management services or administrative services, through an agreement between entities.

The evolution of the healthcare industry, specifically with respect to rural healthcare, has forced rural hospitals to find ways to become more efficient and lower overall healthcare costs at their facility.  These advancements, in an ever-changing industry, have some rural facilities engaging in agreements for management and administrative services to save costs.  Medicare is keeping pace with these arrangements in their reviews and cost report submission requirements.

Excerpt from 83 FR 41677 (August 17, 2018)

“Effective for cost reporting periods beginning on or after October 1, 2018, for providers claiming costs on their cost report that are allocated from a home office or chain organization that has a different fiscal year end, a cost report will be rejected for lack of supporting documentation if the home office or chain organization has not completed and submitted to the chain provider’s contractor a Home Office Cost Statement that corresponds to some portion of the amounts allocated from the home office or chain organization to the provider’s cost report. 

Based on these new requirements, it would be prudent to have all related party/home office cost support in order when you file your cost report.





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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