Overview of Medicare Cost Reports

Institutional providers certified by the Medicare program are required to submit cost reports to Medicare Administrative Contractors (MACs) annually (Centers for Medicare and Medicaid Services [CMS], 2016). CMS makes cost report data available for providers who have passed all HCRIS edits, similar to an auditing process. HCRIS may reject some cost reports, and in these cases, the MACs are responsible for correcting and resubmitting data.

Each year of cost report files includes a report and raw data, which are linkable using a unique identifier. The report contains the provider number, dates, and report status (e.g., settled, as submitted, reopened). The alphanumeric data file includes all text entered on the cost report, such as name, address, and fields requiring yes/no responses; the numeric file includes fields such as costs, charges, and ratios. These files are available by fiscal year and are updated quarterly.

Claims data are often used by calendar year, not fiscal year like the cost report data. Thus, service dates associated with claims may span more than one cost report, requiring the analyst to develop decision rules about which cost report should be matched to cover these claims. For example, a long SNF stay that crosses the fiscal year may be parsed out to match the cost reports corresponding with the dates of service. Alternatively, an analyst may determine what proportion of the SNF stay falls in each fiscal year and match the SNF claim with the cost report that covers the majority of the SNF stay. For simplicity, matching either the admission or discharge date with the corresponding cost report may also be practical.

Medicare Cost Reports

A series of forms that collect descriptive, financial, and statistical data to determine:

  • Medicare over or underpaid the provider
  • Facility that cares for Medicare patients
  • Facility receives Medicare payment
  • Collect information for use in setting prospective payment rates
  • Wage Index
  • DSH adjustment
  • Outliers
  • Providers submit cost reports annually
  • Cost reports are available for institutional providers
  • Not required for physicians or other non-institutional providers
  • The only national data available for all types of providers (non-profit, for-profit, government)
  • The worksheets collect the following types of information:
  • Facility characteristics (ownership status, type of facility)
  • Statistical
  • Financial
  • Cost
  • Charge
  • Wage Index information

Types of Facilities Submitting Cost Reports

  • Hospitals
  • Skilled Nursing Facilities
  • Home Health Care Agencies
  • Hospices
  • Renal Dialysis
  • Independent Rural Health Clinic and Freestanding Federally Qualified Health Center

Types of Facilities Submitting Cost Reports

  • Facilities that submit cost reports but they are not currently available as a downloadable file.
  • Organ Procurement Organization and Tissue Typing Laboratory

Types of Facilities Not Included

  • Cost reports are NOT required and therefore, NOT available for the following providers.
  • Federal Hospitals
    » Veterans Hospitals
    » Indian Health Services Hospitals
  • Some children’s hospitals
  • Emergency Hospital (hospitals outside of the US)
  • Represents about 10% of all hospitals
  • Source: CMS Data Compendium, 2011 Edition, Table VI.1.

Types of Research

  • Examine facility characteristics
  • Determine financial health of a facility
  • Calculate cost
  • Examine facility characteristics
  • Facility size (beds)
  • Teaching facility
  • Ownership (for-profit, non-profit, government)
  • Total Beds
  • Total Patient Days
  • Total Discharges
  • Most found on Worksheet S-3, Part I
  • Determine financial health of a facility
  • Revenues
  • Expenses
  • Net income (or loss)
  • Payer Mix (Medicare, Medicaid, All Other)
  • Bad debt
  • Charity Care/Uncompensated care collected for Hospitals
  • Worksheet G-3, S-3, Part I, and S-10
  • Calculate cost
  • Cost information will vary by the facility submitting the information
  • Hospitals submit cost and charge information
  • SNFs submit cost per day
  • HHA submit cost per visit
  • Hospice submit cost per day
  • Renal Dialysis submit cost per treatment
  • Rural Health Clinics submit cost per visit
  • Total costs for all patients
  • Medicare costs
    Types of Research that can NOT be conducted
  • Physician ‘cost’? Physicians don’t submit cost reports
  • Discharges and cost by MS-DRG or other specific procedure
  • Cost reports collect general information by cost center
  • Detailed payer mix (discharges, revenues)
  • Cost reports collect discharges and revenues for Medicare, Medicaid, and Total
  • Annual data available
  • Available for institutional providers
  • Includes facility characteristics, financial information, and cost and charges
  • The only national data available for all types of providers (non-profit, for-profit, government)

Final Reimbursement- Acute Care PPS Hospitals
• Medicare bad debts (at 70%)
• Indirect and Direct Medical Education Costs
• Allied Health Costs
• Disproportionate Share Medicare Hospital payments
• Additional payments for Medicare Dependent Hospitals
• Additional payments for Sole Community Hospitals
• Organ Transplant Costs
• Outpatient Transitional Corridor Payments (TOPs)
• Qualification for 340 (b) Drug Program
• Calculation of Health Information Technology Reimbursement
• Wage data (used for future period PPS payments)
• Application of sequestration (4-1-13 and after)
• Calculation of final annual HIT payments

• All filed Medicare cost reports are subject to review by the servicing MAC

  • May be reviewed as a desk review or field audit
  • Maintain all documentation used in the preparation so it is readily available
  • The MAC prepares an audit adjustment report (AAR)
  • A Notice of Program Reimbursement (NPR) is issued with an amount due Program/Provider

• PS&R is a national provider statistical and reimbursement reporting system developed in 1984 by CMS (formerly HCFA)
• The PS&R reports compile each provider’s Medicare paid claims data and summarizes it for use in the Medicare Cost Report


Other Users of Filed/Settled Cost Reports
• Medicare Contractors
• Federal Agencies (CMS, OIG, DOJ, IRS, FBI)
• State Medicaid Programs
• Competing entities
• Other non-hospital Providers
• Commercial Payers and Part C Contractors
• Others
Note: Filed and Settled Medicare Cost Reports are available under the Freedom of Information Act (FOIA)

Medicare Contractors

The Statement of Work requires specific procedures and deadlines for the submission and settlement of all cost reports for serviced providers
• Timely acceptance and submission to HCRIS
• Performance of audits, desk reviews
• Issue NPRs timely and process appeals timely
• Establish interim rates and perform interim rate reviews
• Performance of wage index audits of W/S S-3 Parts II & III
• Complete deliverables issued by CMS, OIG etc.
• Timely complete FOI request

New Hampshire Medicaid

• Inpatient costs are developed in accordance with Medicare Principles of Reimbursement. No settlement is performed as inpatient costs are paid prospectively.
• Outpatient Medicaid costs are calculated in accordance with Medicare Principles of Reimbursement (with some exceptions). A settlement is performed for most outpatient costs
• Outpatient Final Medicaid Payments PPS Hospitals-are paid 54.04 % of reasonable Medicaid costs CAHs-are paid 91.27% of Medicaid reasonable costs (As of
September, 2013)
Vermont Medicaid
• Inpatient Medicaid costs are calculated in accordance with Medicare Principles of Reimbursement. No settlement is performed as inpatient costs are paid prospectively.
• Outpatient Medicaid costs are calculated in accordance with Medicare Principles of Reimbursement (with some exceptions). No settlement is performed as outpatient costs, are paid prospectively effective May 1, 2008.

Missing Data and Outliers
On occasion, the data in the Medicare cost reports are incomplete, missing, or erroneous. In this section, we detail methods for handling outliers and imputation that are computationally simple and not very resource intensive.

Data may be entirely missing for a provider in the Medicare claims data or components of the routine or special care costs per day, ancillary CCRs, or HHA visits may be missing. When this occurs, analysts may still need to include a provider in their work. To do so, the missing values can be imputed. Routine and special care costs per day, ancillary CCRs, and HHA visit costs should each be imputed separately. Additionally, the imputation should be done separately for freestanding, hospital-based, and SNF-based providers due to the differences in their cost structures. Only missing data should be imputed; it is possible, and likely, that providers will have a value of zero for special care (IRFs and LTCHs), some ancillary services (IRF, LTCHs and SNFs), or visit types (HHAs), which can be valid. In these cases, imputing missing cost report data will not affect claims data analysis because the claims will not include charges for the services with imputed costs.

Discussion of Limitations

Analysts should consider several limitations when calculating costs for Medicare claims using Medicare cost report data. These limitations, in large part, concern the availability and accuracy of the Medicare cost report data itself. Medicare cost report data are often incomplete, and frequently data fields are inaccurately reported when the forms are completed. When dealing with the cost report data, analysts must examine the distributions and counts of missing fields carefully. We detailed important considerations and technical approaches for identifying and addressing issues such as Winsorization of outlier values and imputation of missing data. Our approach gives analysts flexibility and greater control when addressing these commonly encountered issues with Medicare cost report data.

This paper expands claim-level hospital cost calculations to PAC providers. The approaches for calculating costs vary by PAC provider type and require the use of the Medicare cost report data and Medicare claims data. The methods for calculating PAC Medicare claim cost provide detailed information (worksheet, column and line numbers) for identifying the cost report fields and handling commonly arising issues of missing information and outliers. For institutional PAC providers, the methods presented are based on routine and special care costs per day and provider-level cost-center–specific CCRs. For HHAs, the method calculates costs per visit by type and a supplies cost, which are then summed. This type of approach is advantageous because it allows for more precise cost estimates and enables analysts to understand the components that drive overall provider costs.