Home Health Cost Reports – Part 2

Yesterday we discussed the uses of Cost Report data and the direct relationship such information has on your overall profitability.  Today, we are continuing with Cost Reports, but focusing on requirements and data that is necessary to complete an accurate report.

Cost Reports generally cover a 12 month period and filed annually, usually by May 31 each year.  Cost Reports can be for shorter periods such as changes in ownership.  Low utilization Cost Reports can be filed for agencies who have generated less than $200,000 in reimbursement for 12 months. Medicare Cost Reports must be submitted in an electronic file, usually on a CD.

The exciting portion of Cost Report filings is how your financial data is reported.  Many agencies that have been operating before the implementation of PPS used the cash basis (when you receive payment and pay an expense) of accounting.  However, a requirement of Cost Report data is that all financial information is reported using the accrual method (revenue is recognized when billed, not received and expenses record in the period incurred, not necessarily paid).

CMS uses terminology that you probably don’t use every day.  A ‘cost center’ is a unit within an organization that has common functions and purpose allowing direct and indirect costs to be associated. ‘General services’ is expenses that is shared by the organization as a whole and can’t be strictly associated with one particular cost center.  These expenses include operating expenses such as administrative staff and expenses, building maintenance and transportation.

A ‘reimbursable cost center’ (allowed) is a defined cost center that Medicare has approved as an allowed expense.  ‘Non-reimbursable cost centers’ (non-allowed) is a cost center that is a grouping of expenses not allowed for reimbursement.  In tomorrow’s email, we will list and differentiate reimbursable vs. non-reimbursable cost centers and expenses.

As the Cost Report is prepared you will also run into an allocation required by CMS for home health agencies.  The ‘Step Down Method’ allocates between cost centers that are reimbursable and non-reimbursable.

Patient data such as unduplicated patients and duplicated patient counts is required.  Employee data is also required and based on ‘full time equivalents’ (FTEs).  FTEs is the total hours divided by 2080 – total annual full time hours. Office square feet used by your agency is also important for cost reporting.

The PS & R is a critical component of completing the cost report.  Obtaining and understanding the information on the PS & R is important as much of the data provided will be used to complete your cost report.

While much of the information that is needed is internally generated, the accuracy of such information is critical. This is especially true when you are trying to properly expense items that could be a marketing charge or an office supply charge for instance.

Tomorrow our discussion will wrap up with allowable vs. non-allowable expenses.


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