An expense that is deducted for tax purposes may not be deductible for cost reporting. There is two types of cost report expenses, ‘allowable’ and non-allowable’.
Allowable expenses must be:
-Reasonable and non-extravagant.
-Patient care related.
-Paid in the year cost report is prepared.
The list of non-allowable expenses is long and varying. In order to help keep allowable vs. non-allowable from not being confused we have provided a list to help you determine if an expense is included in your cost report.
Marketing expenses such as the salary and wages, payroll taxes and benefits of a marketing representative is non-allowable costs. This also includes other marketing and promotional materials. However, yellow page advertising is allowed. Also allowed is expenses related to promoting your public image but not health fairs.
This marketing caveat with cost reporting is one of many reasons why your accounting records need to be accurate. Accounting records and reporting systems need to also be arranged to make it easy for both cost reporting and year-end tax return filing. This dual role within your accounting records can be accomplished and easy to follow if you have a good system in place.
Besides allowable and non-allowable expenses, cost reports provide statistics to CMS about your agency and the Medicare beneficiaries you serve. This same information provides you with good insight to how your agency operates – cost per visit, utilization and patient trends.
Cost Reports can be confusing and daunting. Think about all of the information you have to gather and generate. Who is a related party and which transactions have to be reported? Should we file a Home Office Cost Report? While these are not easy questions to answer, we are available should you be curious or would like to have a discussion.
There is another aspect to Cost Reports that must be monitored: errors. Common errors range from visit statistics to not using the accrual method of accounting to costs not segregated by program. Cost center confusion of expenses, routine vs. non-routine supplies and not following or using data from the PS & R report is also common.
All of the moving pieces coming together can be confusing and frustrating. But remember, completing your cost report accurately is only going to help you in the long run. CMS needs to understand and have the data so advocacy groups can justify the need for future reimbursement cuts to STOP!
You can access our guide to allowable and non-allowable costs here.
We have also compiled a checklist of information needed to complete your cost report. You may access this checklist by clicking here.
Please contact us with any questions or if you would like assistance in filing your Cost Report for 2013.
Tortolano & Company specializes in financial and operational solutions for home health agencies across the United States. Our philosophy is based on proving your agency with the tools and information needed to succeed. We are Home Health’s Partner in Success!
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