Pass/No Pass: The Medicare Cost Report

By Thomas Boyd, Boyd and Nicholas, Inc.

Do you remember when you were in college there were classes that you took (at least I did whenever I got the chance) that were offered on the basis of pass or no pass?  You only had to meet minimal requirements to receive credit or a pass for the class. The ladies who did a great job got the same pass as the guys who barely got by (my Typing 101 class comes to mind).

Regrettably some providers today are taking the same approach to preparing their Medicare cost reports. As long as the cost report is sufficiently prepared not to cause “no pass” or rejection by their Medicare Administrative Contractor (MAC) then they are happy just to get the “pass”. It does not matter to them that they are showing no billable medical supplies, Aide cost per visit of $1400, PT cost per visit of $12, no transportation costs, and more fallacies.

The following are reasons to strive for the best “pass” or for the “A” for achievement and accountability:

Rate determination

  • The HHA Prospective Payment System (PPS), established on October 1, 2000, was a result of focused audits of some of the 1997 Medicare cost reports. Since then the cost reports have been used to adjust the PPS rates.
  • Are you “happy” with your wage index? CMS has decided that the data from the HHA cost reports will not be used for the wage index as the information (FTE, classification of salaries and benefits) is flawed.
  • Are you “happy” with your reimbursement for Non-Routine Medical Supplies (NRS)? CMS set up the current classification in 2008 based upon the 2003 cost reports. CMS stated that based on the cost reports most HHAs were not billing for NRS.
  • CMS is considering adjustments for minimum LUPAs, excessive number of episodes, and Medicare “profit margins” based upon the cost reports.
  • Some folks justify their neglect to file a properly prepared cost report because there is not a specific PPS rate for the individual HHA that results from their own cost report. The rates are determined for the universal episode and adjusted for the area wage index. However, we all swim in the same swimming pool and what was the one thing your folks told you not to do in the pool?  The cost reports are being used for rate setting and your positive actions or inattention to details will affect you and your peers.
  • The rebasing of PPS will occur in 2014 and could use the cost reports from 2011.


The cost report is a federal compliance document. You can be prosecuted for signing a false claim. The Medicare cost reimbursement rules of the last century are still applicable to the cost reports.


Some Medicaid programs require their own cost report or use the Medicare cost report.  The filing of non-allowable or misclassified costs with Medicaid can lead to be charged with a false claims action.


The Medicare program reimburses the cost of flu vaccine including allocated overhead costs. If you have a flu program you need to file a correct cost report to insure compliance and proper reimbursement.


The cost report can disclose your cost per Medicare episode, number of visits per episode, direct and indirect cost per visit, and much more. This is vital business information and you can also use it to benchmark against your past history, your peers and the nation. It is also important for contracting to provide non-Medicare services.

Some providers claim they do not have time to prepare a correct cost report. Time management anyone?  CMS estimates that it takes 226 hours to “review instructions, search existing data sources, gather the data needed and complete and review the information collected”.

  • The cost report is a collection of historical information. The systems you have for billing, payroll and accounting produces the data needed. The CMS estimate was made in 1999 before the vast improvements in all these systems.
  • Once you have done it right the first time then it should be easier the next time.
  • You have five months after the end of your fiscal period to file the cost report.
  • Consider outsourcing of the filing to an experienced cost report preparation firm.  I will gladly send you a list of reputable preparation firms (yes, us too).

Make “A” for achievement and accountability your goal; you and the industry will benefit.

About the Writer

Thomas E. Boyd has over thirty years of Medicare reimbursement experience including almost twelve years with one of the Medicare intermediaries for home health agencies. He is the chairperson of the NAHC/HHFMA task force committee on the HHA cost report. He has been a consultant to Medicare certified home health agencies and hospices since 1989 and has been a principal of Boyd and Nicholas, Inc. since 1993.

Tom has a BA in Management from Sonoma State University and a MBA from St. Mary’s College. He is a member of the HHFMA workgroup, the Association of Certified Fraud Examiners, and the U.S. Chess Federation.

Mr. Boyd has spoken on home health financial and compliance issues before NAHC, NHPCO and more than twenty state and regional home health care associations. Visit or contact Tom directly at

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