Preparing Annual Cost Reports: Five Tips to Help Healthcare Providers

Federal and state regulations require many healthcare providers to report expenses on an annual basis. The Centers for Medicare and Medicaid Services (CMS) sets nationwide reporting requirements for providers that receive reimbursement from Medicare and/or Medicaid. State health agencies may have their own additional requirements. Failing to prepare these reports correctly can result in delayed reimbursement or denial of claims. Annual cost reports, therefore, become an essential task for healthcare providers that rely on these programs. It is often a difficult and cumbersome process. The following five tips can help providers meet their regulatory obligations efficiently and effectively.

What Is an Annual Cost Report?

CMS requires accurate information about certified healthcare providers’ expenses in order to provide them with the correct reimbursement amounts. Information that a healthcare provider must include in an annual cost report might include the following:

• • The types of facilities they provide for patient care;
  • The amount of use their facilities receive;
  • The types of services they provide and expenses they incur, known as “cost centers”;
  • Reimbursements received from government programs, including Medicare and Medicaid; and
  • Other general financial data.

Annual cost reports from Medicare-certified providers go to approved Medicare Administrative Contractors (MACs), who review the reports and verify the expense claims. States may have their own systems for reviewing claims involving Medicaid and other programs.

Steps to Complete an Annual Cost Report

CMS uses different forms for different types of healthcare providers. A large hospital, for example, will not submit the same form as a small clinic. All annual cost report forms ask for the same general information regarding providers’ operations and expenses. These five tips offer an overview of how to gather information for an annual cost report.

1. Review All Applicable Regulations That Apply

The regulations that govern annual expense reporting can be quite extensive. They include CMS regulations that apply broadly to all providers that receive reimbursement through Medicare. Different requirements may apply depending on whether the provider participates in Part A or Part B. CMS regulations also govern Medicaid reimbursements, which typically go through state agencies with their own requirements.

A healthcare provider’s annual cost reporting requirements may therefore depend on any or all of the following factors:

• • The type of organization, such as a hospital, private medical practice, community health center, skilled nursing facility, et al.; and
  • The state or states in which the provider operates.

CMS provides MACs with a cost acceptability checklist that helps them determine whether a healthcare provider has submitted the correct form or forms with all of the required information. This checklist can guide providers as they prepare their reports.

2. Maintain Detailed Financial Records

An accurate annual cost report requires financial data from multiple sources, including the following:

• • General ledgers;
  • Income statements;
  • Balance sheets;
  • Patient charges; and
  • Cost center data.

The best way to deal with this data is to begin gathering it as soon as possible. Ideally, providers can collect and organize this data as it is generated so that they can access it when it is time to prepare the annual cost reports.

Collecting the data is only part of the process. Proper categorization of costs and expenses is just as important. Providers should verify that reported expenses match their financial statements.

3. Match Costs to Cost Centers

Providers should make sure that all reported expenses correspond to a cost center. This can be challenging in many situations. For example, staff who work on multiple programs may have costs associated with multiple cost centers. Providers might consider exploring different allocation models to make sure they are assigning costs correctly.

This process can help providers make sure they do not accidentally exclude any costs from reimbursement. From the point of view of the MACs examining annual cost reports, it can help ensure that providers have not duplicated any costs.

4. Report All Employee Compensation

Full and accurate reporting of employee compensation is vital to preparing accurate annual cost reports. This might include payroll, fringe benefits and other data related to employment:

• • Total hours paid, including both total hours worked and benefit hours like sick leave or vacation time;
  • Gross wages paid to employees;
  • Health insurance; and
  • Retirement benefits.

5. Keep All Records as Backups

Preparing an annual cost report is likely to generate a large amount of paperwork, either in physical or digital form. As tempting as it might be to dispose of those materials once the report is complete, it is important to keep everything for at least five years after submitting the report.

CMS or a state agency might have follow-up questions or requests for information. Retaining those records can also help providers develop their own best practices for preparing future reports.

Learn More about Meeting Regulatory Requirements Efficiently

Government programs like Medicare and Medicaid provide immense benefits to patients in need of care, but they come with extensive reporting requirements for healthcare providers. Annual cost reports are a necessary component of providing care through Medicare and Medicaid. While these reports can appear daunting, careful planning and preparation can allow providers to complete and submit their reports with minimal disruption to their operations.

If you have any questions or would like additional information, please contact us.