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Medicare Cost Report Explained: How to Navigate Risks

medicare cost report

The Medicare Cost Report (MCR) is a detailed financial document that healthcare providers participating in the Medicare program are required to submit annually to the Centers for Medicare and Medicaid Services (CMS). It provides information on utilization of services, revenue and costs incurred in delivering healthcare services to Medicare beneficiaries and is used by CMS to determine reimbursement rates and ensure compliance with Medicare regulations.

To help providers navigate this reporting requirement, Axxess created a one-page reference guide that highlights common pitfalls and tips for success.

Richard Merritt, CPA, Manager of Enterprise Financial Reporting at Axxess, created the reference guide and detailed the following insights on how organizations can master the Medicare Cost Report.

“Submitting an accurate Medicare Cost Report is essential to the financial health and long-term success of any healthcare organization participating in the Medicare program,” Merritt said. “Inaccuracies in your MCR can lead to financial repercussions that harm your bottom line and put your organization’s sustainability at risk.”

Common Mistakes

Merritt identifies the following common mistakes in cost reporting:

  • Improper allocation of expenses: Misclassifying costs or failing to adequately distribute them across service lines can result in claim denials or recoupment of funds.
  • Inaccurate documentation of patient days, levels of care and visit information: Inaccurate reporting of patient and visit information can cause misalignment in reimbursement allocation.

Tips for Success

To ensure precise and compliant cost reporting, Merritt says to focus on accurate data collection and expense allocation, and consider engaging professional consultants for assistance.

  • Accurate data collection: Proper documentation of orders, admissions, discharges, payer information and services provided is essential for an accurate Medicare Cost Report, Merritt says. “A good software system will provide reports to help gather data, streamlining the preparation of your Medicare Cost Report,” said Merritt. “The cost and payroll reports in Axxess Home Health are perfect examples of this. Organizations can easily access them in the Report Center, and the data to be reported in the MCR is already there in an easy-to-dissect format.”
  • Expense allocation: CMS requires organizations to distribute their expenses across service lines to provide a precise breakdown of costs associated with each specific service or department. This helps CMS understand the cost structure of different services and make informed decisions regarding reimbursement rates. Merritt says organizations should implement a meticulous expense allocation system, review their allocation methodologies periodically, and implement updates when the organization’s structure or services change.
  • “An organization’s expense allocation system should classify costs in a manner that fits cost reporting requirements,” said Merritt. “An obvious example would be payroll. It would be insufficient to report total payroll as patient care or selling, general and administrative expenses. More detail would be needed, such as RN, LPN/LVN or medical social services. This can be achieved largely by having a chart of accounts in your accounting software that’s aligned with MCR requirements.”
  • Professional consultation: Merritt encourages organizations to consider engaging experienced healthcare financial consultants to assist with the preparation of the Medicare Cost Report, as their expertise can help identify potential pitfalls, ensure compliance and optimize reimbursement rates. Visit Axxess’ website to view partners for cost reporting and other professional services.

To download Merritt’s resource guide on navigating the Medicare Cost Report, click here.

Axxess Home Health, a cloud-based home health software, empowers healthcare organizations with a chart of accounts feature and a suite of detailed financial reports, streamlining data collection and facilitating seamless financial operations.


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