Running a skilled nursing facility (SNF) comes with no shortage of responsibilities. From patient care to staffing challenges to regulatory compliance, administrators often juggle more tasks than there are hours in the day. Somewhere on that long list is the Medicare cost report, an annual requirement that can feel like a paperwork hurdle but is actually central to financial stability and program participation.
For SNFs, cost reports determine how facilities are reimbursed, document compliance with federal regulations, and shape how CMS evaluates provider performance. Filing late, misreporting data, or omitting required details can all result in penalties, audits, or even suspension of Medicare payments. In other words, the cost report is not something that can be brushed aside.
This is why we want to offer our readers this guide that walks through what SNF leaders need to know about Medicare cost reporting, the common pitfalls facilities run into, and how to best approach the process.
Why Cost Reports Matter for SNFs
A Medicare cost report is essentially a financial and operational blueprint. It accounts for every dollar spent, every service provided, and every patient day covered by Medicare. CMS uses these reports to determine reimbursement amounts, monitor compliance, and ensure public funds are being used appropriately.
For a facility, the stakes are high. Filing a sloppy or incomplete report can mean repayment demands, delayed reimbursement, or closer scrutiny from Medicare Administrative Contractors (MACs). Even minor mistakes can stall cash flow, which can become a serious risk in a sector already dealing with tight margins and rising costs.
Think of the cost report as both a compliance requirement and a financial safeguard. Done right, it keeps reimbursement flowing and helps facilities make the case for the resources they need. Done poorly, it can quickly undermine both finances and reputation.
What Goes Into an SNF Cost Report
SNF cost reports cover more ground than a standard financial statement. They require providers to show a full picture of costs and utilization, broken down into specific cost centers, such as:
- Nursing services
- Therapy services (physical, occupational, and speech)
- Dietary services
- Housekeeping and maintenance
- Administration and overhead
On top of that, the report includes revenue figures, patient utilization data (such as patient days and bed occupancy), and Medicare settlement data to reconcile overpayments or underpayments.
The challenge is that not all expenses are treated equally. Medicare will only reimburse “reasonable” costs tied to covered services. That means facilities must carefully separate allowable from non-allowable expenses—such as private-pay services, employee perks, or marketing. Getting this wrong isn’t a harmless mistake; it can trigger a repayment demand or, worse, an audit.
Filing Requirements and the MCReF Portal
CMS now requires that cost reports be filed electronically through the Medicare Cost Report e-Filing (MCReF) portal. This system allows facilities to upload files directly, sign electronically, and receive instant confirmation of submission.
But convenience doesn’t mean fewer risks. Facilities often run into problems with:
- File encryption: The MCReF system will reject encrypted or password-protected files, even if they are otherwise complete.
- Missing attachments: The certification page and other supporting documents must be included, or the report won’t be accepted.
While many SNFs rely on specialized accounting software or outside consultants to prepare their reports, the responsibility ultimately lies with administrators. CMS holds the provider accountable, not the consultant.
Deadlines and Compliance Risks
The deadline for Medicare cost reports is five months after the facility’s fiscal year-end. For those closing books on December 31, that means filing by May 31 of the following year. Miss the deadline, and Medicare payments can be suspended until the report is accepted.
A mid-Atlantic SNF learned this lesson the hard way. After staff turnover in its finance department, the 2023 cost report wasn’t submitted on time. CMS suspended Medicare payments within weeks, forcing the facility to dip into reserves just to cover payroll. Vendors went unpaid, late fees piled up, and the financial strain lingered long after the report was finally filed. The mistake wasn’t about fraud or negligence but simply a missed deadline. But the impact was real and immediate.
Audits and Common Pitfalls
Once submitted, reports don’t just disappear into a database. CMS or a MAC may audit them to verify accuracy. This review can be triggered randomly, but it’s often driven by red flags such as numbers that don’t match expectations or appear inconsistent with prior years.
Common audit triggers for SNFs include:
- Misallocated expenses. For example, charging dietary staff time to therapy services.
- Inflated utilization data. Reporting higher patient days than census records support.
- Improper classification of costs. Including non-reimbursable expenses under Medicare-covered services.
Take the case of a SNF based in Georgia whose therapy costs jumped 40% in a single year. A MAC audit revealed the facility had hired more contract therapists and relied heavily on overtime, but these costs were misclassified under the wrong cost center. While there was no fraud, the errors delayed reimbursement for months and forced administrators to divert staff time to address the audit.
The lesson? Accuracy matters just as much as timeliness. SNFs that lack strong internal controls or regular reconciliations are the ones most likely to face costly audit delays.
Using Reports to Stay Ahead
It’s easy to see the cost report as a burden, but forward-thinking facilities treat it as an opportunity. When reviewed regularly, cost center data can help SNFs identify inefficiencies, defend reimbursement levels, and benchmark performance against peers. For example, unusually high nursing costs might point to increased patient acuity rather than inefficiency. By understanding and documenting that distinction, administrators are better prepared to explain their numbers during an audit, or advocate for reimbursement adjustments when necessary.
Best Practices for SNFs
To make the process smoother and reduce compliance risks, SNFs can benefit from a few consistent practices:
- Centralize data collection. Pull together financial and utilization data throughout the year rather than scrambling each spring.
- Reconcile allowable vs. non-allowable costs monthly. This minimizes mistakes and avoids last-minute reclassifications.
- Document thoroughly. Keep invoices, staffing records, and utilization logs on hand to respond quickly if CMS requests backup.
- Stay informed. CMS updates requirements frequently, and what passed last year may no longer be acceptable this year.
Final Thoughts
Medicare cost reporting may not be the most exciting part of running a skilled nursing facility, but it’s one of the most important. Accurate, timely reports keep reimbursement flowing, reduce compliance risks, and provide valuable insight into a facility’s operations.
By approaching the cost report as more than a regulatory hoop to jump through, SNFs can turn a potential burden into a strategic advantage. The key is consistency: gather data throughout the year, stay organized, and treat the process as an extension of sound financial management.
At Walters Accounting, we help skilled nursing facilities navigate these requirements with accuracy and confidence. From cost allocation to final submission, our goal is to make the cost report a tool for stronger operational and financial health.
