In home healthcare, providing quality care isn’t the only measure of success, financial accuracy, and regulatory compliance matter just as much. That’s where the Medicare cost report comes in. For home health agencies (HHAs), knowing how to correctly prepare and submit these reports is essential for receiving proper reimbursement, as well as for maintaining good standing with the Centers for Medicare & Medicaid Services (CMS).
Whether you’re a new agency navigating your first fiscal year or a long-standing provider tightening up your internal processes, cost reporting is a key part of your operation. We hope this guide can be useful. We break down the essentials, from what the report includes, to how to avoid common mistakes so your agency can stay financially sound and in compliance.
Why Cost Reports Matter for HHAs
A cost report is a detailed financial document that captures all revenue and expenses related to patient care. Required annually by CMS, the report helps determine how much Medicare owes your agency for services rendered. It also plays a broader role in shaping future reimbursement rates across the industry.
The submission isn’t optional. If a home health agency fails to file its cost report within five months of the end of its fiscal year, it can face delays in reimbursement or even payment suspension. And because these reports help CMS assess how well agencies are managing resources and delivering care, accuracy is critical.
The official guidance for completing these reports can be found in the Provider Reimbursement Manual, a dense but necessary two-part reference available on the CMS website.
Understanding the Medicare Cost Report: Form CMS-1728
The Medicare cost report for HHAs is submitted using Form CMS-1728, a standardized template used across the industry. This form includes multiple worksheets, each corresponding to a different aspect of your agency’s operations such as staffing, wages, overhead, and patient utilization.
One especially important calculation derived from the cost report is your cost per visit (CPV). This figure aggregates total costs and divides them by the number of visits provided, helping both your agency and CMS evaluate cost-efficiency and justify reimbursement rates. For example, if your agency’s CPV for skilled nursing is significantly higher than industry norms, CMS may scrutinize your operations more closely or adjust your future payments accordingly.
A Case Example: Harmony Home Health
To put these concepts into perspective, let’s consider the agency Harmony Home Health, a mid-sized HHA based in the Midwest.
In its second year of operation, Harmony Home Health struggled with inconsistent internal bookkeeping. When it came time to submit their cost report, they discovered major gaps in expense categorization: salaries had been lumped together, mileage reimbursements were missing, and supply costs weren’t linked to specific services. They had also miscalculated their Medicare revenue, reporting gross payments instead of net.
Working with an outsourced accounting team, the agency revised its numbers and refiled just in time. But the process cost them valuable time and led to a temporary hold on payments.
The following year, Harmony created a monthly data tracking system tied directly to CMS reporting requirements. When cost report season rolled around, their records were clean, organized, and ready to go. Not only did they avoid penalties, but they also used their CPV analysis to justify expanding physical therapy services based on strong financial performance in that category.
Gathering the Right Data: What Goes Into a Cost Report
Preparing a Medicare cost report requires a comprehensive sweep of financial, operational, and patient-level data. Agencies need to collect and categorize the following information:
- Revenues from Medicare, Medicaid, private payers, and other sources
- Expenses, including direct care wages, administrative overhead, equipment costs, and more
- Utilization data, such as the number of visits by discipline (e.g., nursing, PT, OT)
It’s not enough to simply report these figures; you’ll also need to link them to specific functions and outcomes. For example, payroll data must reflect gross wages but also fringe benefits and departmental allocations. Likewise, mileage costs need to be tied to visit logs, and building expenses must be categorized according to patient versus administrative use. All this information must be entered into the correct worksheets on Form CMS-1728 and presented in accordance with the instructions provided in the Provider Reimbursement Manual.
Cost Reporting Requirements for HHAs
Every Medicare-certified HHA must submit a cost report annually, even if it provided minimal or no Medicare services during the year. (We discussed this in our most recent blog article, Making Sense of the Medicare Cost Report.) This includes agencies that:
- Are newly certified and within their first year of operation
- Had low Medicare utilization
- Experienced operational changes (e.g., mergers, ownership changes)
To remain compliant, agencies must:
- Have a valid Medicare provider number
- Submit their cost report within five months of the fiscal year’s end
- Use Form CMS-1728 as the official submission format
- Follow all formatting, data entry, and certification requirements outlined in the Provider Reimbursement Manual
Agencies that miss the submission deadline risk suspension of Medicare payments until the report is filed and accepted.
Preparing and Submitting the Report
The preparation process typically unfolds in several stages:
- Data Collection. Begin by compiling year-end general ledger data, payroll reports, and service logs.
- Cost Allocation. Assign expenses to the correct cost centers based on use and function.
- Cost Per Visit Calculation. Calculate CPV metrics for each type of service provided.
- Form Completion. Fill out CMS-1728 accurately, including certification signatures and reconciliation schedules.
- Submission. Submit the cost report electronically via the Medicare Enterprise Portal or other approved platforms (like a MAC-approved system).
While CMS does not currently require audited financial statements for cost report filing, agencies should ensure that internal controls and reconciliations are tight enough to withstand outside scrutiny. A discrepancy uncovered during an audit or probe review can trigger payment recovery, fines, or deeper investigation.
Using Cost Reports for Strategic Improvement
When completed correctly, a cost report can also be considered a tool for operational insights. HHAs can use their reports to:
- Benchmark service line efficiency
- Identify overhead that’s outpacing growth
- Understand staffing cost trends across disciplines
- Justify expansions or cutbacks to Medicare and board members
- Evaluate revenue sources and payer mix
For instance, if your CPV for occupational therapy has decreased year-over-year while patient outcomes have held steady, that may indicate growing efficiency or may point to underutilized staffing capacity. Conversely, if overhead costs as a percentage of revenue are creeping up, it may be time to revisit administrative spending.
Final Thoughts on the Medicare Cost Report for HHAs
Medicare cost reports may not be fun to complete, but they don’t have to be overwhelming either. For home health agencies, mastering the process is necessary. And with a good understanding of the structure of Form CMS-1728, maintaining organized records throughout the year, and using insights from cost per visit calculations, agencies can use cost reporting not just as a compliance document, but as a management tool. This is something at Walters we like to emphasize: making the most of these processes and the data retrieved.
And remember, the best time to start preparing for next year’s report is now, and not five months after your fiscal year closes.
