How SNF Cost Reports Impact Medicare Reimbursement: Key Insights

Running a skilled nursing facility (SNF) means balancing patient care, staffing pressures, and an increasingly complex reimbursement system. Among the many compliance responsibilities, few are as consequential as the SNF cost report. This annual filing meets a CMS requirement and determines how much a facility is reimbursed under Medicare, affects audit outcomes, and plays a role in long-term financial sustainability.

As CMS continues to update reporting forms and strengthen transparency standards, understanding how cost reports function is vital for SNF administrators and finance teams. Below, we outline what SNF cost reports include, how they connect to reimbursement, and what’s changing under the new CMS-2540-24 filing structure, which will replace the older CMS-2540-10 form.

Understanding SNF Cost Reports

SNF cost reports tell the financial story of a facility’s year: every dollar spent, every patient day recorded, and every service provided to Medicare beneficiaries. These reports are a regulatory requirement and the foundation for how CMS evaluates resource use. They capture the relationship between costs incurred and revenue earned under federal reimbursement programs, helping determine whether payments accurately reflect the services delivered.

For SNFs, the data reported affects:

• Medicare settlement adjustments
• Future reimbursement rate calculations
• Audit and compliance risk
• Eligibility for continued Medicare participation

Each report details everything from nursing and dietary costs to therapy, depreciation, and interest expenses. Providers are responsible for ensuring that all information is accurate and complete with small inconsistencies that can delay settlements or trigger audit requests. Every data point contributes to compliance and reimbursement accuracy.

The Connection Between SNF Cost Reports and PDPM

The Patient-Driven Payment Model (PDPM), introduced in 2019, replaced the former RUG-IV system and shifted reimbursement away from therapy minutes toward patient condition and care complexity. PDPM emphasizes rehabilitative outcomes and functional recovery after illness or injury.

Under PDPM, reimbursement depends on:

• Patient diagnoses and comorbidities
• Functional and cognitive status
• Nursing and non-therapy ancillary components, including drugs and related services
• Length of stay and discharge patterns

Because payment now reflects clinical factors rather than volume of therapy, precise cost allocation and patient-day tracking are essential. Misclassified contract therapy costs or incomplete patient records can distort CMS analysis and reduce future reimbursement.

What’s New: CMS-2540-24 Cost Report Form

For reporting periods ending on or after September 30, 2025, SNFs will transition to the CMS-2540-24 form. The new version modernizes transparency and aligns data collection across post-acute care settings.

Key updates include:

• Expanded ownership reporting, with more detail on related-party transactions and ownership interests
• Separate tracking of agency and contract labor to reflect true staffing costs
• Facility characteristics such as bed counts, occupancy rates, and levels of care
• Clearer identification of Medicare Advantage and Medicaid managed-care utilization

Providers must file cost reports electronically through the Medicare Cost Report e-Filing (MCReF) portal. Reports should be well-organized before upload, as CMS emphasizes completeness and consistency for faster acceptance and compliance review.

Common Pitfalls in SNF Cost Reporting

Even experienced administrators can run into errors that affect reimbursement. The most common include:

1. Misallocation of Therapy Costs – Combining therapy with nursing or administration categories can distort true costs under PDPM. 
2. Failure to Separate Contract Labor – Agency wages must be reported separately from staff salaries to ensure accurate per-patient cost calculations.
3. Incomplete Patient-Day Reconciliation – Patient-day totals must match census logs and payer data. Discrepancies raise audit concerns.
4. Capital or Lease Omissions – Errors in depreciation or lease accounting affect rate-setting and financial ratios.
5. Late Submission – Reports are due five months after fiscal year-end. Missing the deadline can suspend Medicare payments until accepted.

Reconciling payroll, census, and general ledger data with accounting partners before submission helps prevent these setbacks.

How SNF Cost Reports Affect Medicare Reimbursement

Cost reports directly inform how CMS sets and adjusts reimbursement rates. They provide empirical data behind cost-per-patient calculations, overhead allocation, and allowable expense determinations. Inaccurate or incomplete data can cause payment delays, recoupments, or audit findings.

CMS uses cost report information for:

• Market basket (inflation) adjustments
• Geographic wage index updates
• Long-term policy modeling in post-acute care
• Evaluating how hospital reimbursement changes affect SNF utilization and patient flow

Medicare settlement data also reconciles over- or under-payments, ensuring compliance and accuracy. Reimbursement levels influence margins differently across for-profit, nonprofit, and government-run facilities with each facing distinct operational pressures.

Fiscal Year Planning and Reporting Timelines

Each SNF must file a cost report for the full fiscal year, often ending December 31, though some use alternate calendars. As noted above, reports are due within five months of fiscal year-end, making early reconciliation key.

To stay on schedule:

• Begin collecting cost center and payroll data within 60 days of year-end.
• Verify census and patient-day totals against billing records.
• Review capital and lease schedules for new assets or disposals.
• Conduct internal reviews before submitting through MCReF.

Anticipate potential data challenges early; delays can interrupt cash flow until the report is accepted.

The Role of Patient Days in Reimbursement Accuracy

Patient-day counts carry significant weight in cost reporting. They determine cost per day of care and influence PDPM settlement accuracy.

Best practices:

• Reconcile census logs with billing records precisely.
• Distinguish between Medicare Part A, Medicare Advantage, Medicaid, and private-pay days.
• Track leave-of-absence and discharge days consistently.
• Differentiate between long-term and short-term or managed-care patients, since that mix affects cost analysis and compliance.

Small discrepancies can skew per-day averages and audit findings, while clean data helps benchmark performance over time.

Preparing for Greater Oversight and Transparency

CMS continues to expand transparency for ownership, staffing, and labor costs. Cost reports are increasingly tied to public reporting and quality comparisons. SNFs can expect:

• More comparative analysis of cost structures and outcomes
• Targeted audits for labor cost outliers or high management fees
• Closer review of related-party transactions

Cost reports are now public indicators of integrity as much as financial tools, reflecting how responsibly each facility manages its resources.

Best Practices for SNF Cost Reporting

To ensure accuracy and readiness, we offer the following best practices:

1. Track Data Year-Round – Maintain real-time cost records by department and payer type
2. Align Accounts with PDPM Categories – Match your chart of accounts to CMS classifications
3. Separate Agency Labor – Keep clear payroll reporting for staffing compliance
4. Run Pre-Submission Reviews – Conduct internal or third-party checks for completeness
5. Use the MCReF Portal – File electronically to minimize delays
6. Seek Expert Guidance – Partner with accountants familiar with PDPM nuances and CMS audit expectations

Why Accurate SNF Cost Reports Matter

The economics of skilled nursing continue to evolve. Staffing shortages, rising contract labor, and increased oversight demand stronger financial precision. Accurate cost reporting protects reimbursement, prevents compliance penalties, and gives leaders a clearer picture of the true cost of care.

For SNFs navigating CMS-2540-24 changes and PDPM complexity, experienced accounting support can make all the difference and help ensure that every dollar reported aligns with Medicare expectations and that financial stability remains within reach.