Introduction to Cost Reporting
More than 15,000 Medicare-certified nursing homes file a Medicare Cost Report each year, and each submission plays a role in shaping billions of dollars in reimbursement. This detailed document allows the Centers for Medicare & Medicaid Services (CMS) to monitor spending, verify reimbursement, and ensure transparency across the industry.
Medicare Administrative Contractors (MACs) are central to this process. They review submissions, conduct audits, manage appeals, and ensure timely payments. For nursing homes, an accurate and timely cost report helps meet paperwork requirements and is a critical compliance step that shapes financial stability and regulatory credibility.
Understanding Cost Report Requirements
So, what is part of this key report? It includes patient utilization data, facility characteristics, complete financial statements, and Medicare settlement figures. One of the most compliance-sensitive areas involves related-party transactions. When a nursing home contracts with an affiliated company (for management, therapy, or ancillary services), the costs must be disclosed and adjusted to reflect fair market value.
The importance of this requirement has been underscored by recent audits. In 2024, the Office of Inspector General (OIG) found that several nursing facilities overstated related-party costs, inflating Medicare claims by more than $1.7 million. Advocacy groups have argued that hidden profits through related entities drain funds intended for resident care. Such findings highlight why CMS requires transparency: undisclosed or miscalculated related-party costs are a common source of non-compliance.
All reports are stored in the Healthcare Provider Cost Reporting Information System (HCRIS), making them publicly accessible. This transparency raises the stakes as inaccuracies don’t just risk penalties, they can also damage a provider’s reputation among potential customers, policymakers, and even watchdog groups.
From Reporting to Insight: What Cost Reports Reveal
Although often treated as a compliance chore, MCRs can serve as valuable management tools. Because costs are broken down by identifiable centers such as nursing, dietary, administration, and more, they allow facilities to pinpoint inefficiencies. A nursing home, for example, may discover it is overspending on dietary services compared to industry benchmarks, or underutilizing therapy staff in a way that suppresses reimbursement potential.
By proactively analyzing the data before submission, facilities can align operations with industry norms, defend figures during audits, and improve financial outcomes.
Managing Cost Reports
Strong compliance (something we want to emphasize in this article) depends on more than filing by the deadline. Facilities that succeed in this area build internal processes to ensure accuracy and consistency year after year. Reports should be reviewed carefully before submission, and any discrepancies corrected immediately rather than left for CMS or auditors to catch later.
Recent regulatory guidance emphasizes these proactive measures. In 2024, the OIG recommended that nursing homes integrate cost-reporting compliance into broader organizational compliance programs. This includes conducting periodic internal audits, refreshing policies as CMS updates its rules, and ensuring leadership oversight of reporting practices.
That said, many providers rely on outside accounting specialists who focus on Medicare cost reporting. Their expertise is especially valuable for complicated ownership structures or related-party arrangements. Internally, staff training is equally important. When employees understand how to document transactions and why disclosures matter, the reporting process becomes smoother and more reliable.
Medicare Cost Reports and Reimbursement
The financial link between cost reports and reimbursement is direct. If a report is late or incomplete, payments may be delayed, reduced, or even withheld. Errors can trigger audits and clawbacks that disrupt a facility’s cash flow. In an industry where margins are thin, the consequences can be severe.
A cautionary example came in late 2024, when a New York operator, Centers Health Care, agreed to a $45 million settlement after accusations of misdirecting Medicare and Medicaid dollars. While that case involved broader financial misconduct, it underscores the regulatory intensity nursing homes face. When compliance falters, the repercussions are not limited to dollars and cents; they extend to reputation and patient trust.
Ensuring Compliance with Cost Reporting Regulations
Regulatory scrutiny is also increasing, particularly around ownership transparency and related-party affiliations. The Office of Inspector General has recommended that CMS tighten oversight of these areas, while MACs have been urged to expand desk reviews and audits to capture hidden risks.
For nursing homes, staying compliant means embracing continuous improvement. Internal processes should be reviewed regularly to ensure related-party transactions are identified and disclosed properly. Accounting systems must be updated to reflect new CMS or OIG guidance. And when uncertainties arise, reaching out to a MAC or directly to CMS is far better than risking an omission.
Building a Culture of Compliance
Ultimately, compliance with Medicare cost reporting cannot be treated as a one-time task. It must be part of a facility’s culture. That means designating leaders to oversee compliance, providing ongoing training, and embedding internal audits. By fostering a culture where accurate reporting is valued, nursing homes not only protect themselves from penalties but also demonstrate their commitment to responsible stewardship of Medicare funds.
When facilities approach the process proactively, using reports as both compliance tools and management resources, they strengthen their ability to secure proper reimbursement, avoid costly penalties, and maintain credibility with regulators and the public. Real-world cases show the risks of cutting corners, but they also highlight the path forward: vigilance, transparency, and a culture of compliance.
