What is a Medicare Cost Report?

Those managing healthcare facilities are likely to be well-versed in Medicare Cost Reports, or MCRs. These are mandated financial documents received by the Centers for Medicare & Medicaid Services (CMS) from Medicare-certified businesses, such as hospices, hospitals, and skilled nursing facilities, as part of their annual cost reporting. Medicare uses these documents (which are kept in a cost-reporting information system) to oversee provider payments and services.

Managed by Medicare Administrative Contractors (or MACs), Medicare Cost Reports offer the details of a healthcare provider’s financial operations, such as costs, charges, and Medicare payments. The goal for MACs is to make sure claims submitted to Medicare are processed both accurately and efficiently; this reduces administrative burdens that healthcare providers experience and makes sure payments are made promptly for the services provided. MACs also help handle appeals and even conduct audits of providers as well.

Structure and Availability of Medicare Cost Report Data

These important reports are also a wealth of information for both healthcare providers and researchers to understand more about the status of their business financials. The structure of the data is designed to offer a comprehensive view. Dating back to 1996 and available through the CMS website, these reports contain data that is organized in what is called relational database format, meaning the data points are “related to one another” or in predefined relationships with the information contained in one or more tables. This structured approach gives users a detailed and accessible view, something that allows for navigation through considerable amounts of financial information. As it’s downloadable, the data can also be brought into other software programs and platforms as well.

Analyzing Healthcare Provider Costs

As we’ve discussed in other articles in our News & Insights blog, data, for data’s sake, doesn’t make much sense. Rather, it is in the insights gleaned from its analysis where users find value. Foremost is the financial performance and operational efficiency that can be determined by reviewing MCRs. As the costs or charges made by providers are organized by identifiable “cost centers,” providers (and researchers) can assess these costs and look for potential places for cutting costs and improving the overall financial management of the healthcare entity. Moreover, this data can then be compared against competitors and/or industry benchmarks so that a business can assess and contrast its own operational and financial health.

Cost Report Data: Key Components and Uses

So, what goes into these cost reports? Key data points include:

Characteristics of the Facility

On a basic level, information about the healthcare facility, such as location, size of the entity (staff and clients served), and the services offered, is covered.

Utilization Data

Details on how services are utilized are included, such as patient days and discharge data.

Charges and Costs by Cost Center

MCRs contain important information on the breakdown of costs and charges by specific departments or by services; this includes overall costs and charges and amounts allocated to Medicare.

Financial Statement Data

Also included is comprehensive financial data such as balance sheet and income statement information.

Medicare Settlement Data

Data can also be found on what is called the financial settlements between the provider and Medicare.

Providers use this data to report to Medicare, while Medicare uses it to analyze provider costs and to make better decisions regarding reimbursement. This helps to maintain financial transparency between the various stakeholders involved.

Leveraging Insights for Strategic Decision-Making

As we continually point to the benefit of fully understanding a business’s financial status better, more intelligent decisions can be made by management to rationalize operations and slash unnecessary expenses. Thus, strategically using MCR data is smart. Providers can dive deep into the data, find areas for improvement and cost control, and make capital investment decisions in other critical areas in the business, such as in new technology and services, so that the highest return on investment potential is realized. This data is also helpful for guiding staff training and development, as well as better aligning employee skills with the company’s goals of cost management and improved customer service.

Take, for instance, Tranquil Seasons Skilled Nursing, a medium-sized care facility located just outside a growing city in Lee County, Florida. In business for just under 15 years, the center has grown to house close to 150 residents, with a specialized focus on offering rehabilitation services for the elderly. The facility prides itself on providing high-quality care in a modern, comfortable setting.

As a Medicare-certified business, they, too, need to submit the annual Medicare Cost Report and detail their revenues, expenses, and specific reimbursable charges for services provided to their Medicare beneficiaries. Again, these reports help determine the dollar amounts due to the facility and are a tool to make sure they are completely within compliance with any Medicare regulations related to payments.

As the rehabilitation care industry is quite competitive, the facility’s administrators recognize the utility of using the cost reports for additional data in their strategic thinking process. For one, they find the reports helpful in analyzing costs by department. Also key are the conclusions they can make by comparing the data on a regional basis, as it allows for identifying opportunities for new potential care center sites.

By meticulously managing and analyzing its cost reports, Tranquil Seasons not only stays compliant with Medicare regulations but also enhances its operational strategies, ensuring its financial health and sustainability in the competitive healthcare market. Thus, for the business, Medicare Cost Reports are competitive intelligence documents.

Best Practices for Managing Medicare Cost Reports

Lastly, we want to leave you with a few best practices for managing these reports. It’s important to do this well as they are a key step for healthcare providers to understand their financial situation both independently and compared to industry benchmarks and peers.

Some best practices include:

Understand the Process

Get to know the entire cost reporting process, which includes what specific and complete information is required, what deadlines are involved (and if extensions are available), as well as all necessary submission procedures.

Maintain Accurate Records

The data going into these reports will only be as accurate and timely as the facility’s ability to keep detailed and accurate records. This data includes characteristics of the facility, utilization data, cost and charges by department and/or cost center, any Medicare settlement data, and critical financial statement information.

Review and Revise

Always carefully review your reports so they are complete and accurate before submission. If any revisions are necessary, conduct them promptly.

When Needed, Seek Assistance

Seek help from a qualified Medicare Administrative Contractor or other resources, such as an accounting firm with appropriate experience if you encounter problems or have questions. It can be money well spent.

With these practices and staying informed of the other concepts mentioned above, healthcare provider entities can manage Medicare Cost Reports for the best possible outcomes. The process will help them understand and leverage their financial data while efficiently receiving reimbursements and staying in compliance with Medicare.