Medicare Cost Report
The Medicare Cost Report (CMS-2552 for hospitals, CMS-1728 for home health, CMS-2540 for SNFs) is an annual financial filing submitted to Medicare that determines cost-based reimbursement settlements for qualifying providers and serves as the basis for the hospital wage index used in all IPPS payments nationally.
What is the Medicare Cost Report?
The Medicare Cost Report is an annual financial filing that certain provider types must submit to their Medicare Administrative Contractor (MAC). It reports actual costs incurred in providing care to Medicare beneficiaries and serves multiple purposes depending on provider type. Critical Access Hospitals (CAHs), which receive 101% of allowable cost reimbursement rather than DRG-based payment, have an existential financial stake in cost report accuracy — a misallocated cost can directly reduce their settlement. SNFs and home health agencies also use cost report data for payment rate determination. FQHCs (Federally Qualified Health Centers) use cost report data to calculate their all-inclusive encounter rate. The hospital wage index — which affects IPPS base rate payments for every hospital in a labor market — is derived from cost report labor cost data submitted by area hospitals, meaning one hospital's cost report inaccuracies can affect all hospitals in its labor market. The cost report uses a step-down methodology to allocate overhead department costs to revenue-producing departments using a specific sequence and allocation statistic. After submission, the MAC reviews the cost report and issues a settlement notice for any overpayments or underpayments versus interim Medicare payments received during the year.
Why It Matters for Healthcare Analytics
For CAHs, cost report preparation accuracy is directly linked to annual revenue — a 1% error in allowable cost calculation can translate to six- or seven-figure settlement differences. For all hospitals, the wage index derived from cost report data affects every Medicare IPPS payment received in subsequent years. Tracking cost per visit by department, allowable cost trends, and year-over-year cost report position is essential to financial planning for cost-report-dependent providers.
How Vizier Tracks Cost Report Data
Upload your cost report worksheets and ask "What is our cost per Medicare visit by department and how has it trended over the past three cost report periods?" — Vizier calculates department-level cost metrics and projects settlement position based on current cost trends.