This Insight is part of our Medicare Cost Report Primers, a PYA thought leadership series that offers guidance through challenges related to the Medicare cost report process.
The Centers for Medicare & Medicaid Services (CMS) has recently overhauled the home office/chain organization cost reporting forms and will likely begin increasing its scrutiny of the reporting process through Medicare cost report audits. What do these changes mean to providers?
Cost Reports 101
Many Medicare-certified healthcare organizations are managed by an overhead company, home office, or chain organization.
According to CMS, for Medicare/Medicaid purposes, a home office (HO) is an entity that provides overhead management or administrative services in a central location for individual members of a chain organization. A chain organization (CO) is an entity that consists of a group of two or more Medicare-certified providers or at least one provider and any other non-provider business or entity that is owned/leased/under common ownership or control. If an HO/CO provides services to a Medicare-certified provider, e.g., a hospital, skilled nursing facility (SNF), home health agency, or hospice, the HO/CO will need to be certified by Medicare and receive a CMS Certification Number (CCN).
Each home office CCN is required to annually file an HO/CO cost statement (CMS-287-22 or equivalent) to their assigned Medicare Administrative Contractor (MAC). The purpose of an HO/CO cost statement (CMS-287-22) is to appropriately allocate allowable HO/CO expenses, including salaries and wage-related expenses associated with the wage index, to the various Medicare-certified or non-certified organizations under management or ownership of the HO.
The New Requirement
Beginning with cost report periods on or after October 1, 2022, a new HO cost statement is required to be filed for HO/CO CCNs.
If a provider claims HO/CO allowable costs in their cost report (typically in Form A-8-1 for hospitals, SNFs, home health agencies, and hospices), part of the MAC’s acceptance procedure is to confirm that a corresponding home office cost report has been filed and accepted with its respective MAC. If the provider’s MAC is unable to locate the as-filed HO/CO cost report that is referenced in the provider’s cost report, the MAC may reject the provider’s report due to lack of HO/CO supporting documentation. A rejected report may result in suspended Medicare payments.
PYA Helpful Tip: We recommend including an electronic copy of the HO/CO cost report with each provider’s cost report filing as supporting documentation.
Another area to closely review is the HO/CO allowable salaries, wage-related costs, and corresponding paid hours that are included on the hospital’s wage index (CMS-2552-10, Schedules S-3, Parts II & III). Typically, the HO dollar amounts in the index are based on allocations from the HO/CO cost report.
PYA Helpful Tip: We have observed the average wage per hour for many home offices is increasing due to higher salaries and operating costs that are being stepped down to the owned or managed healthcare organization. As such, the MAC may request additional supporting documentation for these types of HO/CO wage index allocations.
The Future
With the increase in consolidation within the healthcare industry, providers should review the HO/CO cost report annually to ensure accuracy. We anticipate CMS will continue to increase its scrutiny of the HO/CO cost reports through MAC audits, especially with the recent overhaul of the HO/CO cost reporting forms. Many times, when CMS makes sweeping changes to provider cost reporting forms, the first few years of the MACs’ audits are challenging for providers as they adjust to the new forms and the required supporting documentation.
Overall, changes made by MAC auditors in the HO/CO cost reports could affect the allowable costs claimed on other provider cost reports, especially for cost-based reimbursed critical access hospitals (CMS-2552-10) and rural health clinics (CMS-222-17).
If your organization needs assistance with the new HO cost report (CMS-287-22) or other reimbursement matters, contact PYA’s reimbursement professionals by email or by calling (800) 270-9629.
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