Is Your Medicare Cost Report Defensible?

by John | Aug 8, 2026 | Home Health PPS Rule, Cost Reporting, Home Health, Industry News & Insights, Medicare Cost Report, Reimbursement & Payment, Understanding Medicare | 0 comments

What Every HHA Owner, Executive and Preparer Should Understand Before the Report Is Signed

Why accounting-basis errors, improperly reported costs and visits, and inadequate preparation can create exposure far beyond Medicare reimbursement

Every Medicare-certified home health agency must submit an annual Medicare Cost Report.

For some agencies, this has become a routine compliance exercise: provide the preparer with financial information, answer a few questions, sign the certification and submit the report to the Medicare Administrative Contractor.

But the Medicare Cost Report is not simply another annual filing. It is a report required by federal law—and someone from the agency must personally certify that the information it contains is true, correct, complete and prepared in accordance with applicable Medicare instructions.

That certification deserves considerably more attention than it often receives.

What Are You Actually Certifying?

The certification every HHA CFO or administrator signs when submitting the Medicare Cost Report. Source: CMS Form 1728-20, Worksheet S, Part II.

The certification page of the Home Health Agency Medicare Cost Report contains the following warning:

“Misrepresentation or falsification of any information contained in this cost report may be punishable by criminal, civil and administrative action, fine and/or imprisonment under federal law.”

Immediately below that warning, the agency’s chief financial officer or administrator certifies that he or she has examined the cost report and accompanying financial statements and that, to the best of their knowledge and belief, the report is:

true;
correct;
complete;
prepared from the books and records of the provider; and
prepared in accordance with applicable instructions, except as noted.

The signer also certifies familiarity with the laws and regulations governing the provision of healthcare services and that the services identified in the report were provided in compliance with those requirements.

The certification does not ask whether the cost-report software accepted the information. It does not ask whether the Medicare Administrative Contractor identified an error. And it does not ask whether an outside accountant or consultant prepared the report.

It asks the signer to certify the report.

The signer is not expected to personally understand every cost-report formula or complete every worksheet. But the signer should understand the material reporting decisions and have a reasonable basis for making the certification.

A signature should not be treated as the last administrative step before filing. It is a personal representation concerning the report’s accuracy and completeness.

When Does an Error Become Something More Serious?

Not every incorrectly prepared Medicare Cost Report is fraudulent.

Mistakes occur. Instructions can be misunderstood. Information can be inadvertently omitted. Reasonable professionals can sometimes disagree about the proper treatment of a particular cost.

The risk becomes more serious when someone:

knows that information is false or incomplete;
deliberately avoids determining whether it is accurate;
recklessly disregards questions about its accuracy;
continues using a reporting method known to be improper;
ignores previously identified errors;
conceals material information from the preparer or Medicare Administrative Contractor; or
discovers a material error and chooses not to address it.

Under the federal False Claims Act, “knowingly” includes actual knowledge, deliberate ignorance, and reckless disregard of the truth or falsity of information. Proof of a specific intent to defraud is not necessarily required.

Depending on the facts, the potential consequences of materially false reporting can include repayment obligations, civil monetary penalties, damages, administrative sanctions, exclusion from federal healthcare programs and, in particularly serious cases, criminal exposure.

The purpose of recognizing these risks is not to characterize every cost-report error as fraud. It is to understand that repeatedly submitting materially inaccurate information to the federal government may become something more consequential than poor accounting.

The Warning Is Not Theoretical

The warning concerning fines and imprisonment is not merely cautionary language placed on a government form.

In one home health case reported by the Department of Justice, an HHA president and director included costs associated with constructing their luxury home—including contractors’ compensation and building materials—on the HHA’s Medicare Cost Reports. They received prison sentences of 48 and 30 months, respectively, and were each fined $100,000. A general contractor identified as a “ghost employee” on the cost reports was sentenced to 15 months in prison. The defendants and HHA were ordered to pay $866,000 in restitution, and the HHA was separately fined $10,000. Department of Justice, Health Care Fraud and Abuse Control Program Report

In another case, a hospital administrator and two vendors participated in arrangements involving more than $1.3 million in kickbacks that were not disclosed to Medicare. Fraudulent Medicare Cost Reports were submitted repeatedly over several years. The three individuals received prison sentences of 37, 12 and 14 months and were ordered to pay restitution of approximately $1.38 million, $567,000 and $817,000, respectively. Department of Justice

These were not cases involving an inadvertent accrual adjustment or a reasonable disagreement over cost allocation. They involved deliberate conduct, personal financial benefit and repeated false reporting. Nevertheless, they demonstrate why the certification language should be taken literally: materially false information reported knowingly through an MCR can contribute to real civil and criminal consequences.

Is Your Medicare Cost Report Being Prepared on the Proper Accounting Basis?

Medicare generally requires cost data to be reported using the accrual basis of accounting. The exception is narrow: governmental institutions operating on the cash basis may report cash-basis cost data, subject to the appropriate treatment of capital expenditures.

This is not a general exception for small, privately owned HHAs. Nor does an agency qualify for the exception merely because its regular accounting records or tax returns are prepared on the cash basis.

Keeping the agency’s books on the cash basis does not give a privately owned HHA permission to file its Medicare Cost Report on the cash basis.

Cash-basis financial statements generally require adjustments before they can be used to prepare a compliant Medicare Cost Report. Depending on the agency, those adjustments may include:

accounts receivable and accrued revenue;
accounts payable;
accrued payroll, payroll taxes and employee benefits;
depreciation;
prepaid expenses;
accrued professional fees; and
other year-end assets, liabilities, revenues and expenses.

Over the years, more than 20% of the HHAs that approached me about preparing their Medicare Cost Reports had prior reports that appeared to have been prepared using cash-basis financial information without the accrual adjustments generally required by Medicare.

This was not a statistically selected sample and should not be interpreted as an estimate of the percentage of all HHAs with this problem. It was nevertheless frequent enough to demonstrate that the issue is not isolated.

On more than one occasion, a prospective client resisted making the required accrual adjustments or paying for the additional work necessary to make them. In those circumstances, I declined the engagement.

The agency remained free to find someone else willing to prepare the report. That did not make the accounting method compliant, and it did not change what the agency’s CFO or administrator would ultimately be asked to certify.

Do All of the Agency’s Services Belong in the HHA Cost Centers?

CMS instructs HHAs to recognize only the costs associated with Medicare-type, like-kind visits in the reimbursable HHA cost centers.

The fact that a service is called skilled nursing, therapy or home health aide service does not automatically make it a Medicare-type, like-kind visit. The substance of the service matters.

Potentially non-like-kind activities may include:

extended-duration or shift-based services;
private-duty nursing;
homemaker or companion services;
personal-care services;
staffing or registry services;
certain pediatric services; and
other services that do not satisfy the Medicare definition of a home health visit.

The related visits and costs should not simply be combined with Medicare-type visits and costs because the employees share similar credentials or because all services are recorded in the same payroll system.

The same principle applies outside the direct-care disciplines.

Consider an HHA whose owners, administrators or clinical personnel also provide consulting, management, staffing or other services to outside agencies and organizations. The time and costs associated with those engagements are not costs of caring for the HHA’s patients.

Those costs may include:

clinician compensation and payroll-related costs;
administrator and management compensation;
owner compensation attributable to outside engagements;
travel and engagement expenses;
technology and supplies;
billing and collection expenses; and
an appropriate share of applicable overhead.

The outside activity should be identified separately. Its direct costs and its appropriate share of administrative and general costs should be assigned to a nonreimbursable cost center.

Simply removing direct payroll while leaving the consulting activity’s share of occupancy, technology, management and other overhead in the reimbursable HHA cost centers would still distort the agency’s reported costs.

The underlying question is straightforward:

Does this cost relate to operating the HHA and providing services to the HHA’s patients—or does it relate to another business activity?

What Can an Unusual Cost per Visit Tell You?

A reported cost per visit materially above reasonable market or peer benchmarks does not, by itself, prove that the Medicare Cost Report is incorrect.

However, it can raise some questions, such as:

Were non-like-kind services included?
Were clinicians also performing outside work?
Were consulting costs assigned to the HHA?
Were owner or administrative costs improperly concentrated in patient-care cost centers?
Were visits understated?
Were costs allocated correctly?
Or is there a legitimate operational explanation?

An experienced preparer should not ignore an implausible cost per visit merely because the cost-report software accepts it.

If an agency’s reported skilled nursing or therapy cost per visit is dramatically different from reasonable benchmarks, did the preparer investigate the result—or simply enter the information provided and clear the electronic filing edits?

CMS-approved software is a filing tool. It is not a substitute for a trained preparer, and successfully clearing the software edits is not evidence that the underlying report is accurate.

Who Is Responsible: Management or the Preparer?

Preparation may be delegated. Responsibility cannot be transferred.

Agency management is responsible for maintaining adequate books and records, providing complete information, identifying all business activities and related organizations, and reviewing the material assumptions used in the report.

The CFO or administrator signs the certification.

Hiring an outside preparer does not allow the signer to say, “Our accountant prepared it,” as though that ends the inquiry. The signer should be able to explain why the agency believes the report can properly be certified.

At the same time, the preparer is not automatically protected because someone else signs the report.

A competent preparer should:

understand the applicable Medicare instructions;
obtain sufficient information about the agency’s operations;
determine whether cash-basis records require accrual adjustments;
identify non-like-kind and nonreimbursable activities;
recognize significant inconsistencies or missing information;
reconcile material financial and statistical information;
evaluate results for reasonableness;
document significant adjustments and judgments; and
explain unresolved issues to management.

A preparer may reasonably rely on information supplied by the agency. But blind reliance becomes much harder to defend when the information is internally inconsistent, implausible or contrary to known Medicare requirements.

When a materially inaccurate MCR is filed, the first question may be who signed it. That is unlikely to be the last question.

Additional questions may include:

Who prepared the report?
Who supplied the information?
Who understood the agency’s operations?
Who identified—or should have identified—the problem?
Was the issue discussed?
Who benefited from the reporting treatment?
What did each person do after the problem became known?

The agency cannot simply say, “The preparer did it.” The preparer cannot simply say, “The agency signed it.” Each party’s conduct must stand on its own.

Is Your Preparer Producing a Report—or Protecting the Agency?

Some agencies treat Medicare Cost Report preparation as a commodity: obtain several prices and select the lowest.

Price matters. But price without a clearly defined scope tells agency leadership very little about the quality, completeness or defensibility of the report it will eventually be asked to sign.

One preparer’s quoted fee may cover little more than:

importing the prior-year report;
mapping the current trial balance;
entering visits and payment statistics;
clearing electronic edits; and
producing the certification page.

Another engagement may also include:

converting cash-basis records to the accrual basis;
reconciling the general ledger and financial statements;
examining accounts payable and accrued payroll;
identifying non-like-kind services;
separating nonreimbursable activities;
evaluating related-party transactions;
reviewing owner compensation;
allocating overhead appropriately;
reconciling visits, payment periods and PS&R information;
analyzing costs per visit and other results for reasonableness; and
reviewing material decisions with the signer.

Those are not equivalent services.

The relevant question is not merely, “What will you charge to prepare our MCR?”

It is:

“What will you do before asking our CFO or administrator to certify that it is true, correct and complete?”

Agency leadership should also ask about the preparer’s Medicare cost-report training and experience.

Being an accountant, bookkeeper, CPA or software user does not, by itself, establish competence in Medicare cost reporting. The preparer should understand Medicare accounting requirements, HHA operations, like-kind services, nonreimbursable cost centers, related organizations, step-down cost allocation, PS&R reconciliation and the current CMS-1728-20 instructions.

Your Medicare Cost Report Is Public Information

Medicare Cost Reports are public information.

Competitors, consultants, investors, potential buyers, lenders, attorneys and other interested parties can obtain and analyze an agency’s reported cost-report information.

Before signing an MCR, agency leadership should therefore ask two questions:

Can we support these numbers?

and:

Are we comfortable having someone outside this organization analyze them?

Publicly available MCRs can also provide valuable management information.

Every three to five years, an HHA should consider obtaining the MCRs of approximately five to twenty reasonably comparable agencies operating in its market or similar markets. Comparisons may include:

cost per visit by discipline;
salary cost per visit;
visits per Medicare payment period;
administrative costs as a percentage of total costs;
direct-care costs as a percentage of total costs;
Medicare revenue and cost per payment period;
productivity relationships;
overall and Medicare margins; and
year-to-year changes in costs and utilization.

External benchmarks should be used cautiously because the agency does not know how accurately another provider’s MCR was prepared.

The most reliable benchmarks an agency possesses are its own—provided its information has been prepared accurately and consistently.

An accurately prepared MCR does more than satisfy a filing requirement. It creates a reliable financial and operational baseline. Over time, those baselines allow management to distinguish real performance changes from differences caused by inconsistent or improper reporting.

When an agency repeatedly prepares its MCR incorrectly, it does not merely submit inaccurate information to Medicare. It contaminates its own historical record and weakens one of the most valuable benchmarking resources available to management.

What Did CMS Find When It Examined HHA Cost Reports?

When CMS rebased HH PPS payment rates beginning in CY 2014, it used FY 2011 HHA Medicare Cost Reports.

The initial universe contained 10,327 cost reports. After CMS applied its reliability and trimming methodology, only 6,252 remained.

That means 4,075 reports—approximately 39.5% of the available universe—were excluded.

CMS expressly stated that 1,629 reports were missing total Medicare cost or payment information and another 375 reported visits without corresponding costs or costs without corresponding visits. CMS characterized approximately 20% of the original universe as incomplete.

Other reports were excluded for reasons including missing episode counts, abnormal reporting periods, unsettled reports, very low volumes and extreme or implausible values.

At a minimum, reports missing required cost, payment, visit or episode information were not sufficiently and completely prepared for CMS to rely upon them in the rebasing analysis.

That raises an uncomfortable question:

How was an HHA representative able to certify that an incomplete report was “true, correct and complete”?

CMS also commissioned audits of 100 selected 2010 HHA Medicare Cost Reports. Two agencies did not provide the information necessary to complete the audit. Among the remaining 98 reports, CMS found that reported costs were overstated by approximately 8%.

The adjustments involved costs such as:

excess salaries or owner compensation;
private-duty nursing;
luxury automobiles;
marketing and public relations;
preparation of an owner’s federal income-tax returns;
landscaping at an owner’s home; and
lobbying.

These were not obscure worksheet formulas. They were fundamental questions about which costs properly belonged in an HHA Medicare Cost Report.

The findings also invite another question:

What exactly was the MCR preparer doing?

Why Does This Matter to the Entire Home Health Industry?

An individual HHA’s cost report generally does not directly impact its current HH PPS payments (as it once did pre-PPS). That may lead some agencies to believe that investing in accurate preparation produces little practical benefit; the cost exceeds the potential benefit.

That view ignores how MCR data are used.

CMS and MedPAC use cost-report information to evaluate costs, margins, payment adequacy and future reimbursement policy.

In its March 2026 Report to Congress, MedPAC reported that freestanding HHAs earned an aggregate FFS Medicare margin of 21.2% in 2024. MedPAC projected a 19% margin for 2026 and recommended that Congress reduce the 2026 Medicare base payment rate by 7% for CY 2027.

Whether one agrees with MedPAC’s methodology or recommendation, the industry should understand the significance of the underlying cost information.

If legitimate costs are omitted, understated, misclassified or otherwise not captured accurately, reported Medicare margins may be overstated. Those reported margins do not remain inside the cost report. They become part of the payment-policy discussion in Washington.

The home health industry cannot demand reimbursement rates that accurately reflect the cost of providing care while submitting Medicare Cost Reports that do not accurately identify and measure those costs.

The objective should be to measure and report the legitimate costs of providing Medicare-type home health services as accurately, completely and consistently as possible so that agencies, CMS, MedPAC and Congress have the most reliable information available when evaluating payment adequacy and developing future reimbursement policy.

Accurate MCRs do not guarantee adequate reimbursement.

But inaccurate MCRs make cost-reflective reimbursement much less likely.

Who Is Responsible When Payment Rates Do Not Reflect Reality?

CMS is responsible for its methodologies, assumptions and policy decisions. Congress is responsible for its legislative decisions. MedPAC is responsible for its analyses and recommendations.

The industry is responsible for the quality of the information it submits.

CMS cannot accurately measure costs that agencies fail to report. It cannot reliably distinguish HHA costs from consulting, private-duty and other non-like-kind costs if agencies and their preparers combine them. It cannot properly evaluate cost-per-visit relationships when visits are missing, costs are misclassified or reports are prepared using an impermissible accounting method.

CMS can trim incomplete reports, exclude implausible results, audit selected agencies and statistically weight the remaining data. Those techniques may reduce the effect of unreliable information, but they cannot transform inaccurate source data into a fully accurate measure of industry costs.

The greater the prevalence and materiality of errors in submitted MCRs, the less confidence anyone should place in future reimbursement rates based on those reports.

If future reimbursement rates fail to reflect the legitimate cost of providing home health services, the industry has every right to challenge CMS’s methodology and policy decisions.

But it must also examine its own contribution to the problem.

Agencies that submit incomplete or inaccurately prepared MCRs—and preparers who enable them—help create the unreliable cost information about which the industry later complains.

We cannot provide CMS with unreliable cost information and then place all responsibility on CMS when future payment rates do not reflect operational reality.

Before You Sign

Before signing the agency’s next Medicare Cost Report, ask:

Were the financial records reported on the proper accounting basis?
Were all necessary accrual adjustments recorded?
Were only Medicare-type, like-kind visits included in the reimbursable HHA cost centers?
Were consulting and other non-HHA activities separately identified?
Did nonreimbursable activities receive their appropriate share of overhead?
Were related-party transactions identified?
Were visits, costs, payments and payment periods reconciled?
Were unusual costs per visit investigated?
Can material amounts be supported?
Did the preparer explain significant judgments?
Does the signer have a reasonable basis for certifying that the report is true, correct and complete?

The home health industry cannot control every assumption CMS makes, every methodology MedPAC uses or every payment decision Congress adopts.

It can control the quality of the cost information it submits.

If the industry wants future reimbursement rates to reflect the actual cost of providing care, that effort begins with accurate, complete and defensible Medicare Cost Reports—one agency at a time.

We cannot demand better reimbursement information from CMS while providing unreliable cost information to CMS.

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