How to Use Cost Report Data to Improve Home Health Profitability

If you have a Home Health Agency (HHA), then you know profitability can seem like a mirage. With fluctuating CMS payment models, staffing challenges, and growing operational costs, keeping your bottom line in tip-top shape requires smart strategy and continuous optimization. But here’s a tool that many agencies overlook: the Medicare Cost Report.

Most agencies view the annual cost report as a regulatory requirement—a check box to maintain compliance. Practically, this report is an operating and financial treasure trove that can lead you to opportunities for efficiency reduction, growth strategies, and improving profitability.

This blog will examine how to effectively use cost report data to improve your Home Health Agency’s profitability in 2025 and beyond.

What Is the Medicare Cost Report?

The Medicare Cost Report is completed annually by HHAs on Form CMS-1728-94. It breaks down in detail your:

• Total revenue and cost
• The volume of visits by discipline
• Salaries and benefits paid
• Overhead and administrative expenses
• Amounts reimbursed from Medicare

CMS uses this report to ensure compliance and determine cost-based payments (especially for certain rural or freestanding HHAs). But more importantly for you—it provides insights into how your agency is operating financially and clinically.

Why Use Cost Report Data?

Think of your cost report like an internal audit: it shows exactly where your money is going and how that aligns with patient care.

With the right strategy, you can use this information to:

• Identify underperforming service lines.
• Optimize staffing ratios
• Control administrative expenses
• Increase per-visit profitability
• Benchmark with other agencies

1. Calculate Your Cost per Visit (CPV)

One of the easiest—and most valuable—numbers you can pull out of your cost report is Cost per Visit (CPV). You can find this on:

• Worksheet C breaks costs down by discipline (nursing, PT, OT, etc.)
• Worksheet S-3, Part IV, which shows total visit volume by discipline

Formula:

• Mathematica
• Copy
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• Cost per Visit = Total Cost for Discipline ÷ Number of Visits

For instance, if your total cost for Skilled Nursing is $900,000 and you had 9,000 SN visits, your CPV is $100 per Visit.

Compare that with the Medicare reimbursement for SN visits to see your margins by discipline.

If CPV exceeds reimbursement, it’s a red flag—time to look at staffing, scheduling, or utilization.

2. Analyze Staffing Efficiency:

Your most significant expense is labor. Utilize Worksheet A and A-6 to analyze:

• Direct care salaries (nurses, aides, therapists)
• Administrative salaries (management, billing, schedulers)
• Employee fringe and benefits expenses (health insurance, vacation time, etc.)

Calculate your cost per FTE and compare that to national averages. Analyze how much you’re spending on direct versus indirect labor.

If overhead salaries are bloated or in conflict with visit numbers, that’s an opportunity to rearrange or redistribute employees for more efficiency.

3. Scrutinize Overhead and Admin Costs

Home health agencies lose profitability in caring for patients but not in non-patient-related overhead. They are:

• Rent and utilities
• Office staff
• Software and technology
• Insurance and lawyer fees

Review Worksheet B and B-1, which detail non-reimbursable expenses. Look for any expense that seems disproportionately high, and compare them to your volume of visits.

Ask:

• Do overhead expenses have to be incurred?
• Can any be outsourced or automated
• Are you overpaying for services or supplies?

4. Compare Reimbursement vs. Costs by Payer

Cost report data can help you compare payer profitability if you have both Medicare and non-Medicare patients.

Use Worksheet F’s revenue categories to see how much each payer brings in and contrast that with your cost data by discipline.

Private payers pay under Medicare rates—less than Medicare—if those patients are more costly to serve than what they pay, they’re damaging your margins. Renegotiate the contract or modify your patient mix.

5. Benchmark Against Other Agencies

Once you learn your agency’s internal measurements, the second step is external benchmarking.

Publicly, CMS releases cost report data. You can benchmark your CPV, average episodes per Visit, and overhead ratio compared to other HHAs locally or nationally.

What to ask yourself:

• Are your costs higher than the industry median?
• Are you under-delivering visits compared to peer agencies?
• Is your administrative overhead unusually high?
• Use benchmarking data to set realistic, fact-based agency objectives.

6. Seek Growth and Specialization Opportunities

Your cost report can reveal which service lines are most profitable. For example:

• PT can have more margin than SN.
• Behavioral health visits can have great returns in specific markets.
• High-cost, low-visit programs (like hospice transition) can be reconsidered.
• Double down on high-margin services and rethink or restructure the ones draining profitability.

Pro Tip: Take Advantage of Software or Consultants

While you might be able to collect insights from cost reports manually, it is simpler and more accurate with the help of:

• Cost report analysis software (e.g., SimiTree, HEALTHCAREfirst, or HFS tools)
• Reimbursement consultants with expertise in home health

These tools can do calculations for you, detect outliers, and build dashboards that allow you to see the big picture at a glance.

Craft Compliance Strategy

The Medicare Cost Report is not just a filing mandate—it’s a tactical tool.

It can give you a clear, fact-driven blueprint for increasing profitability. It can help:

• Increase operational effectiveness
• Remove waste
• Identify high-margin services
• Negotiate smarter contracts
• And ultimately, create a healthier and more competitive agency.

Are you Ready to Dive In?

If you haven’t looked closely at your agency’s cost report recently, it’s the right time. Whether you need assistance breaking it down or want to incorporate benchmarks into your monthly ops review, let us know—we’d be happy to help you turn your data into dollars.