Essential insights on how to avoid audits when submitting a Home Health Cost Report.

For home health agencies who are Medicare program participants, submitting a timely and accurate cost report is a regulatory necessity, but it’s also a protection against audits and financial loss. The Medicare Home Health Cost Report (CMS-1728-94) is a comprehensive cost breakdown, services, and utilization data. It may provoke an expensive audit or even hold up reimbursement if submitted late or inaccurately.

In this blog, we’ll take you through the best practices for filing a compliant home health cost report, discuss what auditors are looking for, and keep you out of trouble by avoiding common errors that trigger red flags with the Centers for Medicare & Medicaid Services (CMS).

Why Does the Cost Report Matter?

Medicare cost reports play multiple critical functions:

• They ensure compliance with federal payment rules.
• They establish the cost of providing care to Medicare patients.
• They endorse future rate-setting by CMS.

For home health providers, such a report must be submitted each year within five months of the close of the fiscal year. Failure to make the deadline or submitting the report in an incomplete form can result in Medicare payment suspension until the issue is addressed.

Common Audit Triggers

Before exploring best practices, it’s good to understand what typically triggers CMS audits:

• Late or incomplete submissions
• High variances in reported utilization or costs year-to-year
• Unallowable expenses like entertainment, marketing, or penalties
• Insufficient documentation or no supporting work papers
• Inaccurate cost allocation procedures
• Mismatches between the figures recorded and the Provider’s Statistical and Reimbursement (PS&R) data.

All these red flags can result in further inquiry or even repayment requests if mismatches are discovered during a desk review or complete audit.

Best Practices to Ensure Compliance and Avoid Audits

1. Begin Early and Remain Organized

Procrastinating is one of the most common provider mistakes. Start collecting documentation early in the year, such as:

• Trial balances
• Payroll and compensation records
• Mileage logs
• Medicare PS&R reports
• Patient census and utilization reports
• An organized internal checklist can keep you on track.

2. Utilize CMS-Approved Software and Tools

CMS mandates that cost reports be submitted electronically via the Medicare Cost Report e-Filing (MCReF) system. Ensure you’re registered and familiar with the portal.

Also, use industry-standard software such as HFS, F.I. Pro, or Freedom Data to complete and validate your CMS-1728-94 form. These tools help flag missing or inconsistent entries.

3. Allocate Costs Properly

Cost allocation is the most challenging part of a home health cost report. Each cost has to be allocated by its use:

• Direct costs (e.g., therapy, nursing) should be allocated against identifiable services.
• Indirect costs (e.g., salaries, rent) have to be allocated by function consistently and reasonably, such as by square footage or by hours worked.
• Ensure that non-reimbursable costs such as fundraising, fines, and advertising are omitted. Inappropriate allocation is a frequent audit reason.

4. Ensure PS&R Data Coincides

CMS will reconcile your submitted Medicare visits and charges with your Provider Statistical and Reimbursement (PS&R) report. Ensure:

• The number of visits per discipline coincides.
• Medicare revenue coincides with your PS&R summary.
• Discrepancies are accounted for with documentation.
• Not reconciling these figures can lead to audit flags or reimbursement problems.

5. Document Each Entry

CMS needs cost report information supported by proper documentation. For home health agencies, this includes:

• W-2s or payroll summaries for salary allocations
• Mileage records for travel
• Supply invoices for supply expenses
• Subcontracted therapy or service contracts

If you’re chosen for an audit, not having this documentation may result in disallowed costs and repayment requests.

6. Look for Consistency Year to Year

Accountants are trend-sensitive. That may raise eyebrows if you report significantly higher administrative expenses, travel costs, or visit volumes than in past years.

Ensure any noticeable increases or decreases make sense and are well documented. For instance, an unexpected rise in nurse overtime should align with increased patient volume or a staffing crisis.

7. Double-check all Calculations and Classifications

Small calculation or data entry mistakes can have significant implications. Before submission:

• Verify that all totals match your trial balance.
• Double-check salary allocations by department.
• Verify that your overhead has been entirely distributed to cost centers.
• Tiny errors can lead CMS to doubt the integrity of your overall report.

8. Review by a Third-Party

Even seasoned finance staff can use a second pair of eyes. Reviewing your submission by a Medicare cost report professional can correct mistakes and clarify complicated rules.

Professional consultants are also able to:

• Maximize allowable costs
• Verify compliance with the latest CMS regulations.
• Offer best practices in documentation.
• Avoid reporting inconsistencies
• Avoid the Risk—Get It Right the First Time

Filing a compliant home health cost report is not simply checking boxes. It’s about safeguarding your revenue, being in regulatory compliance, and avoiding expensive audits.

By preparing early, getting your data in order, correctly assigning costs, and cross-checking your information with CMS data, you can remain on the right side of Medicare regulations and obtain timely reimbursement.

Need Help Preparing Your Home Health Cost Report?

At NMP Professional Services, Inc., we have more than 30 years of experience in Accounting, Payroll, and preparation of Medicare Cost Reports, Taxes, and Audits. We are specialists in assisting home health agencies with accurate, audit-ready cost reports that are compliant with all CMS and AICPA requirements.

Our professionals will:

• Complete your Medicare cost report on time.
• Ensure full compliance with CMS regulations.
• Maximize your reimbursable allowance.
• Safeguard your agency from audit risk.

Call NMP Professional Services today and let us prepare your Medicare cost report confidently and accurately. Your compliance is our concern.