Blog, Cost Report, Reimbursement

Top Questions from our Non-Allowable Expenses on the Medicare Cost Report Webinar

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Jeff Wolf

Trying to understand Non-Allowable Expenses on the Medicare Cost Report? BESLER’s Director of Reimbursement, Jeff Wolf, answers your questions. 


To listen to Jeff’s “Non-Allowable Expenses on the Medicare Cost Report” webinar, click HERE

  1. Are the gains/losses revenue exclusions also applicable for the Medicaid Cost Reports?

    Medicaid programs are required to follow the 42CFR. The 42CFR does state that as of 2008 all gains and losses should not be included in the cost report.  With that said, each state can file a “State Plan Amendment” with HHS for deviations. Most of the deviations are additional coverages issues, but there are some reimbursement items that some states have included in their “State Plan Amendments”. The best course of action is to review the state plan amendment filed by your state for verification. I do not know of any state that has an exception to this rule.

  2. Can you go over Rental Income and Sublease Revenue?

    Anytime that a Hospital rents space out, the revenue must be used to reduce the associated expenses.  One of the things to look at is does the Rental/Lease agreement cover more than the space, such as Maintenance, Housekeeping, etc.  If this is the case the proper way to treat the revenue is to offset part of the revenue against depreciation (space expense), part against Housekeeping (Cleaning Exp), and part against Repair and Maintenance expense.  The apportionment should be the same method each year (flat %, based on a statistic, etc.).  If the Rental/Lease agreement is for space only, then all revenue should be offset against the Depreciation expense.

    If you are subleasing a portion of the space that you are renting, then the revenue you receive from subleasing would be offset against the rent expense you paid for the whole space.

  3. Can you please re-explain how gains/losses are not offsettable? 

    PRM 15-1 section 130.  DISPOSAL OF ASSETS – states “…If the sale or scrapping occurs on or after December 1, 1997, no gain or loss is recognized (see §104.10.E).”

    PRM 15-1 section 2l60.l  Net Operating Losses.—States “Because operating losses are not costs, a net operating loss sustained by a provider is not an allowable cost.”

    There are a few other references throughout the regs, but these are the two main reasons that organizations have Gains/Losses, and clearly they are not allowed to be included in the cost report (no Expense for Losses, and no offset for Gains).

  4. What qualifies as related investment expenses?

    Any expense that is incurred to enter into, maintain and manage the investment(s).  this would not include the principal of the investment itself.  These costs usually are the brokerage fees or investment firm management fees.

    The principal investment would not be allowable expense since it is not related to Patient Care.

  5. Do you ever make an A-8 offset of revenues or expenses against a Non-Reimbursable cost center. If so, any examples?

    This is a subject that I personally have an issue with.  Medicare has maintained that no revenue offsets should be made against Non-Reimbursable Cost Centers (NRCCs).  However, I find that a disparity of treatment.  If I am offsetting the revenue from Other Operating Revenue and some of that revenue is related to the Physician Offices, why should offset against all other departments and not the NRCCs?  Unfortunately, Medicare has maintained this stand and states that reducing the NRCCs expenses would distort the overhead allocation to these cost report lines.  On a few occasions I have been able to argue that this treatment creates an overallocation of expenses related to the resources consumed.  In these cases I have been allowed to make an “Expense” adjustment to remove the expense related to the overhead resources consumed (calculated) and then not have statistics for that overhead cost report line allocated to the NRCC.  This does not address the revenue issue, but instead the related expense.

  6. How do the assets we lease and buy consumables accounted for on cost report?

    If your lease agreement includes the consumables (ESRD this is common), then you must perform an analysis of the expense and apportion a part of it to Equipment, and part to Supplies.

  7. How should we treat FEMA grant revenue for losses sustained from natural disasters? Should we offset those revenue? But those revenues are received years after losses are incurred?

    I have dealt with this only a couple of times. The proper way is to re-open the cost report that the expenses were incurred in, and offset the expenses.  However that may not be practical, so CMS has offset the expenses in the year that the payment was received.

    Please note that FEMA revenue may have been earmarked against specific expenses, so you should perform an analysis of the expenses related to the FEMA payment and ensure that there are appropriate costs in the current cost report to offset.  You should not just assume the offset should be made against Admin or Capital costs.

  8. If an NP surrender his/her billing rights, we can include the cost, correct? 

    That is an interesting phrase “surrender his/her billing rights”.  Medicare will ask a few questions related to the NPs expenses:

    • Is the NP acting in the capacity of the MD or a Nurse?

    This is really asking if the NP is providing care that is normal and necessary for a nurse, or is the care normal and necessary for an MD.

    • Did someone else bill for the NPs services?

    This is really asking was the care provided a billable event under the Physician fee schedule?  If the answer is yes, then it does not matter is the service was not billed, the expense is still excluded from the cost report.

    There are exceptions for RHCs and FQHCs for NPs and PAs.  Otherwise, NPs and PAs are assumed to be working as MD services.

  9. If we were to receive “free COVID-19 nurses”, and we impute expenses as well as revenues, can we include expenses as allowable expenses. If so, do we need to offset the imputed revenue? 

    The facility did not incur any expense or obligation related to these nurses?  If that is true, then it should be treated as a donation and any imputed costs would not be allowed on the cost report.  The revenue would have no related expense so therefore it would not be offset.

  10. Is administrative expense related to physician billing reported on A-8 or A-8-2?

    Usually, we only report direct expenses of the MDs on WS A-8-2.  These consist of Salary, Contracts, Benefits, and Malpractice Insurance.  Any other administrative costs incurred for the MDs is usually offset on WS A-8 by issue.

  11. Outside medical services? how do you specify which are allowable and non-allowable cost – example gulf coast reg blood?

    Outside Medical Services are allowable as long as the service is necessary and prudent and related to the care of the Hospitals Patient.  So be careful of Patients that are being treated on an outpatient basis rather than inpatient.

  12. Should other payers follow the same guidelines as Medicare for Allowable vs Non Allowable? How to combat line-item reviews and denials from Payers?

    The first part of the question is should other payors follow the Medicare Guidelines.  There is no requirement for private insurance to follow Medicare requirements.  Many of the Private payors use the Medicare cost report in their rate setting negotiations, so they are using the cost and cost/charge ratios based on Medicare rules.

    As to the combating line item denials, this is a billing issue.  I am not a billing expert, bit I will follow up with our billing folks and see if they can give you an answer.

  13. ER Room, OR Room Usage is still considered as OP Ancillary Service, right?

    Yes, The ER and the OR for a facility are allowable expenses on the cost report.  Technically OR is grouped in the Ancillary Services and the ER is grouped in the OP Services, but they are both allowable expenses.

  14. Treatment of expenses related to COVID that are claimed to support provider relief fund dollars?

    If the relief funds are directly tied to certain expenses, then they must be offset.  However, the majority of the COVID relief funds were not tied to specific expenses and are currently not offset against expenses on the cost report.

  15. What about the costs associated with price transparency, web pages, etc. ?

    Costs that are mandated by CMS as a condition of participation in the Medicare Program are allowable.

  16. Why can’t we add Medicare Advantage Bad Debt as well – MA Payers do not pay this at all?

    The Medicare Cost report is only for the reimbursement of Medicare Part B and Part B Technical services provided to Patients.  Medicare Managed Care is reimbursed under what is referred to as Medicare Part C.  The reimbursement for Medicare MA does not have the provision for Bad Debts like the Medicare Part A & B technical reimbursement does.


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