What Is a Medicare Cost Report?

By costreporting.aiPublished May 18, 2026

A Medicare cost report is the annual financial statement a Medicare-certified provider files with its Medicare Administrative Contractor (MAC) to report the cost of treating Medicare patients and to reconcile that cost against the interim payments Medicare made during the year. Federal regulation requires it as a condition of participation in the program (42 CFR § 413.20).

Why Medicare requires it

Medicare pays most institutional providers on an interim basis during the year, then trues up after the fact. The cost report is that true-up. The provider reports total operating cost by cost center, allocates overhead to patient-care areas through a defined step-down, and isolates the Medicare-allowable portion. The result is a settlement: an amount Medicare owes the provider, or one the provider owes back.

The forms: Home Health and Hospice

The form depends on the provider type. Medicare-certified Home Health Agencies file Form CMS-1728-20. Medicare-certified Hospices file Form CMS-1984-14, which additionally enforces the hospice aggregate payment cap. Each form is a linked set of worksheets — trial-balance intake (S-series), direct cost (A), overhead step-down (B), cost-to- charge and apportionment (C), and settlement (D / G / H) — that must reconcile to each other before the report is acceptable.

Common cost-finding concepts you'll encounter

Two concepts appear repeatedly across the worksheets and affect the final settlement amount in non-obvious ways:

Medicare bad debts

When a Medicare beneficiary fails to pay the coinsurance or deductible amount they owe, the provider can claim a portion of that uncollected amount on the cost report as a Medicare bad debt under 42 CFR § 413.89. The statutory reimbursement rate is 65% of the qualifying bad debt (reduced from the original 100% via legislation in 2013 and after), and the documentation requirements are strict: the provider must demonstrate that reasonable collection effort was made and that the debt is genuinely uncollectible. Bad debts are reported on Worksheet A-8 (HHA + Hospice) or equivalent worksheet sections on other forms; documentation deficiencies are a frequent MAC desk-review finding.

Wage index

The wage index is a geographic-area multiplier that adjusts the labor-related share of Medicare prospective-payment rates for regional cost-of-labor differences. It is computed annually by CMS from hospital wage-and-hour data and applied to most PPS systems — IPPS (hospitals), HHA PPS, Hospice per-diem, SNF PPS, ESRD PPS. The cost report itself does not typically calculate the wage index (CMS publishes the finalized values in the annual payment rule); instead, the cost-report worksheets feed the wage-index calculation upstream via the Worksheet S labor-cost data, and the resulting wage index feeds back into next year's PPS rate that the cost-report settlement reconciles against.

Common questions

Who has to file a Medicare cost report?

Most institutional providers that bill Medicare Part A — including Home Health Agencies, Hospices, hospitals, and skilled nursing facilities — must file an annual cost report covering their fiscal year. Home Health Agencies file Form CMS-1728-20; Hospices file Form CMS-1984-14.

When is the Medicare cost report due?

The cost report is due five months after the end of the provider's fiscal year (42 CFR § 413.24(f)(2)). A calendar-year filer with a December 31 year-end has a May 31 deadline. The MAC can grant a limited extension only for good cause beyond the provider's control.

What happens if a cost report is filed late or rejected?

Medicare can suspend interim payments until an acceptable cost report is filed. A report can also be rejected for being incomplete or not reconciling across worksheets, which restarts the review clock — so accuracy and internal consistency at first submission matter.

Is the cost report the same as a Medicare claim?

No. Claims are paid per service throughout the year on an interim basis. The cost report is the annual reconciliation: it compares what Medicare paid in interim payments against the provider's allowable cost of treating Medicare patients, producing an amount owed to or by the provider.