Georgia Medicare Cost Report 2026 Guide

Walk into the reimbursement office of any major Georgia hospital and you will find people who spend the better part of every year preparing one document: the Medicare Cost Report. Officially Form CMS-2552-10, the Medicare Cost Report is the foundational filing through which every Medicare-participating hospital reports its costs, charges, statistics, and operations to the federal government. Authorized under Section 1815(a) of the Social Security Act and implemented through 42 CFR 413.20 and 42 CFR 413.24, the cost report is far more than a regulatory checkbox. It is the document that determines how much Medicare will pay each hospital for inpatient and outpatient services, how much Direct Graduate Medical Education (DGME) payment will be made, what the Indirect Medical Education (IME) adjustment will be, whether the hospital qualifies for Disproportionate Share Hospital (DSH) adjustment and at what level, how much Uncompensated Care Pool (UCP) allocation the hospital will receive, what the hospital's wage index data contributes to Medicare rate-setting, whether the hospital qualifies for 340B drug pricing as a DSH hospital, how much bad debt reimbursement the hospital can recover under Section 1861(v)(1)(T), and ultimately what the final Medicare settlement will be for the fiscal year.

For Georgia, cost reporting is enormous and consequential. Grady Memorial Hospital, Emory University Hospital, AU Medical Center, Memorial Health Savannah, Phoebe Putney Memorial Hospital, Atrium Health Floyd, Northeast Georgia Medical Center, Wellstar Cobb, Wellstar Kennestone, Piedmont Atlanta, Children's Healthcare of Atlanta, the Atlanta VA Medical Center, and the approximately 100 other Georgia hospitals participating in Medicare each file annual cost reports that can run hundreds of pages and represent millions of dollars in payment determinations. The Medicare Administrative Contractor (MAC) for Georgia, Palmetto GBA, reviews each cost report, conducts desk review and potential field audit, issues a Notice of Program Reimbursement (NPR) with the final determination, and processes settlement. Hospitals that disagree with the MAC's determination can appeal to the Provider Reimbursement Review Board (PRRB) established under Section 1878 of the Social Security Act, and further to federal district court if needed.

The detailed mechanics of cost reporting are governed by an enormous body of regulation, guidance, and accumulated practice. The Provider Reimbursement Manual (PRM) Pub 15-1 and Pub 15-2 provides hundreds of pages of detailed instructions. Court decisions over decades interpret the underlying statutes. The cost report worksheets themselves (S-2, S-3, S-10, A, A-6, A-7, A-8, B, B-1, C, D, D-1, D-2, D-3, D-4, E Part A, E Part B, G, G-1, G-2, G-3, plus sub-provider worksheets H, I, J, K, L, M, N, O, W) each have their own purpose, methodology, and complexity. Cost finding through the step-down method, cost-to-charge ratio calculation, apportionment, reclassifications, adjustments to expenses, related party transactions, capital cost reporting, bad debt documentation, and Worksheet S-10 uncompensated care reporting each have entire subspecialties of cost reporting practice.

This guide is for Georgia hospital administrators, CFOs, reimbursement directors, compliance officers, healthcare consultants, and Medicare beneficiaries who want to understand how Medicare payment to hospitals actually works at the foundational level. We explain the Section 1815(a) filing requirement, the Form CMS-2552-10 worksheets, the cost finding and apportionment methodologies, the MAC review process by Palmetto GBA, the NPR settlement process, the PRRB appeal procedure, the reopening rules under 42 CFR 405.1885, and how Georgia hospitals navigate the annual cost report cycle.

The statute: Section 1815(a) of the Social Security Act

The Medicare program statutes establish a framework requiring providers to furnish detailed financial and operational information. Section 1815(a) of the Social Security Act provides the foundational authority for the cost report:

"The Secretary may make payment of benefits provided for ... only when the necessary information is furnished by the provider of services."

This seemingly simple provision, combined with implementing regulations and decades of administrative practice, has produced the modern Medicare cost report framework.

Section 1861(v) - Reasonable cost

Section 1861(v) of the Social Security Act defines "reasonable cost" for purposes of Medicare reimbursement. The cost report is the mechanism through which reasonable cost is determined. The general principle: reasonable cost is the cost actually incurred, excluding costs not related to patient care, not above prevailing standards for similar facilities, and otherwise compliant with Medicare rules.

Section 1861(v)(1)(T) - Bad debt reimbursement

Specific subsection authorizing reimbursement for bad debts of Medicare beneficiaries. Hospitals can recover 65% of allowable bad debt through the cost report. Bad debt reimbursement is subject to specific documentation and collection effort requirements.

Section 1878 - PRRB

Section 1878 of the Social Security Act establishes the Provider Reimbursement Review Board to hear disputes about cost report determinations. The PRRB is the first-level appeal forum for cost report disputes.

The regulations: 42 CFR 413.20 and 413.24

42 CFR 413.20 - Financial data and reports

Establishes the general requirement that providers furnish necessary financial and operational data to Medicare. Specifies form, timing, and completeness requirements.

42 CFR 413.24 - Adequate cost data and cost finding

The single most important regulation for cost report methodology. Specifies:

• Cost finding requirements
• Methods (step-down, direct allocation, alternative methods)
• Cost center categorization
• Apportionment methodologies
• Documentation requirements

The regulation reflects the principle that Medicare reimbursement should be based on the hospital's allowable costs allocated and apportioned in a consistent manner.

42 CFR 413.89 - Bad debts, charity, and courtesy allowances

Implementing regulation for bad debt reimbursement. Addresses:

• What qualifies as allowable bad debt
• Collection effort requirements
• Documentation
• Treatment of charity care (separate from bad debt)
• Dual eligible bad debt (different rules)

42 CFR 405.1801-405.1898 - PRRB

Detailed procedural rules for the Provider Reimbursement Review Board. Cover:

• Jurisdiction
• Procedure for filing
• Pre-hearing procedures
• Hearing procedures
• Decision and review

42 CFR 405.1885 - Reopening

Cost reports can be reopened within three years of NPR. No time limit applies for fraud or similar fault. Reopening allows revision of NPR determinations based on new information, mathematical errors, or other appropriate reasons.

The Provider Reimbursement Manual (PRM)

PRM Pub 15-1

The original Provider Reimbursement Manual issued by CMS. Includes hundreds of pages of detailed cost reporting instructions:

• Reasonable cost principles
• Cost finding (step-down methodology in detail)
• Apportionment
• Reasonable compensation for owners and physicians
• Related party transactions
• Capital cost reporting
• Bad debt reporting
• Charity care
• Many other detailed topics

PRM Pub 15-2

Replaced PRM Pub 15-1 for most current cost reporting periods. Continuation and refinement.

How the PRM is used

Hospital reimbursement teams, MAC auditors, and PRRB judges all consult the PRM as detailed guidance. CMS issues additional PRM clarifications, transmittals, and one-time notices throughout the year.

Form CMS-2552-10 worksheets

The hospital cost report has many worksheets, each with a specific purpose. We summarize each.

Worksheet S-1: Cost Report Identification

Hospital identification, fiscal year, certification statements.

Worksheet S-2: Hospital Identification, Type, Programs

• Hospital type (acute care, IRF, IPF, LTCH, CAH, etc.)
• Sub-provider components
• Programs (Medicare, Medicaid, etc.)
• Provider numbers
• Geographic information
• Other identifying data

Worksheet S-3: Hospital and Hospital Health Care Complex Statistical Data

Critical statistical data including:

• Inpatient discharges and days by payer
• Outpatient visit and procedure counts
• Wage index data (Part II of S-3) - source of CMS wage index calculations
• Hospital teaching status data
• FTE counts including residents
• Bed counts
• Square footage

The wage index data from Worksheet S-3 Part II drives the geographic wage index for each Core-Based Statistical Area (CBSA). Hospitals in higher-wage areas receive higher Medicare payments. Wage index appeal and reclassification processes flow through this data.

Worksheet S-10: Hospital Uncompensated and Indigent Care Data

Detailed uncompensated care reporting:

• Charity care (per hospital charity care policy)
• Uninsured discounts (beyond charity care)
• Bad debt with adjustments
• Medicaid shortfall (Medicaid revenue minus Medicaid costs)
• Cost-to-charge ratio application
• Other uncompensated care components

Worksheet S-10 drives the UCP allocation (Factor 3 calculation) for the Uncompensated Care Pool established by Section 3133 of the Affordable Care Act of 2010.

Worksheet A: Reclassification and Adjustment of Trial Balance of Expenses

The starting point for cost finding:

• General service cost centers: administration, plant operations, dietary, housekeeping, laundry, social services, employee health, etc.
• Reimbursable cost centers: routine inpatient, ICU, CCU, nursery, operating room, recovery room, delivery room, laboratory, radiology, pharmacy, anesthesiology, blood services, etc.
• Reclassifications between cost centers
• Adjustments to expenses (non-allowable cost removal)

Worksheet A-6: Reclassifications

Detailed reclassification entries.

Worksheet A-7: Reconciliation of Capital Cost Centers

Capital cost reporting (separate from operating cost).

Worksheet A-8: Adjustments to Expenses

Various adjustments including:

• Non-allowable costs (lobbying, certain marketing, etc.)
• Owner compensation above reasonable limits
• Related party adjustments
• Other adjustments

Worksheet A-8-1: Statement of Costs of Services from Related Organizations

Related party transactions and adjustments.

Worksheet B: General Service Cost Center Allocation Statistics

Statistics used for step-down allocation. For each general service center, a basis is identified (square footage for plant operations, FTE count for administration, etc.).

Worksheet B-1: Cost Allocation - General Service Costs

The step-down allocation itself. Each general service center is sequentially allocated to other cost centers using the statistical bases. After allocation, the cost center closes and costs flow to reimbursable centers.

Worksheet C: Computation of Ratio of Cost to Charges

Departmental cost-to-charge ratios derived from the cost finding. These ratios are used in apportionment.

Worksheet D: Inpatient Operating Costs

• D-1: Inpatient routine service costs
• D-2: Apportionment of cost of services rendered by interns and residents (DGME-related)
• D-3: Inpatient ancillary service cost apportionment (charges × CCR)
• D-4: Department charges and cost-to-charge ratios

Worksheet E: Calculation of Reimbursement Settlement

E Part A: Inpatient Hospital Services

Critical worksheet. Includes:

• Base IPPS payment
• IME calculation
• DSH calculation (using DPP from Medicaid days and SSI fraction)
• UCP allocation
• Bad debt reimbursement
• Capital pass-through
• Various other settlement components

E Part B: Outpatient Hospital Services

Outpatient settlement.

Worksheet G: Balance Sheet

Standard balance sheet items.

Worksheet G-1: Statement of Changes in Fund Balances

Equity changes.

Worksheet G-2: Statement of Patient Revenues and Operating Expenses

Operating P&L for patient services.

Worksheet G-3: Statement of Revenues and Expenses

Full revenue and expense statement.

Sub-provider worksheets

• H - Home Health Agency
• I - Rural Health Clinic
• J - Federally Qualified Health Center
• K - Hospice
• L - IPF/IRF/LTCH PPS
• M - ICR Inpatient Capital Costs
• N - Distinct-Part Skilled Nursing Facility
• O - Renal Dialysis
• W - Outpatient ESRD

For hospitals operating sub-providers (such as Grady operating a hospice; Emory operating SNFs; AU Medical operating ESRD), these worksheets apply.

Cost finding through step-down

The step-down methodology is the dominant cost finding approach. Concept:

1. Start with the hospital's trial balance and operating expenses
2. Categorize cost centers as general service or reimbursable
3. Apply reclassifications (Worksheet A-6)
4. Apply adjustments to expenses (Worksheet A-8)
5. For each general service cost center in a defined order, allocate to other cost centers using a statistical basis
6. After allocation, close the general service center
7. Continue until all general service centers are allocated and only reimbursable centers remain
8. Final reimbursable cost centers contain their direct costs plus allocated general service costs

Order of allocation

The order matters because earlier-allocated centers receive less allocation. Standard order:

1. Capital-related (separate worksheet)
2. Employee health and welfare
3. Administrative and general
4. Maintenance and operation of plant
5. Operation of plant
6. Dietary
7. Housekeeping
8. Laundry
9. Social services
10. ... (additional centers)

Statistical bases

Common bases:

• Square footage for plant operations
• FTE count for administration
• Meals served for dietary
• Pounds of laundry for laundry
• Number of admissions for various

Alternative methodologies

• Direct allocation: alternative methodology where costs are allocated directly without step-down sequencing
• Combination method: mix of methods
• 42 CFR 413.24 allows alternative methodologies with appropriate justification

Most hospitals use step-down as the standard approach.

Apportionment

After cost finding, costs in each reimbursable cost center must be allocated to Medicare and to other payers (Medicaid, private insurance, self-pay, etc.).

Ratio of Cost to Charges Applied to Charges (RCCAC)

Method where Medicare payment basis = (Medicare charges) × (departmental cost-to-charge ratio). Most common method.

Departmental method

Direct departmental approach.

Combination method

Combination of methods.

The cost-to-charge ratio is the bridge between hospital charges (gross charges) and hospital costs (allowable costs). CMS does not pay charges; it pays costs (or DRG-based rates). The cost-to-charge ratio converts between the two for apportionment purposes.

Reasonable cost principles

Allowable costs

• Necessary and proper to patient care
• Reasonable and prudent
• Within Medicare cost guidelines
• Properly documented
• Consistent with generally accepted accounting principles

Non-allowable costs (removed via A-8 adjustments)

• Personal expenses
• Lobbying
• Some marketing
• Bad debts (separate reimbursement mechanism)
• Charity care (separate UCP mechanism)
• Capital expenditures (separate capital pass-through)
• Owner compensation above reasonable limits
• Related party transactions above arm's-length
• Various other items

Related party transactions

Transactions with related parties must be at arm's-length cost. Excess cost is non-allowable. This area has substantial complexity and audit attention.

Owner compensation

For physician-owned and similar entities, owner compensation must be reasonable. Excess is non-allowable.

Bad debt reimbursement under Section 1861(v)(1)(T)

Allowable bad debts

For Medicare bad debts to be reimbursable:

• Patient must be a Medicare beneficiary
• Amount must be Medicare deductible or coinsurance
• Hospital must have made reasonable collection effort
• Account must remain unpaid (typically 120+ days)
• Documentation must support all of the above

Bad debt reimbursement rate

• 65% of allowable bad debt for most hospitals
• (Higher rates for certain dual eligibles and other categories)
• Reimbursement claimed on Worksheet E

Collection effort standard

Generally requires:

• Multiple billing statements
• Phone collection attempts
• Possible referral to collection agency
• Documentation of each step

Dual eligible bad debt

Special rules for dual eligibles (Medicare + Medicaid). Hospital may be able to recover full unpaid deductibles/coinsurance for dual eligibles where state Medicaid won't pay (because state caps Medicaid payment at Medicaid rate, leaving "crossover" balance).

Bad debt audit

MAC audits bad debt claims carefully. Common audit issues include adequacy of collection effort, documentation completeness, and proper categorization.

MAC desk review and audit

Palmetto GBA's role

Palmetto GBA is the Medicare Administrative Contractor (MAC) for Georgia hospitals (Jurisdiction M Part A, covering Georgia, North Carolina, South Carolina, Virginia, and West Virginia). Palmetto GBA reviews every Georgia hospital cost report through:

Desk review

Initial review of as-filed cost report:

• Mathematical accuracy check
• Internal consistency check
• Reasonableness check
• Identification of obvious errors

Field audit

For larger or higher-risk reports, MAC conducts on-site or remote audit:

• Review of supporting records
• Test of cost finding allocations
• Review of bad debt documentation
• Review of charity care documentation
• Review of Worksheet S-10 detail
• Review of related party transactions
• Review of owner compensation
• Other audit procedures

Audit findings

MAC may propose adjustments to:

• Cost finding
• Apportionment
• Bad debt
• Charity care
• Worksheet S-10
• Related party transactions
• Many other items

Notice of Program Reimbursement (NPR)

Final determination by MAC. Specifies:

• Allowable costs
• Apportionment
• IME and DSH calculations
• UCP allocation
• Bad debt
• Capital pass-through
• Final settlement (additional payment or recovery)

Tentative settlement

Initial settlement based on as-filed cost report, often pending audit completion.

Final settlement

After NPR, final settlement is reflected in the hospital's Medicare receipts.

Provider Reimbursement Review Board (PRRB)

Establishment and structure

Section 1878 of the Social Security Act establishes the PRRB. The PRRB is a five-member board appointed by the Secretary of HHS. Hears cost report appeals.

Jurisdiction requirements

• Cost report year decided (NPR issued)
• Amount in controversy ≥ $10,000 (individual) or ≥ $50,000 (group)
• Timely filing (within 180 days of NPR)

Procedure

1. Notice of appeal: filed within 180 days of NPR
2. Preliminary procedures: identification of issues, exchange of information
3. Discovery: production of documents, interrogatories
4. Pre-hearing motions: similar to administrative trial
5. Hearing: oral testimony, exhibits, argument
6. Post-hearing briefs
7. Decision: PRRB decision

Burden of proof

Generally on the provider to show that the MAC's determination was incorrect.

Appeal of PRRB decision

• CMS Administrator review (discretionary)
• Federal district court appeal (within 60 days of final agency action)
• District court reviews on administrative record (largely)
• Further appeal to court of appeals possible

Common issues at PRRB

• Worksheet S-10 calculations
• DSH calculation (especially Medicaid days, SSI fraction)
• IME calculation
• DGME calculation
• Wage index
• Bad debt
• Related party transactions
• Reasonable cost issues
• Many other technical issues

Cost report reopening under 42 CFR 405.1885

Three-year window

Cost report can be reopened within three years of NPR for any reason:

• Mathematical errors discovered
• New information not previously available
• Reinterpretation of policy
• Settlement of related issues
• Other appropriate reasons

No time limit for fraud

No time limit applies if fraud or similar fault is involved.

Effect of reopening

• Revised NPR issued
• Settlement recalculated
• Additional payment or recovery as appropriate

Strategic use of reopening

Hospitals strategically use reopening when:

• New information becomes available
• CMS issues new guidance affecting prior periods
• Audit findings in current periods reveal earlier-period issues

How the cost report drives Medicare payment

Hospital-specific impact

For each hospital, the cost report directly determines:

• DSH adjustment percentage (via DPP from Worksheet S-10 Medicaid days and CMS-calculated SSI fraction)
• IME percentage (resident-to-bed ratio, 1.35 c factor, base IPPS multiplier)
• DGME payment (PRA × FTE residents × Medicare share)
• UCP allocation (Worksheet S-10 uncompensated care)
• Wage index contribution (Worksheet S-3 Part II)
• 340B eligibility (DSH > 11.75%)
• Bad debt reimbursement
• Capital pass-through
• Final IPPS and OPPS settlement

System-wide impact

CMS aggregates cost report data nationwide to:

• Set IPPS base rates
• Set DRG weights
• Calculate wage index
• Set IME percentages
• Determine DSH thresholds
• Calculate UCP Factors 2 and 3
• Set OPPS APC rates
• Set various other payment parameters

MedPAC and policy use

MedPAC, MACPAC, and CMS use cost report data for policy analysis:

• Medicare margins
• Hospital financial performance
• Geographic variation in costs
• Teaching hospital comparisons
• Safety-net hospital comparisons
• Many other analyses

Georgia-specific cost report context

Palmetto GBA as MAC for Georgia

Palmetto GBA serves as MAC for all Georgia hospitals (along with NC, SC, VA, WV). Palmetto GBA is headquartered in Columbia, SC. Provides:

• Cost report desk review
• Field audit when appropriate
• Provider enrollment
• Other MAC services
• Customer service at 1-866-238-9650

Approximately 100+ Georgia hospitals

Georgia has approximately 130-150 Medicare-participating hospitals (excluding closed facilities). Each files an annual cost report. The hospitals range from:

• Large urban academic medical centers (Emory University Hospital, AU Medical Center)
• Large urban safety-net (Grady)
• Large regional referral centers (Northeast Georgia Medical Center, Memorial Health Savannah)
• Mid-sized community hospitals (Wellstar facilities, Piedmont facilities)
• Specialty hospitals (Children's Healthcare of Atlanta, various heart hospitals)
• Federal facilities (Atlanta VA Medical Center - reports separately to VA)
• Rural acute care hospitals
• Critical Access Hospitals (CAH, ≤25 beds)
• Long-Term Care Hospitals (LTCH)
• Inpatient Rehabilitation Facilities (IRF)
• Inpatient Psychiatric Facilities (IPF)

Georgia cost report consulting industry

Most major Georgia hospitals engage external preparers or auditors. Common firms include:

• BKD (now Forvis Mazars): substantial healthcare practice
• CliftonLarsonAllen: substantial healthcare practice
• Eide Bailly: substantial healthcare practice
• KPMG: large firm with healthcare practice
• RSM: large firm with healthcare practice
• McGuireWoods Consulting: healthcare reimbursement focus
• Strategic Health Care: specialized firm
• Toyon Associates: specialized firm
• PYA: substantial healthcare practice
• Various regional and local firms

The market is mature and competitive. Firms compete on technical expertise, audit defense success, and ability to maximize legitimate reimbursement.

Georgia Hospital Association

Provides resources, training, and advocacy for Georgia hospitals on cost reporting:

• Annual cost report workshops
• Webinars on cost report topics
• Advocacy on cost reporting policy
• Connection to consulting and audit resources

HFMA Georgia Chapter

The Healthcare Financial Management Association Georgia Chapter serves Georgia hospital finance and reimbursement professionals:

• Networking
• Continuing professional education
• Local chapter events
• Connection to national HFMA resources

Worked example 1: Grady Memorial Hospital cost report

Grady's annual Medicare cost report is one of the largest in Georgia. Representative scale:

Revenue: $1+ billion total operating revenue annually Medicare cost report-driven payments: $100+ million annually including:

• Base IPPS
• IME (substantial - high teaching intensity)
• DSH (substantial - DPP above 50%)
• UCP (substantial - high uncompensated care)
• DGME (substantial - approximately 800+ residents)
• Bad debt
• 340B-related savings

Complexity factors:

• Joint Emory/Morehouse teaching affiliation
• Substantial sub-provider components (hospice, etc.)
• Complex charity care (high volume)
• Extensive Worksheet S-10 detail
• Public hospital structure (Fulton-DeKalb Hospital Authority)
• Related party considerations
• Owner compensation N/A (public)

Preparation:

• Internal reimbursement team
• External cost report preparer/auditor
• Hospital association support
• Likely 100+ hours of professional time annually

Worked example 2: Phoebe Putney rural cost report

Phoebe Putney Memorial Hospital in Albany serves southwest Georgia.

Revenue: $500+ million annually Cost report-driven payments: $50+ million annually including:

• Base IPPS
• DSH (DPP 30-40%)
• UCP (substantial uncompensated care)
• Bad debt
• Capital pass-through
• 340B-related savings

Complexity factors:

• Substantial Medicaid volume
• Substantial uninsured volume (Georgia non-expansion impact)
• Rural location
• Possible SCH or other rural designation considerations
• Complex Worksheet S-10
• Related parties

Worked example 3: AU Medical Center academic cost report

AU Medical Center is the Augusta University academic medical center.

Revenue: $750+ million annually Cost report-driven payments: $75+ million annually including:

• Base IPPS
• IME (high - substantial residents)
• DGME (high - substantial PRA × FTE × Medicare share)
• DSH (DPP 25-30%)
• UCP
• Bad debt

Complexity factors:

• Academic medical center status
• Substantial resident counts
• IRP and FTE counting complexity
• Provider-based clinics and outpatient
• Sub-providers
• Related parties (university affiliation)
• Owner compensation N/A (state)

Worked example 4: Memorial Savannah HCA cost report

Memorial Health Savannah is HCA Healthcare-owned.

Revenue: $600+ million annually Cost report-driven payments: $40+ million annually Complexity factors:

• HCA centralized cost report preparation
• For-profit ownership
• Related party transactions (HCA management fees, etc.)
• Owner compensation considerations
• DSH-qualifying despite for-profit ownership
• Bad debt
• Charity care

Worked example 5: Cost report appeal at PRRB

Hypothetical: Atlanta-area DSH hospital receives NPR with Worksheet S-10 charity care adjustment reducing UCP allocation by $3 million.

Process:

1. Hospital reviews NPR and adjustment basis
2. Hospital determines basis for challenge (charity care policy compliance, cost-to-charge ratio accuracy, etc.)
3. Hospital files Notice of Appeal at PRRB within 180 days
4. Pre-hearing procedures: identification of issues, exchange of information, discovery
5. Hearing: oral testimony from hospital reimbursement director, MAC auditor, possibly outside expert; exhibits including charity care policy, supporting documentation, cost-to-charge ratio calculations
6. Post-hearing briefs
7. PRRB decision
8. Possibly CMS Administrator review or federal district court appeal

Timeline: 2-5 years from NPR to final resolution typical Cost: $100,000-$500,000+ in legal/consulting fees typical for a substantial appeal Stakes: $3 million UCP adjustment plus precedent for future cost reports

Worked example 6: Cost report reopening

Hypothetical: Georgia hospital discovers in 2026 that its 2024 cost report omitted $500,000 in allowable bad debt due to a documentation gap that has since been corrected.

Process:

1. Hospital requests reopening of 2024 NPR (issued 2025)
2. Within three-year window (2025-2028)
3. MAC reviews request
4. Reopening granted
5. Revised cost finding for 2024
6. Revised NPR with additional bad debt
7. Settlement payment for additional bad debt

Timeline: 6-18 months typical Stakes: $325,000 additional payment (65% × $500,000)

Cost report common issues and errors

Error 1: Step-down allocation errors Mathematical errors in cost finding allocation can cascade through worksheets. Common issues include incorrect statistical bases, sequencing errors, and cost center categorization mistakes.

Error 2: Charity care policy compliance For Worksheet S-10 charity care to be allowable, the hospital must have a charity care policy and must have applied it to the specific patient encounters reported as charity care. Audit examines whether policy compliance was achieved.

Error 3: Bad debt documentation gaps Bad debt reimbursement requires documentation of patient identification (Medicare beneficiary), Medicare deductible/coinsurance amounts, collection effort, and account status. Documentation gaps are a common audit finding.

Error 4: Cost-to-charge ratio calculations Cost-to-charge ratios in Worksheet C are critical for apportionment. Errors can substantially affect Medicare payment.

Error 5: Related party transactions Related party costs must be reduced to arm's-length cost. Failure to adjust or inadequate documentation are common findings.

Error 6: Owner compensation For physician-owned and similar entities, owner compensation must be reasonable. Excess is non-allowable. This is often litigated.

Error 7: Worksheet S-10 cost-to-charge ratio Worksheet S-10 uses an aggregate cost-to-charge ratio that may differ from departmental CCRs. Application errors affect UCP.

Error 8: Medicaid shortfall calculation Worksheet S-10 Medicaid shortfall = Medicaid revenue minus Medicaid costs. Both elements must be carefully calculated and reconciled.

Error 9: Wage data on Worksheet S-3 Part II Wage data drives geographic wage index. Errors affect not only the hospital's wage index but also the CBSA-wide wage index.

Error 10: IME calculation errors IME = (resident-to-bed ratio × 1.35 × c factor) × base IPPS. Errors in resident count, bed count, or c factor application affect payment.

Error 11: DGME calculation errors DGME = PRA × FTE residents × Medicare share. Errors in any component affect payment.

Error 12: Sub-provider cost reporting Sub-providers (hospice, SNF, HHA, etc.) must be properly reported on appropriate worksheets. Confusion between hospital and sub-provider cost can cause errors.

Error 13: Capital pass-through Capital costs are reported separately and receive pass-through reimbursement. Errors in capital cost identification or apportionment affect capital pass-through.

Error 14: Filing deadline issues Cost reports must be filed within 5 months of fiscal year end (with extensions available with cause). Late filing triggers payment suspension and other consequences.

DSH, IME, DGME, and UCP calculations through the cost report

For Georgia teaching and safety-net hospitals, the cost report is the single document through which all major Medicare adjustments are calculated. The interconnection is critical to understand.

Worksheet E Part A integration

Worksheet E Part A integrates multiple calculations into the inpatient hospital reimbursement settlement:

• Base IPPS payment (from claims processed throughout the year)
• IME adjustment (resident-to-bed ratio × 1.35 × c factor × base)
• DSH adjustment (DPP-based formula)
• UCP allocation (Worksheet S-10 share)
• Bad debt reimbursement
• Capital pass-through
• Various other items

For a hospital like Grady, Worksheet E Part A reflects $100+ million in combined adjustments beyond base IPPS payment. The accuracy of Worksheet E Part A is critical.

DPP calculation in detail

The Disproportionate Patient Percentage that drives DSH is:

• Medicare SSI fraction (calculated by CMS using MEDPAR and SSA records)
• Medicaid fraction (calculated by hospital using Medicaid eligibility data)
• Combined DPP

The Medicaid fraction depends on careful tracking of Medicaid-eligible non-Medicare patient days. Errors in Medicaid day identification flow directly to DSH calculation.

UCP allocation through Factor 3

Each hospital's UCP allocation = (hospital's uncompensated care costs from Worksheet S-10) / (national total uncompensated care from Worksheet S-10).

Hospital-level accuracy is therefore critical because errors affect both the hospital's allocation and the national pool denominator.

IME calculation

IME adjustment = (1 + (resident-to-bed ratio × 0.405))^(c factor) - 1, simplified. The detailed formula in 42 CFR 412.105 uses the c factor and a resident-to-bed ratio derived from S-3 and S-2 data.

DGME calculation

DGME payment = PRA × FTE residents × Medicare share. The PRA (Per Resident Amount) is the hospital-specific amount from the 1984 base period, updated annually for CPI. FTE counts from S-3. Medicare share from utilization data.

Cost report consulting practice in Georgia

The Georgia cost report consulting industry is mature. Hospitals make conscious decisions about:

Internal vs external preparation

Larger hospitals typically have internal reimbursement teams that draft the cost report, with external firms providing audit defense and specialized work. Smaller hospitals may engage external firms for full preparation.

Audit defense

When MAC proposes audit adjustments, hospitals must defend their positions. External consultants and attorneys are often engaged for substantial audit defense.

Strategic positioning

Some cost reporting decisions involve strategic tradeoffs. For example, cost-to-charge ratio methodology choices can affect both apportionment and Worksheet S-10. Strategic positioning requires careful analysis.

Multi-year consistency

Cost reporting decisions in one year affect subsequent years through CMS rate-setting and audit precedent. Long-term consistency is important.

PRRB and federal court litigation

For substantial issues, hospitals litigate at PRRB and federal court. This requires specialized expertise. Some firms (Hall Render, King & Spalding, McDermott Will & Emery, and others) specialize in Medicare reimbursement litigation.

Recent CMS cost report rulemaking

Form CMS-2552-10 amendments

CMS periodically amends Form CMS-2552-10 to:

• Reflect statutory and regulatory changes
• Improve data accuracy
• Address audit findings
• Update worksheet methodology

Worksheet S-10 refinements

CMS has issued multiple refinements to Worksheet S-10 since ACA Section 3133 implementation. The refinements address charity care policy, cost-to-charge ratio application, Medicaid shortfall calculation, and other technical issues.

Reasonable cost principle updates

CMS issues periodic clarifications on reasonable cost principles, related party transactions, owner compensation, and other areas.

Bad debt rules

CMS has issued various bad debt rule clarifications. The collection effort standard, dual eligible treatment, and documentation requirements have all been subjects of guidance.

PRRB procedural updates

PRRB issues procedural updates affecting filing requirements, discovery, hearing procedures, and decision processes.

How cost reports affect future Medicare payment rates

The cost report is not merely a settlement document for the year reported. Aggregate cost report data drives the future payment rates that determine what Medicare pays hospitals nationwide. The mechanism is foundational and affects every Medicare beneficiary's hospital care.

IPPS rate-setting cycle

Each fiscal year, CMS proposes and finalizes an IPPS rule that sets:

• Base IPPS rates (operating and capital)
• DRG weights
• Wage index for each CBSA
• IME adjustment percentages
• DSH calculation parameters
• UCP Factors 2 and 3
• Various other parameters

The data underlying these calculations comes substantially from prior-year cost reports. A typical IPPS rate-setting cycle uses cost reports from approximately three years prior (to allow for filing, audit, and settlement). For FY 2026 IPPS rates, CMS would generally use FY 2023 or FY 2022 cost reports.

MS-DRG recalibration

Medicare Severity Diagnosis-Related Group (MS-DRG) weights are recalibrated annually using cost report data combined with claims data. Each MS-DRG weight reflects the relative cost of treating patients in that DRG compared to the average. Cost report data on departmental cost-to-charge ratios is used to convert claim charges into estimated costs for weight calculation.

Wage index recalibration

Wage index recalibration uses Worksheet S-3 Part II data from all hospitals in each CBSA. Hospitals with higher reported wages drive higher CBSA wage indices, which then drive higher Medicare payments to all hospitals in that CBSA. The wage index has substantial impact on hospital revenue and is therefore subject to substantial cost reporting attention.

Hospital-specific impact of system-wide data

While each hospital's cost report directly affects its own settlement, hospitals also have an indirect interest in other hospitals' cost reports because aggregate data drives system-wide rates that affect all hospitals.

Implications for Georgia hospitals

Georgia hospitals' cost report data contributes to:

• The Atlanta CBSA wage index (driven by Atlanta-area hospital wages)
• The Augusta CBSA wage index
• The Savannah CBSA wage index
• Various rural Georgia CBSA wage indices
• National DRG weights
• National DSH calculation parameters
• National UCP allocation

Cost reporting accuracy at Georgia hospitals therefore affects not only those hospitals' settlements but also the broader payment framework for Georgia and the nation.

Cost report data, transparency, and policy

HCRIS public database

CMS's Healthcare Cost Report Information System (HCRIS) provides public access to cost report data. The database is maintained at cms.gov and is updated periodically as cost reports are filed and processed. Researchers, MedPAC, academic institutions, journalists, and the public access HCRIS data for various purposes.

NBER cleaned cost report data

The National Bureau of Economic Research provides cleaned versions of HCRIS data for academic research. The cleaning addresses data quality issues that affect the raw HCRIS data.

MedPAC analysis using cost report data

MedPAC's annual reports to Congress include extensive analysis using cost report data. Topics include:

• Medicare margins
• Total hospital margins
• Geographic variation in costs
• Teaching hospital comparisons
• Safety-net hospital comparisons
• Trend analyses

MedPAC reports are influential in policy debate and CMS rulemaking.

Academic research using cost report data

Health services researchers publish papers using cost report data. Common research topics include:

• Hospital financial performance
• Effect of Medicaid expansion on hospital finances
• Rural hospital viability
• Teaching hospital financing
• Safety-net hospital characteristics

Journalistic use

Investigative journalists use cost report data to examine hospital pricing, executive compensation, charity care policies, and other topics. Some hospital cost report disclosures (especially executive compensation, related party transactions) have been subjects of significant journalism.

Hospital bond ratings

Bond rating agencies (Moody's, S&P Global Ratings, Fitch) use cost report data in their hospital credit analysis. Cost report financial data and Medicare reimbursement adequacy affect bond ratings, which in turn affect hospital borrowing costs for capital projects.

Transparency and accountability

Cost report data is one of the few publicly available sources of detailed hospital financial information. While many hospitals also file IRS Form 990 (for nonprofits) or SEC filings (for publicly traded systems), cost reports provide more granular operational data. The combination supports transparency and accountability.

Cost report and Medicaid coordination in Georgia

Georgia Medicaid base rate

Georgia Department of Community Health uses cost report data in setting Medicaid hospital base rates. While Medicaid rates are not federally mandated to track cost reports, many states (including Georgia) reference cost report data in their methodology.

Georgia Medicaid DSH

Georgia DCH uses cost report data (uncompensated care, Medicaid utilization, financial position) in Medicaid DSH allocation. The federal Medicaid DSH allotment to Georgia is distributed using methodology that considers cost report-derived metrics.

Georgia Indigent Care Trust Fund

ICTF payments to Georgia hospitals consider cost report data in allocation methodology.

Georgia hospital provider fee

Georgia operates a hospital provider fee that contributes to the state share of Medicaid financing. The fee calculation may use cost report data.

State-federal coordination

Some Medicaid programs receive federal matching at FMAP. Cost reports that drive Medicaid base rates also drive the federal share. Cost reports thus affect both state and federal Medicaid spending in Georgia.

Cost report and beneficiary access

Why beneficiaries should understand cost reports

Medicare beneficiaries do not file or directly interact with cost reports. But cost reports drive Medicare payment to the hospitals where beneficiaries receive care. Cost report accuracy and integrity matter because:

• Adequate Medicare payment supports hospital viability
• Hospital viability supports beneficiary access to care
• Cost report errors can cause payment shortfalls that affect hospital financial health
• Cost report disputes (PRRB and federal court) can affect millions of dollars in payment over time

Implications for specific beneficiaries

Medicare beneficiaries served by Grady, Phoebe Putney, AU Medical Center, Memorial Savannah, Atrium Floyd, Northeast Georgia, and other Georgia DSH/teaching hospitals especially depend on accurate cost reporting because these hospitals' viability depends on the DSH, IME, DGME, and UCP payments flowing through the cost report.

Rural Georgia implications

Rural Georgia hospitals operate with thin margins. Cost report errors that delay or reduce Medicare payment can be the difference between viable and non-viable. Cost reporting accuracy and audit support are critical to rural hospital viability.

Dual eligibles and cost report bad debt

Dual eligible beneficiaries (Medicare + Medicaid) generate cost report bad debt claims because Medicaid often does not cover the full Medicare deductible/coinsurance. Accurate cost report bad debt reporting supports hospital reimbursement for serving dual eligibles.

The future of Medicare cost reporting

Cost reporting will continue to evolve. Likely trends include:

Electronic submission and processing

CMS has moved to electronic cost report submission and continues to digitize the review process. Future enhancements may include real-time validation, automated audit triggers, and faster settlement.

Worksheet S-10 continued refinement

Worksheet S-10 has been refined multiple times since 2014 and will likely continue evolving. Issues including charity care policy standards, cost-to-charge ratio methodology, and Medicaid shortfall calculation remain subjects of regulatory attention.

Wage index reform

Periodic discussions about wage index reform consider issues including rural floor, occupational mix adjustment, and methodology changes. Future changes are likely.

Value-based payment integration

Cost reports historically focused on cost-based reimbursement. As Medicare moves toward value-based payment, cost report metrics may need to evolve to address quality, outcomes, and value.

Sub-provider and integrated systems

Hospital systems (Wellstar, Piedmont, Emory, HCA, Atrium) increasingly operate integrated networks. Cost reporting for integrated systems involves multiple cost reports with allocation between facilities. Future cost report frameworks may better address integrated systems.

Audit modernization

MAC audit processes continue modernizing. Risk-based audit selection, electronic records review, and audit analytics are increasingly used.

CMS Administrator review and federal court appellate process

The PRRB and post-PRRB review process is sometimes criticized for delay and complexity. Possible procedural reforms could affect future appellate practice.

Cost report annual cycle for a typical Georgia hospital

To put the cost report in context, consider the annual cycle that a Georgia hospital reimbursement team navigates. For a hospital with a calendar-year fiscal year:

January-March: Data collection for prior year

The reimbursement team collects data needed for the prior-year cost report. This includes:

• Final general ledger close
• Statistical data (admissions, discharges, days, visits, FTE counts, square footage)
• Medicaid eligibility data
• Bad debt data
• Charity care data
• Cost-to-charge ratio inputs
• Related party transaction data
• Owner compensation data (if applicable)

April-May: Draft cost report

The team drafts the cost report, often using cost reporting software (commercially available products from various vendors). The draft includes:

• All worksheets completed
• Step-down allocation calculated
• Cost-to-charge ratios derived
• Apportionment calculations
• DSH calculation
• IME and DGME calculations
• UCP calculation
• Bad debt calculation
• Capital pass-through
• Reasonable cost adjustments

May: External review and finalization

Many hospitals engage an external firm for review before filing. The external firm:

• Reviews accuracy and completeness
• Identifies missed claims or adjustments
• Reviews defensibility against audit
• Suggests strategic positioning where appropriate

Late May: Filing

The cost report is filed with the MAC (Palmetto GBA) within 5 months of fiscal year end. The filing includes:

• Complete Form CMS-2552-10 with all worksheets
• Form CMS-339 provider questionnaire
• Supporting documentation
• Sub-provider cost reports (if applicable)
• Audited financial statements (often)
• Other required documentation

Summer-Fall: Tentative settlement

The MAC processes the as-filed cost report for tentative settlement. Tentative settlement is based on the as-filed numbers and provides the hospital with cash flow pending audit completion.

Fall-Winter: Desk review

The MAC conducts desk review. The review may identify questions, request additional documentation, or propose preliminary adjustments. The hospital responds to MAC inquiries.

Following year: Field audit (if selected)

Some cost reports are selected for field audit. The audit may extend over several months and may involve substantial documentation review, interviews, and analysis.

12-24 months after filing: NPR

The MAC issues the Notice of Program Reimbursement. The NPR may differ from the as-filed cost report based on audit findings and adjustments. Final settlement (additional payment from CMS or recovery to CMS) follows.

180 days from NPR: Appeal decision point

The hospital decides whether to appeal the NPR. If appealing, Notice of Appeal is filed at PRRB within 180 days.

3 years from NPR: Reopening window

Within three years, either the hospital or the MAC may seek reopening for appropriate reasons.

Multi-year overlap

At any given time, a hospital is typically managing several cost report years simultaneously:

• Current year (being prepared)
• Prior year (recently filed, awaiting tentative settlement)
• 2 years prior (in MAC review/audit)
• 3 years prior (settled or NPR appealed)
• Earlier years (potentially reopened or in PRRB appeal)

This multi-year overlap requires sophisticated reimbursement management. Smaller Georgia hospitals may lack internal capacity and rely on external consulting. Larger Georgia hospitals (Grady, Emory, AU Medical, major Wellstar/Piedmont facilities) maintain substantial internal teams.

How Brevy uses cost report data

At Brevy we follow Medicare cost report data closely because it provides the most detailed publicly available picture of hospital operations and finances. Our analysis of Georgia hospitals uses HCRIS data to understand:

• Which Georgia hospitals are financially fragile and at risk of closure
• How rural Georgia hospitals are surviving (or not) in the current environment
• How Medicaid expansion non-adoption affects Georgia hospital uncompensated care
• How safety-net hospitals are financed through DSH, UCP, IME, and DGME
• Where Medicare beneficiaries are most affected by hospital financial pressures

This analysis informs our guides on Medicare and Medicaid topics. We share this perspective so that Georgia eldercare families understand not only the rules of Medicare and Medicaid but also the financial framework that determines which hospitals will be available to provide their care.

Additional cost report compliance considerations

Form CMS-339 provider questionnaire

The questionnaire that accompanies certain cost report submissions covers hospital structure, ownership, related parties, operations, and statistical data. Accurate completion of Form CMS-339 is necessary to support the cost report.

PECOS linkage

Provider Enrollment, Chain and Ownership System (PECOS) data must be consistent with cost report data. Discrepancies between PECOS and cost report can trigger MAC inquiries and audit findings.

Annual versus periodic cost reports

Most hospitals file annual cost reports. Some hospitals may have shorter periods for various reasons (change in ownership, change in fiscal year, etc.).

Medicare Advantage encounter data

Hospitals contracting with Medicare Advantage plans must coordinate cost reporting with MA contract terms. While the cost report itself addresses traditional Medicare, hospital systems with substantial MA volume must consider MA implications.

Two midnight rule and observation status

The two midnight rule for inpatient admission (versus observation) affects cost reporting because observation services are outpatient (Part B) while inpatient admissions are Part A. Accurate categorization is essential.

Provider-based clinics and outpatient

Hospital-owned provider-based clinics may file separately or as part of the hospital cost report. The framework for provider-based status (42 CFR 413.65) affects cost reporting.

Section 603 BBA 2015 off-campus payment

Section 603 of the Bipartisan Budget Act of 2015 affects payment to off-campus provider-based clinics. Cost reporting must address Section 603 status.

Compliance and audit defense readiness

Hospitals should maintain documentation supporting all cost report positions for at least the audit/reopening period (3+ years). This includes:

• Charity care patient documentation
• Bad debt collection effort documentation
• Cost-to-charge ratio supporting documentation
• Related party transaction documentation
• Owner compensation reasonableness documentation
• Many other supporting records

Internal control and audit committee oversight

Cost report accuracy ultimately depends on internal controls over the underlying data. Hospital audit committees and boards should ensure:

• Adequate internal control over patient billing and charge data
• Adequate documentation of charity care policy application
• Adequate documentation of bad debt collection effort
• Reconciliation between general ledger and cost report
• Reconciliation between cost report and tax returns (Form 990 for nonprofits)
• Periodic review of cost reporting methodology

For Georgia public hospitals (Grady, county and authority-owned facilities), additional governance and transparency requirements apply. Public board meetings, audit committee reviews, and state agency oversight create additional layers of accountability around cost reporting.

Whistleblower and False Claims Act risk

Cost report misrepresentations can give rise to False Claims Act liability if filed with knowledge of falsity. Whistleblowers (often hospital employees) can file qui tam actions under 31 U.S.C. § 3729. Major hospital False Claims Act settlements have included cost reporting issues. Hospitals must therefore approach cost reporting with both accuracy and integrity. Hospitals should maintain compliance programs that include cost report review and have whistleblower reporting channels open.

Annual training and continuing education

Cost reporting rules change continuously through CMS rulemaking, MAC guidance, PRRB decisions, and federal court rulings. Hospital reimbursement teams require continuing education. HFMA, AHA, AAHAM, and other organizations provide training. External consultants also provide training as part of their service engagements.

Working with Brevy and Georgia resources

Brevy publishes regularly updated guides at brevy.com on Medicare, Medicaid, hospital financing, and related topics. We do not provide cost reporting advice, legal advice, or audit advice. We provide research-grade content explaining the framework so that Georgia hospital teams, administrators, and Medicare beneficiaries can understand how Medicare payment to hospitals actually works.

For provider cost report questions, contact Palmetto GBA at 1-866-238-9650 or engage a cost reporting firm. For state Medicaid questions, contact Georgia DCH at 1-866-211-0950. For Medicare beneficiary questions about hospital coverage, contact Medicare at 1-800-MEDICARE or GeorgiaCares SHIP at 1-866-552-4464.

Disclaimers

This article is for educational purposes only and does not constitute legal, financial, audit, compliance, or medical advice. Cost report rules are subject to change through CMS rulemaking, PRRB decisions, federal court decisions, congressional action, and ongoing administrative guidance. The information in this article reflects rules in effect as of May 2026. Always verify current rules at cms.gov, through current Provider Reimbursement Manual provisions, and with Palmetto GBA before making decisions.

Brevy is not affiliated with CMS, HRSA, HHS, Palmetto GBA, PRRB, MedPAC, or any hospital. Brevy is an eldercare research and information company. We accept no compensation from healthcare providers, hospitals, insurance carriers, audit firms, consulting firms, or other parties.

Information about Georgia hospitals reflects publicly available information as of the publication date. Specific cost report payment estimates are illustrative; actual amounts vary by hospital, fiscal year, and specific cost report determinations. Verify current information with the relevant organization before relying on it.

This article was researched and written by the Brevy Care Team and is pending final editorial review.

Learn More

• Georgia Medicare IME Adjustment 2026 Guide
• Georgia Medicare DSH Adjustment
• Georgia Medicare Graduate Medical Education
• Georgia Medicare Wage Index
• Georgia Medicare Bad Debt Reimbursement
• Georgia Medicare 340B Drug Pricing
• Georgia Medicare Critical Access Hospital

Find personalized help understanding how Medicare payment supports the Georgia hospitals where your family receives care at brevy.com.

The information on Brevy.com is for educational purposes only and is not a substitute for professional legal, financial, or medical advice. Rules vary by state and program and change frequently. Always verify with the relevant agency or a qualified professional. Brevy is not a law firm, financial advisor, or healthcare provider.