Accounting and Financial Reporting

A checklist for successful hospital cost reporting in the time of COVID-19

January 31, 2022 4:19 pm

The pandemic will have long-term impacts on the operations of hospitals and on their costs. Hospitals should also be mindful of how those impacts extend to their cost report data, especially for those fiscal periods occurring within the time frame of the public health emergency (PHE).

K. Michael Nichols, FHFMA, CPA

The impacts of pandemic-related cost reporting changes recorded in providers’ cost reports will be pervasive, affecting nearly every aspect of the reported data. In particular, hospital leaders should make sure they understand how to report costs associated with the treatment of COVID-19 patients, costs associated with staffing and other challenges resulting from the pandemic, and costs associated with the various public health initiatives hospitals engaged in during the public health emergency (PHE). How these expenses are reported in hospitals’ cost reports today may affect what those hospitals are paid tomorrow.

Hospitals typically use checklists to ensure they complete their cost reports thoroughly and compliantly. If the COVID-19 pandemic and the PHE have taught us anything, however, it’s that change is inevitable, and it can introduce factors that challenge basic assumptions and raise new or different concerns.

The checklists presented in this article raise key questions prompted by COVID-19 that should be addressed at various points in the worksheets of a hospital cost report. More specifically, the first checklist presents entries from the 2552-10 cost reporting forms Worksheet S (example below), and the second presents entries from Worksheets A through G (example below). The individual responsible for signing the cost report should be made aware of these questions and be comfortable with the answers provided by the cost report preparers.

The utility of checklists

Use of checklists such as these can serve to boost the confidence of those approving their entities’ cost reports, ensuring the reports were prepared and reviewed with appropriate diligence.

At the end of the day, the process of cost reporting is all about matching. It therefore is important for hospitals to address three overarching questions:

  • Are the reported costs properly aligned with the related statistics and total charges?
  • Do the costs, charges and statistics reflect the actual activity within the same cost reporting period?
  • Are the program charges properly aligned with the total charges so the cost report can be used to apportion costs to the Medicare program?

Although the checklists provided below consider some of the current and long-term issues associated with COVID-19, many of the items presented should be considered for non-COVID-19 situations as well. These checklists certainly should be expanded to meet the specific needs of a particular organization. In fact, a comprehensive process map or audit trail is needed to properly execute such a review program.

The real benefit of using such checklists is they can help create dialogue about the many ways COVID-19 continues to impact hospital operations and — a very important aspect of operations — the annual Medicare cost report process. Each question can contribute to a discussion that affects the strategic direction of the organization.

The existence of the COVID-19 PHE does not make the cost report less important; rather, it potentially increases in importance, which means it requires additional due diligence in its preparation and review.

A larger objective for leaders

It is clear that the COVID-19 PHE will impact current cost reporting and influence future Medicare payments in many ways. To prepare for these consequences, hospitals should thoroughly assess their payment environment and model ranges of potential outcomes. Hospital leaders can use the results of these assessments to better inform themselves about their costs so they can then apply that knowledge for educational and advocacy purposes. 


Editor’s note

For additional detail on accounting for the costs associated with COVID-19 in a hospital’s cost report, see the article “Cost reporting in the time of COVID-19 could have an impact on hospital payment,” August 2021, at (search under the topic “Cost Effectiveness of Health”).


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