How To | Costing and Managerial Accounting

CAHs and Cost Reports

How To | Costing and Managerial Accounting

CAHs and Cost Reports

A critical access hospital’s cost of delivering care to Medicare patients is estimated using the cost accounting data that these Medicare-certified institutions submit annually to CMS via Medicare cost reports.

Congress, in the Balanced Budget Act (BBA) of 1997, authorized states to establish a State Flex Program under which certain facilities participating in Medicare can become critical access hospitals (CAHs). CAH Conditions of Participation are codified in the Code of Federal Regulations (CFR). a CAHs receive cost-based payment for inpatient and outpatient services provided to Medicare patients (and Medicaid patients depending on the policy of the state in which they are located). CAHs are paid at 101 percent of the costs on all their Medicare business. And a 2 percent sequestration is applied after all deductibles and co-insurance are removed from the allowable cost. b

The cost of providing care to Medicare patients, including the cost of providing 24/7 emergency care coverage by physicians in the emergency department, is estimated using the cost accounting data that all Medicare-certified institutions—including hospitals, skilled nursing facilities, home health agencies, rural health clinics, federally qualified health centers, and hospice agencies—are required to submit annually to the Centers for Medicare & Medicaid Services. Although cost reporting affects payment, it does not always result in a full settlement, which makes it critically important for filing organizations to ensure accuracy of all their charges, billing, and coding methodologies.

See related article: Improving CAH Medicare Part-A Payment Accuracy Using Bluetooth-based RTLS


a. Code of Federal Regulations 42 C.F.R. § 485.601-647. Government Publishing Office (10-1-16 Edition). Available at:

b. s.365 – 112th Congress (2011 – 2012), Public Law 112-25, Budget Control Act of 2011. Available at:

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