How the Medicare cost report sets payment for Critical Access Hospitals and Rural Health Clinics
For CAHs and RHCs, the cost report plays a central role in determining Medicare reimbursement. Misclassified costs and inaccurate utilization statistics can directly affect payment.
The core questionDoes your cost report capture all allowable cost, in the right cost centers, with statistics you can support?
Start here
Payment follows reported cost
CAH: 101% of reasonable cost · RHC: cost per qualifying visit
Medicare interim rates are generally established using historical cost report data and may be adjusted based on current operating results, with final reimbursement reconciled through cost report settlement. Applicable Medicare fee-for-service payments are generally subject to a 2% sequestration reduction.
Element
Critical Access Hospital
Rural Health Clinic
Medicare basis
101% of reasonable cost for covered Medicare inpatient, outpatient, and Part A swing bed services, subject to applicable payment rules
Allowable cost per qualifying visit, subject to applicable Medicare payment limits
Form
CMS-2552-10
CMS-222-17 or applicable provider cost report worksheets, including Worksheet M for hospital-based RHCs
Bad debt
65% of eligible Medicare beneficiary bad debt, subject to CMS requirements
Also drives
340B eligibility documentation, Medicaid reimbursement analysis, and financial benchmarking
Rate setting, limit headroom, and growth decisions
Where cost reports fall short
Six common cost report gaps
01
StatisticsOutdated or unsupported square footage, FTEs, and time records misallocate overhead to the wrong departments.
02
Time studiesInadequate documentation of physician administrative, supervisory, and clinical time can result in incorrect cost allocation and missed allowable reimbursement.
03
Cost centersAllowable cost recorded in non-reimbursable centers, or RHC and hospital costs mixed together.
04
Unallowable costsAdvertising for patients, lobbying, and related-party markups not removed, inviting audit adjustments.
05
Days and visitsSwing bed, observation, and RHC visit counts that do not reconcile to the PS&R and internal records.
06
Interim ratesRates left unreviewed during the year, producing a large payable or receivable at settlement.
$165 limit · 2026
$190 · 2028
$150.008,000 visitsAccurate count on $1.2M of cost.
$156.25$50K restoredMisplaced allowable cost moved back.
$100$125$150$175$200
Illustrative RHC cost per visit. A lower calculated rate reduces payment only while the clinic is below its applicable limit.
Calendar
A cost report calendar
12Months
Track all yearMaintain statistics and time studies, and compare interim payments with projected cost each quarter.
FYEClose
Prepare at year endClose the books, map the trial balance to cost centers, and reconcile days and visits to the PS&R.
5Months
File on timeGenerally due the last day of the fifth month after fiscal year end, unless an extension applies. Late filing can suspend Medicare payments. Review a draft before an officer certifies it.
NPRSettle
Settle and appealRespond to desk review or audit and review the NPR. Appeals are due within 180 days of receipt, subject to appeal requirements and monetary thresholds.
Warning signs
When your cost report needs attention
A large payable or receivable appears at settlement.
Allocation statistics have not been updated in years.
No physician time studies are on file.
Desk reviews or audits repeat the same adjustments.
RHC cost per visit is near its limit with no plan.
A note on certification.An officer certifies the cost report as true and complete, and misrepresentation can bring liability under the False Claims Act.
Illustrative examples
How small errors move payment
≈$50KCost centersMisplaced cost$100K of allowable CAH cost left in a non-reimbursable center, at 50% Medicare utilization.
−$8.82Per visitOvercounted visitsAn RHC with $1.2M of cost reporting 8,500 visits instead of 8,000 drops from $150.00 to $141.18.
5 mo.Due dateFiling deadlineGenerally the last day of the fifth month after year end, unless an extension applies.
180 daysAppealsAppeal windowFrom receipt of the NPR, subject to appeal requirements and monetary thresholds.
Illustrative, before sequestration. Assumes the CAH cost is allowable and properly allocable, and the RHC is below its payment limit.
Before you file
Three checks before certification
Support every statisticSquare footage, FTEs, and time records should be current and documented, because they drive how overhead is allocated.
Review interim rates quarterlyCompare interim payments with projected cost so settlement does not bring a surprise payable or receivable.
Test the draftCheck for misplaced or unallowable cost and reconcile counts to the PS&R before an officer certifies the report.
Current as of October 2026. Examples are illustrative, not from a specific facility. Sources: 42 CFR Part 413, including 413.24, 413.70, and 413.89; 42 CFR 405.2462–2470 and 405.1835; CMS Provider Reimbursement Manual.
Why the Cost Report Matters
How the Medicare cost report sets payment for Critical Access Hospitals and Rural Health Clinics
For CAHs and RHCs, the cost report plays a central role in determining Medicare reimbursement. Misclassified costs and inaccurate utilization statistics can directly affect payment.
The core questionDoes your cost report capture all allowable cost, in the right cost centers, with statistics you can support?
Payment follows reported cost
CAH: 101% of reasonable cost · RHC: cost per qualifying visit
Medicare interim rates are generally established using historical cost report data and may be adjusted based on current operating results, with final reimbursement reconciled through cost report settlement. Applicable Medicare fee-for-service payments are generally subject to a 2% sequestration reduction.
Six common cost report gaps
Illustrative RHC cost per visit. A lower calculated rate reduces payment only while the clinic is below its applicable limit.
A cost report calendar
When your cost report needs attention
A note on certification. An officer certifies the cost report as true and complete, and misrepresentation can bring liability under the False Claims Act.
How small errors move payment
Illustrative, before sequestration. Assumes the CAH cost is allowable and properly allocable, and the RHC is below its payment limit.
Three checks before certification
Talk through your cost report
Jonathan Pantenburg, MHA · Principal
JPantenburg@wintergreenme.com808.853.8086
Current as of October 2026. Examples are illustrative, not from a specific facility. Sources: 42 CFR Part 413, including 413.24, 413.70, and 413.89; 42 CFR 405.2462–2470 and 405.1835; CMS Provider Reimbursement Manual.