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CCRS Cost Report Specialist study materials
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CCRS Cost Report Specialist practice questions

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Question 1Cost report structure, worksheets, and filing mechanics

A hospital's cost reporting period ends on December 31. By what date is its Medicare cost report generally due, absent an approved extension?

  1. June 30 of the following year
  2. May 31 of the following year Correct answer.
  3. April 30 of the following year
  4. March 31 of the following year

Explanation

Medicare cost report filing rules require a provider to submit its report by the last day of the fifth month following the end of the cost reporting period. For a December 31 fiscal year end, that date is May 31 of the following year, unless the Medicare Administrative Contractor grants a timely extension.

Question 2Cost report structure, worksheets, and filing mechanics

Which worksheet of the hospital Medicare cost report presents the provider's balance sheet?

  1. Worksheet A
  2. Worksheet B
  3. Worksheet G Correct answer.
  4. Worksheet C

Explanation

Worksheet G presents the balance sheet, including assets, liabilities, and fund balances. Worksheet A is the trial balance of expenses, Worksheet B allocates costs, and Worksheet C computes reimbursable costs.

Question 3Cost report structure, worksheets, and filing mechanics

Which CMS form is the Medicare cost report for a hospital?

  1. CMS-1728
  2. CMS-2540
  3. CMS-1500
  4. CMS-2552 Correct answer.

Explanation

Form CMS-2552 is the hospital Medicare cost report. Form CMS-2540 is used by skilled nursing facilities, CMS-1728 is the home health agency cost report, and CMS-1500 is a health insurance claim form.

Question 4Cost report structure, worksheets, and filing mechanics

Worksheet A of the hospital cost report is primarily used to do which of the following?

  1. Compute the final Medicare settlement
  2. Report uncompensated care
  3. Report the trial balance of expenses and reclassifications Correct answer.
  4. List the provider's balance sheet accounts

Explanation

Worksheet A begins with the provider's trial balance of expenses and records reclassifications and adjustments before cost allocation. Settlement, uncompensated care, and balance sheet information are reported on other worksheets.

Question 5Cost report structure, worksheets, and filing mechanics

Worksheet S-10 is used to report data related to which area?

  1. Capital asset depreciation
  2. Uncompensated care and charity care Correct answer.
  3. Physician compensation adjustments
  4. Home office cost allocation

Explanation

Worksheet S-10 collects uncompensated care and charity care data used in the hospital uncompensated care payment calculation. It does not report home office costs, physician compensation adjustments, or depreciation.

Question 6Cost report structure, worksheets, and filing mechanics

Who must sign the Medicare cost report certification?

  1. The provider's authorized official Correct answer.
  2. The Medicare Administrative Contractor's auditor
  3. The provider's independent accountant
  4. Any full-time employee of the provider

Explanation

The cost report certification must be signed by the provider's authorized official, such as the administrator or chief financial officer. Employees, MAC auditors, and independent accountants cannot certify the report on the provider's behalf.

Question 7Cost report structure, worksheets, and filing mechanics

What is the primary role of the Provider Statistical and Reimbursement (PS&R) report in cost report preparation?

  1. It replaces the provider's general ledger
  2. It lists the provider's staffing requirements
  3. It establishes the provider's tax liability
  4. It summarizes Medicare claims and reimbursement data Correct answer.

Explanation

The PS&R report is produced from Medicare claims and summarizes utilization and reimbursement data used to complete the cost report. It does not replace the general ledger, set staffing requirements, or establish tax liability.

Question 8Cost report structure, worksheets, and filing mechanics

Which worksheet is used to allocate costs from indirect cost centers to revenue-producing centers?

  1. Worksheet A
  2. Worksheet E
  3. Worksheet B Correct answer.
  4. Worksheet G

Explanation

Worksheet B allocates costs from indirect and non-revenue-producing cost centers to revenue-producing centers using statistical bases. Worksheet A is the trial balance, Worksheet E calculates settlement, and Worksheet G is the balance sheet.

Question 9Cost report structure, worksheets, and filing mechanics

A hospital's Medicare cost reporting period normally covers how many months?

  1. Nine months
  2. Six months
  3. Twelve months Correct answer.
  4. Eighteen months

Explanation

A provider's cost reporting period is generally 12 months. Shorter periods may be permitted for new providers, terminating providers, or approved changes in fiscal year end.

Question 10Cost report structure, worksheets, and filing mechanics

A provider changes its fiscal year end, creating a cost reporting period shorter than 12 months. How should this be handled?

  1. Wait 12 months and file a single report for the old fiscal year
  2. Combine the short period with the next full year without disclosure
  3. File no cost report for the short period
  4. File a short-period cost report for the shortened period Correct answer.

Explanation

A change in fiscal year end creates a short cost reporting period that must be reported separately. The provider files a cost report for the shortened period rather than skipping it or combining it with another period.

Question 11Cost report structure, worksheets, and filing mechanics

Worksheet A-6 is used for which purpose?

  1. Preparing the statement of cash flows
  2. Recording reclassifications and adjustments to expenses Correct answer.
  3. Reporting charity care
  4. Computing the inpatient routine cost

Explanation

Worksheet A-6 records reclassifications and adjustments that move expenses between cost centers or correct the trial balance. It does not compute routine costs, report charity care, or present cash flows.

Question 12Cost report structure, worksheets, and filing mechanics

What information is reported on Worksheet B-1?

  1. The Medicare settlement calculation
  2. The certification of the cost report
  3. The provider's balance sheet
  4. The statistical basis used to allocate costs Correct answer.

Explanation

Worksheet B-1 documents the statistics and allocation basis used on Worksheet B. It does not contain the balance sheet, the settlement calculation, or the cost report certification.

Question 13Cost report structure, worksheets, and filing mechanics

Which worksheet calculates the Medicare reimbursement settlement for a hospital?

  1. Worksheet E Correct answer.
  2. Worksheet B
  3. Worksheet A
  4. Worksheet C

Explanation

Worksheet E calculates the Medicare reimbursement settlement, bringing together allowable costs and Medicare payments for Part A and Part B services. It follows the cost-finding worksheets.

Question 14Cost report structure, worksheets, and filing mechanics

Worksheet G-3 of the hospital cost report presents which financial statement?

  1. Statement of changes in fund balance
  2. Statement of revenue and expenses Correct answer.
  3. Statement of cash flows
  4. Balance sheet

Explanation

Worksheet G-3 is the statement of revenue and expenses. The balance sheet is Worksheet G, while the other G worksheets present changes in fund balance and cash flows.

Question 15Cost report structure, worksheets, and filing mechanics

Which worksheet collects statistical data such as inpatient days, discharges, and outpatient visits?

  1. Worksheet S-3 Correct answer.
  2. Worksheet S-10
  3. Worksheet S-2
  4. Worksheet A-7

Explanation

Worksheet S-3 reports statistical data such as inpatient days, discharges, beds, and outpatient visits. These statistics support cost allocation and settlement.

Question 16Cost report structure, worksheets, and filing mechanics

What does the term "as-filed cost report" refer to?

  1. A report filed only after MAC request
  2. An amended report filed after settlement
  3. The cost report after a final audit adjustment
  4. The initial cost report submitted by the provider Correct answer.

Explanation

The as-filed cost report is the initial submission before audit or final settlement. It is distinct from an amended report or a final audited report.

Question 17Cost report structure, worksheets, and filing mechanics

A provider discovers a material error in its previously accepted cost report. What is the appropriate action?

  1. Submit the correction only in the next year's report
  2. Change the fiscal year end to avoid correction
  3. File an amended cost report with supporting documentation Correct answer.
  4. Ignore the error because the report was accepted

Explanation

A provider corrects errors by filing an amended cost report with supporting documentation. Acceptance of the original report does not bar correction of material errors.

Question 18Cost report structure, worksheets, and filing mechanics

Medicare regulations generally require providers to retain cost report records for at least how long after the end of the cost reporting period?

  1. Five years Correct answer.
  2. Two years
  3. Three years
  4. Ten years

Explanation

Providers must retain cost report records for at least five years after the end of the cost reporting period. These records support audit and settlement of the report.

Question 19Cost report structure, worksheets, and filing mechanics

To which entity is a provider's Medicare cost report generally submitted?

  1. The Office of Inspector General
  2. The Internal Revenue Service
  3. The Medicare Administrative Contractor Correct answer.
  4. The Social Security Administration

Explanation

Cost reports are submitted to the Medicare Administrative Contractor that processes the provider's claims and settles the report. The IRS, OIG, and SSA do not receive the report for Medicare settlement.

Question 20Cost report structure, worksheets, and filing mechanics

What is the primary purpose of Worksheet C in the hospital cost report?

  1. To certify the report
  2. To list reclassifications only
  3. To report the provider's balance sheet
  4. To compute reimbursable costs by cost center and service Correct answer.

Explanation

Worksheet C computes reimbursable costs by cost center and service after cost allocation. It does not report the balance sheet, list only reclassifications, or certify the report.

Question 21Cost report structure, worksheets, and filing mechanics

Worksheet A-7 is designed to analyze changes in which area?

  1. Provider-based physician costs
  2. Home office expenses
  3. Capital asset balances Correct answer.
  4. Uncompensated care

Explanation

Worksheet A-7 analyzes changes in capital asset balances, including additions, disposals, and depreciation. Home office, physician, and uncompensated care data appear elsewhere.

Question 22Cost report structure, worksheets, and filing mechanics

The Worksheet A-8 series is primarily used to adjust which type of cost?

  1. Provider-based physician expenses Correct answer.
  2. Outpatient statistical data
  3. Balance sheet equity
  4. Capital asset depreciation

Explanation

The Worksheet A-8 series adjusts provider-based physician expenses to separate allowable Medicare costs. It does not address capital asset depreciation, outpatient statistics, or equity.

Question 23Cost report structure, worksheets, and filing mechanics

Worksheet C-1 is used to compute which cost?

  1. Inpatient routine service cost Correct answer.
  2. Home office cost
  3. Physician professional cost
  4. Outpatient ancillary cost

Explanation

Worksheet C-1 computes inpatient routine service cost. Ancillary, home office, and physician professional costs are handled on other worksheets.

Question 24Cost report structure, worksheets, and filing mechanics

A provider fails to submit its Medicare cost report by the due date and does not request an extension. What may the MAC do after notifying the provider?

  1. Waive the filing requirement for that year
  2. Suspend Medicare payments until an acceptable report is filed Correct answer.
  3. Assess criminal penalties against the administrator
  4. Automatically revoke the provider's Medicare certification

Explanation

If a cost report is not filed timely and no extension is granted, the MAC may suspend Medicare payments after notifying the provider. The report remains required, and certification is not automatically revoked.

Question 25Cost report structure, worksheets, and filing mechanics

A chain organization's home office costs are reported to Medicare using which document?

  1. The home office cost statement Correct answer.
  2. Worksheet S-10
  3. The PS&R report
  4. Worksheet G-3

Explanation

A chain organization reports home office costs on a home office cost statement, which supports allocations to provider cost reports. The PS&R, Worksheet S-10, and Worksheet G-3 serve different purposes.

Question 26Cost report structure, worksheets, and filing mechanics

Which CMS form number identifies the Medicare cost report filed by an acute care hospital and its hospital health care complex?

  1. CMS-1728-94
  2. CMS-2550-10
  3. CMS-2540-10
  4. CMS-2552-10 Correct answer.

Explanation

Form CMS-2552-10 is the Hospital and Hospital Health Care Complex Cost Report, the vehicle acute care hospitals and their components use to report costs to Medicare. Each CMS form number maps to a specific provider type, so using the wrong form would misstate the reimbursement computation.

Question 27Cost report structure, worksheets, and filing mechanics

Absent an approved extension, by when must a provider file its Medicare cost report?

  1. Within 6 months after the end of the cost reporting period
  2. Within 90 days after the end of the cost reporting period
  3. Within 5 months after the end of the cost reporting period Correct answer.
  4. Within 4 months after the end of the cost reporting period

Explanation

Federal regulations require the cost report to be submitted no later than the last day of the fifth month following the close of the cost reporting period. The MAC may extend the due date only for exceptional circumstances; otherwise a late filing can trigger suspension of Medicare payments or rejection of the report.

Question 28Cost report structure, worksheets, and filing mechanics

What is the primary function of Worksheet A in the hospital cost report?

  1. It allocates general service center costs to revenue-producing centers.
  2. It records total costs by cost center before reclassifications and adjustments. Correct answer.
  3. It reconciles financial statements to the Medicare settlement.
  4. It computes the Medicare share of routine costs from beneficiary days.

Explanation

Worksheet A is the entry point of the cost report: it lists total costs for each cost center as taken from the provider's trial balance and supporting records. Those cost center totals then feed the allocation process and the cost-to-charge ratio computations performed on later worksheets.

Question 29Cost report structure, worksheets, and filing mechanics

Which worksheet collects a hospital's uncompensated care and charity care data used in the Medicare disproportionate share calculation?

  1. Worksheet S-3 Part I
  2. Worksheet E Part A
  3. Worksheet S-10 Correct answer.
  4. Worksheet C Part I

Explanation

Worksheet S-10 captures charity care, uncompensated care, and the related cost and charge data for the hospital. Those figures support the Medicare DSH uncompensated care payment and are also used for other analyses of hospital uncompensated care.

Question 30Cost report structure, worksheets, and filing mechanics

Which worksheet contains the salary, hours, and benefit data used to construct the hospital wage index?

  1. Worksheet G-2
  2. Worksheet S-3 Correct answer.
  3. Worksheet S-2
  4. Worksheet A-6

Explanation

Worksheet S-3 collects wage-related data by occupational category, including salaries, paid hours, and benefits, which CMS uses to build the hospital wage index and the occupational mix adjustment. The wage index in turn drives the wage-index standardization applied in the inpatient prospective payment system.

Question 31Cost report structure, worksheets, and filing mechanics

The Worksheet D series in the hospital cost report is used to perform which function?

  1. Allocating general service costs among revenue-producing cost centers
  2. Computing the DRG payment for Medicare inpatient discharges
  3. Adjusting reported costs for nonallowable items and related organizations
  4. Apportioning costs to Medicare beneficiaries using departmental statistics Correct answer.

Explanation

The D worksheets apportion costs between Medicare beneficiaries and other users by applying Medicare's share of days or charges, taken from departmental statistics, to the costs accumulated earlier in the report. Different parts of the series address inpatient routine, inpatient ancillary, and outpatient services.

Question 32Cost report structure, worksheets, and filing mechanics

A hospital with a calendar-year cost reporting period is sold on July 1. How is cost reporting handled for that calendar year?

  1. The buyer files the entire year and reimburses the seller's costs.
  2. The seller files the entire year and the buyer begins with the next year.
  3. The period is split at the sale date, with each owner filing for its own months. Correct answer.
  4. The MAC files a single combined report for both owners.

Explanation

When ownership changes, the cost reporting period is split as of the date of sale: the seller files a final report covering its months of ownership and the buyer begins a new reporting period from the acquisition date. No joint or combined report is filed for the year.

Question 33Cost report structure, worksheets, and filing mechanics

Hospital costs are allocated on Worksheet B Part I using the step-down method. What consequence follows from this method?

  1. Every general service center receives allocations from all centers allocated after it.
  2. Only revenue-producing centers may receive allocations from general service centers.
  3. An allocated center cannot receive allocations from centers allocated later. Correct answer.
  4. All general service centers are allocated simultaneously using total costs.

Explanation

Under step-down allocation, general service costs are allocated sequentially and each cost center is closed once its costs have been distributed. Because a closed center cannot receive costs from centers allocated later, the order selected can change how much cost ultimately reaches revenue-producing centers and therefore the Medicare share.

Question 34Cost report structure, worksheets, and filing mechanics

Why must Worksheet A be completed before the cost-to-charge ratios on Worksheet C can be computed?

  1. Because Worksheet C must be reconciled to Worksheet G before ratios are computed.
  2. Because Worksheet C must first allocate general service costs to revenue centers.
  3. Because Worksheet A establishes the DRG payment amounts that Worksheet C divides.
  4. Because Worksheet A supplies the departmental costs used as each ratio's numerator. Correct answer.

Explanation

A cost-to-charge ratio is departmental cost divided by departmental charges for the same revenue center, so the cost figures must already be established before the ratio can be produced. Worksheet A develops those departmental cost totals after reclassifications and adjustments, making it a necessary predecessor to Worksheet C.

Question 35Cost finding, step-down allocation, and allowable cost determination

Under the step-down method, which non-revenue center is allocated first?

  1. The center that provides the largest share of its services to other non-revenue centers Correct answer.
  2. The center that receives the largest share of its services from other non-revenue centers
  3. The center located physically closest to the patient care units
  4. The center with the largest dollar balance in its cost account

Explanation

The step-down sequence starts with the non-revenue center that renders the greatest proportion of its total services to other non-revenue centers, because after allocation that center is closed and receives nothing further. Beginning there captures the widest spread of indirect cost before centers are shut down. Dollar size, location, and the volume of service received are not the governing criteria.

Question 36Cost finding, step-down allocation, and allowable cost determination

Under the direct allocation method, the costs accumulated in a non-revenue-producing center are distributed in which way?

  1. Only to the administrative and general cost center
  2. In the sequence that reflects the greatest reciprocal service
  3. To revenue-producing centers and to other non-revenue centers
  4. Only to revenue-producing centers Correct answer.

Explanation

The direct allocation method ignores all services exchanged among non-revenue centers and assigns each such center's costs solely to the revenue-producing centers. It is the simplest method but the least precise because interdepartmental services are not recognized. Sequential ordering is a feature of the step-down method, not the direct method.

Question 37Cost finding, step-down allocation, and allowable cost determination

Which of the following provider costs is unallowable for Medicare cost reporting purposes?

  1. Interest on a loan used to purchase patient care equipment
  2. Depreciation on a hospital building used to furnish patient care
  3. Malpractice insurance premiums for employed nursing staff
  4. A civil monetary penalty assessed for a regulatory violation Correct answer.

Explanation

Fines, penalties, and similar sanctions imposed by government authorities are unallowable because they do not arise from the furnishing of covered services and are considered unnecessary costs. Depreciation on patient care assets, malpractice coverage for staff who treat patients, and interest on borrowing used to acquire patient care equipment are all allowable when the underlying requirements are met.

Question 38Cost finding, step-down allocation, and allowable cost determination

When a provider obtains services from a related organization, the amount includable in allowable cost is limited to what?

  1. The amount the provider actually paid, regardless of the related organization's cost
  2. The related organization's actual cost of the services, with any profit element excluded Correct answer.
  3. The price the related organization charges, including its normal markup
  4. The Medicare prospective payment rate for the same service

Explanation

Costs applicable to services furnished by a related organization are allowable only to the extent of the related organization's actual cost, and any profit or markup is excluded. The purpose is to prevent a provider from inflating Medicare costs through dealings with an entity under common control. This limitation applies even if the provider paid the full price charged.

Question 39Cost finding, step-down allocation, and allowable cost determination

Depreciation on a provider's building is allowable for Medicare purposes when the depreciation is computed on which basis?

  1. The outstanding mortgage balance on the building
  2. The market value of the building when it is placed in service
  3. Historical cost spread over the asset's estimated useful life Correct answer.
  4. The appraised replacement value at the start of the reporting period

Explanation

Allowable depreciation is based on the historical cost of the asset allocated over its estimated useful life using a consistent method. Replacement value, appraised value, and outstanding debt are not acceptable bases because they do not reflect the provider's actual investment. The same principle applies to equipment and major movable items.

Question 40Cost finding, step-down allocation, and allowable cost determination

For a beneficiary bad debt to be allowable on the Medicare cost report, the amount must meet which condition?

  1. Be claimed in full even if a collection agency later recovers part of the balance
  2. Relate to covered services and be determined uncollectible after reasonable collection effort Correct answer.
  3. Include deductible and coinsurance amounts billed for non-covered services that the beneficiary refused to pay
  4. Be written off before any collection effort is attempted

Explanation

A bad debt is allowable only if it arises from covered services, is actually uncollectible, and the provider has made a reasonable collection effort documented in its records. Amounts collected after write-off, and amounts attributable to non-covered services, are not allowable. Deductible and coinsurance amounts for covered services are the classic allowable bad debt.

Question 41Cost finding, step-down allocation, and allowable cost determination

How are costs incurred for fundraising activities treated in the Medicare cost report?

  1. As allowable administrative and general costs
  2. As unallowable costs that are excluded from reimbursable cost Correct answer.
  3. As allowable costs whenever the funds raised are used to buy patient care equipment
  4. As allowable costs only to the extent they are offset by donations received

Explanation

Fundraising is not related to the furnishing of covered services and is therefore an unallowable cost regardless of how the proceeds are eventually used. The exclusion applies whether the campaign supports capital purchases or operating needs. Donation revenue does not convert the fundraising expense into an allowable item.

Question 42Cost finding, step-down allocation, and allowable cost determination

The dietary department's costs are most commonly allocated to inpatient and other cost centers using which statistic?

  1. Number of discharges
  2. Accumulated direct cost of the receiving centers
  3. Number of meals served Correct answer.
  4. Square footage occupied by the department

Explanation

Dietary cost is allocated on the volume of output consumed by each receiving area, so the number of meals served is the standard statistic. Discharges and accumulated direct cost do not measure dietary workload. Square footage reflects space usage and is used for plant operations, not food service.

Question 43Cost finding, step-down allocation, and allowable cost determination

A hospital has total allowable costs of $6,000,000 and total charges of $10,000,000 for the reporting period. What is the hospital's cost-to-charge ratio?

  1. 0.60 Correct answer.
  2. 1.67
  3. 0.40
  4. 6.00

Explanation

The cost-to-charge ratio is computed by dividing allowable costs by total charges, so $6,000,000 divided by $10,000,000 equals 0.60. The ratio is used to convert billed charges into estimated costs for cost finding and for claim-level settlement purposes. Inverting the fraction produces a different measure and is not the ratio.

Question 44Cost finding, step-down allocation, and allowable cost determination

Which of the following is classified as an ancillary (special) service rather than a routine service?

  1. Meals served to an inpatient
  2. Daily nursing care provided on a medical unit
  3. A semi-private room charge
  4. A laboratory test performed for an inpatient Correct answer.

Explanation

Routine inpatient services are the customary room, board, and nursing services furnished to all inpatients, while ancillary services are the special services ordered for a particular patient, such as laboratory tests, radiology, or drugs. The distinction matters because routine and ancillary costs are accumulated in separate cost centers and allocated on different bases.

Question 45Cost finding, step-down allocation, and allowable cost determination

A hospital apportions $100,000 of administrative and general cost. The statistics show 20% to housekeeping, 30% to dietary, and 50% to the patient care units. How much administrative and general cost is apportioned to housekeeping?

  1. $30,000
  2. $50,000
  3. $20,000 Correct answer.
  4. $10,000

Explanation

The amount assigned to a receiving center equals the pooled cost multiplied by that center's share of the allocation statistic, so $100,000 times 20% equals $20,000. The full $100,000 is distributed across all receiving centers, and the shares must add to 100%. The patient care share would be $50,000 and the dietary share $30,000.

Question 46Cost finding, step-down allocation, and allowable cost determination

Which statement describes a distinguishing feature of the reciprocal (algebraic) method of cost allocation?

  1. It allocates costs in a single sequence and then closes each center
  2. It ignores services exchanged between non-revenue centers entirely
  3. It recognizes services exchanged among non-revenue centers in both directions Correct answer.
  4. It allocates non-revenue costs only to revenue-producing centers

Explanation

The reciprocal method solves simultaneous equations so that every non-revenue center receives an allocation for the services it provides to and receives from every other non-revenue center. This makes it the most precise of the three commonly used methods. The direct method ignores interdepartmental services, and the step-down method captures them in only one direction.

Question 47Cost finding, step-down allocation, and allowable cost determination

In the double apportionment method, what occurs after the first allocation of non-revenue costs?

  1. A second allocation is made to reflect the services that later-allocated centers provided to earlier-allocated centers Correct answer.
  2. The total cost is divided equally among all revenue-producing centers
  3. Each revenue center reallocates its costs back to the non-revenue centers
  4. All non-revenue center balances are zeroed before any allocation begins

Explanation

Double apportionment performs an initial distribution of non-revenue costs and then a second distribution that picks up the reciprocal services the later centers rendered to the earlier centers. This reduces the one-directional distortion of the simple step-down method without requiring simultaneous equations. Equal division, reverse allocation, and pre-zeroing are not part of the method.

Question 48Cost finding, step-down allocation, and allowable cost determination

Under Medicare cost principles, physician compensation included in a provider's allowable costs must be what?

  1. Equal to the amount the physician bills Medicare Part B for the same services
  2. Approved in advance each year by the Medicare administrative contractor
  3. Reasonable and related to patient care furnished at the provider Correct answer.
  4. Set exactly at the prevailing community average for the specialty

Explanation

Physician compensation is allowable only to the extent that it is reasonable and attributable to services furnished in the provider's patient care operation. Compensation for activities unrelated to patient care, such as general business consulting, must be excluded. Neither community averages nor Medicare administrative contractor pre-approval establishes allowability.

Question 49Cost finding, step-down allocation, and allowable cost determination

A chain provider's home office incurs $500,000 of administrative costs that benefit four component hospitals. Which approach makes the pooled home office cost allowable?

  1. Charge the entire amount to the largest hospital in the chain
  2. Allocate the pool only to the hospitals that reported an operating profit
  3. Exclude the pool from the cost report because home office costs are never allowable
  4. Allocate the pool among the hospitals on the basis of the beneficial services each receives Correct answer.

Explanation

Home office costs are allowable when they are reasonable, related to patient care, and allocated to the benefiting providers in proportion to the services each actually receives. Documentation of the allocation statistic is essential. Concentrating the pool in one facility or limiting it to profitable facilities misstates each provider's cost.

Question 50Cost finding, step-down allocation, and allowable cost determination

Interest expense on funds borrowed to acquire a patient care asset is allowable provided that which condition is satisfied?

  1. The loan is fully repaid within the reporting period
  2. The lender is an unrelated bank located in the same state as the provider
  3. The provider's governing board approves the borrowing arrangement
  4. The asset is used in furnishing covered services and the interest rate is not excessive Correct answer.

Explanation

Interest is an allowable cost when the borrowed funds are used for a purpose related to patient care and the rate does not exceed what a prudent borrower would pay. Repayment timing, the lender's location, and board approval do not control allowability. Interest attributable to non-patient-care uses must be excluded.