How to Prepare for a Medicare Home Health Cost Report Audit
A single late or unsupported home health cost report can convert a full year of interim Medicare payments into a recoverable overpayment (42 CFR 413.20; CMS Provider Reimbursement Manual). With freestanding agencies posting a 21.2% FFS Medicare margin in 2024 and MedPAC pressing for rate cuts, CMS and its contractors are scrutinizing agency cost data more closely than ever. The good news: cost report audits are predictable, and agencies that treat documentation as a year-round discipline rarely get burned. Here is a practical, CPA's-eye guide to preparing for a Medicare home health cost report (Form CMS-1728-20) review.
Key Takeaways
Cost reports are due 150 days after fiscal year-end; late filing lets the contractor recover all interim payments for the period.
The MAC reviews every filing for acceptance/rejection within 30 days of receipt.
Non-audited reports are settled within 1 year; audited reports settle 60 days after the exit conference.
You have 3 years to request a reopening and 180 days to appeal a settlement.
The strongest audit defense is a reconciled trial balance, clean cost allocation, and a documented visit/statistical basis — assembled before, not after, the request.
What Triggers a Home Health Cost Report Audit
Not every report is audited, but several factors raise the odds.
Trigger | Why it draws attention |
Cost per visit far above or below peers | Signals allocation errors or possible misreporting |
Large swings year over year | Suggests inconsistent methodology |
High related-party or home-office costs | Reasonableness and relatedness must be proven |
Ownership change or new provider | New agencies face closer initial review |
Incomplete or edit-failing electronic filing | Rejected reports restart the clock and invite scrutiny |
The contractor's review begins with whether the electronic cost report (ECR) passes all Level I edits. A report that fails edits is rejected, and a rejection near the deadline can push you past the 150-day due date — the single most dangerous outcome, because it exposes every interim payment to recovery.
Build Your Audit File Before You File
The documents an auditor requests are the same ones that support an accurate filing. Assemble them as you close the year.
Financial and statistical support
Document | Purpose |
Working trial balance + crosswalk to the cost report | Ties every line to your books |
Audited or reviewed financial statements | Establishes the cost base |
Visit and census statistics by discipline | Supports the statistical allocation |
Contracted-services detail (therapy, etc.) | Separates contract from employed cost |
Medicare bad-debt listing | Must match the amount claimed exactly |
Reclassification and adjustment schedules | Explains every A-6/A-8 entry |
Cost allocation and reasonableness
Overhead allocation is where most audit adjustments happen. Keep a written basis for how administrative and general costs are spread, and be ready to defend related-party charges at cost. Sound bookkeeping and cost allocation throughout the year is what makes this step a print-and-hand-over exercise rather than a scramble.
The Audit Timeline and Your Response Windows
Knowing the clock keeps you in control.
Milestone | Timeframe | Source |
Cost report due | 150 days after FYE | CMS PRM |
MAC acceptance/rejection | Within 30 days of receipt | MAC guidance |
Audit notification before fieldwork | At least 4 weeks | MAC guidance |
Additional documentation after exit conference | 4 weeks | MAC guidance |
Audited report settlement | 60 days after exit conference | MAC guidance |
Reopening request | Within 3 years of settlement | CMS PRM |
Appeal | Within 180 days of settlement | CMS PRM |
When an Additional Documentation Request (ADR) arrives, respond completely and on time — partial responses drive unfavorable adjustments. If you disagree with the notice of program reimbursement, the 180-day appeal window is firm.
Common Adjustments — and How to Avoid Them
Adjustment area | Prevention |
Unsupported bad debt | Keep a listing that reconciles to the penny; exclude fee-based bad debt |
Related-party markup | Report at cost with documentation of the relationship |
Misallocated overhead | Maintain a consistent, written allocation basis |
Visit-count mismatches | Reconcile OASIS/claims visit data to the cost report statistics |
Bottom Line
A home health cost report audit is won in the months before you file, not in the weeks after the ADR. Reconcile your trial balance to the report, document your allocation, and file a clean ECR well ahead of the 150-day deadline. If you want a second set of eyes before submission, a specialized Medicare cost report filing review catches the edits and allocation issues that trigger audits in the first place.
The 2026 Program-Integrity Backdrop
Cost-report accuracy carries more weight in 2026 than it has in years. CMS imposed a national six-month moratorium on new home health Medicare enrollments effective May 13, 2026, and the CY 2027 proposed rule (CMS-1844-P) would make all enrollment revocation grounds retroactive to the date noncompliance began — so a documentation lapse can trigger recovery back to its origin. With the −3% temporary clawback continuing into 2026, agencies face payment and integrity pressure at once, and the cost report is the record CMS uses to judge both. Treating it as an audit-ready document year-round is no longer optional (CMS, CMS-1844-P, 2026; CMS enrollment moratorium, May 2026).
Sources
42 CFR 413.20 and 413.24; CMS Provider Reimbursement Manual (PRM), Part I & 15-2
CMS, Home Health Agency Cost Report Form CMS-1728-20 and instructions
Medicare Administrative Contractor cost report filing instructions (timelines)
MedPAC, Report to the Congress: Medicare Payment Policy, Chapter 8, March 2026 (margin context)
Last updated: September 2026.
Soriaga & Associates, LLC is a CPA firm with 25+ years of home health and hospice accounting and Medicare cost report experience. Schedule a free consultation for help preparing or reviewing your cost report.
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