Hospice Cost Reports: The Related-Company Charges Behind the Numbers

Hospice cost report related-party costs require a comparison between the expense on the hospice’s books and the allowable cost in the affiliated supplier’s records. Subject to a stated exception, CMS bases the allowable amount on the supplier’s cost, with a further limit tied to what a prudent buyer would pay elsewhere. An accountant may know why an affiliate’s invoice exceeds that amount and who decided what the hospice would report. For hospice finance whistleblowers, that knowledge gives the reported number a history: who supplied it, who questioned it and who decided to use it.

A hospice fraud inquiry follows that history to the government payment and the care patients received. We want to understand the transaction behind the expense, including what the business was buying and who benefited from the payment.

What a Hospice Cost Report Shows

A hospice cost report brings together the provider’s operations and finances. The Centers for Medicare & Medicaid Services says institutional providers submit an annual report to their Medicare Administrative Contractor, including facility characteristics, utilization, costs and charges by cost center, Medicare settlement data and financial-statement data.

CMS includes Form CMS-1984-14 among the hospice forms in its cost-report overview. Those reports give us a place to connect an insider’s account of an expense with what the provider submitted.

You may know which business supplied the service, how the expense reached the hospice’s books and what explanation management gave for it. We work through those details with you before treating a reported total as the whole story.

The Affiliate’s Charge Versus Its Allowable Cost

CMS’s Chapter 43 instructions cover Form CMS-1984-14 for freestanding hospices. For services, facilities and supplies furnished by a business under common ownership or control, the general rule uses the related organization’s cost. The amount cannot exceed what a prudent, cost-conscious buyer pays for comparable purchases elsewhere. Both the supplier’s books and the outside price comparison matter when management defends an affiliate’s charge.

Worksheet A-8-1 makes that comparison visible. Its Part I puts allowable costs from the related organization’s books in column four and the amount included on the hospice’s Worksheet A in column five. The allowable-cost figure excludes markup, profit and amounts above acquisition cost. The invoice and the allowable expense therefore answer different questions: what the affiliate charged, and what its records support under the reporting rule.

The difference becomes an adjustment, calculated as allowable cost minus the amount already included on Worksheet A. Worksheet A-8 carries the related-organization adjustment back into the hospice’s expense worksheet, and CMS requires the supporting cost-adjustment documentation with the report. If you saw a markup retained after a proposed correction, the original charge, the supplier’s costs and the submitted adjustment give us a specific comparison to examine.

The related-organization rule’s exception allows the supplier’s charge as cost when convincing evidence satisfies the Medicare contractor that all the conditions are met. The supplier must be a bona fide separate organization, with a substantial share of its business of the same kind outside the provider and the supplier’s related organizations, in an open, competitive market. The purchase must be something comparable providers commonly obtain from others, rather than basic patient care they ordinarily furnish directly. The charge must be in line with open-market charges and be no higher than the supplier charges others in comparable circumstances. An insider may know whether management’s explanation matches those business relationships and prices.

The Relationship Disclosed With the Expense

The ownership relationship behind the provider also belongs in the report. Part II of Worksheet A-8-1 identifies the relationship, the related organization, its business and applicable ownership percentages. Its relationship categories reach shared officers and key personnel as well as financial interests. Those fields give an accountant’s knowledge of common decision-makers a place to be compared with the submitted information.

The hospice reimbursement questionnaire also asks about transactions, including management contracts, involving ownership, control, family or similar relationships. In the complaint involving Interim Healthcare of Atlanta, whistleblowers alleged that equipment supplier CYD Home Health Services belonged to the hospice owners’ son. For this accounting inquiry, we would follow an insider’s account of a supplier connection through the relationship disclosure and the costs behind its invoices.

Costs Allocated From a Parent

A parent facility’s accounting can change the costs reported for its hospice. Milliman’s Hospice Medicare Margins, published in July 2019 and commissioned by the National Partnership for Hospice Innovation, explains that reported costs include direct patient care and general services. Nursing and therapy sit alongside building, equipment and volunteer-coordination costs.

For a hospice based in a hospital, home health agency or skilled nursing facility, general service costs can come from the parent facility. Milliman made the consequence explicit:

The report separately examined freestanding hospices to make a comparison without that parent-facility allocation issue. For an insider, the useful detail is how the cost moved: which operation incurred it, which operation received the service and what allocation put it into the hospice’s reported expenses.

If you know why management changed an allocation or rejected a correction, that decision belongs beside the final number. Your knowledge can explain how it got there.

The patients included in a cost figure matter too. Milliman notes that the more detailed expense categories cover all hospice patients, while its Medicare margin calculation excludes non-reimbursable costs such as bereavement services, volunteer programs and fundraising. When you know which account holds an expense, we can connect it to the particular total under discussion.

Why the Expense Matters Under a Daily Hospice Rate

Medicare pays hospice a set daily rate: a higher reported expense does not automatically increase that hospice’s payment. Milliman explains that Medicare does not pay a hospice more because its costs are higher or less because they are lower. Reported costs instead help explain the margin between Medicare payment and the cost of providing care.

Medicare’s hospice payment follows the enrolled day, including routine-care days without a visit. Costs are highest around admission and death and lower in between. The relationship between payment, staffing and the length of a stay therefore matters when a hospice says its expenses explain its financial results.

The Certification Behind the Report

The chief financial officer or administrator signs the completed cost report’s certification. The signer certifies, to the best of their knowledge and belief, that the report and financial statements are true, correct, complete and prepared from the provider’s books and records under the applicable instructions, except as noted. The certification also addresses compliance with the laws and regulations governing the services identified in the report.

That connects the accounting comparison to a management decision. An insider may know that the affiliate’s cost records showed less than its charge, that an adjustment was proposed, or that a relationship was left out before the report was signed. We want to understand what the signer knew about the discrepancy and how the final report treated it.

The reimbursement questionnaire asks whether total expenses and revenues differ between the cost report and the filed financial statements, and requires a reconciliation when they do. That reconciliation can help us locate where an expense changed between the books and the submission. We examine the explanation alongside the underlying transaction and the Medicare payments. A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers.

The Books Behind the Charge

If you know why a supplier’s charge, the hospice ledger and the reported expense tell different stories, speak with our whistleblower experts about the transaction. We work beside you to connect the accounting, ownership and management decisions to your strongest hospice whistleblower case, and bring in hospice fraud whistleblower lawyers who understand Medicare payment and the books behind it.