Guide
The SNF Medicare Cost Report, Explained
The short version
Every nursing home that bills Medicare files an annual cost report — Form CMS-2540 — reporting its expenses, revenues, census, and balance sheet. CMS publishes them, which makes cost reports the most detailed financial data that exists on nursing homes. They are also the least readable: the public files are raw coordinates (worksheet, line, column, value) with no labels, spread across roughly 30 interlocking worksheets. This guide explains what each worksheet does, how they connect, and what changed on the new CMS-2540-24 form that took effect for FY2025.
What the cost report is for
The cost report exists to settle a bill. Medicare pays a facility throughout the year in interim payments; at year end the facility files a cost report showing what care actually cost, and the two sides true up. That purpose explains the document’s shape: it starts with what the facility spent, works methodically toward the share of that spending attributable to Medicare patients, and ends with a number owed in one direction or the other.
Everything else it contains — the census, the balance sheet, the income statement, the wage data — is there to support that calculation. Which is why the cost report is so useful for purposes CMS never intended: it is an audited-adjacent annual financial statement for essentially every nursing home in the country, filed to a common format.
How the worksheets connect
The worksheets are not a pile of forms; they are a pipeline. Each one feeds the next, and understanding the flow is most of the battle:
S-2/S-3 identify the facility and count the days → A lists what everything cost → A-6/A-8 reclassify and adjust it into allowable cost → B spreads overhead onto the departments → C turns cost into a cost-to-charge ratio → D applies that ratio to Medicare charges → E settles the bill. G and G-3 sit alongside as the balance sheet and income statement.
One consequence matters more than any other: Worksheet A’s line numbers carry through the whole document. CMS says so directly — “on Worksheets A, B, C, and D, the line numbers are consistent, and the total line is set at number 100” (Pub. 15-2 §4902.10). If line 8 is Dietary on Worksheet A, line 8 is Dietary on Worksheet B and on Worksheet C. Learn Worksheet A’s cost centers once and you can read four worksheets.
The worksheets that matter
There are about thirty. These are the ones you will actually open:
| Worksheet | What it holds |
|---|---|
| S-2Identification Data | Who the facility is: address, CCN, ownership type, chain affiliation, certification dates, and who prepared the report. |
| S-3 Pt ICensus & Statistical Data | Beds, patient days, discharges, and average length of stay by payer. The denominator under almost every per-day figure. |
| S-3 Pt VDirect Care Expenditures | New for FY2025: nursing labor split employee vs. contract agency vs. home office, with paid hours and hourly wages by role. |
| ATrial Balance of Expenses | Every cost center’s salaries and other costs, reclassified and adjusted into the net expense that gets allocated. |
| A-6Reclassifications | Moving costs between cost centers to their proper home before allocation — e.g. therapy wages booked in Admin. |
| A-8Adjustments to Expenses | Removing costs Medicare will not pay for. More than half its entries are negative, because removing is the point. |
| B Pt ICost Allocation (Step-Down) | Overhead — capital, admin, dietary, housekeeping — is spread onto the departments that consume it. |
| CRatio of Cost to Charges | Each ancillary department’s cost divided by its charges. The bridge from cost to what Medicare pays. |
| DApportionment | Applies those cost-to-charge ratios to Medicare charges to compute Medicare-allowable cost. |
| EReimbursement Settlement | The bottom line: PPS payments, bad debts, sequestration, and what is owed in which direction. |
| GBalance Sheet | Assets, liabilities, and fund balance at period end. Where current ratio and days-cash come from. |
| G-3Statement of Revenues & Expenses | The income statement — net patient revenue, operating expenses, and net income for the period. |
Where the money shows up: Worksheet G-3
If you want to know whether a facility made money, Worksheet G-3 is the page. It reads like an income statement because it is one:
The gap between the first two lines is worth pausing on. Total patient revenues are charges at rack rate; contractual allowances are the discount from that rate to what payers actually pay. On a Medicaid-heavy facility that write-down can be most of the top line, which is why gross revenue is a poor way to size a nursing home and net patient revenue is the honest one.
What changed for FY2025: Form CMS-2540-24
CMS replaced Form CMS-2540-10 with CMS-2540-24 for cost reporting periods ending on or after 30 September 2025 — the first redesign in over a decade. Two changes add genuinely new information:
- The census now splits fee-for-service from managed care. Worksheet S-3 Part I used to put all SNF days on one line. It now separates traditional Medicare from Medicare Advantage, and traditional Medicaid from managed Medicaid. This makes facility-level Medicare Advantage days measurable for the first time — previously you could only infer MA penetration from market-level sources.
- A new worksheet reports direct care labor. S-3 Part V breaks nursing cost into three parallel blocks — employees, contract agency, and home office — by role (RN, LPN, CNA, therapists), each with paid hours and an average hourly wage. Agency reliance and the wage premium that comes with it are now on the face of the filing.
The rest of the redesign is quieter and more dangerous: several worksheets were renumbered. Net income moved from line 31 to line 32 on G-3. Nursing moved from line 30 to line 25 on Worksheet A. Total liabilities shifted on the balance sheet. None of that changes any facility’s finances — but any analysis that assumes a fixed line number will read the wrong row and produce a confident, wrong answer.
What most people get wrong
These are the traps we hit reading roughly 410,000 filed reports (FY1996–2026), not theoretical concerns:
- The public files have no labels. HCRIS gives you a worksheet code, a line number, a column number, and a value. The row descriptions are printed on the blank form — a different document from the instructions — so a coordinate means nothing until you map it back. Most of a cost report’s row captions never appear in the data at all.
- Negative numbers are normal. Worksheet A-8 exists to remove non-allowable cost, so more than half its entries are negative by design. A pipeline that treats them as errors will quietly discard the adjustments.
- Cost per day and revenue per day are not the same denominator. Facilities that file one report for a whole campus report campus-wide costs against SNF-only days, which inflates cost per day and understates margin. It looks like distress; it is a reporting artifact.
- Line numbers are not stable across years. See above. Any multi-year trend built on the old numbering silently breaks at FY2025.
- One facility can file two reports in a year. A mid-year ownership change produces two partial-year filings. Summing them without noticing the period double-counts the year.
Where to get them
Cost reports are free. CMS publishes them through HCRIS (the Healthcare Cost Report Information System) as quarterly data sets, and the blank forms and instructions live in CMS Publication 15-2, chapter 49. Everything in this guide traces to those primary documents.
The work is not getting the data — it is making it readable: mapping every coordinate to its caption, keeping the mapping correct across two form versions, and knowing which figures are comparable across facilities and which are not.
We read the cost reports so you don’t have to
SNF Insights maps every filed worksheet back to the printed form — both form versions — and puts a facility’s financials, census, staffing, and peer comparisons on one screen. The raw worksheets are there too, line by line, if you want to see the filing itself.