The SNF Medicare Cost Report, Explained

It used to. Before the skilled nursing prospective payment system, Medicare paid nursing homes on a reasonable-cost basis, subject to cost limits, and the cost report determined the final payment. That history is why the form is still built like a cost settlement. The prospective payment system applies to cost reporting periods beginning on or after July 1, 1998 (42 CFR 413.330), after a phase-in. Part A now pays a predetermined rate per resident day, set today by PDPM, which the regulation treats as payment in full for the costs of the stay:

The same regulation names what sits outside the rate: Medicare bad debt and the costs of approved educational activities. The year-end settlement is therefore narrow. Worksheet E starts from the PPS amount on the facility’s paid claims, adds 65% of its allowable Medicare bad debt (deductibles and coinsurance beneficiaries did not pay; 42 CFR 413.89(h)), subtracts primary-payer amounts, coinsurance and sequestration, and compares the result with the interim payments the facility received. CMS’s instructions describe it as the calculation of “the reimbursement settlement under SNF PPS” (Pub. 15-2 §4906.10).

A few items are still paid at cost, such as preventive vaccines billed under Part B, but they are small. Hospital-based units and swing beds are not on this form at all; they file with the hospital’s cost report (Form CMS-2552-10).

The cost data matters even though it no longer sets a stay’s payment. The PPS base rates were built from FY1995 cost reports (42 CFR 413.337). CMS periodically rebases the cost weights in the SNF market basket, the index used in the annual rate update, on cost report data; the FY2025 final rule rebased them to 2022 using reports from about 13,100 freestanding facilities. MedPAC computes freestanding nursing home margins from the same reports, and Medicare contractors review and audit them. The form can also compute Medicaid costs where a state requires it; many states use their own Medicaid cost report instead.

That is why the report holds far more than a settlement needs: the census, the wage data, the balance sheet and an income statement, on one format, for nearly every freestanding nursing home in the country. Reports are due by the last day of the fifth month after the cost reporting period closes (42 CFR 413.24(f)); a facility with low Medicare use can file a low-utilization report with its contractor’s prior approval.

The worksheets work as a pipeline. S-2 and S-3 identify the facility and count its days; A lists what everything cost; A-6 and A-8 turn that into allowable cost; B spreads overhead onto the departments; C and D apportion cost to Medicare; E settles; G and G-3 sit alongside as the balance sheet and income statement.

The line numbers carry through: “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). Routine nursing, line 25 on the new form’s Worksheet A, is line 25 on Worksheet B as well. Learn Worksheet A’s cost centers and you can read four worksheets.

Total patient revenues, less contractual allowances, give net patient revenue. Subtract operating expenses for net income from patient care, add other income and subtract other expenses for net income for the period.

The first two lines are worth a second look. Total patient revenues are charges at list price; contractual allowances are the discount to what payers actually pay. In a Medicaid-heavy facility the write-down can be most of the top line, so gross revenue overstates a nursing home’s size and net patient revenue is the figure to use.

G-3 reads like an income statement, but it is not an audited financial statement. The facility prepares the report, often with an outside preparer, and an officer certifies it (Worksheet S Part II). The Medicare contractor reviews it and audits some reports. Four things make the bottom line easy to misread:

The difference between booked and allowable cost is not small. On the FY2025 filings, Worksheet A-8 adjustments, the related-party discount among them, removed $8.6 billion, 5.9% of $146.4 billion in booked expenses, before Medicare’s cost calculation. G-3 uses the booked figure: on every one of the 10,768 FY2025 reports we checked, its operating expenses match Worksheet A before those adjustments.

The relief funds show how much one line can move the bottom line. On the old form’s dedicated COVID funding line (G-3 line 24.50), facilities reported more relief money in FY2020 and FY2021 than the industry’s entire net income:

CMS replaced Form CMS-2540-10 with CMS-2540-24 for cost reporting periods ending on or after September 30, 2025. Worksheet S-3 Part I now splits days between fee-for-service and managed care, so Medicare Advantage and managed Medicaid days are measurable at the facility level for the first time. A new S-3 Part V reports nursing labor in three blocks (employees, contract agency, home office) by role, with paid hours and hourly wages, so agency reliance and its wage premium are on the face of the filing.

Several worksheets were also renumbered. Net income moved from line 31 to line 32 on G-3, and nursing from line 30 to line 25 on Worksheet A. Nothing about a facility’s finances changed, but any analysis that assumes a fixed line number reads the wrong row from FY2025 on.

From reading roughly 410,000 filed reports, FY1996 to FY2026:

CMS publishes filed cost reports through HCRIS (the Healthcare Cost Report Information System) as quarterly data sets; the forms and instructions are CMS Publication 15-2, chapter 49. Getting the data is easy. The work is mapping every coordinate to its caption, keeping that mapping right across two form versions, and knowing which figures compare across facilities.