Cash flow is an area of significant concern for many Critical Access Hospitals (CAHs). Due to cost-based reimbursement, CAHs may face even greater challenges in managing their cash flow effectively. In this environment, an unexpected Medicare repayment—often triggered by operational shifts not reflected in real-time financial models—can create significant disruption. To mitigate this risk, high-performing CAHs have adopted a best practice of preparing interim cost reports at regular intervals throughout the fiscal year.
Stroudwater’s experience working with CAHs nationwide has shown that this best practice is often overlooked. Through hundreds of cost report engagements, one theme remains clear: significant changes in volume, cost structure, or service mix can have a profound impact on a CAH’s cost-based rates. Often, this impact is not well understood until it’s too late, resulting in unexpected and potentially substantial receivables from or payables to Medicare.
Unlike reimbursement for prospective payment systems (PPS) hospitals, CAH reimbursement rates are sensitive to actual utilization and expense changes. Changes in a hospital’s service mix, whether through the launch of a new program, the discontinuation of a labor and delivery unit, or the redesignation of a clinic, can materially affect reimbursement. Neither using a static reserve estimate nor relying on historical reserves can account for the dynamic nature of a CAH’s operating environment.
Interim cost reports offer a chance to analyze operational shifts in real-time. Whether filing an interim cost report with your Medicare Administrative Contractor (MAC) or using it for internal financial modeling, interim cost reports offer hospitals a forward-looking view of how current performance may impact year-end settlements.
This insight is particularly applicable in scenarios such as:
- Introducing or discontinuing high-impact service lines
- Redesignating hospital-operated entities
- Experiencing significant shifts in patient volume
- Onboarding or losing high-referral providers or specialty groups
- Undertaking facility projects that alter depreciation and interest allocations
Interim cost reports also support more accurate financial statements and board reporting. They can be used to pursue interim rate adjustments with Medicare Administrative Contractors (MACs), helping hospitals manage their receivables and payables before the end of the fiscal year.
Ultimately, interim cost reporting is not merely a financial planning tool—it is a mechanism for mitigating risk and aligning strategy. For CAHs navigating reimbursement complexity with narrow financial margins, proactive monitoring can mean the difference between stability and uncertainty. Hospitals that adopt this approach position themselves to respond confidently to change and maintain the financial resilience necessary to serve their communities.
To learn more about how Stroudwater can help with your cost report, please click here.
