Medicare Cost Report Worksheet B, Part 1: Step-Down Process

I’d like to use this post to briefly explain the step-down process on the Medicare cost  report 2552-10, but which is applicable on other Medicare and Medicaid cost reports.  For example, it is used on the Skilled Nursing Facility cost report and Home Health Agency cost reports.

Below I represent an overview of several imaginary cost centers. Of course, in reality Medicare gives you the direct and indirect cost centers.  I don’t differentiate between revenue and non-revenue producing cost centers here.

The idea is to allocate the general cost centers to the direct revenue cost centers.  The total we need to preserve  is $3,390. We first take cost center “A” and allocate the 2000 in Direct Costs to the other cost centers below in some proportion. (The proportion or statistical basis is determined elsewhere e.g. B-1.) After allocating the 2000 for cost center A, we are now left with cost centers B-F. But each cost center is now the sum of its original Direct Costs and the newly allocated indirect costs from cost center A. The total is $3,390.

As you notice, the order of the cost centers makes a big difference.  Why? Well look at cost Center D. Prior to the allocation, it was the second smallest cost center in terms of cost. After the allocation, it is is the second highest.
This is why the allocation process is so important.

The subtotal column is important for one particular cost center: Administrative & General. I will discuss this in a future post.

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