## Operating and Capital Cost-to-Charge Ratios (CCR)

The purpose of this post is to explain how Medicare calculates the operating and capital cost to charge ratios.

###### Which cost report is used to calculate the cost-to-charge ratios?

Medicare informs that it is the latest settled or tentatively settled cost report that is used for calculating cost-to-charge ratios.

###### How is the OPERATING cost-to-charge ratio calculated?

*First*, we must obtain a statistic from D-1, line 53 from the provider. Let’s take a look at line 53:

This tells us that our operating costs, net of capital costs and pass-thru costs (medical education, non-physician anesthetists, etc.) total **$6,180,220**. Nursery costs are generally excluded (line 42).

*Second*, we need to obtain the total charges. We can obtain this from D-4 on lines 25-30 and line 103 (2552-96) or the 2552-10 equivalent on D-3.

We add lines 25-30 and line 103. This gives us $8,325,607 + $4,720,929 = **$13,046,536**.

*Third*, we divide the costs in step 1 ($6,180,220) by step 2 ($13,046,536). This gives us approximately **47.4%**.

###### How is the CAPITAL cost-to-charge ratio calculated?

* First *, much like the calculation for the operating cost to charge ratios, we start with the D worksheets. In this, case we need to go back to the capital costs we eliminated from line 53 on D-1. Our first step is to obtain the routine and ancillary provider capital costs from D, Part I and D, Part II.

From D, Part I we need to obtain the routine capital costs, the sums of line 25-30 or the 2552-10 equivalent. The sum here is $197,987. To this, we add line 101 from D, Part II or the 2552-10 equivalent. Line 101 totals $104,381. We now add the two amounts to get **$302,368**.

* Second *, we obtain the total charges from D-4 (2552-96) or D-3 (2552-10) as we did for the operating cost-to-charge ratio from step #2 above. The total was **$13,046,536**.

* Third *, We divide the totals from step 1 ($302,368) by step 2 ($13,046,536) to get **2.31%.**.

Resources: Medicare Claims Processing Manual: Chapter 3, 20.1.2.1″

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