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Here are 2 good reasons to make sure your cost report is accurate.

Don't expect to claim owners' compensation on your cost report if you fail to cash your compensation checks according to the 75-day rule--even if you issue promissory notes instead of checks.

One Chicago home health agency has learned that lesson the hard way. The Provider Reimbursement Review Board upheld the disallowance of more than $128,000 in compensation for the two owners of Comprehensive Home Care Inc., according to a recent PRRB decision (2006-D41).

Comprehensive claimed $175,540 in compensation for the two owners in the cost reporting period ending in May 1998, but it issued promissory notes for $128,540 of that amount. The notes were for $64,270 to each owner, who held the titles of President/CEO and Vice-President/Operations Manager, according to the decision.

Palmetto GBA disallowed the promissory note compensation because the agency hadn't liquidated the liability within 75 days after the close of the cost reporting period. A CMS transmittal notes that when "a provider's payment to a corporate owner for compensation is made by check or other negotiable instrument, the negotiable instrument must be liquidated through an actual transfer of the provider's assets within 75-days after the close of the cost reporting period," the ruling points out.

The promissory note counts as a negotiable instrument and thus is subject to the 75-day rule, the PRRB says.

Specific Medicare regulations trump the GAAP guidelines and state laws that the provider cited to defend claiming the salary costs, the Board says.

Missed exception: Comprehensive may have qualified for an exception to the rule based on extenuating circumstances. The HHA claims that the switch from intermediary Blue Cross and Blue Shield of Illinois to Palmetto delayed its payments, so it was short of cash to pay the owners. But Comprehensive failed to file for an extension at the time, so isn't eligible for one now, the Board rules.

Board Interprets Rule Strictly

The PRRB's decision isn't surprising, notes attorney John Jansak with Harriman & Jansak in Towson, MD. "The Board has always been very hard on the 75-day rule."

The case law on liquidating liabilities is clear, agrees attorney Joel Hamme with Pyles, Powers, Sutter & Verville in Washington, DC. "It isn't enough to have issued the check," Hamme tells Eli. The provider has to have issued the check and you have to have cashed it within the timeframe.

Alternative: If the agency was strapped for cash, it could have borrowed funds or gotten a bank line of credit to liquidate the notes, offers cost report expert Pat Laff with Laff Associates in Hilton Head, SC. Then the debts would have been working capital or stockholder loans instead of ineligible compensation.

Why It Matters Now

Some agencies may not care much whether they claim owners' compensation accurately under the prospective payment system, where little or no money is actually tied to the cost report.

But there are two good reasons to care about cost report accuracy and claiming your rightful costs, Hamme stresses.

1. False claims. Past cases have shown that filing an inaccurate cost report may still result in False Claims Act liability, Hamme warns. Even though the government doesn't lose money as a direct consequence of the inaccuracy, filing a cost report with false information still could result in false claims charges.

2. PPS rebasing. The Centers for Medicare & Medicaid Services may decide to rebase PPS payment rates based on reported HHA costs under PPS, Hamme cautions. "The lack of careful cost reporting on a large scale could lead to problems down the road, if and when new base years are used."

Don't forget: In the short term, bodies like the Medicare Payment Advisory Commission, the Government Accountability Office and Congress use HHA profit margin figures from cost reports to make recommendations and decisions regarding Medicare payment rates.

Medicare cost reports still can result in some reimbursement differences for agencies, Hamme adds. Bad debt and medical education costs may affect some agencies' bottom lines.

And some states base Medicaid payments on Medicare cost report data, experts remind.

Comprehensive and its attorney didn't respond to requests for comment for this story.