single audits

Bonus depreciation is officially back at 100%, and the rules for 2026 look very different from what many taxpayers had been planning for. After years of preparing for the gradual phase-down under the Tax Cuts and Jobs Act (TCJA), the One Big Beautiful Bill Act (OBBBA) of 2025—along with new IRS guidance in Notice 2026-11—restores full expensing for most qualified property and establishes a clearer long-term framework.

BerryDunn's tax experts have compiled a comprehensive summary of what changed, how the rules work now, and what businesses need to know as they plan for upcoming capital investments.

Notice 2026-11: Key updates driving the 2026 bonus depreciation rules

Notice 2026-11 serves as the IRS's bridge between the old TCJA regulations and the new OBBBA system. Rather than issuing a complete rewrite of §1.168(k)-2, the IRS introduced a "date substitution" approach to quickly align existing regulations with the new law.

New effective dates for determining 100% bonus depreciation

To determine whether property qualifies for the renewed 100% bonus rate, taxpayers must now:

• Use January 19, 2025, in place of September 27, 2017

• Use January 20, 2025, in place of September 28, 2017

What this means in practice: If a business acquires and places property in service after January 19, 2025, the property generally qualifies for 100% bonus depreciation under the updated rules.

Bonus depreciation requirements for 2026: Understanding the four tests

Even with the OBBBA changes, property must still satisfy four primary requirements under §1.168(k)-2 to be considered "qualified property."

1. Qualified Property Type (MACRS, QIP, Software, and More)

Eligible property includes:

• MACRS property with a recovery period of 20 years or less
• Computer software
• Qualified Improvement Property (QIP)
• Qualified sound recording productions (added by the OBBBA, new for 2025/2026)

This expansion makes the property type test more favorable for entertainment, technology, and capital-intensive industries.

2. Acquisition test: Binding contract rules matter

To qualify for the 100% deduction, the property must be acquired after January 19, 2025, based on the written binding contract date. If a binding contract existed before January 20, 2025, the property generally falls under the old 40% bonus depreciation rate, not the new 100% rate.

This distinction is critical for taxpayers evaluating bonus depreciation contract date rules for 2026.

3. Original use or used property requirements

The TCJA rules for original use and used property remain in effect:

Original-use property: The first use must begin with the taxpayer.

Used property: Still qualifies if the taxpayer (or a predecessor) did not previously use it, and it was not acquired from a related party.

4. Placed-in-service test: Why the January 19, 2025, date matters

To qualify for the 100% rate, property must be acquired and placed in service after January 19, 2025.

This rule is especially relevant for taxpayers with fiscal year ends in mid-2025 or early 2026, where assets cross the legislative changeover date.

The 40% bonus depreciation election: A strategic tax planning option

While 100% bonus depreciation is now the default, the OBBBA and Notice 2026-11 preserve the important 40% bonus depreciation election (and 60% for long-production-period property).

Why elect less than 100%?

1. Managing Net Operating Losses (NOLs)

Electing 40% can help businesses avoid creating NOLs limited by the 80% taxable income cap, preserving deductions for potentially higher-tax-rate years.

2. Preventing wasted credits

Some nonrefundable tax credits are lost if taxable income drops to zero. Using the 40% rate gives businesses more precision in aligning deductions and credits.

The election applies to the first taxable year ending after January 19, 2025, and covers all qualified property placed in service during that year.

What 100% bonus depreciation means for 2026 capital planning

With Notice 2026-11 in place, businesses now have clarity as they model 2026 capital spending. Companies with heavy investment in equipment, real estate improvements, or cost segregation studies stand to benefit the most.

The return of full expensing—combined with the new flexibility provided by the 40% election—creates a more stable and planning-friendly environment than taxpayers have seen since the early TCJA years.

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Disclaimer

This article provides a general overview of tax law changes. For advice addressing your specific situation, please consult a qualified tax professional.

Read this article if you are a town, city or county administrator, CFO, controller, finance director, accounting manager, selectman, or councilor at a governmental entity or nonprofit.   

Does every audit feel like a rescue mission? Do you often feel like each year is the same as the last? You’re not alone. Many nonprofit and governmental agencies experience turbulence along the way; no audit is perfect. In this article, we’ll outline a strategic approach to help your audit journey progress to planned readiness. 

Audit rescue mission  

Every mission, whether it's rescue or readiness, starts with a plan. If you’re feeling the heat from what seems like everything being on fire, that’s okay. No amount of ‘doing more’ is going to get you closer to success. The best first step is to stop, pause, and take stock of where you’re at, what you’re working with, and where you’re headed. Look no further than your next audit cycle—whether that means the current audit you’re in, the one that just won’t end, or the one up ahead. 

Step 1: Get a lay of the audit land 

• Rearview perspective: What worked, what didn’t 
• Critical issues: Prior year and recurring findings, internal control deficiencies, issues of non-compliance 
• Operational pitfalls and inefficiencies: Staffing shortages, technical skills gap, lag times from external departments, technology limitations 
• Known obstacles: New standards, new software implementations, turnover in auditors or internal organizational structure

Getting a lay of the land can be a simple first step to alleviate some weight from your back and lighten the mental load, putting you on the path forward. 

Now that you know what you’re working with (and not!), it’s time to put pen to paper. 

Step 2: Make an audit plan 

• Deadlines: Know the end goal you’re working toward. 
• Phases and milestones: Consider time needed for review and revisions, and the availability of resources along the way, include regular checkpoints to keep the momentum going, and adjust as needed. 
• Know your cutoffs and when information is available: Prioritize areas based on when the information will or can be ready to work with. 
• Get the word out: Identify key stakeholders in your plan and inform them of their role and key dates in support of the overall objective. 

Step 3: Get started 

• Don’t wait: Do what you can today. 
• Organize as you go: Set aside copies of source documents as you become aware of them. 
• Address things as they arise: Set up subaccounts for better tracking. 

Every good plan is best executed with a team committed and aligned to success. Next, we’ll discuss how to champion your audit approach and make progress even when the going gets tough. 

Run and refine your audit plan 

Resources and recon, deploying your plan, checklists, technology, and champions—don't be afraid to work with your auditors throughout the year. 

Step 4: Think outside the box 

• Collaborate: Recruit internal and external department team members, organize an audit task force of champions, consider keeping seasonal employees, and create an internship program. 
• Touch base with auditors: Call or meet regularly to keep them informed or ask for guidance. 
• Network with other agencies: Inquire with peer agencies, share resources, and support each other. 
• Connect with member organizations: Join listservs, research sample policies and procedures, and attend local chapter meetings and trainings for additional resources and insights. 
• Leverage technology: Partner with IT to set up custom reports, create templates, set alerts and reminders, explore project management tools, or create calendars. 

Step 5: Simplify for success 

• Break down complex areas into bite-sized tasks: Consider reviewing and maintaining details for capital assets, grants, leases, and SBITA during mid-year or on a quarterly basis. 
• Transition away from annual and manual: Transition from one-time year-end to multi-period reconciliations and adjustments, including budgeted transfers, indirect cost allocations, accruals, and fund balance maintenance and reporting.
• The balance sheet can be your best friend: Expand period-end procedures to include reconciliation and monitoring of all balance sheet accounts, track grant reimbursements through deferred revenue to cut down on time spent reviewing expense and revenue account details, make sure AP and AR tie out every month, and track down payroll liability discrepancies as they occur. 

Shift to audit readiness 

Progress, not perfection, is the mindset to have when preparing your agency for an audit. Having a system in place that catches 90% of the heavy lift during the year sets you up to address the outliers as they surface, with more capacity and ease to adapt under pressure.  

For more tools in your toolbox, here are some additional tips to maintain progress toward a successful audit:

• Beginning balances: Tick and tie the balance sheet to the financial statements both before and after the year has been closed in your accounting system, including reconciling the beginning fund balance. 
• Just another month: Do as much as you can throughout the year so that year-end tasks feel like just another month within your operations. 
• Period 13 and 14: Track year-end financial statement adjustments in period 13 and audit adjustments in period 14 to keep things more organized and report appropriately for budgetary purposes. 
• Government-wide statement tracking: Setting up General Long-term Debt Group (GLTDG) and General Fixed Asset Account Group (GFAAG) funds and accounts to better manage the tracking and reporting of long-range elements of year-end and the financial statements that would otherwise live in a subsidiary module or system. 
• Pooled cash: Rely on pooled cash to ensure transactions and funds are balancing properly. 
• Pre-audit pseudo-internal audit: Set an internal materiality threshold and review for internal control compliance, set revenue and expenditure materiality thresholds at the budget level, and review for inconsistencies throughout the year to get ahead of questions at year-end from the auditor’s analytics.

If you’d like to discuss what working with a consultant could look like for your organization, reach out to our Governmental Accounting team. We’ll walk with you through the process, help ease the burden, and set you up for long-term success. 

Read this article if your role includes hiring or contracting with physicians, dentists, behavioral health clinicians, advanced practice providers, non-patient facing staff, engaging with temporary employment agencies, or conducting exclusion screening. 

In a changing healthcare landscape, ensuring that all members of your organization—from administrative to clinical—meet federal eligibility requirements is imperative. Exclusion screening goes beyond regulatory compliance, protecting against costly penalties. Recent enforcement actions highlight the consequences of noncompliance. This article explores the essentials of exclusion screening, common mistakes, and practical insights to help your organization remain compliant.

What is exclusion screening? 

The US Department of Health & Human Services Office of the Inspector General (OIG) has the authority to exclude individuals and entities from federally funded healthcare programs, such as Medicare, Medicaid, the Children’s Health Insurance Program (CHIP), and TRICARE, for a variety of reasons. No federal healthcare program payment may be made for any items or services furnished by: 

• An excluded person, or 
• At the medical direction or the prescription of an excluded person. 

The exclusion and the payment prohibition continue to apply to an individual even if he or she changes from one healthcare profession to another while excluded.

Exclusion screening: Don’t forget non-clinicians 

This prohibition extends beyond direct patient care. Excluded individuals are also barred from performing administrative or management services that may be reimbursed by federal healthcare programs, even if administrative or management services aren’t billed separately.  

For example, an excluded person cannot hold executive or leadership roles at any healthcare entity that provides items or services covered by federal healthcare programs. Also, excluded individuals cannot provide administrative or management services—including health IT, strategic planning, billing, accounting, staff training, or human resources—unless these activities are entirely unrelated to federal healthcare programs. 

Penalties for employing/contracting with excluded persons or entities 

If a provider or entity arranges or contracts (by employment or otherwise) with a person, contractor, or vendor that the provider or entity knows or should know is excluded, they may be subject to a civil monetary penalty (CMP) liability of up to $10,000 for each item or service furnished by the excluded person for which federal program payment is sought, as well as an assessment of up to three times the amount claimed, and program exclusion. 

CMP liability could result even if the excluded person is a volunteer or does not receive payments from the provider for his or her services (e.g., a non-employed excluded physician who is a member of a hospital’s medical staff; or an excluded healthcare professional who works at a hospital or nursing home as a volunteer). 

For example, if a hospital contracts with a staffing agency for temporary or per diem nurses, the hospital will be subject to overpayment liability if an excluded nurse from that agency furnishes items or services. 

How and when to conduct exclusion screening 

To reduce CMP liability risk, organizations should check the OIG’s online List of Excluded Individuals and Entities (LEIE) before hiring or contracting, and periodically review it for current staff, contractors, and vendors. 

In addition to the LEIE, there are other important exclusion screening databases that should be monitored regularly: 

• The System for Award Management (SAM): Administered by the federal General Services Administration (GSA). The SAM includes debarment actions taken by multiple federal agencies. 
• State Medicaid exclusions: Most states have their own Medicaid exclusion lists and must notify the OIG. Due to possible timing delays, it is important to check state lists, as well as the LEIE and SAM.  

OIG exclusion screening enforcement actions in 2025 

Between January 1 and December 31, 2025, the OIG reported 10 enforcement actions against healthcare organizations that hired or contracted excluded individuals.  

These enforcement actions resulted in a total of $2,500,000 in penalties with 90% of the penalties focused on home healthcare and skilled nursing facilities.

BerryDunn can help 

Do you have questions about your healthcare organization’s exclusion screening policies, procedures, and workflows? If your organization outsources its exclusion screening functions, how do you monitor your contractor’s performance? 

Our healthcare compliance team can help. We incorporate deep, hands-on knowledge with industry best practices to help your organization manage compliance and revenue integrity risks. Learn more about BerryDunn’s healthcare compliance consulting team and services.

Additional healthcare exclusion screening resources: 

• Search the OIG Exclusions Database 
• Special advisory bulletin and guidance on exclusion  
• Applying for reinstatement after exclusion

Read this article if you are an owner/operator, director, administrator, director of nursing or admissions, business office manager, or board member at a Skilled Nursing Facility or a Nursing Facility.

Across the United States, 2025 proved to be a pivotal year for nursing facilities (NFs). Fast-paced changes in the regulatory environment, significant shifts in payer mix, including growth of Medicare Advantage plans, and ongoing financial and workforce challenges, have reshaped the landscape. This article summarizes the most impactful trends and issues facing Skilled Nursing Facilities (SNF) and NFs in 2026, as well as strategies for providers to consider adapting. 

Regulatory changes: The repeal of the CMS staffing mandate 

One of the most significant regulatory developments in 2025 was the repeal of the Centers for Medicare & Medicaid Services (CMS) staffing mandate for SNFs and NFs. This change removes federally mandated minimum staffing levels, which had previously been a point of contention among providers. While the repeal offers facilities more flexibility in managing their workforce, CMS continues to require a minimum of eight hours of RN services per dy, and staffing levels reporting via payroll-based journal (PBJ) and the new CMS Medicare cost reporting form 2540-24. Some states have state-specific staffing requirements that facilities should understand and comply with.

Medicare Advantage expansion and its consequences 

The expansion of Medicare Advantage—often referred to as "Medicare replacement" managed care plans—has continued throughout 2025. CMS emphasizes that these plans are intended to provide greater choice and cost savings for beneficiaries. However, providers are increasingly choosing not to accept certain Medicare Advantage plans. The driving factors include high administrative burden, frequent claim denials, and non-payment rates, which collectively threaten the financial sustainability of providers. Additionally, facilities may experience specific insurance carrier concentration in their area, impacting cash flows, days in accounts receivables, and potential bad debts.

Anticipated Medicaid cuts and financial pressures

Nursing facilities (NFs) are bracing for anticipated Medicaid cuts associated with implementation of the OBBBA, including shorter periods of retroactive coverage. These changes are expected to present substantial financial challenges for facilities, as Medicaid remains a major payer for long-term care services. 

Ongoing financial pressures, stemming from labor and supply costs, delays and denials of Medicare Advantage reimbursement, and continuing occupancy struggles, contributed to facility closures and notable bankruptcies, such as the contested Genesis Healthcare case. 

Growth in REITs, related parties, and ownership transparency 

The influence of Real Estate Investment Trusts (REITs) in the nursing facility sector has grown considerably. By late 2023, approximately 9–10% of US nursing homes were owned by REITs, with major players including Omega Healthcare, CareTrust REIT, Sabra Health Care REIT, Welltower, Healthpeak Properties, and Ventas. These companies own hundreds of facilities nationwide, often through joint ventures with nursing home operators.

The industry is experiencing significant shifts in facility ownership and how facilities operate. CMS noted an increase in related party transactions. In response, CMS is taking steps to increase transparency around SNF and NF ownership structures and their associated quality of care. The provider community questioned how meaningful the program was. The expanded reporting requirement presented a significant administrative burden for providers as many could not complete recertification through PECOS or paper-based forms with multiple technical difficulties and lack of Medicare Administrative Contractors’ education or assistance. In December, CMS indefinitely suspended mandatory SNF recertifications that originally were due by January 1, 2026. While the due date is on hold, CMS did not remove its requirement for reporting of related parties (those with common ownership of 5% or more). 

Occupancy rates and challenges to Medicare-covered short stays 

Nation-wide, SNF/NF occupancy continues to increase. Between 2020 and 2025, 503 facilities were closed, resulting in a loss of 57,987 beds.

Several factors continue to threaten SNFs’ ability to admit short-stay or rehabilitation patients, which have traditionally been covered by Medicare—a preferred payer due to strong PDPM reimbursement rates and providers’ ability to master PDPM patient need documentation. The SNF Medicare benefit requires a minimum three-midnight inpatient hospital stay. However, ongoing hospital capacity issues, prior authorization requirements under Medicare Advantage, and CMS’s expansion of the outpatient list of procedures are reducing the flow of eligible admissions. Industry associations, including AHCA and LeadingAge, are advocating for the removal of the three-midnight requirement to help sustain SNF census. 

SNF PBJ and new CMS audits: VBP/QRP data validation 

Retrospective PBJ audits impact facilities’ CMS Star Ratings for staffing and turnover measures. By the second quarter of 2025, about 4.3% of facilities nationwide were unable to properly support PBJ submissions or had missed submissions, resulting in suppressed data reporting.

New CMS Value-Based Purchasing (VBP) and Quality Reporting Program (QRP) data audits are expected to start in January 2026. Healthcare Management Solutions, LLC (HMS) will perform audits of up to 1,500 randomly selected SNFs, or about 10% of certified providers. Each provider will have to provide medical records in PDF format (electronically via a link to a portal) for up to 10 Minimum Data Set (MDS) assessments. Facilities will be notified via Internet Quality Improvement and Evaluation System (iQIES) of the selection and will have five business days to respond to a point-of-contact (POC) request, and 45 calendar days from notification to provide the requested records. Non-response or non-compliance may result in a 2% reduction of the facility’s Medicare annual payment update.  

Workforce and labor cost pressures 

Despite improving gradually, workforce shortages remain a persistent challenge for SNFs and NFs nationwide. While some markets have seen a decrease in reliance on agency labor, rising labor costs continue to impact the bottom line. In response, CMS requires greater transparency into outsourced labor arrangements. The new Medicare cost report form (CMS 2540-24) now mandates disclosures of labor costs and the related hours worked for all outsourced facility labor, aiming to shine a light on staffing practices.

Recommendations for SNFs/NFs in 2026 

Adapting to the industry trends in 2026 will require proactive advocacy and operational flexibility. Some suggestions for SNFs and NFs to consider going into 2026: 

1. Reevaluate your facility’s payer mix, occupancy, and current reimbursement rates to adjust budgets as necessary. 
2. Evaluate MDS nurses’ education needs as they relate to state Medicaid reimbursement drivers. Many states have been implementing a subset of PDPM methodology to use for Case Mix Index (CMI) or patient needs complexity adjustment. State-specific methodologies may vary significantly from Medicare PDPM. Mastering your state-specific MDS process may contribute to a stronger bottom line. 
3. Reevaluate your facility’s staffing plan. While the staffing mandate has been repealed, many states have their state-specific staffing requirements. Facilities are required to staff according to patient needs, so tracking of CMI, occupancy, and understanding your state nursing facility licensing rules is key.  
4. Review your regulatory compliance checklist—from annual facility assessment, to PBJ, MDS, and various CMS and CDC quality reporting needs, maintain access to the iQIES portal, regularly review communications, and verify submission acceptance to report to QAPI. 
5. Review the MDS 3.0 Provider Preview Reports folder in the iQIES portal at least weekly for potential notifications of upcoming SNF VBP and QRP FY25 data validation audit. Remember that facilities have five business days to respond to the main and secondary POC requests. Prepare your medical records team to respond to the medical records request within 45 days, allowing quality assurance review time prior to submission, to prevent loss of up to 2% of Medicare revenue.  
6. Verify that at least two persons in the organization maintain access to CMS, Medicare Administrative Contractor (MAC), state Medicaid, and other portals to help ensure access to remittance advice documents, claims submission review, claim appeals, claim review requests, and other reporting. Remember that MACs and some state Medicaid agencies will suspend payments to a facility if the cost reports are not filed timely and with sufficient support. 
7. If your facility is enrolled in Medicaid, consider upskilling social workers and the revenue cycle team’s assistance with Medicaid application approval process. With the anticipated decrease in “retro eligibility,” this area of operations presents an impactful opportunity.  
8. If your facility accepts patients with Medicare Advantage plans, update plan information, such as pre-authorization, case management, and progress updates requirements, as well as in- and out-of-network copays transferred to patients. Make sure that patient rehab goals are realistic and patient-specific to help prevent denial of services or notices of Medicare non-coverage (NOMNC). Review progress notes and consider adjusting goals based on the patient’s status. CMS has implemented Health Plan Management System (HPMS) Complaints Tracking Module Updates for managing provider complaints, which you can access here. 

BerryDunn can help

For nursing facilities seeking to improve financial operations, BerryDunn’s industry experts can assist with operations and revenue cycle assessment, process optimization, and benchmarking by analyzing data on a wide variety of quality, operational, and financial performance indicators to guide you to better understand how your cost and revenue drivers can lead to outcomes. Learn how to access our self-service Senior Living Benchmarking Portal for a carefully curated, comprehensive set of financial benchmarking reports. Learn more about our Senior Living consulting team and services. 

Read this if you are a CEO, CFO, COO, Controller, Financial Analyst, or in a leadership position at a Critical Access Hospital. 

For many Critical Access Hospitals (CAHs), year-end Medicare settlements can be unpredictable—sometimes exceeding expectations, sometimes leaving an unexpected shortfall. These surprises often stem from a lack of proactive reimbursement modeling, and they can have real consequences for cash flow, operations, and long-term planning. The good news is that with the right tools and strategies, CAHs can anticipate settlements, make informed decisions, and strengthen their long-term sustainability. 

Why Medicare settlement surprises happen 

One of the most common pitfalls we see is failing to evaluate how operational decisions affect cost-based reimbursement. Not all costs are reimbursable, and even reimbursable costs do not influence Medicare reimbursement equally. For example, investing in a building renovation, such as modernizing patient rooms or repurposing space for nonclinical functions, may increase depreciation, interest, and allocated overhead costs. However, if the renovated space supports non-reimbursable activities or shifts square footage away from patient care cost centers, the investment may result in little to no increase in Medicare reimbursement despite its operational and community value. Without modeling these impacts in advance, well-intended decisions can unknowingly dilute cost-based reimbursement. 

Another frequent issue is not estimating Medicare settlements regularly throughout the year. Without timely estimates, hospitals lack visibility into expected reimbursement and are effectively operating without actionable insight until the year-end cost report is prepared. Once that point is reached, opportunities to adjust operations or proactively manage cash flow have largely passed. As a result, CAHs may overlook opportunities to request interim rate adjustments during the year, an important mechanism for improving cash flow and better aligning reimbursement with current cost structures. This is particularly impactful for Medicare Advantage plans, which typically reimburse based on interim rates and do not reconcile to actual costs, magnifying the financial consequences of outdated or inaccurate rates. 

Developing a proactive reimbursement strategy 

To reduce financial risk and strengthen financial management, CAHs should adopt a strategy that combines regular modeling of Medicare reimbursement, proactive planning, and team-wide education. 

We recommend implementing a Medicare reimbursement model that can be updated monthly, or at least quarterly. The model can help track trends, anticipate settlements, and inform operational decisions. Importantly, it should be flexible enough to account for changes throughout the year and provide insight into when a hospital should request an interim rate adjustment. 

Hospitals should model the reimbursement impact before making any major operational changes. Whether it’s launching a new service line, expanding square footage, or adjusting staffing levels, modeling can help clarify whether those changes will improve, reduce, or have little effect on Medicare reimbursement. 

In addition to operational planning, reimbursement modeling should be fully integrated into capital planning and long-term strategic investment decisions. Many CAHs pursue facility expansions, technology upgrades, or new clinical services without fully evaluating how those investments will affect Medicare cost-based reimbursement. By modeling reimbursement impacts and incorporating them into ROI analyses, leadership can make more informed, data-driven decisions, prioritizing projects that advance the hospital’s mission while also strengthening margin and supporting long-term financial sustainability. 

To fully realize the benefits of proactive reimbursement modeling, it’s essential that hospital leadership and finance staff understand the fundamentals of Medicare cost-based reimbursement, including how costs flow through the cost report and ultimately impact settlement. Knowledge at all levels ensures operational and strategic decisions are aligned with reimbursement realities. 

Options for estimating Medicare settlements 

There are two primary methods that CAHs can use to estimate their Medicare cost-based reimbursement throughout the year: preparing an interim cost report or using a reimbursement model. 

Preparing an interim cost report mirrors the actual Medicare cost report process and provides a detailed, accurate picture of expected reimbursement. This approach can be time-intensive for finance teams and, as such, these reports are often only prepared once toward the end of the fiscal year, limiting their usefulness for real-time decision-making. However, it is often the best choice when a hospital has experienced significant operational changes, particularly those affecting overhead allocations such as expanding into new space or launching a new service line.   

Using a reimbursement model offers more flexibility and can provide regular insights throughout the year. Hospitals can choose from different levels of complexity depending on their needs: 

• A step-down model closely replicates the cost report by using detailed statistics and overhead allocations. This type of model is best suited for quarterly updates as it can be relatively burdensome. If revisions to overhead allocation details are needed, some hospitals instead opt to complete an interim cost report. 
• A high-level relational model estimates reimbursement based on prior year cost report data, adjusted for high-level changes in revenue and expenses. This model is simple to use and ideal for monthly updates, though it may be less precise. If a hospital has experienced significant operational changes, this type of model may not be the right fit. 
• A departmental model strikes the right balance for many hospitals. It applies current revenue and expense data at the department level to capture service mix changes and departmental cost-to-charge ratios, while using consistent reclassifications, adjustments, and overhead allocation ratios from the previous cost report. This model can be updated monthly or quarterly and tends to offer greater accuracy without becoming overly burdensome.  

While a model provides critical visibility throughout the year, it’s important to recognize that if substantial operational changes occur, an interim cost report may still be necessary to reflect those changes accurately in your estimates. 

Turning insights into action 

Ultimately, the most successful CAHs treat Medicare settlement estimation as a year-round activity—not a once-a-year event. By proactively estimating cost-based reimbursement, you can avoid cash flow surprises, justify interim rate changes, and better align operational and strategic decisions with reimbursement outcomes. 

Whether you’re building a model for the first time or looking to refine your current process, BerryDunn can help you choose the right approach for your hospital, design and customize a model to your needs, train your finance and leadership teams, and support your financial planning throughout the year. Learn more about our team and services.