CMS Cost Report Preparation Requirements for Skilled Nursing Facilities

CMS-2540-24 is the new Medicare cost report form for skilled nursing facilities, replacing a version that sat untouched for fifteen years. Every Medicare-certified SNF has to file this report annually with its Medicare Administrative Contractor, and the new form changes what gets tracked, how granular that tracking has to be, and when facilities need their systems ready to produce it. This piece walks through what changed, who it hits first, and what has to happen at the facility level before anyone files under the new rules, because the honest answer for most SNFs right now is: not enough, not yet.

The cost report is not side paperwork. It captures bed counts, patient days by payer, operating expenses across nursing, dietary, housekeeping, and therapy, administrative and capital overhead, and revenue from every payer source. CMS stores all of it in the Healthcare Provider Cost Reporting Information System (HCRIS), and that data feeds Medicare settlement, future rate-setting, claims audits, and the financial picture lenders and owners use to size up a facility. Get the tracking wrong at the ground level, and the damage does not stop at one bad filing. It understates real costs and quietly degrades the data CMS uses to set payment policy for the entire sector down the road.

Why CMS overhauled the form after 15 years

The old form, CMS-2540-10, was built for a nursing home sector that barely resembles today's. Employed staff did most of the work back then, and residents were overwhelmingly in traditional fee-for-service Medicare or Medicaid. Neither holds anymore. Contract and agency staffing is now a fixture of daily operations at a huge share of facilities, and enrollment has swung hard toward Medicare Advantage and Medicaid managed care. The old form had no real way to see any of that, because it was never built to ask those questions.

So what is CMS actually trying to learn? The redesign pulls in data meant to sharpen rate-setting, refine how the SNF Market Basket gets modeled, and lay groundwork for an SNF wage index down the line. It also gives CMS a cleaner way to calculate program margins and brief lawmakers. CMS has described the new form as a step toward reporting transparent enough to eventually feed that wage index calculation. The numbers a facility reports this year could shape how it gets paid years from now. That is not a small stake, and facilities that treat this as routine paperwork are misreading what is actually being built here.

CMS projects a net-zero administrative burden from the change. That estimate deserves skepticism. Practitioners who work closely with SNF cost reporting expect a real learning curve, especially at facilities whose internal books were built around the old form's simpler bucket categories. The allowability standards for what counts as a reimbursable cost have not changed. What changed is how much granularity, structure, and detail CMS now expects in how those costs get reported, and that distinction is where most of the coming friction lives.

Which facilities are affected and when the new form takes effect

CMS-2540-24 applies to every cost reporting period ending on or after September 30, 2025. There is no option to keep filing the old form once a facility's period crosses that date. A facility with a September 30 fiscal year-end starts using the new form immediately, for the period ending September 30, 2025. A calendar-year facility uses the new form for the period ending December 31, 2025. Anything ending before September 30, 2025 still runs on CMS-2540-10.

CMS's own HCRIS tracking table backs this up: as of the most recent update, CMS-2540-24 data spans fiscal years 2024 through 2026, while CMS-2540-10 data runs through 2025. Both forms are live in the system right now. That overlap is worth sitting with for a second, because it means the transition is not some future event on a calendar. It is already underway, mid-stream, with two forms running side by side.

The actual instructions sit in Chapter 49 of the Provider Reimbursement Manual, Part 2, Transmittal 1. That chapter replaces the CMS-2540-10 instructions SNFs have leaned on for over a decade, so anyone still working off old guidance documents needs to update their reference materials now.

Filing mechanics stay mostly familiar. Reports are due electronically to the MAC by the last day of the fifth month after the reporting period closes, through the MCReF portal, though mailing or hand delivery to the MAC remains an option. CMS built in some breathing room for the first cycle: facilities with reporting periods ending anywhere from March 1 through December 31, 2025 get sixty extra days to file. That is a real cushion, and facilities still rebuilding internal tracking mid-year should use every day of it rather than treating it as slack to absorb elsewhere.

State Medicaid programs are riding along with this shift too. One state, for instance, requires nursing facilities with a 2025 fiscal year-end on or after September 30 to use updated supplemental schedules alongside the federal CMS 2540 forms. The federal change does not stay contained to Medicare paperwork. It cascades into state-level reporting requirements too, and facilities elsewhere should check whether their own Medicaid agencies have issued matching updates rather than assuming this is a federal-only problem.

The new cost centers on Worksheet A and their tracking requirements

Worksheet A is where costs get reclassified and adjusted, and this is where the new form adds the most operational weight. Several cost centers that used to sit buried inside general or ancillary lines now get their own dedicated reporting slot.

Training and In-Service Education is one, covering labor and other costs tied to required in-services and the Nurse Aide Training and Competency Evaluation Program (NATCEP). Patient Transportation for Part A gets its own line too, covering transportation costs under Part A that fall on the SNF's shoulders. IV Therapy separates out from general drug and supply costs, covering the administration of IV fluids, drugs, or blood products. IV Solutions splits out further still, isolating colloid and crystalloid solution costs from everything else. Preventative Vaccines captures the cost of pneumococcal, influenza, and COVID-19 vaccines given for prevention (not treatment), along with monoclonal antibody products used to treat COVID-19. Medical supplies used to administer those vaccines get reported elsewhere, so facilities need to watch for double-counting there.

Contract labor is the single most demanding change on this worksheet, and facilities that underestimate it will face serious consequences at filing time. It now gets its own separate column, covering not just contract labor in direct care positions but any contract labor from vendors or individuals who get a 1099. Hours are only required for direct care positions, but facilities with Home Office or Central Office direct care contract labor costs have to break those out by position on Worksheet S-3, Part V.

Consider what that actually demands from a payroll system. If a facility's accounting software dumps every agency invoice into one lump "contract services" line, there is no way to reverse-engineer position-level detail after the fact. That fix has to happen during the fiscal year, transaction by transaction, not in a scramble before the filing deadline. Facilities that wait are not filing late so much as filing wrong.

Not every change on Worksheet A adds complexity. Some cost centers got simplified or folded together, which only confirms where CMS's real interest sits: staffing structure and payer mix, not the smaller categories that got consolidated away.

Expanded payer-level revenue and census reporting on Worksheets S-3 and G-2

Under the old form, census and admission data on Worksheet S-3, Part I used three payer buckets: Medicare, Medicaid, and Other Payors. That breakdown suited a fee-for-service-dominated sector. It does not suit the sector as it exists now, so the new form expands those three categories into five: Medicare Fee-for-Service, Medicare Advantage/HMO, Medicaid Fee-for-Service, Medicaid HMO, and Other Payors.

Worksheet G-2, the Statement of Patient Revenues and Operating Expenses, follows the same logic. Gross patient revenue now breaks out across those same five payer groups, and on top of that, it separates Inpatient from Outpatient revenue. Two layers of segmentation stacked on top of each other, where before there was one.

What does that mean day to day? Facilities need to track ancillary expenses tied to Medicare Advantage or HMO stays separately from traditional Medicare expenses in the general ledger, all year long, not just at filing time. Waiting until the cost report is due to sort that out means combing back through a year of transactions guessing which payer category each one belongs to, and an accurate cost report cannot survive that guessing.

Worksheet S-2 now also asks for CLIA certification information from facilities that run a laboratory approved under a federal health program with its own CLIA number, or that hold a CLIA certificate of waiver under 42 CFR 493.

Putting all of this together shows a pattern in the data. Facilities whose books already separate cost, revenue, and census data by payer and by service line will sail through this transition. Facilities that do not are staring down a reconstruction project, sorting a year's worth of transactions into categories that did not exist when the transactions were recorded. None of this is arbitrary: the five-payer expansion aligns directly with the managed-care shift that motivated the whole redesign, and these worksheets are now the primary lens CMS has for watching how Medicare Advantage and Medicaid managed care are reshaping SNF economics.

Related-party cost reporting: an area of persistent compliance risk the new form does not relax

Related-party transactions have long been one of the most closely watched areas in SNF cost reporting, and nothing about the new form eases that scrutiny, despite what the added structure elsewhere might suggest. This is common territory: an SNF leaning on an affiliated management company, a real estate holding firm under common ownership, or a staffing agency owned by the same parent entity. Medicare's rule here is straightforward in principle: reported related-party costs have to be the lower of actual cost to the related organization or the market price for comparable services. The rule exists to strip out any incentive to book a profit margin through a related entity instead of reporting the true underlying cost.

Enforcement has had a gap, though, and it is a significant one. Oversight reviews have found gaps in how Medicare Administrative Contractors review the disclosure and reporting of related parties during desk reviews and audits of SNF cost reports. That means facilities cannot assume a MAC review will catch an error in how related-party costs got reported. The weight falls back on the facility to get it right at the source, and getting it wrong runs from inflated Medicare reimbursements to audit findings to outright repayment demands.

CMS has agreed to develop clearer guidance for SNFs on determining allowable related-party costs, and to re-educate MACs on how to review, grant, and document exception requests under 42 CFR § 413.17(d). That guidance is coming. It is not a substitute for a facility's own documentation discipline in the meantime, and any facility waiting on CMS to close this gap before tightening its own records is making a bet it is likely to lose.

The new form raises the stakes on this specific risk regardless of intent. The added granularity around contract labor and staffing costs makes related-party staffing arrangements far more visible than they were under the old form's lump-sum reporting. A facility that routes staffing through an affiliated agency now has to show that detail in a way it never had to before. That documentation needs to be airtight before the first CMS-2540-24 filing, not shored up after a MAC flags it.

State programs are already leaning into this rigor. One state Medicaid program requires related organizations not subject to CMS 287 requirements to complete Worksheet A-8-1 following Medicare cost reporting principles, and it actively audits and requests supplemental information to confirm that only actual cost, not profit, gets reported. That is a preview of the scrutiny facilities elsewhere should expect once this granularity becomes standard rather than the exception.

The new CMS validation audit program and its relationship to cost report accuracy

Cost report reform is not happening in a vacuum. CMS announced a new SNF validation program targeting the accuracy of Minimum Data Set quality measures, with implementation beginning in 2026. The program targets something adjacent to the cost report: the accuracy of Minimum Data Set (MDS) quality measures used in the SNF Quality Reporting Program and the SNF Value-Based Purchasing Program.

The cost report itself is not under review here, but the timing and the underlying logic connect directly to everything above. A substantial number of SNFs could be randomly selected for review each year. Facilities that get selected find out through the iQIES Provider Preview Report, and once notified, they have a limited window to retrieve and submit whatever documentation gets requested. That is not much runway if the underlying records are not already organized, and time spent hunting for source documents is time a facility does not get back.

The practical response looks specific rather than aspirational: someone on staff actually monitoring the iQIES Provider Preview Report so a notification does not sit unread, a defined process for pulling documentation inside that window, and MDS assessments cross-checked against the clinical documentation supposed to back them up.

The timing does not look like coincidence when viewed from a distance. The move to CMS-2540-24 lands at the same moment as a more data-hungry regulatory environment across MDS, the Quality Reporting Program, and Value-Based Purchasing, and multiple oversight systems are now drawing from the same well of documentation. Errors or gaps in a facility's underlying records can ripple across MDS, Quality Reporting Program, and Value-Based Purchasing outcomes at once, not just one of them. On the payment side, CMS finalized a 3.2% update to SNF PPS rates for FY 2026, a $1.16 billion increase over FY 2025 payments, under the final rule issued July 31, 2025. When the payment stakes run that large, inaccurate cost and quality data feeding those calculations creates a financial risk, not just a paperwork problem.

Preparing records and systems before filing

Contract labor sits at the top of the list, and it is not close. Facilities need to look at how they currently record it and rebuild the tracking so costs and hours get captured by position and cost center as they happen, not reconstructed after the fiscal year closes. Retrofitting that detail from a stack of agency invoices months after the fact is a losing proposition, full stop.

From there, it comes down to the general ledger and the chart of accounts. Facilities need discrete accounts or cost center codes for each new Worksheet A category: Training and In-Service Education, Patient Transportation for Part A, IV Therapy, IV Solutions, and Preventative Vaccines. Ancillary revenue and expenses need to split out by payer, matching the five categories now used on Worksheets S-3 Part I and G-2: Medicare Fee-for-Service, Medicare Advantage/HMO, Medicaid Fee-for-Service, Medicaid HMO, and Other. Building that segmentation into the books now means the worksheets populate themselves at filing time instead of triggering a reconstruction project in April.

Payroll and staffing systems need their own pass too. Agency and contract staffing invoices have to be distinguishable from employed wages across every cost center. 1099 vendor payments need capture at the position or function level, and direct care contract labor hours need recording by position so Worksheet S-3 Part V can be filled out without guesswork.

None of this is complicated in concept. It is tedious, granular, unglamorous work: sorting invoices, tagging accounts, splitting payer categories that used to sit together in one line. But that is exactly the kind of work this form is built to reward or punish, and there is no third option where a facility skips the groundwork and still files clean. Facilities that treat this as a systems problem, solved months before the deadline, will find CMS-2540-24 a straightforward exercise in transcription. Facilities that treat it as a form to fill out in April will find themselves reconstructing a year's worth of transactions from memory and invoice folders, and that is no way to file an accurate Medicare cost report.