Rebates on Cost Reports
Rebates on cost reports
W/P: Page:
Location: Auditor:
Audit Module:
Budget Hours:
Actual Hours: Signature:
Objective: To review cost reports for correct rebate information.
Background: As you begin your cost report audit, keep in mind that the preparer of your organization’s cost report should, in accordance with the Medicare regulations:
§ report rebates, refunds, and discounts as a reduction to cost
§ if possible, accrue rebates, refunds, and discounts in the applicable accounting period
§ if accruing is not possible, treat rebates, refunds, and discounts as a reduction to like cost in the next accounting period
§ ,develop an equitable allocation of the offset (where a number of cost centers are involved)
§ be aware that offsets are only made up to the total amount of expenses in the applicable cost center
Date / W/P Ref1. Review regulations for rebates, refunds, and discounts. You’ll find applicable regulations here:
§ 42 CFR 413.98
§ PRM 802 and 804
2. Interview your hospital’s purchasing director.
§ Identify contracts in which discounts, rebates, and refunds are sent to the provider after the purchase has occurred. (Anything else should be reflected in the net purchase cost, and would not need to be separately offset.)
§ Determine where (which general-ledger accounts) the checks from the vendors/group purchasing plans are posted. If the checks are posted to the applicable expense account, no further audit work should be necessary.
3. If the checks are posted to an income account, review the cost report workpapers and cost report.
Answer the following questions:
§ Does the cost report preparer have workpapers that show the treatment of all other and nonoperating revenue?
§ If so, are the accounts where the rebate checks are deposited indicated as being offset to expenses on the Worksheet A-8?
§ Trace Worksheet A-8 to the cost report worksheet. Can you find offsets (reductions) on the Worksheet A-8? If not, post the offsets to the cost report A8 worksheet.
§ Is the offset applied to the cost center where the purchase originally occurred? Check Worksheet A expense mapping to verify this. Lines 6 and 7 of Worksheet A-8 are typically used for this; however, other lines may be used when several cost centers are offset.
4. Your provider may participate in a group-purchasing plan that invoices fees net of credit or rebates. If fees are net, then they are being netted against expenses. If material, the rebates should be redistributed to the appropriate cost report cost center.
Source: Steven J. Frankenbach, a senior manager in the healthcare regulatory group of Deloitte & Touche, LLP’s New York City office.