In the February 5, 2026, MLN Connects newsletter, the Centers for Medicare & Medicaid Services (CMS) announced updates to the Skilled Nursing Facility Billing Reference that add guidance on the appropriate methods for skilled nursing facilities (SNFs) to determine and report allowable related party costs on Medicare cost reports.
CMS states that all providers must accurately report all related party relationships and costs on their Medicare cost reports, as required by Medicare regulations and the Provider Reimbursement Manual. Related party costs must reflect the actual cost incurred by the related organization, rather than the amount charged to the provider. Medicare pays the lower of the supplier’s cost or the market price, and related party costs may not exceed the price of comparable services, facilities, or supplies available from unrelated entities.
The updated guidance emphasizes that accurate reporting of related party costs is necessary to prevent profit payments to providers. CMS explains that Medicare cost report data directly impacts Medicare payment rates, policy decisions, and the financial stability of the healthcare system, making complete and accurate reporting essential.
CMS also reminds SNFs that they must maintain documentation to support related party costs reported on Medicare cost reports. Required documentation includes detailed identification of the related organization’s total costs, the allocation basis for direct and indirect costs assigned to the provider, and information regarding other entities served by the related organization.
CMS notes that the guidance update follows findings from a December 2024 Office of Inspector General (OIG) report identifying instances in which SNFs did not report related party relationships or reported related party costs inaccurately, despite existing Medicare requirements.
Compliance Perspective
Issue
Accurate reporting of related party costs is a long-standing Medicare requirement and remains an important area of compliance focus for skilled nursing facilities. Providers must ensure that related party relationships and costs are properly identified, reported at actual cost, and supported by appropriate documentation. Failure to do so may result in inaccurate cost reporting and potential payment concerns. Facilities should take proactive steps to review internal processes and maintain oversight of related party cost reporting to support ongoing compliance.
Discussion Points
- Review and update policies and procedures related to identifying, reporting, and documenting related party costs to ensure alignment with current Medicare requirements. Policies should clearly address how related party relationships are identified, how allowable costs are determined, and how supporting documentation is maintained. Facilities may consider working with a consultant to review existing policies, validate reporting methodologies, and ensure internal processes are structured to support accurate and compliant cost reporting.
- Provide education to staff responsible for cost reporting to reinforce the importance of accurately reporting related party costs and maintaining required documentation. Training should focus on identifying related party relationships, understanding allowable cost principles, and ensuring consistency between supporting documentation and reported data.
- Conduct periodic audits or internal reviews of related party cost reporting to verify accuracy, completeness, and compliance with Medicare requirements. Audits should include a review of reported costs, supporting documentation, and allocation methodologies. Facilities may find it beneficial to engage external expertise for focused reviews or mock audits to identify potential gaps, validate practices, and address issues proactively before they result in regulatory or payment concerns.
*This news alert has been prepared by Med-Net Concepts, Inc. for informational purposes only and is not intended to provide legal advice.*