Allowable costs

Covered expenses within a given health plan. Items or elements of an institution’s costs which are reimbursable under a payment formula. Both Medicare and Medicaid reimburse hospitals on the basis of only certain costs. Allowable costs may exclude, for example, luxury travel or marketing. HCFA publishes an extensive list of rules governing these costs and provides software for determining costs. Normally the costs which are not reasonable expenditures, which are unnecessary, which are for the efficient delivery of health services to persons covered under the program in question are not reimbursed. The most common form of cost reimbursement is the “cost report” methodology used for DRG-exempt services, such as many out-patient hospital based programs, long-term care and skilled nursing units, physical rehab, psychiatric and substance abuse inpatient programs. Some specialty hospitals receive all of their HCFA reimbursement as cost based reimbursement.

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