Financial Compliance and Ethical Decision Making 

Determine the allowable costs for all departments (patient care and non–revenue producing overhead departments). Non–allowable costs (such as gift shop, cafeteria, research, physician private offices, and volunteers) are taken out.

2. Allocate the allowable costs of overhead departments in a step–down fashion to patient care departments and non–allowable departments. One of the outputs of this process is the ratio of cost to charges, a rough proxy for a cost accounting system.

3. Determine Medicare’s share of fully allowable costs based on payer mix (Medicare share of
patient days).

4. Determine net settlement to/from Medicare by subtracting reimbursable costs from the interim
payments.