What is an A-8 Adjustment?

General Purpose

The general purpose behind an A-8 adjustment is to remove non-allowable expenses from the cost report that Medicare does not pay. 

Medicare does not pay for expenses that:

  • Do not relate to patient care, either directly or indirectly
  • Relate to services not covered by Medicare
  • Relate to services covered by another part of Medicare (e.g., Part B physicians, Part D drugs)
  • Are considered excessive, unreasonable, or not customary

Examples of Medicare Non-Allowable Expenses

  • Advertising (not related to recruiting)
  • Dental services (except FQHC-related)
  • Employee Travel (not related to hospital business or outside the country)
  • Executive Fringe Benefits
  • Fines and Penalties (imposed by Federal, State, or local governments)
  • Gifts and Donations (given to other organizations)
  • Lobbying Expenses
  • Overfunding of Pension Expense
  • Patient Convenience or Luxury Items
  • Patient Telephones and Televisions
  • Private Duty Personnel
  • Professional Receivable Billing Costs
  • Provider Tax Assessment Costs (up to the level of provider tax revenue received)
  • Room and Bed Reservation Costs
  • Self-funded Health Insurance Exceeding Costs
  • Unsuccessful Beneficiary Appeals
  • Interest/Investment Income (up to the level of Interest Expense)
  • Rental Income
  • Parking lot/garage revenue
  • Refunds and rebates (if booked as revenue)
  • Cafeteria and vending revenue
  • Revenue from the sale of medical records, x-ray silver, scrap, etc.
  • Revenue from the sale of medical supplies or drugs to other than patients
  • Education income from tuition, fees, or books (e.g., nursing school or allied health education)
  • Any other non-patient care related revenue
  • EXCEPTION: Do not offset gain/loss on sale of assets on or after 12/01/1997

Set up NRCC vs. Offset Expense

  • If an entire department is non‐allowable, then map it to a non‐reimbursable cost center (NRCC).
  • Using an NRCC allows for the allocation of hospital overhead to these departments.
  • Examples of NRCCs: Gift shops, medical office buildings, real estate held for purposes other than patient care, research, outpatient retail pharmacy, daycare or health club (the portion not related to employee usage), marketing (if an entire department is devoted to marketing function).
  • Do not offset expenses or revenues from NRCCs.
  • If only selected expenses are non‐allowable, then offset the specific amounts on W/S A‐8.

Compare with B-1 Statistics

  • Review adjustments to ensure that the offset isn’t duplicating a Worksheet B-1 step-down allocation to an NRCC

Basis Codes

  • A = adjustment based on costs
  • B = adjustment based on revenue/income, when costs can’t be determined


  • Try to use standard lines where possible
  • Unlimited expansion and subscripting of Lines 33 to 49


Almost all adjustments are negative amounts to remove non-allowable items. Therefore, very rarely should expense be added.

Examples of when expenses can be added:

  • Prior year audit adjustments
  • Disallowed amounts from the prior year that was allowed to be amortized over several years and added back to costs in future years
  • Depreciation or useful life adjustments that require an adjustment of depreciation
  • Transfer costs of shared services from one hospital to another
  • Goodwill/Start-up costs for a new hospital should be amortized over 60 months
  • Certain items that may have been understated (e.g., bond interest/issuance expense)


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