Alabama Administrative Code
Title 560 - ALABAMA MEDICAID AGENCY
Chapter 560-X-42 - ICF/MR REIMBURSEMENT
Section 560-X-42-.13 - Return On Equity Capital
Current through Register Vol. 42, No. 11, August 30, 2024
(1) An allowance for reasonable return on equity capital invested and used in providing patient care is allowable as an element of the reasonable cost of services rendered by a proprietary provider.
(2) Equity capital is the difference between the net assets and net liabilities of a provider, adjusted for any asset or liability not related to patient care and any other non-allowable item provided for elsewhere in this Chapter.
(3) The amount of Net Working Capital (current assets minus current liabilities) which is includable in the computation of return on equity capital shall not exceed 1/9th of the provider's allowable costs for the fiscal year in issue.
(4) Providers that are members of chain operations must also include in equity capital a proportionate share of the equity capital, whether negative or positive, of the home office and/or directly related organizations. Amounts due to and from members of a chain, the home office, or any related service organization must be eliminated in computing equity capital.
(5) Unless specifically stated otherwise in this Chapter or HIM-15, current assets and current liabilities will be determined in accordance with generally accepted accounting principles. Accounts must be maintained by the accrual method of accounting in compliance with Rule 560-X-42-.21. Accounts not maintained accordingly will result in equity capital not being included in the provider's rate computation until the required documentation of those accounts is provided Medicaid. Examples of assets and liabilities included in the determination of equity capital are as follows:
(6) Assets and liabilities not related to providing resident care are not includable in the provider's equity capital. Examples of excludable assets are as follows:
(7) Accrued Federal and State Income Taxes will be treated as a liability in computing a provider's equity capital.
(8) The portion of debts representing bona fide loans from partners, stockholders, or a related organization which is outstanding during the entire cost reporting period and on which interest payments are not allowable as costs is considered to be invested capital of the provider. By not subtracting it from assets, the equity capital of the provider is increased.
(9) The rate of return on equity capital is a per annum percentage equal to the yearly average of the rates of interest on special issues of public debt obligations issued to the Federal Hospital Insurance Trust Fund. These interest rates are available from the Social Security Administration on a monthly basis, and the average will be computed on a yearly basis for the twelve month period ending on the last day of the relevant cost reporting period.
Author: Susan Mims
Statutory Authority: State Plan; Title XIX, Social Security Act; 42 C.F.R. §§447.250 - .255.