Current through 2024-38, September 18, 2024
17.1 The costs for
the fixed cost component shall be the costs incurred by the facility in the
most recently audited fiscal year. Fixed costs include:
17.1.1 depreciation on buildings, fixed and
movable equipment.
17.1.2
depreciation on land improvements and amortization of leasehold improvements,
17.1.3 real estate and personal
property taxes,
17.1.4 real estate
insurance, including liability and fire insurance,
17.1.5 interest on long term debt,
17.1.6 rental expenses,
17.1.7 amortization of finance
costs,
17.1.8 amortization of
start-up costs and organizational costs,
17.1.9 facility's liability insurance,
including malpractice costs and Workers compensation,
17.1.10 water & sewer fees necessary for
the initial connection to a sewer system/water system,
For a more complete description of allowable costs in
each of these cost centers, see the explanations in Principle
17.2.
17.2
Principle. An appropriate allowance for depreciation on buildings
and equipment is an allowable costs.
17.2.1
Allowance for Depreciation Based on Asset Costs. The depreciation must
be:
17.2.1 Identified and recorded
in the provider's accounting records.
17.2.2 Based on historical cost and prorated
over the estimated useful life of the asset using the straight-line
method.
17.2.3 The total historical
cost of a building constructed or purchased becomes the basis for the
straight-line depreciation method. Component depreciation is not allowed except
on those items listed below with their minimum useful lives:
|
Electric Components |
20 years |
|
Plumbing and Heating Components |
25 years |
|
Central Air Conditioning Unit |
15 years |
|
Elevator |
20 years |
|
Escalator |
20 years |
|
Central Vacuum Cleaning System |
15 years |
|
Generator |
20 years |
17.2.3.1
Any provider using the component depreciation method that has been audited and
accepted for cost reporting purposes prior to July 1, 2018, will be allowed to
continue using this depreciation mechanism.
17.2.3.2 Where an asset that has been used or
depreciated under the program is donated to a provider, or where a provider
acquires such assets through testate or in testate distribution, (e.g., a widow
inherits a PTRF upon the death of her husband and becomes a newly certified
provider;) the basis of depreciation for the asset is the lesser of the fair
market value, or the net book value of the asset in the hands of the owner last
participating in the program. The basis of depreciation shall be determined as
of the date of donation or the date of death, whichever is
applicable.
17.2.3.3 Special
Reimbursement Provisions for Energy Efficient Improvements
(1) For the Energy Efficient Improvements
listed below which are made to existing facilities, depreciation will be
allowed based on a useful life equal to the higher of the term of the loan
received (only if the acquisition is financed) or the period by the limitations
listed below:
CAPITAL EXPENDITURE
Up to $5,000.00 - Minimum depreciable period three (3)
years
From $5,001.00-$10,000.00 - Minimum depreciable period
five (5) years
$10,000.00 and over - Minimum depreciable period seven
(7) years
(2) The above
limitations are minima and if a loan is obtained for a period of time in excess
of these minima the depreciable period becomes the length of the loan, provided
that in no case shall the depreciable period exceed the useful life as spelled
out in the American Hospital Association's "Estimated Useful Lives of
Depreciable Hospital Assets".
(3)
If the total expenditures exceeds $25,000.00, then prior approval for such an
expenditure must be received in writing from the Department. A request for
prior approval will be evaluated by the Department on the basis of whether such
a large expenditure would decrease the actual energy costs to such an extent as
render this expenditure reasonable. The age and condition of the facility
requesting approval will also be considered in determining whether or not such
an expenditure would be approvable.
(4) The reasonable Energy Efficient
Improvements are listed below:
1. Insulation
(fiberglass, cellulose, etc.)
2.
Energy Efficient Windows or Doors for the outside of the facility, including
insulating shades and shutters.
3.
Caulking or Weather stripping for windows or doors for the outside of the
facility.
4. Fans specially
designed for circulation of heat inside the building.
5. Wood and Coal burning furnaces or boilers
(not fireplaces).
6. Furnace
Replacement burners that reduce the amount of fuel used.
7. Enetrol or other devices connected to
furnaces to control heat usage.
8.
A Device or Capital Expenditures for modifying an existing furnace that reduces
the consumption of fuel.
9. Solar
active systems for water and space heating.
10. Retrofitting structures for the purpose
of creating or enhancing passive solar gain, if prior approved by the
Department regardless of amount of expenditure. A request for prior approval
will be evaluated by the Department on the basis of whether energy costs would
be decreased to such an extent as to render the expenditure reasonable. The age
and condition of the facility requesting approval will be also
considered.
11. Any other energy
saving devices that might qualify as Energy Efficient other than those listed
above must be prior approved by the Department for this Special Reimbursement
provision. The Department will evaluate a request for prior approval under
recommendations from the Division of Energy Programs on what other items will
qualify as an energy efficient device and that the energy savings device is a
reliable product and the device would decrease the energy costs of the facility
making the expenditure reasonable in nature.
(5) In the event of a sale of the facility
the principle payments as listed above will be recaptured in lieu of
depreciation.
17.2.3.4
Recording of depreciation. Appropriate recording of depreciation
encompasses the identification of the depreciable assets in use, the assets'
historical costs, the method of depreciation, estimated useful lives, and the
assets' accumulated depreciation. The American Hospital Association's
"Estimated Useful Lives of Depreciable Hospital Assets" 1983 edition is to be
used as a guide for the estimation of the useful life of assets.
(1) For new buildings constructed after April
1, 1980 the minimum useful life to be assigned is listed below:
|
Wood Frame, Wood Exterior |
30 years |
|
Wood Frame, Masonry Exterior Steel Frame, or
Reinforced |
35 years |
|
Concrete Masonry Exterior |
40 years |
If a mortgage obtained on the property exceeds the
minimum life as listed above, then the terms of the mortgage will be used as
the minimum useful life.
17.2.3.5
Depreciation method.
Proration of the cost of an asset over its useful life is allowed on the
straight-line method.
17.2.3.6
Funding of depreciation. Although funding of depreciation is not
required, it is strongly recommended that providers use this mechanism as a
means of conserving funds for replacement of depreciation assets, and
coordinate their planning of capital expenditures with area wide planning of
activities of community and state agencies. As an incentive for funding,
investment income on funded depreciation will not be treated as a reduction of
allowable interest expense.
17.2.3.7
Replacement reserves.
Some lending institutions require funds to be set aside periodically for
replacement of fixed assets. The periodic amounts set aside for this purpose
are not allowable costs in the period expended, but will be allowed when
withdrawn and utilized either through depreciation or expense after considering
the usage of these funds. Since the replacement reserves are essentially the
same as funded depreciation the same regulations regarding interest and equity
will apply.
(1) If a facility is leased from
an unrelated party and the ownership of the reserve rests with the lessor, then
the replacement reserve payment becomes part of the lease payment and is
considered an allowable cost in the year expended. If for any reason the lessee
is allowed to use this replacement reserve for the replacement of the lessee's
assets then during that year the allowable lease payment will be reduced by
that amount. The Lessee will be allowed to depreciate the assets purchased in
this situation.
(2) If a rebate of
a replacement reserve is returned to the lessee for any reason, it will be
treated as a reduction of the allowable lease expense in the year
review.
17.2.3.8
Gains and Losses on disposal of assets. Gains and losses realized
from the disposal of depreciable assets are to be included in the determination
of allowable costs. The extent to which such gains and losses are includable is
calculated on a proration basis recognizing the amount of depreciation charged
under the program in relation to the amount of depreciation, if any, charged or
assumed in a period prior to the provider's participation in the program, and
in the current period. For sales of PRTFs that occur on or after October 1,
2018, the Department shall either:
(1) At the
time of the sale, recapture depreciation paid by the Department under the
MaineCare program, from the proceeds of the sale using the procedures outlined
below:
(a) The recapture will be made in cash
from the seller. During the first eight (8) years of operation, all
depreciation allowed on buildings and fixed equipment by the Department will be
recaptured from the seller in cash at the time of the sale. From the ninth
(9th) to the fifteenth (15th) year all but three percent (3%) per year will be
recaptured and from the sixteenth (16th) to the twenty-fifth (25th) year, all
but eight percent (8%) per year will be recaptured, not to exceed one hundred
percent (100%). Recaptured accumulated depreciation, in any case, shall not
exceed the extent of the gain on the sale. For sales of PRTFs on or after
January 1, 2019, the calculation of credits for building and fixed equipment
will be from the date the owner began operating the facility with the original
license.
(b) For sales of PRTFs
that occur on or after January 1, 2019, moveable equipment will accumulate
credits as follows: for the first four years the asset is placed into service,
all but ten percent (10%) per year will be recaptured and from the fifth (5th)
and sixth (6th) year, all but thirty percent (30%) per year will be recaptured,
not to exceed one hundred percent (100%). The calculation of credits for
moveable equipment will be from the date the asset is placed into service by
the provider.
(c) The buyer must
demonstrate how the purchase price is allocated between depreciable and
non-depreciable assets. The cost of land, building and equipment must be
clearly documented. Unless there is a sales agreement specifically detailing
each piece of moveable equipment, the gain on the sale will be determined by
the total selling price of all moveable equipment compared to the book value at
the time of the sale.
(d) In
calculating the gain on the sale, the entire purchase price will be compared to
net book value unless the buyer demonstrates by an independent appraisal that a
specific portion of the purchase price reflects the cost of non-depreciable
assets.
(e) Depreciation will not
be recaptured if depreciable assets are sold to a purchaser who will not use
the assets for a health care service for which future Medicare, MaineCare, or
State payments will be received. The purchaser must use the assets acquired
within five (5) years of the purchase. The purchaser will be liable for
recapture if the purchaser violates the provisions of this rule; OR
(2) At the election of the buyer
and seller, waive the recapture of depreciation at the time of the sale and
allow the asset to transfer at the historical cost of the seller, less
depreciation allowed under the MaineCare program, to the buyer for
reimbursement purposes.
17.2.3.9
Limitation on the
participation of capital expenditures. Depreciation, interest, and other
costs are not allowable with respect to any capital expenditure in plant and
property, and equipment related to resident care, which has not been submitted
to the designated planning agency as required, or has been determined to be
consistent with health facility planning
requirements.
17.3
Purchase, Rental, Donation and
Lease of Capital Assets
17.3.1
Purchase of facilities from related individuals and/or organization where a
facility, through purchase, converts from a proprietary to a nonprofit status
and the buyer and seller are entities related by common and/or ownership, the
purchaser's basis for depreciation shall not exceed the seller's basis under
the program, less accumulated depreciation if the following requirements are
met:
(A) Where a facility is purchased from
an individual or organization related to the purchaser by common control and/or
ownership; or
(B) Where a facility
is purchased after July 1, 2018 by an individual related to the seller as:
(1) a child
(2) a grandchild
(3) a brother or sister
(4) a spouse of a child, grandchild, or
brother or sister, or
(5) an entity
controlled by a child, grandchild, brother, sister or spouse of child,
grandchild or combination brother or sister thereof; or
17.3.1.1 Accumulated depreciation of the
seller under the program shall be considered as incurred by the purchaser for
purposes of computing gains and applying the depreciation recapture rules in
Principle 17.2.3.8 to subsequent sales by the buyer. There will be no recapture
of depreciation from the seller on a sale between stipulated related parties
since no set-up in the basis of depreciable assets is permitted to the
buyer.
17.3.1.2 One-time exception
to Principle 17.3.1.1. At the election of the seller, Principle 17.3.1 will not
apply to a sale made to a buyer defined in Principle 17.3.1.1 if:
(a) the seller is an individual or any entity
owned or controlled by individuals or related individuals who were selling
assets to a "related party" as defined in Principle 17.3.1 or 17.3.1.1,
and
(b) the seller has attained the
age of fifty-five (55) before the date of such sale or exchange; and
(c) during the twenty-year period ending on
the day of the sale, the seller has owned and operated the facility for periods
aggregating ten (10) years or more; and
(d) the seller has inherited the facility as
property of a deceased spouse to satisfy the holding requirements under
Principle 17.3.1.2(c)
(e) if the
seller makes a valid election to be exempted from the application of 17.3.1.1
the allowable basis of depreciable assets for reimbursement of interest and
depreciation expense to the buyer will be determined in accordance with the
historical cost as though the parties were not related. This transaction is
subject to depreciation recapture if there is a gain on the sale.
17.3.1.3 The one (1) exception to
Principle 17.3.1.1 applies to individual owners and not to each facility. If an
individual owns more than one (1) facility he must make the election as to
which facility he wished to apply this exception.
17.3.1.4 Limitation in the application of
Principle 17.3.1.3
17.3.1.4.1 Principle
17.3.1.2 shall not apply to any sale or exchange by the seller if an election
by the seller under Principle 17.3.1.2 with respect to any other sale or
exchange has taken place.
17.3.1.4.2 Principle 17.3.1.2 shall not apply
to any sale or exchange by the seller unless the seller:
17.3.1.4.2.1 immediately after the sale has
no interest in the PRTF (including an interest as officer, director, manager or
employee) other than as a creditor, and
17.3.1.4.2.2 does not acquire any such
interest within ten (10) years after the sale of this or any other facility;
and
17.3.1.4.2.3 agrees to file an
agreement with the Department of Health and Human Services to notify the
Department that any acquisition as defined by the Principle 17.3.1.4.2.2 has
occurred.
17.3.1.4.2.4 If Principle
17.3.1.4.2 is satisfied, Principle 17.3.1 and Principle 17.3.11 will also be
satisfied.
17.3.1.4.2.5 If the
seller acquires any interest defined by Principle 17.3.1.4.2.2 then pursuant to
the agreement the basis will revert to what the seller's basis would be if the
seller had continued to own the facility, the amounts paid by the Title XIX
program for depreciation, interest and return of owner's equity from the
increase in basis will be immediately recaptured, and an interest rate of nine
percent (9%) per annum on recaptured moneys will be paid to the Department for
sellers' use of Title XIX moneys. A credit against this, of the original amount
of depreciation recapture from the seller, will be allowed, with any remaining
amount of the original depreciation recapture becoming the property of the
Department.
17.3.2
Basis of assets used under the
program and donated to a provider. Where an asset that has been used or
depreciated under the program is donated to a provider, the basis of
depreciation for the asset shall be the lesser of the fair market value or the
net book value of the asset in the hands of the owner last participating in the
program.
The net book value of the asset is defined as the
depreciable basis used under the program by the asset's last participating
owner less the depreciation recognized under the program.
17.3.3 Allowances for depreciation on assets
financed with Federal or Public Funds. Depreciation is allowed on assets
financed with Hill Burton or other Federal or Public Funds.
17.4
Leases and Operations of Limited
Partnerships
17.4.1
Information
and Agreements Required for Leases. If a provider wishes to have costs
associated with leases included in reimbursement:
17.4.1.1 A copy of the signed lease agreement
is required.
17.4.1.2 An annual
copy of the federal income tax return of the lessee will be made available to
Representatives of the Department and of the U.S. Department of Health and
Human Services in accordance with Principle 13.
17.4.1.3 If the lease is for the use of a
building and/or fixed equipment, the articles and bylaws of the corporation,
trust indenture partnership agreement, or limited partnership agreement of the
lessor is required.
17.4.1.4 If the
lease is for the use of a building and/or fixed equipment, the annual federal
income tax return of the lessor will be made available to representatives of
the Department and the U.S. Department of Health and Human Services in
accordance with Principle 13.
17.4.1.5 A copy of the mortgage or other debt
instrument of the lessor will be made available to representatives of the
Department and the U.S. Department of Health and Human Services. The lessor
will furnish the Department of Health and Human Services a copy of the bank
computer printout sheet on the lessor's mortgage showing the monthly principle
and interest payments.
17.4.1.6 The
lease must be for a minimum period of five (5) years if an unrelated
organization is involved. If the lessor was to sell the property within the
five (5) year period to a PRTF operator or the lessee, the historical cost for
the new owner would be determined in accordance with the definition of
historical costs, and the portion of the lease payment made in lieu of straight
line depreciation will be recaptured in accordance with Principle 17.2.3.8.
This change will become effective when and if CMS approves this new language in
the state plan.
17.4.2
Lease Arrangements between Individuals or Organizations Related by Common
Control and/or Ownership. A provider may lease a facility from a related
organization within the meaning of the Principles of Reimbursement. In such
case, the rent paid to the lessor by the provider is not allowed as a cost. The
provider, however, would include in its costs the costs of ownership of the
facility. Generally, these would be costs of the lessor such as depreciation,
interest on the mortgage, real estate taxes and other expenses attributable to
the leased facility. The effect is to treat the facility as though it were
owned by the provider.
17.4.3
Leased Arrangement Between Individuals or Organizations Not Related by
Common Control or Ownership. A provider may lease a facility from an
unrelated organization within the meaning of the Principles of Reimbursement.
The allowable cost between two (2) unrelated
organizations is the lesser of: Principles 17.4.3.1 or 17.4.3.2.
17.4.3.1 The actual costs calculated under
the assumption that the lessee and the lessor are related parties; or
17.4.3.2 The actual lease payments made by
the lessee to the lessor.
17.4.3.3
If the cost as defined in Principle 17.4.3.2 are less than the costs as defined
in Principle 17.4.3.1, then the difference can be deferred to a subsequent
fiscal period. If in a later fiscal period, costs as defined in Principle
17.4.3.2 exceed costs as defined in Principle 17.4.3.1, the deferred costs may
begin to be amortized.
Amortization will increase allowable costs up to the
level of the actual lease payments for any given year. These deferred costs are
not assets of the provider for purposes of calculating allowable costs of
interest or return of owner's equity and, except as specified, do not represent
assets that a provider or creditor of a provider may claim is a monetary
obligation from the Title XIX program.
17.4.3.4 A lease payment to an unrelated
party for moveable furnishings and equipment is an allowable cost.
17.4.4
Sale and Leaseback
Agreements-Rental Charges. Rental costs specified in sale and leaseback
agreements incurred by providers through selling physical plant facilities or
equipment to a purchaser not connected with or related to the provider, and
concurrently leasing back the same facilities or equipment, are includable in
allowable cost.
However, the rental charge cannot exceed the amount that
the provider would have included in reimbursable costs had the retained legal
title to the facilities or equipment, such as interest on mortgage, taxes,
depreciation, insurance and maintenance costs.
17.5
Interest Cost
17.5.1 Allowable interest costs on both
current and capital indebtedness will be reimbursed.
17.5.2
Interest. Interest is the
cost incurred for the use of borrowed funds. Interest on current indebtedness
is the costs incurred for funds borrowed for a relatively short term, usually
one (1) year or less, but in no event more than fifteen (15) months. This is
usually for such purposes as working capital for normal operating expenses.
Interest on capital indebtedness is the cost incurred for funds borrowed for
capital purposes, such as acquisition of facilities and equipment, and capital
improvements. Generally, loans for capital purposes are long-term loans. Except
as provided in Principle 17.5.4.6, interest does not include interest and
penalties charged for failure to pay accounts when due.
17.5.3 In order to be allowable, interest
must:
17.5.3.1 Be incurred on a loan made to
satisfy a financial need of the provider. Loans which result in excess funds or
investments would be considered unnecessary; and
17.5.3.2 Be reduced by investment income
except where such income is from gifts, whether restricted or unrestricted, and
which are held separate and not commingled with other funds. Income from funded
depreciation is not used to reduce interest expense.
17.5.3.3 Be incurred at a rate not in excess
of what a prudent borrower would have had to pay in the money market existing
at the time the loan was made.
17.5.3.4 Be paid to a lender not related
through control or ownership, or personal relationship to the borrowing
organization.
17.5.3.5
Refinancing. Any refinancing of property mortgages or loans on
fixed assets must be written prior approved by the Department's Division of
Licensing and Certification, prior to the closing of the loan. If written prior
approval is not obtained the Department will pay the lowest of the following:
a. The actual interest paid; or
b. The amount of interest the provider would
have paid under the terms of the original loan. Original loan means the last
Department approved loan.
17.5.4
Borrower-lender
relationship
17.5.4.1 To be allowable,
interest expense must be incurred on indebtedness established with
lenders or lending organizations not related through control, ownership or
personal relationship to the borrower. Presence of any of these factors could
affect the "bargaining" process that usually accompanies the making of a loan,
and could thus be suggestive of an agreement with higher rates of interest or
of unnecessary loans. Loans should be made under terms and conditions that a
prudent borrower would make in arm's-length transactions with lending
institutions. The intent of this provision is to assure that loans are
legitimate and needed, and that the interest rate is reasonable. Thus, interest
paid by the provider to partners, stockholders, or related organizations of the
provider would not be allowed. Where the owner uses his own funds in a
business, it is reasonable to treat the funds as invested funds or capital,
rather than borrowed funds. Therefore, where interest on loans by partners,
stockholders, or related organizations is disallowed as a cost solely because
of the relationship factor, the principal of such loans shall be treated as
invested funds in the computation of the provider's equity capital.
17.5.4.2
Exceptions to the
general rule regarding interest on loans from controlled sources of funds.
Where the general fund of a provider borrows from a donor-restricted fund and
pays interest to the restricted fund, this interest expense is an allowable
cost. The same treatment is accorded interest paid by the general fund on money
borrowed from the funded depreciation account of the provider. In addition, if
a provider of a facility operated by members of a religious order borrows from
the order, interest paid to the order is an allowable cost. Interest paid by
the provider cannot exceed interest earned by the above subject funds.
17.5.4.3 Where funded
depreciation is used for purposes other than improvement, replacement,
or expansion of facilities or equipment related to resident care, or payment of
long-term debt principle once the principle payment exceeds the straight-line
depreciation allowed under the Principles of Reimbursement, allowable interest
expense is reduced to adjust for offsets not made in prior years for earnings
on funded depreciation.
17.5.4.4
Loans not reasonably related to resident care. Loans made to
finance that portion of the cost of acquisition of a facility that exceeds
historical cost are not considered to be for a purpose reasonably related to
resident care.
17.5.4.5
Interest expense of related organizations. Where a provider leases
facilities from a related organization and the rental expense paid to related
organization is not allowable as a cost, costs of ownership of the leased
facility are allowable as in interest cost to the provider. Therefore, in such
cases, mortgage interest paid by the related organization is allowable as an
interest cost to the provider.
17.5.4.6
Interest on Property
Taxes. Interest charged by a municipality for late payment of property
taxes is an allowable cost when the following conditions have been met:
17.5.4.6.1 The rate of interest charged by
the municipality is less than the interest which a prudent borrower would have
had to pay in the money market existing at the time the loan was
made;
17.5.4.6.2 The payment of
property taxes is deferred under an arrangement acceptable to the
municipality;
17.5.4.6.3 The late
payment of property taxes results from the financial needs of the provider and
does not result in excess funds; and
17.5.4.6.4 Approval in writing has been given
by the Department prior to the time period in which the interest is incurred.
Any requests for written prior approval must be received by the Department at
least two (2) weeks prior to the desired effective date of the
approval.
17.5.4.7
Limitation on the participation of capital expenditures. Interest
is not allowable with respect to any capital expenditure in plant and property,
and equipment related to resident care, which did not receive a required
Certificate of Need Review approval.
17.5.5
Adjustments. The
Department will make adjustments to the PRTF fixed cost portion of the interim
rate to reflect the effect of refinancing which results in lower interest
payments.
17.6
Insurance
Reasonable and necessary costs of insurance involved in
operating a facility are considered allowable costs (real estate insurance
including liability and fire insurance are included as fixed costs - see
Principle 17.1.4). Premiums paid on property not used for resident care are not
allowed. Life insurance's premiums related to insurance on the lives of key
employees where the provider is a direct or indirect beneficiary are not
allowable costs. A provider is a direct beneficiary where, upon the death of
the insured officer or key employee the insurance proceeds are payable directly
to the provider. An example of a provider as an indirect beneficiary is the
case where insurance on the lives of officers is required as part of a mortgage
loan agreement entered into for a building program, and, upon the death of an
insured officer the proceeds are payable to the lending institution as a credit
against the loan balance. In this case, the provider is not a direct
beneficiary because it does not receive the proceeds directly, but is,
nevertheless, an indirect beneficiary since its liability on the loan is
reduced.
17.6.1 Workers' Compensation
Insurance premiums paid to an admitted carrier; application fees, assessments
and premiums paid to an authorized fully-funded trust; and premiums paid to an
individual self-insured program approved by the State of Maine for facility
fiscal years that began on or after October 1, 2018, and deductibles paid by
facilities related to such cost are allowable fixed costs. Estimated amounts
for workers compensation insurance audit premiums will not be accepted as an
allowable cost. The Department will require the facility to be a prudent and
cost conscious buyer of Workers' Compensation Insurance. In those instances
where the Department finds that a facility pays more than the usual and
customary rate or does not try to minimize costs, in the absence of clear
justification, the Department may exclude excess costs in determining allowable
costs under MaineCare. Allowable costs are subject to an experience modifier of
1.4; that is, cost associated with an experience modifier of 1.4 or under are
allowable. Workers' Compensation costs incurred above the experience modifier
of 1.4 shall be considered unallowable and will be settled at time of audit.
17.6.2 The costs of
Loss-Prevention and Safety Services are allowable costs to a maximum of $40.00
per covered employee per year for PRTFs with an experience modifier greater
than 9. The costs of Loss-Prevention and Safety Services are allowable costs to
a maximum of $70.00 per covered employee per year for PRTFs with an experience
modifier equal to or less than 9. Allowable costs shall include the cost of
educational programs and training classes, transportation to and from those
classes, lodging when necessary to attend the classes, materials needed in the
preparation and presentation of the classes (when held at the PRTF), and
equipment (e.g.: lifts) which lead towards accomplishing the established goals
and objectives of the facility's safety program. Non-allowable costs include
salaries paid to individuals attending the safety classes and personal gifts
such as bonuses, free passes to events or meals, and gift
baskets.
17.7
Start
Up Costs Applicability
Start-up costs are incurred from the time preparation
begins on a newly constructed or purchased building, wing, floor, unit, or
expansion thereof, to the time the first resident is admitted for treatment. In
the case where the start-up costs apply only to nonrevenue-producing resident
care functions or unallowable functions, the startup costs are applicable only
to the time the areas are used for their intended purposes. Start-up costs are
charged to operations. If a provider intends to prepare all portions of its
entire facility at the same time, start-up costs for all portions of the
facility will be accumulated in a single deferred charge account and will be
amortized when the first resident is admitted for treatment. If a provider
intends to prepare portions of its facility on a piecemeal basis (e.g.,
preparation of a floor or wing of a provider's facility is delayed), start-up
costs would be capitalized and amortized separately for the portion(s) of the
provider's facility prepared during different time periods. Moreover, if a
provider expands its facility by constructing or purchasing additional
buildings or wings, start-up costs should be capitalized and amortized
separately for these areas.
Start-up costs that are incurred immediately before a
provider enters the program and that are determined to be immaterial by the
Department need not be capitalized, but rather will be charges to operations in
the first cost reporting period. In the case where a provider incurs start-up
costs while in the program and these costs are determined to be immaterial by
the Department, these costs need not be capitalized, but will be charged to
operations in the periods incurred.
For program reimbursement purposes, costs of the
provider's facility and building equipment should be depreciated over the lives
of these assets starting with the month the first resident is admitted for
treatment, subject to the provider's method of determining depreciation in the
year of acquisition or construction. Where portions of the provider's facility
are prepared for resident care services after the initial start-up period,
these asset costs applicable to each portion should be depreciated over the
remaining lives of the applicable assets. If the portion of the facility is a
resident care area, depreciation should start with the month the first resident
is admitted for treatment. If the portion of the facility is a
non-revenue-producing resident care area or unallowable area, depreciation
should begin when the area is opened for its intended purpose. Costs of major
movable equipment, however, should be depreciated over the useful life or each
item starting with the month the item is placed into operation.
Where a provider prepares all portions of its facility
for resident care services at the same time and has capitalized start-up costs,
the start-up costs must be amortized ratable over a period of sixty (60)
consecutive months beginning with the month in which the first resident is
admitted for treatment. Where a provider prorates portions of its facility for
resident care services on a piecemeal basis, start-up costs must be capitalized
and amortized separately for the portions of the provider's facility that are
prepared for resident care services during different periods of
time.
