Code of Maine Rules
10 - DEPARTMENT OF HEALTH AND HUMAN SERVICES
144 - DEPARTMENT OF HEALTH AND HUMAN SERVICES - GENERAL
Chapter 115 - PRINCIPLES OF REIMBURSEMENT FOR RESIDENTIAL CARE FACILITIES - ROOM AND BOARD COSTS
Section 144-115-20 - FIXED/CAPITAL COSTS

20.1.1 Depreciation on buildings, fixed equipment, land improvements, furnishings, moveable equipment, and amortization of leasehold improvements. The minimum dollar limitation on furnishings and moveable equipment that must be depreciated and treated as a fixed cost is three hundred dollars ($300).

20.1.2 Interest expense attributed to debt associated with the acquisition or improvement of buildings, moveable equipment, furnishings, fixed equipment and land improvements.

20.1.3 Real estate taxes.

20.1.4 Fire insurance premiums.

20.1.5 In cases where facilities are rented from an unrelated party, the actual costs of ownership attributable to items in Sections 20.1.1, 20.1.2, 20.1.3 and 20.1.4 will be compared to the lease payments allowed under Principle 20.3.7(b). Except as provided in subparagraph 20.3.7(a)(3), return on equity is not included as a cost of ownership in the comparison.

20.1.6 Administrative allowance.

20.1.7 The cost of Workers' Compensation Insurance (less the portion covered by MaineCare under Chapter III, Section 97, Appendix C or F of the MBM.

20.1.8 Water and sewer fees.

20.1.9 Amortization.

20.2.1 Principle - An appropriate allowance for depreciation of buildings, moveable equipment, furnishings, and fixed equipment is an allowable cost. The depreciation must be:

20.2.2 Recording of Depreciation: Prorating of the cost of an asset over its useful life is allowed on the straight-line method. Appropriate recording of depreciation includes 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 most recent edition of the "Estimated Useful Lives of Depreciable Hospital Assets" published by the American Hospital Association and publications of the Internal Revenue Service are to be used as guides for the estimation of the useful life of assets.

For new buildings, the minimum useful life to be assigned is:

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.

20.2.3 For facilities providing multiple levels of care, the allocation method to be used for allocating the interest, depreciation, property taxes, and insurance will be based on the actual square footage utilized in each level of care. However, when new construction occurs that is added on to an existing facility the complete allocation based on square footage will not be used. Discrete costing will be used to determine the cost of the portion of the building used for each level of care and the related fixed cost will be allocated on the basis of that cost.

20.2.4 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 in which they were set aside by the provider, 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.

20.2.5 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 depreciable assets. As an incentive for funding, investment income on funded depreciation will not be treated as a reduction of allowable interest expense or other costs.

20.2.6 Gains and Losses on Disposal of Assets: Gains and losses realized from the disposal of depreciable assets while a provider is participating in this program, or within one (1) year after leaving the program, are to be included in the determination of allowable cost. The extent to which such gains and losses are included 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 facilities that occur on or after January 1, 2010, the Department shall either:

20.2.7 Limitation on the Participation of Capital Expenditures: The criteria for approval are the same as those found in Section 20.5.

20.3.1 When a facility is sold and then reacquired by the same seller, with no intervening transactions, the cost basis will be that recognized at the time of the first sale. Accumulated depreciation of the buyer shall be considered as incurred by the seller who reacquires the facility for the purpose of computing gains and applying the depreciation recapture rules (Section 20.2.6) to subsequent sales. Since no step-up of depreciable assets is permitted, there will be no recapture at the time of reacquisition.

20.3.2 Purchase of Facilities from Related Individuals and/or Organizations

20.3.3 Basis of Assets Used and Donated to a Provider:When an asset which has been used or depreciated under cost reimbursement 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 last participating owner. The net book value of the asset is defined as the depreciable basis used by the asset's last participating owner less the depreciation recognized.

20.3.4 Allowance for Depreciation on Assets Financed with Federal or State Funds: Depreciation is allowed on assets financed with Hill Burton or other Federal or State funds, only to the extent that repayments are required. Facilities with Federal or State rental subsidies that offset a provider's interest and principal payments may not claim depreciation expense on those same assets.

20.3.5 Rental Expense Paid to an Organization Related to the Provider: A provider may lease a facility from an organization related to the provider by common ownership or control within the meaning of the Principles of Reimbursement. In such case, the rent paid to the lessor by the provider is not allowable as a cost. The provider, however, would include in its costs the costs of ownership of the facility. These costs are depreciation, interest on the mortgage, real estate taxes and other expenses that would otherwise be allowable room and board costs, and are attributable to the leased facility. The effect is to treat the facility as though it were owned by the provider.

20.3.6 Sale and Lease back Agreements - Rental Charges: Rental costs specified in sale and lease back 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 included in allowable cost if these conditions are met:

20.3.7 Leases, Capitalized Leases, and Limited Partnerships

20.3.8 When a facility is purchased from a seller who has been terminated from the MaineCare program by the Department because of a criminal conviction and the conviction is related to violation of these Principles or the Department's applicable licensing regulations, including but not limited, to conviction under Title 17-A of the Maine Revised Statutes Annotated or Title 22, Section 47 of those statutes, the basis for depreciation for the purchaser will be that of the seller under the program.

20.4.1 Necessary and proper interest on both current and capital indebtedness is an allowable cost.

20.4.2 Interest: Interest is the cost incurred for the use of borrowed funds. Interest on current indebtedness is the cost 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, fixed and moveable equipment, capital improvements, and vehicles. Generally, loans for capital purposes are long-term loans. Except as provided in subsection 20.4.7, interest does not include interest and penalties charged for failure to pay accounts when due.

20.4.3 Necessary: In order to be considered "necessary", interest must be:

20.4.4 Borrower - Lender Relationship

20.4.5 Loans Not Reasonably Related to Member Care: Loans made to finance that portion of the cost of acquisition of a facility that exceeds the amount approved by the Department as the provider's historical cost are not considered to be for a purpose reasonably related to member care.

20.4.6 Interest Expense of Related Organizations: When a provider leases facilities from a related organization and the rental expense paid to the related organization is not allowable as a cost, costs of ownership of the leased facility are allowable costs of the provider. Therefore, in such cases, mortgage interest paid by the related organization is allowable as an interest cost to the provider.

20.4.7 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:

20.4.8 Interest on Construction Loans: Construction interest incurred as part of an approved capital budget to make approved capital improvements (new construction, acquisitions, or renovations) is allowable only during the approved construction period and up to sixty (60) days after the completion date of the approved capital improvements. The Department shall determine the completion date.

20.5.1 Members in the facility demonstrate a need for the service;

20.5.2 Less costly alternatives or more effective methods of providing the services are not available;

20.5.3 The service is required by the licensing regulations;

20.5.4 Costs are reasonable, including pre-development, construction and financing costs;

20.5.5 The improvement will add considerably to the useful life of the asset;

20.5.6 If the application is for reimbursement of costs associated with additional beds, the facility must be in compliance with any rules and the statute covering the approval of additional beds, 22 MRS §§333 through 334-A as approved by the Division of Licensing and Certification.

20.5.7 Funds are available to reimburse the facility for applicable expenses.

20.5.8 Design and construction standards applicable to projects reviewed by the Department include, but are not limited to, the following:

20.6.1 An administration and policy-planning allowance shall be permitted in lieu any other compensation for the administration and policy planning functions and in lieu of all fees for management or financial consultants. Compensation includes all fees, salaries, wages, payroll taxes, fringe benefits, contributions to deferred compensation plan, and other increments paid to or for the benefit of, those providing the administration and policy planning services. Compensation also includes the cost of food, lodging, use of the provider's vehicles and other services supplied by the provider that benefit those carrying out the administrative and policy planning services. Outside accounting fees associated with preparation of financial reports required by the DHHS, Division of Audit are not included in the allowance but are allowed as a routine cost. The administrator is not entitled to reimbursement for any other services performed for the facility, including but not limited to direct care, cooking, and bookkeeping, even if the administrator is not the owner of the facility, unless the facility qualifies for a waiver of this principle as set forth below.

A facility with six (6) or fewer beds may request a waiver of the above principle by submitting a written application for waiver to the Director, DHHS, Division of Audit. The facility's application shall describe other services to be performed, the rate of pay for these other services, the hours to be spent performing such other services and the facility's operational need to have such other services performed. The facility must obtain the written approval of the Director, DHHS, Division of Audit, prior to such services being performed and in advance of claiming reimbursement. In addition, the facility must submit evidence such as time studies with the cost report to prove that such other services were actually rendered to the facility. Such other service costs will be reconciled at cost settlement in accordance with the Director's written approval and applicable cost settlement principles.

In the event the Department determines that the administrator has delegated significant responsibilities, such as described in this section and under Section 10 of the Regulations Governing the Licensing and Functioning of Assisted Living Facilities -IV, allocation of wages from routine services to the administrative allowance will be made.

20.6.2 The allowance is the calculation of the administrative and policy planning allowance for an administrator who is responsible for only one (1) facility and is based on the total number of licensed beds in that facility. The following table, effective July 1, 2001, for fiscal year ending June 30, 2002, reflects the allowance for an administrator who is responsible for one facility. To the extent that funds are available, the Commissioner of DHHS may, at his or her discretion, determine if an inflation adjustment will be made.

20.6.3 When the individual is designated as administrator, for more than one (1) facility, several factors are considered in the calculation of the allowances for each facility. If the facilities are located on separate sites, the combined number of beds will be used and applied to one hundred and twenty percent (120%) of the above schedule. The total allowance will be prorated to the facilities based on the ratio of each facility's number of beds to the combined number of beds for all facilities under the direction of the administrator.

20.6.4 If the facilities or levels of care are located on the same site, the total allowance corresponding to the combined number of beds will be prorated to the facilities based on the ratio of each facility's number of beds to the combined number of beds for all facilities or levels of care under the direction of the administrator.

20.6.5 In the instances where there is a shared administrator for both the nursing and residential facility levels of care, the administrative and management allowance will be calculated using the total number of beds (for which the administrator is responsible) in the facility on the nursing care administrative allowance schedule less two hundred dollars ($200) per licensed residential care bed. The Department recognizes that accounting fees are included as part of the administrative allowance for nursing facilities and are also utilized in determining the routine cap on service costs for all residential care facilities.

However, the Department has determined that the deduction of two hundred dollars ($200) per licensed residential care bed will offset this factor.

20.6.6 In instances where there is a shared administrator for nursing facility, and/or residential care, and/or congregate housing services programs, the administrative and management allowance will be calculated using the total number of beds/units (for which the administrator is responsible) in the facility on the nursing care administrative allowance schedule less two hundred dollars ($200) per licensed residential care bed and congregate housing unit.

20.6.7 In instances where there is a shared administrator for residential care and/or congregate housing services programs, the administrative and management allowance will be calculated using the total number of beds/units (for which the administrator is responsible) in the facility on the residential care administrative allowance schedule less two hundred dollars ($200) per licensed congregate housing unit.

20.6.8 For facilities of six (6) or fewer beds with a shared administrator, each six (6) bed facility shall be allowed an administrative allowance according to the above schedule.

20.6.9 When the owner of the residential care facility is also the administrator, only one (1) administrative allowance/salary shall be permitted. In instances where the owner/administrator is also the employed administrator for another residential care facility(ies) that he/she neither owns nor has a financial interest in, the two (2)situations shall be considered as completely separate entities, upon prior approval by the Department.

20.7.0(a) Administration of the policies of the facility.

20.7.0(b) Day to day operation and management.

20.7.0(c) Control, conversion and utilization of the physical and financial aspects. Obtaining adequate personnel.

20.7.0(d) Discharge of such functions as the licensee may be properly delegated.

20.7.0(e) Completion of any duties/responsibilities described by the applicable licensing regulations as being the responsibility of the administrator.

20.7.0(f) Administrators, assistant administrators, business managers, controllers, office managers, personnel directors, and purchasing agents, personal secretaries to any of the above, typify those who are included in the administrative function category. Bookkeepers, secretaries, clerks, telephone operators, etc., are not included in this category.

20.7.0(g) This allowance is not to include those individuals whose prime duties are not of an administrative nature, who may be responsible for hiring or purchasing for their department.

20.7.0(h) Policy-planning functions. The policy-planning function includes the policy-making, planning, and decision-making activities necessary for the general and long term management of the affairs of the facility, including, but not limited to the following:

20.7.0(i) For purposes of these rules, owners include any individual or organization with equity interest in the provider's operation and any members of such individual's family or his or her spouse's family. Owners also include all partners and all stockholders in the provider's operation and all partners and stockholders or organizations that have an equity interest in the provider's operation.