Code of Massachusetts Regulations
101 CMR - EXECUTIVE OFFICE FOR HEALTH AND HUMAN SERVICES
Title 101 CMR 204.00 - Rates of Payment to Resident Care Facilities
Section 204.05 - Capital and Other Fixed Costs

1. If there has been no change of ownership, the allowable basis of fixed assets equals the reasonable construction costs.

2. For a newly constructed facility opening for resident care on or after January 1, 1984, the basis of such assets will be limited to reasonable, audited construction and equipment costs based upon the minimum standards and requirements of the Massachusetts Department of Public Safety. Once operations commence, interest and acquisition fees will be treated as a cost of borrowing and treated as interest expense. In no case will the allowable basis exceed the cost of construction approved in accordance with M.G.L. c. 111, § 25C. The basis of fixed assets will be limited to construction and equipment costs based upon the minimum standards and requirements of the Massachusetts Public Health Council. EOHHS will reimburse only those costs associated with meeting the above-mentioned standards.

3. If there has been a change of ownership, the allowable basis for fixed assets will be determined as follows.

1. Allowable Additions. EOHHS will recognize fixed asset additions made by the provider if the additions are related to the care of publicly aided residents.

2. Forgiveness of Debt. Where, subsequent to a change of ownership, the transferor forgives or reduces the debt of the transferee, such forgiveness or reduction of debt will be retroactively applied to reduce the acquisition cost to the transferee.

3. Repossession by Transferor. The basis of fixed assets will be recomputed if the transferor repossesses a facility to satisfy in whole or in part the transferee's purchase obligations, becomes a direct or indirect owner, or receives an interest in the transferee's facility or company. The recomputed basis will not exceed the transferor's original allowable basis under EOHHS regulations applicable at the date of change of ownership increased by any allowable capital improvements made by the transferee since acquisition and reduced by depreciation since acquisition.

4. Rental and Leasehold Expense. EOHHS will allow reasonable rental and leasehold expenses for land, building, and equipment, but reimbursement is limited to the lower of the average rental or ownership costs of comparable providers, or the reasonable and necessary costs of the provider and lessor including interest, depreciation, real property taxes, and property insurance. EOHHS will not allow rent and leasehold expense, unless a realty company cost report is filed.

1. Building and Building Improvements. EOHHS will add building and building improvements to determine the buyer's allowable basis for building. The buyer's allowable basis will be depreciated over the remaining useful life of the building.

2. Equipment and Limited Life Assets. Equipment and limited life assets will be depreciated in accordance with 101 CMR 204.05(3)(c).

3. Depreciation on Assets. EOHHS will limit the annual amount of depreciation on transferred assets to the seller's annual allowed depreciation.

1. Long-term Loans. Long-term interest will be limited to an annually determined percentage of simple interest on all outstanding long-term loans, weighted by the dollar amount of the funds borrowed. For allowable long-term loans secured prior to January 1, 1984, the annually determined percentage will be the rate as stated in the debt instrument at the time of borrowing. For allowable long-term loans secured on or after January 1, 1984, the annually determined percentage will be the lower of the rate as stated in the debt instrument at the time of borrowing or the percentage equal to the monthly rate of interest on special issues of public debt obligations issued to the federal Hospital Insurance Trust Fund for the third month prior to the month in which the financing occurred, plus 3%. EOHHS will limit the allowable interest rate to 15%.

2. Refinancing.

1. Interest. Interest related to the financing of newly acquired fixed assets will be allowed only if the asset acquisition and financing occur concurrently. If the provider presents documentation sufficient to demonstrate that all reasonable attempts were made to finance the asset at the time of acquisition, EOHHS will recognize financing obtained no more than 90 days after the date of acquisition of the assets.

2. Loans from Owner, Officer, or Related Party. Interest expense does not include interest on loans to the facility from an owner, officer, or related party.

3. Mortgage Acquisition Costs. Mortgage acquisition costs must be amortized over the life of the mortgage. Amortized mortgage acquisition costs are treated as long-term interest expense. For allowable long-term debts secured on or after January 1, 1984, mortgage acquisition costs are subject to the ceiling on maximum interest rates in accordance with 101 CMR 204.05(4)(b).