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
Universal Citation: 101 MA Code of Regs 101.204
Current through Register 1518, March 29, 2024
(1) Allowable Fixed Costs.
(a) Allowable fixed costs include the
allowable portion of depreciation, long-term interest, real estate taxes,
personal property taxes on resident care facility equipment, the non-income
portion of the Massachusetts corporate excise tax, building insurance, and
rental of equipment located at the facility, less any recoverable fixed cost
income.
(b) EOHHS will calculate
the provider's capital and other fixed costs per diem by
dividing allowable fixed costs by the constructed bed capacity times the days
in the rate year times the greater of 90% or the actual utilization rate in the
base year.
(2) Allowable Basis of Fixed Assets.
(a)
Fixed Assets.
Fixed assets include land, building, improvements, equipment, and limited life
assets/software.
(b)
Allowable Basis.
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.
a.
Land.
EOHHS will include the lower of the acquisition cost or the basis allowed the
immediate prior owner.
b.
Equipment. EOHHS will include the lower of the
acquisition cost or the basis allowed the immediate prior owner, reduced by the
amount of actual depreciation allowed to the prior owner of the facility in
calculating rates of payment for publicly aided residents.
c.
Building and Building
Improvements. EOHHS will include the lower of the acquisition cost
or the basis allowed the immediate prior owner, reduced by the amount of actual
depreciation allowed to the prior owner of the facility for publicly aided
residents for the years from 1968 to the date of change of ownership. The
seller's allowable building improvements will become part of the new owner's
allowable basis of building.
d. If
the amount of actual depreciation allowed in a prior year is not known, the
buyer must furnish the information to the Center. If this information is not
available, EOHHS will calculate the amount using the best available
information.
(c)
Other
Provisions.
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.
(3) Depreciation
(a)
Depreciation Allowed. EOHHS will allow depreciation of
building, building improvements, and equipment based on accepted accounting
principles using as a basis the lower of the original acquisition cost of the
facility, an amount based on a cost per bed for the year of construction of the
facility set forth in the regulation governing the rate year of the original
acquisition, or the principles set forth in 101 CMR 204.05 if a change of
ownership occurred on or after January 1, 1984.
(b)
Depreciation
Methodology. EOHHS will use the straight-line method to calculate
allowable depreciation. EOHHS will exclude depreciation on an asset upon
expiration of the useful life.
(c)
Useful Life. EOHHS will use the schedule in 101 CMR
204.05(3)(c) to calculate depreciation on fixed assets.
Asset |
Life |
Rate |
Building Class I or II as classified by the Dept. of Public Safety |
40 years |
2.5% |
Class III or IV as classified by the Dept. of Public Safety |
33 years |
3.0% |
Building Improvements and Leasehold Improvements |
Varies |
up to 5% |
Equipment, Furniture, and Fixtures |
ten years |
10% |
Motor Vehicle Equipment |
four years |
25% |
Limited Life Assets Acquired after December 31, 1996 |
three years |
33.3% |
(d)
Change of Ownership.
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.
(4) Interest. A facility's rate will include reasonable and necessary interest expense determined as follows.
(a)
Interest on Long-term
Debt. EOHHS will include reasonable and necessary interest on
allowable long-term debt, supported by depreciable fixed assets subject to 101
CMR 204.05(2). EOHHS will not reimburse long-term interest expense on debt that
exceeds the allowable basis of fixed assets.
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. F or allowable long-term loans secured prior to J
anuary 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.
a. EOHHS will recognize the refinancing of an
existing allowable debt under the following circumstances.
i.
Crossover. When
the accumulated principal payments on the existing allowable debt exceeds the
accumulated depreciation allowed by EOHHS on the allowable fixed assets
financed by that debt;
ii.
Demand Note. When an existing, allowable debt becomes
payable on demand;
iii.
Lowered Expense. When the long-term interest expense
over the life of the refinanced debt is lower than it would have been under the
remainder of the existing, allowable debt. The provider must submit comparative
schedules showing total long-term interest expense under the existing allowable
debt and the refinanced debt; or
iv.
Allowable
Additions. When a provider refinances for an amount greater than
the existing allowable debt, and the purpose of the additional indebtedness is
to finance a significant addition of allowable fixed assets. EOHHS will not
reimburse long-term interest expense for additional refinancing that exceeds
the amount of allowable fixed assets.
b.
Allowable Interest
Rate. The allowable interest rate for an allowable or partially
allowable refinancing will be determined in accordance with 101 CMR
204.05(4)(b)1.
c. When a
refinancing, or a portion of a refinancing, is not allowable under 101 CMR
204.05(4)(b)2., EOHHS will calculate allowable long-term interest as though the
non-allowable refinancing did not occur.
(b)
Other
Provisions.
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).
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