Pennsylvania Code
Title 55 - HUMAN SERVICES
Part III - MEDICAL ASSISTANCE MANUAL
Chapter 1181 - NURSING FACILITY CARE
Subchapter B - MANUAL FOR ALLOWABLE COST REIMBURSEMENT FOR SKILLED NURSING AND INTERMEDIATE CARE FACILITIES
OTHER COST ITEMS
Section 1181.260 - Interest allowance

(a) Necessary and proper interest on capital and current indebtedness is an allowable cost. The Department will recognize interest as an allowable cost subject to the following conditions:

(b) Except as specified in subsections (c) and (d), a facility will be reimbursed for allowable interest on capital indebtedness with respect to assets only if the facility is the recorded holder of legal title of the assets involved.

(c) A facility which participated in the MA Program prior to July 1, 1983, which is not part of a related organization and which is not the recorded holder of legal title to the facility, is considered to meet the recorded holder of legal title requirement, and therefore, will be reimbursed for allowable interest on a particular project, if, at the time services were rendered the following existed:

(d) A facility which participated in the MA Program prior to July 1, 1983, which is part of a related organization and which is not the recorded holder of legal title to the facility, is considered to meet the recorded holder of legal title requirement, and, therefore, will be reimbursed for allowable interest on a particular project, if, at the time services were rendered the following existed:

(e) Allowable interest on capital indebtedness may not exceed that amount which a prudent borrower would pay. Interest on capital indebtedness may not be considered prudent if the provider cannot demonstrate that the rate does not exceed the rate available from lenders in this Commonwealth to nursing home borrowers at the time that the funds were borrowed. In no event will the upper limit on interest on capital indebtedness exceed the prime interest rate charged by the lending institution at the time funds are borrowed. For the purpose of this section, the time that the funds were borrowed is the date of the loan commitment.

(f) To be considered allowable, necessary and proper, the interest expense shall be incurred and paid within 90 days of the close of the cost reporting period on a loan made to satisfy a financial need of the facility and for a purpose reasonably related to patient care.

(g) Necessary interest on capital indebtedness applying to mortgages, bonds, notes or other securities on the property and plant of the facility will be recognized subject to the limitation of the amount recognized for depreciation purposes. The total value of mortgages, bonds, notes or other securities on which interest on capital indebtedness is allowed may not exceed the depreciation basis of the assets at § 1181.259(m), (n) and (o) (relating to depreciation allowance).

(h) Investment income shall be used to reduce allowable interest expense on capital and current indebtedness unless the investment income is from one of the following:

(i) Investment income including income on operating capital, shall be used to reduce interest expense on capital indebtedness first, then used to reduce interest on noncapital indebtedness.

(j) Interest expense shall be allowable if paid on loans from the facility's donor-restricted funds, the funded depreciation account or the facility's qualified pension fund. The upper limit on allowable interest may not exceed the limitations specified in subsection (e).

(k) Interest on capital indebtedness will be recognized on debt services incurred to finance a maximum construction cost per bed of $22,000 as defined in § 1181.259(m) and (s). If the construction cost exceeds the $22,000 per bed limit, the interest on the portion of the construction cost which exceeds the $22,000 limit is not allowable.

(l) Moneys borrowed for the purchase or redemption of capital stock will be considered as a loan for investment purposes and the interest paid on these borrowed funds is not an allowable cost.

(m) Income earned from funds included in a trust agreement, including those funds deemed to be funded depreciation, shall be offset against allowable interest on capital indebtedness.

(n) Interest expense on funds borrowed for capital purchases may not be allowed until the funds in the facility's funded depreciation account are fully expended.