Ala. Admin. Code r. 560-X-42-.13
Current through Register Vol. 43, No. 1, October 31, 2024
Section 560-X-42-.13 - Return On Equity Capital(1) An allowance for reasonable return on equity capital invested and used in providing patient care is allowable as an element of the reasonable cost of services rendered by a proprietary provider.(2) Equity capital is the difference between the net assets and net liabilities of a provider, adjusted for any asset or liability not related to patient care and any other non-allowable item provided for elsewhere in this Chapter.(3) The amount of Net Working Capital (current assets minus current liabilities) which is includable in the computation of return on equity capital shall not exceed 1/9th of the provider's allowable costs for the fiscal year in issue.(4) Providers that are members of chain operations must also include in equity capital a proportionate share of the equity capital, whether negative or positive, of the home office and/or directly related organizations. Amounts due to and from members of a chain, the home office, or any related service organization must be eliminated in computing equity capital.(5) Unless specifically stated otherwise in this Chapter or HIM-15, current assets and current liabilities will be determined in accordance with generally accepted accounting principles. Accounts must be maintained by the accrual method of accounting in compliance with Rule 560-X-42-.21. Accounts not maintained accordingly will result in equity capital not being included in the provider's rate computation until the required documentation of those accounts is provided Medicaid. Examples of assets and liabilities included in the determination of equity capital are as follows: (a) Cost of fixed assets such as land, buildings and equipment, reduced by accumulated depreciation.(b) Net working Capital (all other assets minus all other liabilities except specific exclusions). 1. Assets. (i) Cash on hand in banks.(ii) Current accounts receivable will include only those accounts for which diligent, documented effort is being made to collect.(vii) Bond Discounts (net amortization).(viii) Prepaid Expenses (except prepaid life and auto insurance premiums).2. Liabilities. (i) Current Accounts Payable (payables over one year old may be adjusted as Medicaid deems necessary).(iii) Salaries and Fees Payable (must be paid within 75 days of the balance sheet date).(iv) Payroll Taxes Payable.(v) Deferred Income (must be received within 75 days of the balance sheet date).(vi) Ad Valorem Taxes Payable.(vii) Accrued Federal and State Income Taxes.(ix) Bond Premiums (net of amortization).(6) Assets and liabilities not related to providing resident care are not includable in the provider's equity capital. Examples of excludable assets are as follows: (a) Funded Depreciation Account. Where the provider establishes an account in which amounts representing payments received or amounts accrued for depreciation expense are deposited, the amounts deposited in this account and the earnings on the funded depreciation which remain in the fund are not includable in equity capital.(b) Assets Held in Anticipation of Expansion. The costs attributable to land, buildings, or other assets held in anticipation of expansion are not includable in equity capital as long as they are not being used in the operation or maintenance of resident care activities. Liabilities related to these assets will also be excluded. Construction-in-process and liabilities related to such construction are not includable in equity capital.(c) Cash Surrender Value of Life Insurance. Where a provider carries life insurance on officers, owners, or key employees with the provider designated as the beneficiary, the cash surrender value of such insurance is not included in equity capital.(d) Prepaid Life Insurance. Prepaid premiums on life insurance carried by a provider on officers, owners, and key employees are not included in equity capital.(e) Goodwill. The costs of acquiring or generating goodwill is not includable in the provider's equity capital.(f) Prepaid Auto Insurance. That portion of a provider's general insurance premium that is prepaid and related to automobiles is not includable in equity.(7) Accrued Federal and State Income Taxes will be treated as a liability in computing a provider's equity capital.(8) The portion of debts representing bona fide loans from partners, stockholders, or a related organization which is outstanding during the entire cost reporting period and on which interest payments are not allowable as costs is considered to be invested capital of the provider. By not subtracting it from assets, the equity capital of the provider is increased.(9) The rate of return on equity capital is a per annum percentage equal to the yearly average of the rates of interest on special issues of public debt obligations issued to the Federal Hospital Insurance Trust Fund. These interest rates are available from the Social Security Administration on a monthly basis, and the average will be computed on a yearly basis for the twelve month period ending on the last day of the relevant cost reporting period. Author: Susan Mims
Ala. Admin. Code r. 560-X-42-.13
Rule effective October 13, 1988. Amended: Filed: June 8, 1993; effective July 13, 1993.Statutory Authority: State Plan; Title XIX, Social Security Act; 42 C.F.R. §§447.250 - .255.