(1) Overhead costs are those costs not directly related to patient care. Overhead costs are those costs related to the PBRHC's facility and administration and management of the PBRHC.(2) Examples of Overhead Costs include, but are not limited to: (a) Salaries and benefit costs of the administration staff (Owners' compensation will be limited to reasonable cost - i.e., that which would be paid to an unrelated employee performing the same function).(b) Accounting and Auditing2. Preparation of cost reports3. Auditing and related statements(c) Nominal meeting expenses for Board Members(d) Legal costs related to patient care(e) Data Processing 3. Outside purchased service(j) Malpractice Insurance(m) Utilities (power, gas, and water)(o) Maintenance and Repairs(u) Home Office Cost (if appropriate)(v) Management fees not exceeding the cost of the provider of the services and not excluded under another section of this Chapter(w) Other costs, if appropriate(3) Purchase Discounts and Allowances, and Refunds of Expenses. Discounts and allowances received on purchases of goods or services are reductions of the costs to which they relate. Similarly, refunds of previous expense payments are reductions of the related expense. Discounts, in general, are reductions granted for the settlement of debts. Allowances are deductions granted for damage, delay, shortage, imperfection or other cause, excluding discounts and returns. Refunds are amounts paid back or a credit allowed on account of an over-collection. Rebates represent refunds of a part of the cost of goods or services. A rebate is commonly based on the total amount purchased from a supplier and differs from a quantity discount in that it is based on the value of purchases, whereas quantity discounts are generally based on the quantity purchased. All discounts, allowances, and refunds of expenses are reductions in the cost of goods or service purchased and are not income. When they are received in the same accounting period in which the purchases were made or expenses were incurred, they will reduce the purchases or expenses of that period. However, when they are received in a later accounting period, they will reduce the comparable purchases or expenses in the period in which they were received.
Purchase discounts have been classified as cash, trade, or quantity discounts. Cash discounts are reductions granted for the settlement of debts before they are due.
Trade discounts are reductions from list prices granted to a class of customers before consideration of credit terms. Quantity discounts are reductions from list prices granted because of the size of individual or aggregate purchase transactions. Whatever the classification of purchase discounts, like treatment in reducing allowable cost is required.
In the past, purchase discounts were considered as financial management income. However, modern accounting theory holds that income is not derived from a purchase but rather from a sale or an exchange and that purchase discounts are reductions in the cost of whatever was purchased. The true cost of the goods or services is the net amount actually paid for them. Treating purchase discounts as income would result in an overstatement of costs to the extent of the discount.
As with discounts, allowances and rebates received from purchases of goods or services and refunds of previous expense payments are clearly reductions in costs and must be reflected in the determination of allowable costs. This treatment is equitable and is in accord with that generally followed by other governmental programs and third-party organizations paying on the basis of cost.
(4) Advertising Costs. The allowability of advertising costs depends on whether they are reasonable, appropriate and helpful in developing, maintaining, and furnishing covered services to Medicaid beneficiaries. To be reimbursable, such costs must be common and accepted occurrences in the field of the clinic's activity. Advertising costs incurred in connection with the clinic's public relations activities are allowable if the advertising is primarily concerned with the presentation of a good public image and directly or indirectly related to patient care. These costs will be limited to $100.00 per year for the clinic. Costs connected with fund-raising are not included in this category and are therefore nonallowable.
Costs of advertising for the purpose of recruiting medical and paramedical personnel for the clinic's salaried staff are allowable. Costs incurred in advertising for administrative or clerical personnel are allowable if the personnel would be involved in patient care activities or the development and maintenance of the facility.
Advertising costs incurred in connection with obtaining bids for construction or renovation of the clinic's facilities should be included in the capitalized cost of the asset.
(5) Insurance Costs. The reasonable costs of insurance purchased from a commercial carrier and not from a limited purpose insurer are allowable if the type, extent, and cost of coverage are consistent with sound management practice. Where a clinic has purchased insurance without the customary deductible feature and, as a result, is charged a substantially higher premium, the amount of the insurance premium which exceeds the insurance premium with the customary deductible clause is not an allowable cost. Generally, the following types of insurance are recognized:
(a) Property Damage and Destruction. This type of insurance covers losses due to the damage to, or destruction of, the facility's physical property. Coverage is available to insure against losses resulting from fire or lightning, windstorm, earthquake, sprinkler leakage, water damage, automobile damage, etc.(b) Liability. This insurance includes professional liability (malpractice, error in rendering treatment, etc.), worker's compensation, automobile liability, and general liability.(c) Theft Insurance. This generally includes fidelity bonds and burglary insurance.(6) Taxes. When a clinic is liable for the payment of certain taxes, such payments made in accordance with the levying enactment of the state and lower levels of government may be included in allowable costs. The program will pay its proportionate share of such allowable expenses. Clinic's are expected to obtain exemption from taxation whenever they can legally do so. When such exemptions are available but the clinic neglects to take advantage of them, incurred expenses for such taxes will not be recognized as allowable costs under the program.
Tax expense should not include fines and penalties. In general, taxes which the clinic is required to pay are includable in allowable costs except for:
(a) Federal income and excess profit taxes.(b) State or local income and excess profit taxes.(c) Taxes in connection with financing, refinancing, or refunding operations, such as taxes on the issuance of bonds, property transfers, issuance or transfer of stocks, etc. Generally, these costs are either amortized over the life of the securities or depreciated over the life of the asset. They are not, however, recognized as tax expense.(d) Special assessments on land which represent capital improvements such as sewers, water, and pavements should be capitalized and depreciated over their estimated useful lives.(e) Taxes on any property which is not used in the rendition of covered services. Taxes which are allowable for inclusion in costs under the program generally are included in overhead costs of the clinic.
(7) Membership Costs. Clinics customarily maintain memberships in a variety of organizations and consider the costs incurred as a result of these memberships to be ordinary operating costs. Generally, costs of clinics memberships in professional, technical, and business related organizations are allowable for purposes of program reimbursement. Generally, social and fraternal organizations concern themselves with activities unrelated to their members' professional or business activities and are, therefore, not allowable. Author:
Ala. Admin. Code r. 560-X-60-.05
Emergency rule effective October 1, 1993. New Rule: Filed December 7, 1993; effective January 12, 1994.Statutory Authority:Code of Ala. 1975, State Plan; Title XIX, Social Security Act, 42 C.F.R. Sections 405.2460 - .2472 and 447.371.