D.C. Mun. Regs. tit. 29, r. 29-972

Current through Register Vol. 71, No. 44, November 1, 2024
Rule 29-972 - ALLOWABLE COSTS
972.1

The standards established in this section are to provide guidance in determining whether certain cost items will be recognized as allowable base year costs. In the absence of specific instructions or guidelines, each facility shall follow the principles and instructions set forth in the Medicare Provider's Reimbursement Manual.

972.2

Bed Occupancy Allowance - For purposes of calculating the base year cost, each facility shall maintain at a minimum an average annual occupancy rate of 85%. For each facility with less than an 85% occupancy rate, the bed occupancy allowance shall be computed using an 85% factor instead of the lower, actual percentage of occupancy. A reserved bed paid under Medical Assistance shall be counted as an occupied bed. The occupancy level adjustment is applicable to fixed costs, such as depreciation, rent, interest, insurance and taxes. The occupancy level adjustment does not apply to variable costs such as staffing and food, since these costs decrease as the occupancy level decreases.

972.3

General Administrative Salaries - Salaries of the facility's administrator, comptroller, purchasing agent, personnel director and other persons performing general supervision or managements duties shall be included for consideration as allowable costs. If the owners of a facility perform management duties on a full or part-time basis, their salary may be included to the extent their time is documented. Compensation to an owner includes salary paid on a current or deferred basis.

972.4

Nursing Care Allowance - The minimum staffing standards for classes of nursing personnel shall comply with the requirements as specified in 42 C.F.R. §§442 and 483, D.C. Law 5-48, and Chapter 35 of Title 22 of the District of Columbia Municipal Regulations.

972.5

General Management and Consulting Fees - These items shall be included in the costs of general administration. These costs will be allowed and evaluated on the basis of reasonable and customary fees for such services.

972.6

Volunteer Services and Donated Services - Volunteer or religious organizations may donate the services of individuals to serve on a regularly scheduled basis in positions customarily held by full time employees to provide normal patient care or assist in the operation of the facility. Actual costs to the facility for maintaining or utilizing the services of such individuals will be considered as an allowable cost. The actual costs for these services shall be supported by documented expenditures for payments made for maintaining such individuals.

972.7

Physical Therapy and Rehabilitative Services - The cost of physical therapy and rehabilitative maintenance services including occupational therapy and speech therapy provided by persons employed on an hourly or salary basis under contract with the facility will be considered as an allowable cost when such treatment is ordered by a physician. However, these costs shall not include such services and payments covered by Medicare Part B or any payments on a fee-for-service basis.

972.8

Physician Services - The cost of physician services shall be allowed if required for maintaining the quality of medical services. Examples include the medical director and patient medical services provided by staff physicians. Payment for independent and group practice physician fees for services provide. to Medicaid patients, which are reimbursed separately from payments made to ICFs/MR, shall be excluded

972.9

Drug Services - All drugs furnished by a facility shall be based on a physician's written order or prescription; administered judiciously; and limited to the medical necessity of the patient. All drugs administered to a patient shall be recorded timely on the patient's chart. A facility shall not be reimbursed for prescription drugs dispensed to Medicaid patients which are filled by a pharmacy at the request of a patient. A facility shall be reimbursed for drugs ordered or refilled from a pharmacy for a Medicaid patient and administered to another patient or drugs purchased and administered after discharge or death of a patient. Medicaid patients in ICFs/MR shall receive routine and emergency drug prescriptions through their outpatient drug benefits. Drugs which are not covered by the outpatient drug benefit which would otherwise be allowable are included in the inpatient per diem rate.

972.10

Utilization and Medical Review and Program Audits - All services mandated by federal and District rules governing utilization reviews, medical reviews and program audits may be included under "Utilization Review" as a separate item for purposes of reimbursement.

972.11

Reimbursement of Capital-Related Costs Resulting from a Change in Ownership - For purposes of establishing an appropriate allowance for depreciation, interest on capital indebtedness, and return on equity capital for an asset obtained by during a change of ownership, the valuation of the asset after such change of ownership shall be the lesser of the allowable acquisition cost of the asset to the owner of record on July 18, 1984, or the acquisition cost of the asset to the new owner.

972.12

Depreciation on capital assets, including assets for normal, standby or emergency use is an allowable cost subject to the following conditions:

(a) Only the straightline method of depreciation shall be used. The asset cost shall be reduced by any salvage value. The useful life may be shorter than the physical life depending upon the usefulness of the asset to the provider. Facilities shall follow the guidelines on useful life published by the Internal Revenue Service or the booklet entitled "Estimated Useful Lives of the Depreciable Hospital Assets" published by the American Hospital Association.
(b) Depreciation expense for the year of acquisition and the year of disposal shall be computed by using either the half-year method or the actual time method.
(c) The method and procedure for computing depreciation shall be applied on a consistent basis.
(d) The assets shall be recorded at cost; however donated assets shall be recorded at fair market value at the time received based on the lesser of at least two bonafide appraisals. Cost during the construction of an asset, such as architectural consulting and legal fees, interest and fundraising expenses shall be capitalized as a part of the cost of the asset. When an asset is acquired by a trade-in, the cost of the new asset shall be the sum of the book value of the old asset and any cash paid or issuance of debt to acquire the asset.
(e) Facilities that previously did not maintain fixed asset records and did not record depreciation in prior years shall be entitled to any straight-line depreciation of the remaining useful life of the asset. The depreciation shall be based on the cost of the asset or the fair market value of the donated asset at the time of donation. No depreciation shall be taken on an asset that would have been fully depreciated if it had been properly recorded at the time of acquisition.
(f) Leasehold improvements shall be depreciated over the lesser of the asset's useful life or the remaining life of the lease.
(g) Gains and losses realized from the disposal of depreciable assets, not to exceed 10% of the total allowable depreciation for the year shall be included as an allowable cost.
(h) The cost basis for depreciable assets of a facility purchased as an ongoing operation shall be the lesser of the purchase price or the fair market value at the time of the sale and shall be reduced by any straight line depreciation taken by the prior owner. The fair market value is the lesser value obtained from at least two bona fide appraisals at the time of the sale. The sale must be an arm's-length transaction consummated in the open market between non-related parties in a normal buyer-seller relationship.
(i) Reasonable costs of depreciation shall be recognized for the construction and renovation of a building to comply with federal and District statutes and rules for ICFs/MR serving Medicaid patients.
(j) Where purchase of a facility or improvements thereto are financed by tax exempt bonds, the acquired property, plant or equipment shall be capitalized and depreciated over the life of the asset. The installment payment shall not be included as an allowable cost. The amortization of interest in accordance with the terms of the bond issue shall be included as an allowable cost. Where the principal amount of the bond issue was expended in whole or in part on capital assets which are ineligible for depreciation, the includable depreciation shall be proportionately reduced.
(k) Funding is required for depreciation allowed for replacement of assets obtained through federal or District grant funds such as legacy foundation grants or Hill Burton grants. Funding of other depreciation is recommended in order that funds are available for future replacement of assets by the facility.
972.13

The fixed asset records shall include:

(a) The depreciation method;
(b) A description of the asset and date acquired;
(c) Cost;
(d) Salvage value;
(e) Depreciable cost;
(f) Estimated useful life;
(g) Depreciation for the year; and
(h) Accumulated depreciation.
972.14

Interest shall be allowed subject to the following conditions:

(a) Interest on both current and capital indebtedness shall be allowed;
(b) Interest incurred on a loan to satisfy a financial need of the facility shall be allowed. Interest incurred on a loan which results in excess funds or for purposes of investing shall not be allowed;
(c) Interest incurred on mortgages on the property and equipment of the facility shall be allowed. The total value of the mortgages on which the interest is computed shall not exceed the lesser of at least two independent appraisals of the mortgaged property and equipment;
(d) Interest incurred on a loan made for a purpose reasonably related to patient care shall be allowed;
(e) Interest expense reduced by investment income shall be allowed, except when the investment income is derived from gifts or grants which are restricted by the donor and accounted for separately from other funds;
(f) Income from funded depreciation or from the facility's qualified pension plan shall not be used to reduce interest expense;
(g) Interest incurred at a rate not to exceed what a prudent borrower would have to pay in the market existing at the time the loan was made shall be allowed; and
(h) Interest shall be allowed if paid on loans from the facility's donor restricted funds, the funded depreciation account or the facility's qualified pension fund.
972.15

Bad debts shall not be recognized as an allowable cost.

972.16

Costs pertaining to raising funds for operating expenses and cash flow shall be recognized as an allowable expense up to 10% of the amount raised.

972.17

A related organization can furnish services and supplies to a facility under the prudent buyer concept, provided the costs of such services and supplies are consistent with costs of such items furnished by independent third party providers in the same geographic area.

972.18

Reasonable rental expense shall be an allowable cost for leasing of a facility from a non-related party if it is an arm's length transaction.

972.19

The purchase or rental by a facility of any property, plant, equipment, services, and supplies shall not exceed the cost that a prudent buyer would pay in the open market to obtain these items.

D.C. Mun. Regs. tit. 29, r. 29-972

Final Rulemaking published at 45 DCR 2333, 2340 (April 17, 1998)
Authority: Section 1 of An Act to enable the District of Columbia to receie Federal financial assistance under Title XIX of the Social Security Act for a medical assistance program, and for other purposes, approved December 27, 1967 (81 Stat. 774; D.C. Official Code § 1-359(b)); Reorganization Plan No. 4 of 1996, effective January 13, 1997; and Mayor's Order 97-42, dated February 18, 1997.