[32 Pa.B. 734]
[Continued from previous Web Page]
Subchapter E. ALLOWABLE PROGRAM COSTS AND POLICIES § 1187.51. Scope.
(a) This subchapter sets forth principles for determining the allowable costs of nursing facilities.
(b) The Medicare Provider Reimbursement Manual (HCFA Pub. 15-1) and the Federal regulations at 42 CFR Part 489 (relating to provider and supplier agreements) appropriate to the reimbursement for nursing facility services under the Medicare Program are a supplement to this chapter. If a cost is included in this subchapter as allowable, the HCFA Pub. 15-1 and applicable Federal regulations may be used as a source for more detailed information on that cost. The HCFA Pub. 15-1 and applicable Federal regulations will not be used for a cost that is nonallowable either by a statement to that effect in this chapter or because the cost is not addressed in this chapter or in the MA-11. The HCFA Pub. 15-1 or applicable Federal regulations will not be used to alter the treatment of a cost provided for in this subchapter or the MA-11.
(c) The Department's payment rate for nursing facility services to eligible residents in participating nursing facilities includes allowable costs for routine services. Routine services may include the following:
(1) Regular room, dietary and nursing services, social services and other services required to meet certification standards, medical and surgical supplies and the use of equipment and facilities.
(2) General nursing services, including administration of oxygen and related medications, hand feeding, incontinency care, tray service and enemas.
(3) Items furnished routinely and uniformly to residents, such as resident gowns, water pitchers, basins and bedpans.
(4) Items furnished, distributed to residents or used individually by residents in small quantities such as alcohol, applicators, cotton balls, bandaids, antacids, aspirin (and other nonlegend drugs ordinarily kept on hand), suppositories and tongue depressors.
(5) Reusable items furnished to residents, such as ice bags, bed rails, canes, crutches, walkers, wheelchairs, traction equipment and other durable medical equipment.
(6) Special dietary supplements used for tube feeding or oral feeding, such as elemental high nitrogen diet, even if written as a prescription item by a physician.
(7) Basic laundry services.
(8) Nonemergency transportation.
(9) Beauty and barber services.
(10) Other special medical services of a rehabilitative, restorative or maintenance nature, designed to restore or maintain the resident's physical and social capacities.
(d) Nursing facilities will receive payment for allowable costs in four general cost centers:
(1) Resident care costs.
(2) Other resident related costs.
(3) Administrative costs.
(4) Capital costs.
(e) Within the limits of this subchapter, allowable costs for purposes of cost reporting include those costs necessary to provide nursing facility services. These may include costs related to the following:
(1) Resident care costs.
(i) Nursing.
(ii) Director of nursing.
(iii) Related clerical staff.
(iv) Practitioners.
(v) Medical director.
(vi) Utilization and medical review.
(vii) Social services.
(viii) Resident activities.
(ix) Volunteer services.
(x) Over-the-counter drugs.
(xi) Medical supplies.
(xii) Physical, occupational and speech therapy.
(xiii) Oxygen.
(xiv) Beauty and barber.
(xv) Supplies and minor movable property acquired during cost report periods beginning on or after January 1, 2001, used in a nursing facility in the course of providing a service or engaging in an activity identified in this paragraph.
(2) Other resident related costs.
(i) Dietary, including food, food preparation, food service, and kitchen and dining supplies.
(ii) Laundry and linens.
(iii) Housekeeping.
(iv) Plant operation and maintenance, including the repair, maintenance and service of movable property.
(v) Supplies and minor movable property acquired during cost report periods beginning on or after January 1, 2001, used in a nursing facility in the course of providing a service or engaging in an activity identified in this paragraph.
(3) Administrative costs.
(i) Administrator.
(ii) Office personnel.
(iii) Management fees.
(iv) Home office costs.
(v) Professional services.
(vi) Determination of eligibility.
(vii) Advertising.
(viii) Travel/entertainment.
(ix) Telephone.
(x) Insurance.
(xi) Interest other than that disallowed under § 1187.59(a)(24) (relating to nonallowable costs).
(xii) Legal fees.
(xiii) Amortization--administrative costs.
(xiv) Supplies and minor movable property acquired during cost report periods beginning on or after January 1, 2001, used in a nursing facility in connection with an activity identified in this paragraph.
(4) Capital costs.
(i) Fair rental value of fixed property.
(ii) Movable property.
(A) When the nursing facility's most recent audited MA-11 cost report available in the NIS database for rate setting is for a cost report period beginning prior to January 1, 2001, the fair rental value of major and minor movable property.
(B) When the nursing facility's most recent audited MA-11 cost report available in the NIS database for rate setting is for a cost report period beginning on or after January 1, 2001, the audited acquisition cost of major movable property.
(iii) Real estate tax cost.
§ 1187.56. Selected administrative cost policies.
Policies for selected administrative costs are as follows:
(1) Administrative allowance.
(i) The allowable administrative costs incurred by a nursing facility to provide services are subject to the following limitation: the allowable administrative costs will be determined so that all other allowable costs, excluding capital costs, equal no less than 88% of the allowable net operating costs.
(ii) Home office cost allocations and management fees are subject to the following conditions and limitations:
(A) Home office cost allocations and management fees between related parties shall be reported without markup by the nursing facility.
(B) Costs which are not allowable, such as those related to nonworking officers or officers' life insurance, may not be included in home office allocations or management fees.
(C) Documentation relating to home office and management costs shall be provided to the Department's auditors upon request.
(D) Home office allocations, including administratively allowable depreciation and interest costs shall be reported on the administrative line in the MA-11.
(iii) A nursing facility providing nursing, residential and other services shall allocate the total administrative cost to nursing, residential and other services on the basis of a percentage of these costs to the total net operating costs.
(2) Other interest allowance.
(i) Other interest is an allowable administrative cost if it is necessary and proper. 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 nursing facility and for a purpose related to resident care. Interest incurred to pay interest is nonallowable.
(ii) Other interest may not exceed that amount which a prudent borrower would pay as described in the Medicare Provider Reimbursement Manual (CMS Pub. 15-1).
(iii) Other interest is allowable if paid on loans from the nursing facility's donor-restricted funds, the funded depreciation account or the nursing facility's qualified pension fund.
(iv) Moneys borrowed for the purchase or redemption of capital stock will be considered a loan for investment purposes. The interest paid on these borrowed funds is a nonallowable cost. The use of funds by the nursing facility for the redemption of capital stock will be considered as an investment of available funds.
(3) Investment income.
(i) Investment income is used to reduce allowable other interest unless the investment income is from one of the following:
(A) Gifts or grants of which the corpus and interest are restricted by the donor.
(B) Funded depreciation maintained in accordance with Federal regulations.
(C) The nursing facility's qualified pension fund, if the interest earned remains in the fund.
(D) Issuer specified designated capital bond funds or debt service reserve funds.
(ii) Investment income on funds found to be used for purposes other than their designated purpose or commingled with other funds will be used to reduce allowable administrative interest expense.
(4) General administration expenses.
(i) Salaries of the nursing facility's administrator, comptroller, purchasing agent, personnel director, pharmacy consultant and other persons performing general supervision or management duties are allowable as general administrative costs.
(ii) The salary or compensation costs of owners, operators or persons other than nursing facility employees shall be included as allowable costs only to the extent of their documented time and involvement in the required management of a nursing facility. These costs mean actual payment made during the cost reporting period on a current basis of salary or benefits for services rendered to the nursing facility.
(iii) If a person performs work customarily performed by different or several types of employees, the cost of the salary and other compensation allowable for the person shall be determined by the prorated customary salary and other compensation paid to employees for performing the same types of work. This cost is allowable only if adequate documentation verifying the cost is supplied by the nursing facility.
(iv) The allowable cost for a person performing necessary duties may not exceed the customary compensation and fringe benefits that an employee would normally receive while performing that work.
(5) Contracted management services.
(i) In lieu of home office allocations or management fees, a nursing facility may contract with a nonrelated management service. The cost of this contract shall be shown as an administrative cost and may not be allocated among other cost centers.
(ii) Management services contracted with a related party shall be treated as home office allocations.
§ 1187.57. Selected capital cost policies.
The Department will establish a prospective facility-specific capital rate annually for each nursing facility. That rate will consist of three components: the fixed property component, the movable property component and the real estate tax component.
(1) Fixed property component.
(i) The Department will base the nursing facility's fixed property component on the depreciated replacement cost of the nursing facility's fixed property and the associated financial yield rate.
(ii) On an annual basis, the Department will determine the depreciated replacement cost of each nursing facility's fixed property as of March 31, and will use that determination in setting the fixed property component for the rate year beginning on the following July 1.
(iii) The basis for the Department's determination of the depreciated replacement cost of the nursing facility's fixed property will be the most recent of the following appraisals, as modified by any limited appraisals, as of March 31:
(A) An initial appraisal.
(B) A reappraisal.
(C) An updated appraisal.
(iv) An initial appraisal of the nursing facility's fixed property will be conducted for any new nursing facility.
(v) A reappraisal of the nursing facility's fixed property will be conducted at least every 5 years.
(vi) In situations where neither an initial appraisal nor a reappraisal has been done within the 12-month period preceding March 31, the depreciated replacement cost will be based upon an updated appraisal.
(vii) A limited appraisal will be conducted if the nursing facility notifies the Department that a limited appraisal is needed. For the results of a limited appraisal to be included in the determination of a nursing facility's fixed property component for the next rate year, a limited appraisal must be requested by the nursing facility by January 31 of the preceding rate year.
(viii) The depreciated replacement cost of the nursing facility's fixed property is subject to the cost per bed limitation in § 1187.112 (relating to cost per bed limitation adjustment) and, if applicable, the bed moratorium limitation in § 1187.113 (relating to capital component payment limitation).
(ix) The cost to purchase, construct or renovate the fixed property of the nursing facility will not be a factor in determining the appraised depreciated replacement cost.
(x) When there is a change in nursing facility ownership, the new nursing facility owner is deemed to have the same appraised depreciated replacement cost as the former owner.
(xi) The appraisals of fixed property will be performed by qualified personnel from an independent appraisal firm under contract with the Department.
(2) Movable property component.
(i) When the nursing facility's most recent audited MA-11 cost report available in the NIS database for rate setting is for a cost report period beginning prior to January 1, 2001, the Department will determine the movable property component of each nursing facility's capital rate as follows:
(A) The Department will base the nursing facility's movable property component on the depreciated replacement cost of the nursing facility's major and minor movable property and the associated financial yield rate.
(B) On an annual basis, the Department will determine the depreciated replacement cost of each nursing facility's movable property as of March 31, and will use that determination in setting the movable property component for the rate year beginning on the following July 1.
(C) The Department will base the determination of the depreciated replacement cost of each nursing facility's movable property on a movable property appraisal.
(D) When there is a change in nursing facility ownership, the new nursing facility owner is deemed to have the same appraised depreciated replacement cost as the former owner.
(ii) When the nursing facility's most recent audited MA-11 cost report available in the NIS database for rate setting is for a cost report period beginning on or after January 1, 2001, the Department will determine the movable property component of each nursing facility's capital rate as follows:
(A) The Department will base the nursing facility's movable property component on the nursing facility's audited cost of major movable property, as set forth in that MA-11.
(B) Each nursing facility shall report the acquisition cost of all major movable property on the major movable property line of its MA-11 and shall report the cost of minor movable property and the cost of supplies as net operating costs in accordance with § 1187.51 (relating to scope) and instructions for the MA-11.
(3) Real estate tax cost component. A nursing facility's real estate tax component will be based solely upon the audited cost of that nursing facility's 12-month real estate tax cost, as set forth on the most recent audited MA-11 cost report available in the NIS database.
§ 1187.58. Costs of related parties.
Costs applicable to services, movable property and supplies, furnished to the nursing facility by organizations related to the nursing facility by common ownership or control shall be included as an allowable cost of the nursing facility at the cost to the related organization. This cost may not exceed the price of comparable services, movable property or supplies that could be purchased elsewhere.
§ 1187.59. Nonallowable costs.
(a) Nonallowable costs related to expenses and revenues. The Department will not recognize as allowable costs the expenses or revenues of a nursing facility related to:
(1) Nonworking officers' or owners' salaries.
(2) Fundraising expenses for capital and replacement items exceeding 5% of the amount raised and, for operating expenses and cash flow, fundraising expenses exceeding 10% of the amount raised.
(3) Free care or discounted services.
(4) Parties and social activities not related to resident care.
(5) Organizational memberships not necessary to resident care.
(6) Personal telephone service.
(7) Personal television service.
(8) The direct and indirect costs related to nonallowable cost centers, including gift, flower and coffee shops, homes for administrators or pastors, convent areas and nurses' quarters, except as provided in § 1187.55(3) (relating to selected resident care and other resident related cost policies).
(9) Vending machines.
(10) Charitable contributions.
(11) Employee and guest meals.
(12) Pennsylvania Capital Stock and Franchise Tax.
(13) Income tax.
(14) Ambulance costs.
(15) Promotional advertising, including a yellow page listing larger than a minimum insert.
(16) Late payment penalties.
(17) Taxes based upon net income.
(18) Officers' and directors' life insurance, including life insurance premiums necessary to obtain mortgages and other loans.
(19) Bad debts or contractual adjustments.
(20) Collection expenses associated with bad debts.
(21) Losses on the sale of fixed and movable assets.
(22) Remuneration of any kind for any purpose, including travel expenses for members of the Board of Directors.
(23) Dry cleaning, mending or other specialty laundry services.
(24) Depreciation on fixed or movable property, capital interest, amortization--capital costs and rental expense for fixed property.
(25) Expenses or revenues not necessary to resident care.
(26) Costs, including legal fees, accounting and administrative costs, travel costs and the costs of feasibility studies, attributable to the negotiation or settlement of the sale or purchase of a capital asset--by acquisition or merger--for which payment has previously been made under Title XVIII of the Social Security Act (42 U.S.C.A. §§ 1395--1395yy) if the sale or purchase was made on or after July 18, 1984.
(27) Letter of credit costs.
(28) Legal expenses related to an appeal or action challenging a payment determination under this chapter until a final adjudication is issued sustaining the nursing facility's appeal. If the nursing facility prevails on some but not all issues raised in the appeal or action, a percentage of the reasonable legal expenses is allowable based upon the proportion of additional reimbursement received to the total additional reimbursement sought on appeal.
(29) Nonstandard or nonuniform fringe benefits.
(30) Return on net equity and net worth.
(b) Nonallowable costs related to revenue producing items. In determining the operating costs of a nursing facility, the Department will not allow costs related to:
(1) The sale of laundry and linen service.
(2) The sale of drugs to nonresidents.
(3) The sale of medical and surgical supplies to nonresidents.
(4) The sale of clinical records and abstracts.
(5) The rental of quarters to employees and others.
(6) The rental of space within the nursing facility.
(7) The payments received from clinical specialists.
(8) Discounts on purchases which include trade, quantity and time.
(9) Rebates and refunds of expenses.
(c) Income that reduces allowable costs.
(1) Except as provided in § 1187.56(3)(i) (relating to selected administrative cost policies), any form of investment income shall be used to reduce the allowable administrative interest expense.
(2) Grants, gifts and income designated by the donor for specific operating expenses are used to reduce the allowable costs relating to the specific operating expense.
(3) Recovery of insured loss shall be used to reduce the allowable costs relating to the insured loss.
(4) Applicable revenue producing items, other than room and board, shall be used to reduce the related allowable costs.
(5) Payments received under an exceptional DME grant reduce the allowable cost of the major movable property and related services and items in the cost centers where the costs were originally reported in the MA-11.
(d) Nonallowable direct nursing facility payments. Costs for prescription drugs, physician services, dental services, dentures, podiatry services, eyeglasses, appliances, X-rays, laboratory services and other materials or services covered by payments, other than MA or Medicare Part A, made directly to nursing facilities, including Medicare Part B, Champus, Blue Cross, Blue Shield or other insurers or third parties, are not allowable in determining net operating costs.
§ 1187.60. Prudent buyer concept.
The purchase or rental by a nursing facility of services, movable property and supplies, including pharmaceuticals, may not exceed the cost that a prudent buyer would pay in the open market to obtain these items, as described in the Medicare Provider Reimbursement Manual (CMS Pub. 15-1).
§ 1187.61. Movable property cost policies.
(a) Actual acquisition cost during cost report period. Except as otherwise specified in this section and subject to §§ 1187.58 and 1187.60 (relating to costs of related parties; and prudent buyer concept), a nursing facility's allowable movable property shall be limited to the nursing facility's actual acquisition cost of movable property placed in service during the cost report period.
(b) Determination of acquisition cost. Except in situations where an item of movable property is obtained from a related party, the acquisition cost of that item shall be determined as follows:
(1) Acquisition cost is determined on a per-unit basis.
(2) When an item is purchased, the acquisition cost of that item is equal to the total actual purchase price of the item, regardless of whether the total price is paid in full at the time of purchase or over a period of time, plus the following: any required sales tax, shipping charges and installation charges.
(3) When an item of movable property is leased or rented, the acquisition cost is limited to the lower of: the actual annual lease or rental payments made by the nursing facility; or the imputed purchase price of the item, pro-rated on a straight-line basis over the useful life of the item, as identified in the most recent Uniform Chart of Accounts and Definitions for Hospitals published by the American Hospital Association at the time the item is leased or rented. For purposes of this section, the imputed purchase price of a leased or rented item is the lesser of:
(i) The suggested list price from the manufacturer of the item.
(ii) The actual discounted price of the item available at the time of lease or rental.
(iii) The purchase price for the item set forth in the lease or rental agreement.
(iv) If the lessor is a related party, the related party's acquisition cost as determined in accordance with paragraph (2).
(4) When an item is acquired as the result of a gift or donation, the acquisition cost of that item is deemed to be the appraised depreciated replacement cost of the item provided that, on a date prior to the submission of the MA-11 for the period in which the item is acquired, the nursing facility obtains an appraisal of the item's depreciated replacement cost from a licensed appraiser and submits a copy of the written report of the appraisal to the Department with its MA-11. If the nursing facility fails to obtain an appraisal of the item's depreciated replacement cost from a licensed appraiser within the time period set forth in this section or if the nursing facility fails to submit a copy of the written report of the appraisal to the Department with its MA-11, the acquisition cost of the donated item or gift is deemed to be $0.
(5) When an item is acquired by a trade-in, the acquisition cost of the item shall be the sum of the remaining book value of the item traded-in plus any acquisition cost of the newly acquired item, computed in accordance with paragraphs 2, 3 and 4. The remaining book value of the item shall be determined based upon the useful life of the item, using the Uniform Chart of Accounts and Definitions for Hospitals published by the American Hospital Association, and depreciation computed on a straight-line basis.
(6) When an item is loaned to the nursing facility without charge, the acquisition cost of that item is deemed to be $0.
(7) When an item is covered by a standard express warranty, the cost of that warranty is included in the acquisition cost of the item. The cost of any extended warranty is not included in the acquisition cost of the item.
(8) When an item is acquired from a related party, the acquisition cost of the item shall be determined under § 1187.58 (relating to costs of related parties).
(c) Offsets to reported cost of movable property.
(1) If a nursing facility conveys or otherwise transfers movable property acquired during a cost report period beginning on or after January 1, 2001, to any other person as the result of a sale, trade-in, gift, assignment or other transaction, an offset will be made against the nursing facility's allowable movable property costs in the year in which the conveyance or transfer occurs. The amount of the offset will be the greater of the amount paid or credited to the nursing facility for the item by the person to whom the item is conveyed or transferred or the remaining book value of the item on the date the item is conveyed or transferred, as determined based upon the useful life of the item, using the Uniform Chart of Accounts and Definitions for Hospitals published by the American Hospital Association, and depreciation computed on a straight-line basis.
(2) If a nursing facility removes from service an item acquired during a cost report period beginning on or after January 1, 2001, before the expiration of the useful life of the item, determined using the Uniform Chart of Accounts and Definitions for Hospitals published by the American Hospital Association, an offset will be made against the nursing facility's allowable movable property costs in the year in which the item is removed from service. The amount of the offset will be the remaining book value of the item, as determined based upon the Uniform Chart of Accounts and Definitions for Hospitals published by the American Hospital Association, and depreciation computed on a straight-line basis.
(3) If, for movable property acquired during a cost report period beginning on or after January 1, 2001, a nursing facility receives a refund, money or credit under a lease or rental agreement; or money or credit as a result of a trade-in; or money, including insurance proceeds or damages, as the result of recovery of a loss related to that movable property, the amount received by the nursing facility will be offset against the nursing facility's allowable movable property costs in the year in which the refund money or credit is received.
(4) If a nursing facility fails to liquidate all or part of the acquisition cost of an item reported on the MA-11 during a cost report period beginning on or after January 1, 2001 in accordance with § 1187.52(b) (relating to allowable cost policies) the unliquidated amount will be offset against the nursing facility's allowable movable property cost in a subsequent fiscal period.
(5) If a nursing facility receives a rebate on an item acquired during a cost report period beginning on or after January 1, 2001, the rebate amount received by the nursing facility will be offset against the nursing facility's allowable movable property costs in the year in which the refund money or credit is received.
(d) Losses incurred on the sale, transfer or disposal of movable property are not allowable costs.
(e) The acquisition cost of movable property that is rented or leased is an allowable cost only if the following requirements are met:
(1) The agreement to rent or lease the movable property shall be in writing, identify each item of movable property that is being rented or leased, identify any other services or supplies that are being provided under the agreement, identify the term of the agreement, the payment intervals, and the amount of the periodic payments and total payments due under the agreement.
(2) The agreement to rent or lease the movable property shall set forth a suggested purchase price for each item of movable property rented or leased.
Subchapter F. COST REPORTING AND AUDIT REQUIREMENTS § 1187.71. Cost reporting.
(a) A nursing facility shall report costs to the MA Program by filing an acceptable MA-11 with the Department. Costs in the MA-11 are:
(1) Resident care costs.
(i) Nursing.
(ii) Director of nursing.
(iii) Related clerical staff.
(iv) Practitioners.
(v) Medical director.
(vi) Utilization and medical review.
(vii) Social services.
(viii) Resident activities.
(ix) Volunteer services.
(x) Pharmacy-prescription drugs.
(xi) Over-the-counter drugs.
(xii) Medical supplies.
(xiii) Laboratory and X-rays.
(xiv) Physical, occupational and speech therapy.
(xv) Oxygen.
(xvi) Beauty and barber services.
(xvii) Minor movable property.
(xviii) Other supplies and other resident care costs.
(2) Other resident related costs.
(i) Dietary, including food, food preparation, food service, and kitchen and dining supplies.
(ii) Laundry and linens.
(iii) Housekeeping.
(iv) Plant operation and maintenance.
(v) Minor movable property.
(vi) Other supplies and other resident related costs.
(3) Administrative costs.
(i) Administrator.
(ii) Office personnel.
(iii) Management fees.
(iv) Home office costs.
(v) Professional services.
(vi) Determination of eligibility.
(vii) Gift shop.
(viii) Advertising.
(ix) Travel/entertainment.
(x) Telephone.
(xi) Insurance.
(xii) Other interest.
(xiii) Legal fees.
(xiv) Federal/State Corporate/Capital Stock Tax.
(xv) Officers' life insurance.
(xvi) Amortization-administrative costs.
(xvii) Office supplies
(xviii) Minor movable property.
(xix) Other supplies and other administrative costs.
(4) Capital costs.
(i) Real estate tax cost.
(ii) Major movable property.
(iii) Depreciation.
(iv) Capital interest.
(v) Rent of nursing facility.
(vi) Amortization--capital costs.
(b) The MA-11 shall identify allowable direct, indirect, ancillary, labor and related party costs for the nursing facility and residential or other facility.
(c) The MA-11 shall identify costs of services, movable property and supplies furnished to the nursing facility by a related party and the rental of the nursing facility from a related party.
(d) The MA-11 shall be based on accrual basis financial and statistical records maintained by the nursing facility. The cost information contained in the cost report and in the nursing facility's records shall be current, accurate and in sufficient detail to support the reported costs.
(e) An acceptable cost report is one that meets the following requirements:
(1) Applicable items are fully completed in accordance with the instructions incorporated in the MA-11, including the necessary original signatures on the required number of copies.
(2) Computations carried out on the MA-11 are accurate and consistent with other related computations.
(3) The treatment of costs conforms to the applicable requirements of this chapter.
(4) Required documentation is included.
(5) The MA-11 is filed with the Department within the time limits in §§ 1187.73, 1187.75 and 1187.76 (relating to annual reporting; final reporting; and reporting for new nursing facilities).
(f) The nursing facility shall maintain adequate financial records and statistical data for proper determination of costs under the MA Program. The financial records shall include lease agreements, rental agreements, ledgers, books, records and original evidence of cost--purchase requisitions, purchase orders, vouchers, vendor invoices, inventories, time cards, payrolls, bases for apportioning costs and the like--which pertain to the determination of reasonable costs.
(g) Records and other information described in subsection (d) are subject to periodic verification and audit. Costs which are adequately documented are allowable.
(h) The nursing facility shall maintain the records pertaining to each cost report for at least 4 years following the date the nursing facility submits the MA-11 to the Department.
§ 1187.80. Failure to file an MA-11.
(a) Failure by the nursing facility to file a timely MA-11, other than a final MA-11 and annual MA-11s due along with a final MA-11, may result in termination of the nursing facility's provider agreement and will result in adjustment of the nursing facility's per diem rate as provided in this subsection. An MA-11 is considered timely filed if the MA-11 is received within 120 days following the June 30 or December 31 close of each fiscal year as designated by the nursing facility, or if an extension has been granted, within the additional time allowed by the extension. The Department may also seek injunctive relief to require proper filing, as the Department may deem is in the best interest of the efficient and economic administration of the MA program.
(1) Cost report periods prior to January 1, 2001.
(i) If an MA-11 is not timely filed, the nursing facility's per diem rate will be adjusted downward by 5% beginning the first day of the next month and will remain in effect until the date that an acceptable MA-11 is filed with the Department.
(ii) If an MA-11 is timely filed and is unacceptable, the Department will return the MA-11 to the nursing facility for correction. If an acceptable MA-11 is not filed by the end of the 30th day from the date of the letter returning the unacceptable MA-11 from the Department, the nursing facility's per diem rate will be adjusted downward by 5% beginning the first day of the next month and will remain in effect until the date that an acceptable MA-11 is filed with the Department.
(2) Cost report periods beginning January 1, 2001, and thereafter.
(i) If an MA-11 is not timely filed, the net operating components of the nursing facility's per diem rate will be adjusted downward by 5% and the movable property component of the nursing facility's capital per diem rate will be reduced to $0. This per diem rate reduction will begin the first day of the next month and remain in effect until the date that an acceptable MA-11 is filed with the Department.
(ii) If an MA-11 is timely filed and is unacceptable, the Department will return the MA-11 to the nursing facility for correction. If an acceptable MA-11 is not filed by the end of the 30th day from the date of the letter returning the unacceptable MA-11 from the Department, the net operating components of the nursing facility's per diem rate will be adjusted downward by 5% and the movable property component of the nursing facility's capital per diem rate will be reduced to $0. This per diem rate reduction will begin the first day of the next month and remain in effect until an acceptable MA-11 is filed with the Department.
(b) If a nursing facility fails to file a timely final MA-11 and outstanding annual MA-11s:
(1) The net operating components of the nursing facility's per diem rate will be determined on the basis of the nursing facility's peer group medians, prior to the percent of median adjustment in accordance with § 1187.96 (relating to price and rate setting computations), for the last fiscal period for which the nursing facility has an acceptable MA-11 on file.
(2) The capital component of the nursing facility's per diem rate will be set at $0.
Subchapter G. RATE SETTING § 1187.91. Database.
The Department will set rates for the case-mix payment system based on the following data:
(1) Net operating costs.
(i) The net operating prices for year 1 of implementation will be established based on the most recent audited nursing facility cost report adjusted for inflation, for those nursing facilities receiving audit reports issued by the Department on or before March 31, 1995.
(ii) If an Intergovernmental Transfer Agreement has been executed on or before January 15, 1996, and the State Plan Amendment with sufficient funds to carry out the terms of this subparagraph has been approved by the Health Care Financing Administration (HCFA), the net operating prices for year 2 of implementation will be established based on the following:
(A) Audited nursing facility costs for the 2 most recent years available in the NIS database adjusted for inflation. This database includes audited MA-11 cost reports that are issued by the Department on or before March 31, 1996, of the July 1 price setting period.
(B) If a nursing facility that has participated in the MA Program for 3 or more consecutive years has fewer than two audited cost reports in the NIS database that are issued by the Department on or before March 31, 1996, of the July 1 price setting period, the Department will use reported costs, as adjusted to conform to this title, for those years not audited within 15 months of the date of acceptance, until audits have been completed and are available in the NIS database for price setting.
(C) If a nursing facility, that has not participated in the MA Program for 2 consecutive years, has fewer than two audited cost reports in the NIS database that are issued by the Department on or before March 31, 1996, of the July 1 price setting period, the Department will use all available audited cost reports in the NIS database.
(iii) If an Intergovernmental Transfer Agreement has not been executed on or before January 15, 1996, and the State Plan Amendment with sufficient funds to carry out the terms of subparagraph (ii) has not been approved by HCFA, the net operating prices in year 2 of implementation will be established based on the provisions contained in subparagraph (iv).
(iv) The net operating prices for year 3 of implementation and thereafter will be established based on the following:
(A) Audited nursing facility costs for the 3 most recent years available in the NIS database adjusted for inflation. This database includes audited MA-11 cost reports that are issued by the Department on or before March 31 of each July 1 price setting period.
(B) If a nursing facility that has participated in the MA Program for 3 or more consecutive years has fewer than three audited cost reports in the NIS database that are issued by the Department on or before March 31 of each July 1 price setting period, the Department will use reported costs, as adjusted to conform to Department regulations, for those years not audited within 15 months of the date of acceptance, until audits have been completed and are available in the NIS database for price setting.
(C) If a nursing facility, that has not participated in the MA Program for 3 or more consecutive years, has fewer than three audited cost reports in the NIS database that are issued by the Department on or before March 31 of each July 1 price setting period, the Department will use all available audited cost reports in the NIS database.
(D) For net operating prices effective on or after July 1, 2001, the Department will revise the audited costs specified in clauses (A)--(C) by disregarding audit adjustments disallowing or reclassifying to capital costs, the costs of minor movable property (as defined in § 1187.2 (relating to definitions), effective on July 1, 2001) or linens reported as net operating costs on cost reports for fiscal periods beginning prior to January 1, 2001. The Department will not adjust the audited statistics when revising the nursing facility audited Resident Care, Other Resident Care and Administrative allowable costs to disregard the adjustments relating to minor movable property and linen costs. After revising the audited costs to disregard these adjustments, the Department will recalculate the maximum allowable administrative cost, and will disallow administrative costs in excess of the 12% limitation as specified in § 1187.56(1)(i) (relating to selected administrative cost policies).
(v) Subparagraphs (ii)(B), (iii) and (iv)(B) do not apply, if a nursing facility is under investigation by the Office of Attorney General. In these situations, the Department will use a maximum of the three most recent available audited cost reports in the NIS database used for price setting.
(vi) A cost report for a period of less than 12 months will not be included in the NIS database used for each price setting year.
(vii) During the second calendar quarter of each year, prior to price setting, cost report information will be indexed forward to the 6th month of the 12-month period for which the prices are set. The index used is the most current HCFA Nursing Home Without Capital Market Basket Index.
(viii) Resident data as reported on the Federally approved PA specific MDS will be used to determine case-mix adjustments for each price setting and rate setting period. The resident data requirements are specified in § 1187.33(a) (relating to resident data reporting requirements).
(2) Capital costs.
(i) Fixed property component. The fixed property component of a nursing facility's capital rate will be based upon the fair rental value of the nursing facility's fixed property.
(ii) Movable property component.
(A) When the nursing facility's most recent audited MA-11 cost report available in the NIS database for rate setting is for a cost report period beginning prior to January 1, 2001, the movable property component of a nursing facility's capital rate will be based upon the fair rental value of the nursing facility's major and minor movable property.
(B) When the nursing facility's most recent audited MA-11 cost report available in the NIS database for rate setting is for a cost report period beginning on or after January 1, 2001, the movable property component of a nursing facility's capital rate will be based upon the audited costs of the nursing facility's major movable property as set forth in the nursing facility's most recent audited MA-11 cost report available in the NIS database.
(iii) Real estate tax cost component. The real estate tax component of a nursing facility's capital rate will be based upon the nursing facility's actual audited real estate tax costs as set forth in the nursing facility's most recent audited MA-11 cost report available in the NIS database.
§ 1187.96. Price and rate setting computations.
(a) Using the NIS database in accordance with this subsection and § 1187.91 (relating to database), the Department will set prices for the resident care cost category.
(1) The Department will use each nursing facility's cost reports in the NIS database to make the following computations:
(i) The total resident care cost for each cost report will be divided by the total facility CMI from the available February 1 picture date closest to the midpoint of the cost report period to obtain case-mix neutral total resident care cost for the cost report year.
(ii) The case-mix neutral total resident care cost for each cost report will be divided by the total actual resident days for the cost report year to obtain the case-mix neutral resident care cost per diem for the cost report year.
(iii) For year 2 of implementation, using the NIS database in accordance with § 1187.91(1)(ii), the Department will calculate the 2-year arithmetic mean of the case-mix neutral resident care cost per diem for each nursing facility to obtain the average case-mix neutral resident care cost per diem of each nursing facility. Using the NIS database in accordance with § 1187.91(1)(iii), subparagraph (iv) applies.
(iv) For year 3 of implementation and thereafter, the Department will calculate the 3-year arithmetic mean of the case-mix neutral resident care cost per deim for each nursing facility to obtain the average case-mix neutral resident care cost per diem of each nursing facility.
(2) The average case-mix neutral resident care cost per diem for each nursing facility will be arrayed within the respective peer groups, and a median determined for each peer group.
(3) The median of each peer group will be multiplied by 1.17, and the resultant peer group price assigned to each nursing facility in the peer group.
(4) The price derived in paragraph (3) for each nursing facility will be limited by § 1187.107 (relating to limitations on resident care and other resident related cost centers) and the amount will be multiplied each quarter by the respective nursing facility MA CMI to determine the nursing facility resident care rate. The MA CMI picture date data used in the rate determination are as follows: July 1 rate--February 1 picture date; October 1 rate--May 1 picture date; January 1 rate--August 1 picture date; and April 1 rate--November 1 picture date.
(b) Using the NIS database in accordance with this subsection and § 1187.91, the Department will set prices for the other resident related cost category.
(1) The Department will use each nursing facility's cost reports in the NIS database to make the following computations:
(i) The total other resident related cost for each cost report will be divided by the total actual resident days for the cost report year to obtain the other resident related cost per diem for the cost report year.
(ii) For year 2 of implementation, using the NIS database in accordance with § 1187.91(1)(ii), the Department will calculate the 2-year arithmetic mean of the other resident related cost for each nursing facility to obtain the average other resident related cost per diem of each nursing facility. Using the NIS database in accordance with § 1187.91(1)(iii), subparagraph (iii) applies.
(iii) For year 3 of implementation and thereafter, the Department will calculate the 3-year arithmetic mean of the other resident related cost for each nursing facility to obtain the average other resident related cost per diem of each nursing facility.
(2) The average other resident related cost per diem for each nursing facility will be arrayed within the respective peer groups and a median determined for each peer group.
(3) The median of each peer group will be multiplied by 1.12, and the resultant peer group price assigned to each nursing facility in the peer group. This price for each nursing facility will be limited by § 1187.107 to determine the nursing facility other resident related rate.
(c) Using the NIS database in accordance with this subsection and § 1187.91, the Department will set prices for the administrative cost category.
(1) The Department will use each nursing facility's cost reports in the NIS database to make the following computations:
(i) The total actual resident days for each cost report will be adjusted to a minimum 90% occupancy, if applicable, in accordance with § 1187.23 (relating to nursing facility incentives and adjustments).
(ii) The total allowable administrative cost for each cost report will be divided by the total actual resident days, adjusted to 90% occupancy, if applicable, to obtain the administrative cost per diem for the cost report year.
(iii) For year 2 of implementation, using the NIS database in accordance with § 1187.91(1)(ii), the Department will calculate the 2-year arithmetic mean of the administrative cost for each nursing facility to obtain the average administrative cost per diem of each nursing facility. Using the NIS database in accordance with § 1187.91(1)(iii), subparagraph (iv) applies.
(iv) For year 3 of implementation and thereafter, the Department will calculate the 3-year arithmetic mean of the administrative cost for each nursing facility to obtain the average administrative cost per diem of each nursing facility.
(2) The average administrative cost per diem for each nursing facility will be arrayed within the respective peer groups and a median price determined for each peer group.
(3) The median of each peer group will be multiplied by 1.04, and the resultant peer group price will be assigned to each nursing facility in the peer group to determine the nursing facility's administrative rate.
(d) Using the NIS database in accordance with this subsection and § 1187.91 (relating to database), the Department will set a rate for the capital cost category for each nursing facility by adding the nursing facility's fixed property component, movable property component and real estate tax component and dividing the sum of the three components by the nursing facility's total actual resident days, adjusted to 90% occupancy, if applicable.
(1) The Department will determine the fixed property component of each nursing facility's capital rate as follows:
(i) The Department will adjust the appraised depreciated replacement cost of the nursing facility's fixed property to account for the per bed limitation in § 1187.112 (relating to cost per bed limitation adjustment) and the bed moratorium addressed in § 1187.113 (relating to capital component payment limitation).
(ii) The Department will multiply the adjusted depreciated replacement costs of the fixed property by the financial yield rate to determine the fair rental value for the nursing facility's fixed property.
(iii) The nursing facility's fixed property component will equal the fair rental value of its fixed property.
(2) The Department will determine the movable property component of each nursing facility's capital rate as follows:
(i) When the nursing facility's most recent audited MA-11 cost report available in the NIS database for rate setting is for a cost report period beginning prior to January 1, 2001:
(A) The Department will multiply the depreciated replacement costs of the movable property by the financial yield rate to determine the fair rental value for the nursing facility's movable property.
(B) The nursing facility's movable property component will equal the fair rental value of its movable property.
(ii) When the nursing facility's most recent audited MA-11 cost report available in the NIS database for rate setting is for a cost report period beginning on or after January 1, 2001, the amount of the movable property component will be based upon the audited actual costs of major movable property as set forth in the most recent audited MA-11 cost report available in the NIS database. This amount is referred to as the nursing facility's most recent movable property cost.
(3) The Department will determine the real estate tax cost component of each nursing facility's capital rate based on the audited actual real estate tax cost as set forth in the most recent audited MA-11 cost report available in the NIS database.
(e) The nursing facility per diem rate will be computed by adding the resident care rate, the other resident related rate, the administrative rate and the capital rate for the nursing facility.
[Continued on next Web Page]
No part of the information on this site may be reproduced for profit or sold for profit.This material has been drawn directly from the official Pennsylvania Bulletin full text database. Due to the limitations of HTML or differences in display capabilities of different browsers, this version may differ slightly from the official printed version.
