10A NCAC 22G .0104. COST REPORTING: AUDITING

(a)  Each facility that receives payments from the North Carolina Medicaid Program must prepare and submit a an annual report of its costs and other financial information to include; the facility's original working trial balance, year end adjusting journal entries, and the facility's daily midnight census records for the cost reporting period.  The report must include costs from the fiscal period beginning on October 1 and ending on September 30 and must be submitted to the state on or before the December 31 that immediately follows the September 30 year end.  A new provider must submit a report for the period beginning with the date of certification and ending on September 30.  Hospital based nursing facilities with a fiscal year ending other than September 30 and State operated facilities with a June fiscal year ending must file their cost reports within 150 days after their fiscal year ends.  Facilities that fail to file their cost reports by the due date are subject to payment suspension until the reports are filed. The Division of Medical Assistance shall extend the deadline no more than 30 days for filing the report if, in its view, good cause exists for the delay.  A good cause is an action that is uncontrollable by the provider.

(b)  Cost report format.  The cost report must be submitted on forms provided by the Division of Medical Assistance.  The account structure for the report is based on the chart of accounts published by the American Healthcare Association in 1979 but amended or modified to the extent necessary to meet the requirements of this Subchapter.  The Division of Medical Assistance shall make one copy of the cost report format with detailed instructions and guidance available to each facility (combination facilities receive only one) on or before September 1 of the reporting year for which the report is to be filed.

(c)  Cost finding and allocation.  Costs must be reported in the cost report in accordance with the following rules and in the order of priority stated.

(1)           Costs must be reported in accordance with the specific provisions as set forth in this Rule.

(2)           Costs must be reported in conformance with the Medicare Provider Reimbursement Manual, HCFA 15.

(3)           Costs must be reported in conformance with Generally Accepted Accounting Principles.

(d)  A provider may request clarification in writing from the state if there is uncertainty about the proper cost center classification of any particular expense item.  Clarifications may be made prior to the beginning of each cost reporting period.  In no case, however, shall any clarifications be applied retroactively. 

(1)           Nursing Cost Center includes the cost of nursing staff, medical supplies, and related operating expenses needed to provide nursing care to patients, including medical records (including forms), the Medical Director and the Pharmacy Consultant.  The amount of nursing time provided to each patient must be recorded in order to allocate nursing cost between reimbursable and non-reimbursable cost centers. 

(2)           Dietary Cost Center includes the cost of staff, raw food, and supplies needed to prepare and deliver food to patients.

(3)           Laundry and Linen Cost Center includes the cost of staff, bed linens (replacement mattresses and related operating expenses needed to launder facility‑provided items).

(4)           Housekeeping Cost Center includes the cost of staff and supplies needed to keep the facility clean.

(5)           Patient Activities Cost Center includes the cost of staff, supplies, and related operating expenses needed to provide activities for patients.

(6)           Social Services includes the cost of social workers and related operating expenses needed to provide necessary social services to patients.

(7)           Ancillary Cost Center includes the cost of all therapy services covered by the Medicaid program and billable medical supplies.  Providers must bill Medicare Part B for those ancillary services covered under the Medicare Part B program.  Ancillary cost centers include:  Radiology, Laboratory, Physical Therapy, Occupational Therapy, Speech Therapy, Oxygen Therapy, Intravenous Fluids, Billable Medical Supplies, Parenteral/Enteral Therapy and life sustaining equipment, such as oxygen concentrators, respirators, and ventilators.  Effective October 1, 1996, air fluidized beds (e.g. Clinitron beds), low air loss mattresses or beds and alternating pressure mattresses may be recorded in the life sustaining equipment cost center.  This program is applicable to lease or depreciation expense incurred on or after October 1, 1996 regardless of when the equipment was initially leased or acquired.  Effective October 1, 1994, a separate ancillary cost center shall be established to include costs associated with medically related transportation for facility residents.  Medically related transportation costs include the costs of vehicles leased or owned by the facility, payroll costs associated with transporting residents and payments to third parties for providing these services.

(8)           Administrative and General Cost Center includes all costs needed to administer the facility including the staff costs for the administrator, assistants, billing and secretarial personnel, personnel director and pastoral expenses.  It includes the costs of copy machines, dues and subscriptions, transportation, income taxes, legal and accounting fees, start‑up, and other administrative costs.  Interest expense other than that stemming from mortgages or loans to acquire physical plant items shall be reported here.

(9)           Capital / Lease:

(A)          This cost center includes all allowable costs related to the use of the physical assets including building, fixed equipment and movable equipment, that are required to deliver patient care, except for automobiles and the special equipment, as specified in Subparagraphs (d)(1) or (d)(7) of this Rule.  Except for automobiles and the special equipment noted in Subparagraphs (d)(1) and (d)(7), it includes the lease expense for all physical assets; depreciation of assets utilizing the straight line method, per AHA guidelines; and interest expense of asset related liabilities, (e.g. mortgage expense).

(B)          In establishing the allowable cost for depreciation and for interest on capital indebtedness, with respect to an asset which has undergone a change of ownership, the valuation of the asset shall be the lesser of allowable acquisition cost less accumulated depreciation to the first owner of record on or after July 18, 1984 who received Medicaid payments for said asset or the acquisition cost to the new owner.  Payment of rent by the Medicaid enrolled provider to the lessor of the facility shall constitute Medicaid payments under this plan.  Depreciation recapture shall not be performed at sale.  The method for establishing the allowable related capital indebtedness shall be as follows.  The allowable asset value shall be divided by the actual acquisition cost times the value of any related capital indebtedness.  The result shall be the liability amount upon which interest may be recorded at the rate set forth in the debt instrument or such lower rate as the state may prove is reasonable.

(10)         Operation of Plant and Maintenance Cost / Non-Capital Cost Center includes all costs necessary to operate or maintain the functionality and appearance of the plant.  These include: building and equipment, automobile depreciation and lease expense, property taxes and property insurance.

(11)         Equipment Expense.  Equipment is defined as an item with a useful life of more than two years and a value greater than five thousand dollars ($5000.00). 

(12)         Training Expense.  Training expense for an employee shall be identified in the same cost center as the employee's salary expense. 

(13)         The costs of training nurse aides in a competency and evaluation program approved by the Division of Health Service Regulation, as set out in 42 CFR 483.151, 483.152 and 483.154, must be separately identified on the cost report and may include the cost of purchasing programs and equipment that have been approved by the State for training or testing.  These costs shall be cost-settled during the desk or field audit and shall not be included in the direct care and indirect cost centers.  A copy of the Code of Federal Regulations (CFR) may be obtained by contacting the Government Printing Office, Superintendent of Documents, Post Office Box 37194, Pittsburgh, Pennsylvania 15250-7954 or they may be accessed online at www.gpoaccess.gov/cfr/retrieve/html.

(14)         Home Office Costs.  Home office costs are generally charged to the Administrative and General Cost Centers.  However, personnel costs which are direct patient care oriented may be allocated to "direct" patient care cost centers if time records are maintained to document the performance of direct patient care services.  No home office overhead may be so allocated.  The basis of this allocation among facilities participating in the North Carolina Medicaid program may be:

(A)          specific time records of work performed at each facility, or

(B)          patient days in each facility to which the costs apply relative to the total patient days in all the facilities to which the costs apply.

(15)         Management Fees.  Management fees are charged to the Administrative and General Cost Center.  However, a portion of a management fee may be allocated to a direct patient care cost center if time records are maintained to document the performance of direct patient care services.  The amount so allocated may be equal only to the salary and fringe benefits of persons who are performing direct patient care services while employed by the management company.  Records adequate to support these costs must be made available to staff of the Division of Medical Assistance.  The basis of this allocation among facilities participating in the North Carolina Medicaid program may be:

(A)          specific time records of work performed at each facility, or

(B)          patient days in each facility to which the costs apply relative to the total patient days in all the facilities to which the costs apply.

(16)         Related Organization Costs.  A nursing facility shall demonstrate by convincing evidence to the satisfaction of the Division of Medical Assistance that the costs are reasonable. Reasonable costs of related organizations shall be identified in accordance with direct and indirect cost center categories as follows:

(A)          Direct Cost:

(i)            Compensation of direct care staff such as nursing personnel (aides, orderlies, nurses), food service workers, housekeeping staff and other personnel who would normally be accounted for in a direct cost center.

(ii)           Supplies and services that would normally be accounted for in a direct cost center.

(iii)          Capital, rental, maintenance, supplies/repairs and utility costs (gas, water, fuel, electricity) for facilities that are not typically a part of a nursing facility.  These facilities include such items as warehouses, vehicles for delivery and offices which are totally dedicated or exceed the number, size, or complexity required for a normal nursing facility, its home office, or management company.

(iv)          Compensation of all administrative staff who perform no duties which are related to the nursing facility or its home office and who are neither officers nor owners of the nursing facilities or its home office.

(B)          Indirect Cost:

(i)            Compensation of indirect staff such as housekeeping, laundry and linen, maintenance, and other personnel who would normally be accounted for in the indirect cost center.

(ii)           Capital, rental, maintenance, supplies/repairs, and utility costs which are normally a part of a nursing facility.  This would include, for example, kitchen and laundry facilities.

(iii)          Except for salary and fringe benefits of Personnel, Accounting and Data Processing staff, home office costs which are allocated by methods approved by the Division of Medical Assistance are direct costs when the work performed is specific to the related organization that provides a direct care service or product to the provider.  In determining if an allocation method is appropriate, a case-by-case review shall be made based on the preponderance of evidence.  A proposed allocation method shall be denied if the review supports a determination that the associated cost either exceeds the cost of comparable products or services that could be purchased elsewhere or was for services that were not related to direct patient care or services not covered by the North Carolina Medical Assistance program.

(iv)          Compensation of all administrative staff who perform any duties for the nursing facility or its home office.

(v)           All compensation of all officers and owners of the nursing facility or its home office, or parent corporation.

A related organization must file a Medicaid Cost Statement (DMA‑4083) identifying its costs, adjustments to costs, allocation of costs, equity capital, adjustments to equity capital, and allocations of equity capital along with the nursing facilities cost report.  A home office, or parent company, shall be recognized as a related organization.  Auditable records to support these costs must be made available to staff of the Division of Medical Assistance and its designated contract auditors.  Undocumented costs shall be disallowed.  A nursing facility shall demonstrate by convincing evidence to the satisfaction of the Division of Medical Assistance that the criteria in the Medicare Provider Reimbursement Manual, Section 1010, have been met in order to be recognized as an exception to the related organization principle.  When a related organization is recognized as an exception; reasonable charges by the related organization to the nursing facility are recognized as allowable costs; receivable/payables from/to the nursing facility and related organization recognized as an exception are not adjusted from the nursing facility's balance sheet in computing equity capital. 

(e)  Auditing.  All filed cost reports shall be desk audited and interim reimbursement settlements made in accordance with the provision of this Subchapter.  An Audit Adjustment Report shall be issued within one year of the date the cost report was filed or within one year of December 31 of the fiscal year to which the report applies, whichever is later.  The state may elect to perform field audits on any filed cost reports within three years of the date of filing and issue a final Audit Adjustment Report on a time schedule that conforms to Federal law and regulation.  If the state does not field audit a facility a final Audit Adjustment Report shall be issued based on the desk audited findings.  The state may reopen and field audit any cost report after the final Audit Adjustment Report to comply with Federal law and regulation or to enforce laws and regulations prohibiting abuse of the Medicaid Program and particularly the provisions of this reimbursement plan.

(f)  Penalties.  Providers who fail to fully and accurately complete cost reports or who fail to furnish required documentation and disclosures for cost reports required under this Subchapter may be subject to penalties for non-compliance.  Issues which are subject to penalties include, material miscoding of cost from Indirect to Direct cost centers or from Non-Reimbursable to Reimbursable cost centers, inaccurate identification of census data or ancillary charges by payor type, and failure to disclose related parties including those deemed non-related by exception.  Errors in a filed cost report which result in an adjustment greater than one percent of a provider's reimbursable total cost per the filed cost report reported in the cost report shall be subject to penalty.  Penalty shall be defined as the dollar value equal to five percent of the Medicaid percentage, as defined by occupancy, of the adjustment.

 

History Note:        Authority G.S. 108A‑25(b); 108A‑54; 108A‑55; 42 C.F.R. 447, Subpart C;

Eff. January 1, 1978;

Amended Eff. March 22, 1978;

Emergency Amendment [(a), (h)] Eff. April 1, 1978 for a period of 120 days to expire on July 30, 1978;

Emergency Amendment [(a), (h)] Expired Eff. July 30, 1978;

Temporary Amendment Eff. October 1, 1984 for a period of 120 days to expire on January 28, 1985;

Amended Eff. August 1, 1998; June 1, 1995; January 4, 1993; October 1, 1991; December 1, 1988;

Temporary Amendment Eff. August 3, 2004;

Amended Eff. January 1, 2005.