10A NCAC 22G .0305. ALLOWABLE COSTS

(a)  To be considered allowable, costs shall not exceed fair and reasonable levels as determined by Division of Medical Assistance, and shall be required to provide necessary client care under the Medicaid Program.

(1)           The cost of goods or services sold to non‑Medicaid clients shall be excluded in determining the allowable client related expenses reimbursable under the Medicaid program.  If the provider has not determined the cost of such items, the revenue generated from such sales shall be used to offset the total cost of such services.

(2)           Examples of sources of such income items include, but are not limited to:

(A)          supplies and drugs sold by the facility for use by nonresidents,

(B)          telephone and telegraph services for which a charge is made,

(C)          discount on purchases,

(D)          employee rental of living quarters,

(E)           cafeterias,

(F)           meals provided to staff or a client's guest for which there is a charge,

(G)          lease of office and other space by concessionaires providing services not related to intermediate care facility services,

(H)          interest income except for income earned of qualified pension funds and income from gifts or grants which are donor restricted.

(b)  Except where specific rules concerning allowability of costs are stated herein, the Division of Medical Assistance shall use as its major determining factor in deciding on the allowability of costs, the Medicare Provider Reimbursement Manual, published by the U.S. Department of Health and Human Services' Health Care Financing Administration (HCFA).  Where specific rules stated herein or in HIM‑15 are silent concerning the allowability of costs, the Division of Medical Assistance shall determine allowability of costs based on a case specific review taking into consideration the reasonableness of said costs and their relationship to client care and generally accepted accounting principles, consistent with this Rule.

(c)  As determined by the Division of Medical Assistance, expenses or portion of expenses reported by an individual facility that are not reasonably related to the efficient and economical provision of care in accordance to the requirements of this Rule, because of either the nature or amount of the item, shall not be allowed.

(1)           Reasonable compensation, as determined by Division of Medical Assistance, of individuals employed by a provider is an allowable cost, provided such employees are engaged in client related functions and that the compensation is reasonable in light of industry historical data.  The historical data shall include, but not be limited to, salary levels for similar services in the same market in which the facility is located.

(2)           Payroll records shall be maintained by the provider to substantiate the staffing costs reported to the Division of Medical Assistance.  Payroll records shall indicate each employee's classification, hours worked, rate of pay, and the functional area to which the employee was assigned and actually worked.  If an employee performs duties in more than one cost center, the provider shall maintain periodic time studies in order to allocate salary and wage costs to the appropriate cost centers, as determined by the Division of Medical Assistance.  These periodic time studies shall be maintained in accordance with the Medicare Provider Reimbursement Manual.

(3)           The Division of Medical Assistance shall not reimburse costs related to excess staff.

(4)           Compensation for owners is allowable only for duties which otherwise would require the employment of another individual in the provision of ICF‑MR related services.  Said compensation shall be limited to a reasonable amount, as determined by the Division of  Medical Assistance, not to exceed that paid in the local market place for similar type duties.  Compensation for owners is not allowable where the services are not related to the provision of ICF‑MR related services.

(d)  As determined by the Division of Medical Assistance, costs which are not properly related to client care or treatment, and which principally afford diversion, entertainment or amusement to owners, operators, or employees of the facility shall not be allowed.

(e)  As determined by the Division of Medical Assistance, costs for any interest expense related to funding expenses in excess of a fair and reasonable amount, or penalty imposed by governmental agencies or courts and the costs of insurance policies obtained solely to insure against such penalty, shall not be allowed.

(f)  As determined by the Division of Medical Assistance, costs of contributions or other payments to political parties, candidates or organizations shall not be allowed.

(g)  As determined by the Division of Medical Assistance, only that portion of dues paid to any professional association which has been demonstrated to be reasonable in amount and attributable to Medicaid Program related expenditures other than for lobbying or political contributions shall be allowed.  The burden of proof shall be on the provider to justify the inclusion of any professional association dues.  Association budgets may be considered in determining said justification.

(h)  Any cost of the sale, purchase, alteration, construction, rehabilitation or renovation of a physical plant or interest in real property shall be considered allowable up to the amount approved by the Division of Medical Assistance.  Cost is limited by the applicable provisions of Paragraphs (i) and (l) of this Rule.  Cost is allowable only to the extent it is necessary for the provision of adequate client care under this Rule, as determined by the Department of Human Resources. Cost, and the associated financing, equal to or greater than ten thousand dollars ($10,000) related to existing facilities or the construction of replacement facilities is subject to prior Division of Medical Assistance approval.  Providers shall not incur said costs in a piece meal fashion in order to avoid the ten thousand dollars ($10,000) limit.  Failure to acquire prior approval shall result in the disallowance of said cost from Medicaid reimbursement, unless failure to acquire prior approval was caused by reasons beyond the control of the provider.

(1)           The provider shall file the necessary documentation to support the justification for the proposed expenditure and related financing with the Division of Medical Assistance no later than 90 days prior to the proposed transaction's commencement date.

(2)           The Division of Medical Assistance shall render a decision in writing to the provider on the propriety of the proposed transaction no later than 30 days prior to the proposed transaction's commencement date.

(3)           The time requirements of Subparagraphs (h)(1) and (2) of this Rule shall be altered, by the Division of Medical Assistance with just cause shown that failure to make timely filing was caused by reasons beyond the control of the provider.

(4)           For any transaction resulting in a change of ownership, the valuation of the asset shall be limited to the lesser of the allowable acquisition cost of the asset to the first owner of record who has received Medicaid payment for said asset, less any accumulated depreciation, plus any allowable improvements, or the acquisition cost of the asset to the new owner.  Payment of rent by the Medicaid enrolled provider to the lessor of a facility shall constitute Medicaid payments under this Rule.

(5)           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 any capital asset (by acquisition or merger) for which any payment has previously been made under Medicaid, shall not be allowable for reimbursement.

(6)           An exception may be applied by the Division of Medical Assistance to the requirements of either Subparagraph (h)(4) or (5) of this Rule, if it can be proven that the change in ownership shall result in increasing the level of care provided to the facility's clients up to the level required by the Division of Health Service Regulation.

(A)          In order to meet this exception, it shall be proven that the previous facility owner was not providing, and was incapable of providing, adequate client service, as determined by the Department of Health and Human Services.

(B)          The burden of proof in supporting this exception is on the provider.  The provider shall request, in writing, consideration of this exception from the Division of Medical Assistance.

(C)          Consideration of this exception may result in the Division of Medical Assistance allowing some or all of the costs in Subparagraph (h)(5) for Medicaid reimbursement.

(D)          Consideration of this exception may result in the Division of Medical Assistance allowing a substitute valuation for the transferred property under Subparagraph (h)(4) that is greater than the limit noted, but in no instance greater than the acquisition cost of the asset to the new owner.

(i)  A facility's annual rental payments for real property may be considered an allowable cost subject to the following conditions and the limits included in Paragraph (i)(1) of this Rule:

(1)           The lease is reviewed by and acceptable to the Division of Medical Assistance.

(A)          The lease shall not be acceptable if the associated asset(s) are not needed for client care as determined by the Division of Medical Assistance.

(B)          The lease shall not be acceptable if alternate means of financing is deemed available and more economical.  In making this determination all aspects of the economic impact of the lease shall be examined, including length of lease, the cost of the asset to the owner, and the incremental rate of return provided to the lessor.  In addition, the leasee's incremental implicit rate of interest and financial position shall be considered.

(C)          The test of reasonableness shall take into account the agreement between the owner and the tenant regarding the payment of related property costs.

(D)          Absent clear justification to the contrary, material capital improvements to leased property that are necessary to maintain the asset in its ordinary state of usability at the commencement of the lease, shall be the responsibility of the lessor.  Examples of said costs are roof or utility service replacement due to reasons beyond the prudent control of the lessee.

(E)           Effective July 1, 1993, requests for prior approval of new leases and lease renewals must be submitted whenever possible at least 120 days prior to the last date for the exercise of the lease or lease renewal option.  HUD leases with individual ICF‑MR clients are not subject to this requirement.

(F)           Failure to acquire prior approval of leases and lease renewals shall result in the disallowance of said cost from Medicaid reimbursement, unless failure to acquire prior approval was caused by reasons beyond the control of the provider.

(2)           The lease shall be considered an arm's‑length transaction under HIM‑15.  Leases failing the HIM‑15 arm's‑length transaction test shall be reimbursed at the leased asset's reasonable cost of depreciation, interest, if any, and other related expenses, including but not limited to reasonable maintenance costs, as determined by the Division of Medical Assistance.  It is the responsibility of the provider to maintain auditable records to document these ownership costs to the Division of Medical Assistance or its designated contract auditors.  Undocumented costs may be disallowed.

(3)           The lease amount is comparable to similar leases for properties with similar functions in the same geographical area.

(4)           The lease agreement between unrelated parties shall include the provision that the amount of rental to be paid by the lessee to the lessor shall not, in any event, exceed the amount approved by the Division of Medical Assistance.

(j)  Depreciation shall be an allowable cost when based upon factors of historical costs and useful life.  Depreciation shall be subject to the provisions of this Paragraph and Subparagraph (j)(1) of this Rule.  For the purpose of this Section:

(1)           Unless an exception is made by the Division of Medical Assistance, the useful life shall be the higher of the reported useful life or that from the Estimated Useful Lives of Depreciable Hospital Assets (1988 edition), which is incorporated by reference with subsequent changes and amendments.  A copy of the Useful Lives of Depreciable Hospital Assets can be obtained by writing to the American Hospital Association, 840 Lake Shore Drive, Chicago Illinois, 60611, at a cost of thirty one dollars and ninety‑five cents ($31.95) per copy.  In certain instances, a useful life that is based upon historical experience as shown by documentary evidence and approved by the Division of Medical Assistance may be allowed.  Should the provider desire a depreciation rate different from that based on the general Rule in Subparagraph (j)(1) of this Rule, then said provider shall make the request in writing to the Division of Medical Assistance.  Upon review and analysis, the Division of Medical Assistance shall make a determination in writing as to the reasonableness of said request.

(2)           The depreciation method used shall be the straight‑line method.

(3)           Unless an exception is granted by the Division of Medical Assistance, depreciated rates shall be applied uniformly and consistently, in accordance with this Rule and generally accepted accounting principles.  Should the provider discover that depreciation has been improperly recorded in prior years, then the provider shall within 30 days report the error to the Division of Medical Assistance.  The impact of the error on the provider's rate shall be fully considered by the Division of Medical Assistance and a rate adjustment may be made, with due cause shown.  Failure to record depreciation properly shall result in disallowance for Medicaid reimbursement purposes, unless failure to comply with this provision was caused by reasons beyond the control of the provider.

(4)           Depreciation paid to the provider by the Medicaid Program shall be prudently used by said provider to meet the financial requirements of providing adequate service to the ICF‑MR clients.

(A)          Payment to related parties for costs disallowed by this Rule for Medicaid reimbursement may be considered imprudent use of depreciation reimbursement.

(B)          Imprudent use of Medicaid reimbursement of depreciation may result in the provider being required by the Division of Medical Assistance to fund the depreciation through a qualified independent entity or disallowance of depreciation for Medicaid reimbursement.

(5)           In order to substantiate depreciation expense for Medicaid reimbursement purposes, the property records shall include, at a minimum, all of the following, for assets purchased on or after July 1, 1993:

(A)          The depreciation method used,

(B)          A description of the asset,

(C)          The date the asset was acquired,

(D)          The cost of the asset,

(E)           The salvage value of the asset,

(F)           The depreciation cost,

(G)          The estimated useful life of the asset,

(H)          The depreciation expense each year,

(I)            The accumulated depreciation.

(6)           The recovery of losses associated with the disposal or abandonment of assets used to provide necessary services to the Medicaid program shall be determined on a case by case basis.  Requests for recovery shall be made in writing and are subject to prior Division of Medical Assistance approval.  Failure to acquire approval shall result in the disallowance of said costs, unless failure to acquire approval was caused by reasons beyond the control of the provider.

(7)           The treatment of gains associated with the disposal of assets used to provide necessary services to the Medicaid program shall be based on this Rule and the HIM‑15.

(k)  Interest cost may be considered an allowable cost subject to the following conditions, and the limits included in Paragraph (k)(1) of this Rule:

(1)           Interest for capital indebtedness, where the interest expense results from the initial financing of the capital indebtedness and the capital indebtedness represents all or part of the current Division of Medical Assistance approved value of the property.  The property shall be necessary for the provision of adequate service, as determined by the Department of Health and Human Services, to the clients of the ICF‑MR facility.  The financing shall be prudently incurred.

(2)           The interest rate shall not be in excess of the amount a prudent borrower would pay at the time the loan was incurred.  In determining the reasonableness of the interest rate, all associated factors at the time the loan was incurred shall be considered, including, but not limited to the following:

(A)          Current market rates of interest in the economy.

(B)          Industry specific rates of interest.

(C)          Provider specific financial position.

(3)           The loan agreement shall be entered into between parties not related through control, ownership, affiliation, or personal relationship as defined in HIM‑15, unless this provision is waived in writing by the Division of Medical Assistance.  Such waiver shall be based on, but not limited to, a demonstration of need for the indebtedness and cost savings resulting from the transaction.  The burden of proof shall be on the provider to provide proper support and justification for such waiver to the Division of Medical Assistance.  Loans from a related party must be clearly identified and reported separately on the annual cost report.

(4)           Interest expense on working capital indebtedness is allowable, subject to the Division of Medical Assistance's approved level of working capital, and subject to the standards listed of this Rule.

(A)          Interest on excess working capital is specifically denied.

(B)          Working capital shall be established at the level necessary to support the facility's operations, after taking into full consideration the lead/lag impact of the facility's expenditures and reimbursements.

(5)           Interest expense for capital indebtedness where the interest expense results from the refinancing of the capital indebtedness, and the refinancing has the prior approval of the Division of Medical Assistance, shall be allowed in that amount associated with the outstanding principal prior to refinancing.  Interest costs may be allowed in excess of the amount associated with the outstanding principal balance prior to refinancing, if the purpose of the debt is to acquire assets to be used for care of persons served by the facility and all other applicable requirements of this Rule are met.  Interest expense resulting from the inclusion of the closing costs, such as, but not limited to, attorney's fees, recording costs and points in the refinancing transaction shall be considered allowable.

(A)          The provider shall file all necessary documents supporting its request for refinancing prior approval to the Division of Medical Assistance no later than 120 days prior to the proposed refinancing date.

(B)          The Division of Medical Assistance shall render a decision regarding the prior approval request no later than 30 days prior to the proposed refinancing date.

(C)          Based upon just cause shown, the Division of Medical Assistance may waive the time requirements included in Parts (k)(5)(A) and (B) of this Rule, but in all cases there shall be enough time allowed to evaluate the proposed refinancing.

(6)           In all cases, in order for the interest expense to be allowable it shall be necessary to satisfy a financial need related to the adequate provision of recipient care, as determined by the Division of Medical Assistance.  Loans which result in excess funds or investments are not considered necessary.

(7)           Interest expense shall not be allowable when related to loans that failed to receive prior approval, as required, from the Division of Medical Assistance, unless failure to acquire prior approval was caused by reasons beyond the control of the provider.

(8)           In no event shall interest expense be allowed on a facility's cost that is deemed to be excessive.

(l)  The annual capital cost or lease expense limitations shall apply:

(1)           To all facilities with 21 or more beds and to facilities consisting of multiple detached buildings in which at least one contains nine certified beds.  The facilities covered by this limit shall have been awarded a Certificate of Need before January 1, 1993.  The annual capital cost or lease expense limit shall be the lesser of actual cost or the sum of Parts (A) and (B) as follows:

(A)          The annual depreciation on plant and fixed equipment that would be computed on assets equal to thirty thousand dollars ($30,000) per bed (capital recovery base) during fiscal year 1982‑83 adjusted for changes in the following cost indexes:

(i)            For the period after 1982‑83 and through the period 1991‑92 the capital recovery base shall be adjusted for changes in the Dodge Building Cost Index of North Carolina Cities.

(ii)           For the period beginning July 1, 1992 the capital recovery base shall be adjusted for changes in the implicit price deflator for residential structures as provided by the Office of State Budget and Management.  Depreciation expense shall be computed using the straight line method of depreciation and the useful life standards established by the American Hospital Association.

(B)          An interest allowance equal to 10 percent of the capital recovery base used to compute annual depreciation on plant and fixed equipment.

(C)          This annual capital cost or lease expense limit does not apply to leases in effect prior to August 3, 1983.

(2)           To all facilities that have been awarded a Certificate of Need on or after January 1, 1993, the annual capital cost or lease expense shall be limited to the lesser of actual cost or the fair and reasonable depreciation and interest expense calculated on the capital recovery base in effect at the time of certification and enrollment into the Medicaid program.

(A)          Depreciation expense shall be computed using the straight line method of depreciation and the useful life standards established by the American Hospital Association.

(B)          Interest expense is computed using a 10 percent rate of interest.

(C)          The capital recovery base is established as thirty thousand dollars ($30,000) of plant and fixed equipment assets per bed during the fiscal year 1982‑83 adjusted for the changes in the cost indexes contained in Subparagraphs (l)(1)(A), (i) and (ii) of this Rule.

(D)          Recovery of the cost of material additions to plant and fixed equipment subsequent to certification and enrollment in the Medicaid program shall be subject to review on a case by case basis, consistent with the provisions of this Rule.

(E)           This capital cost or lease expense limitation shall be considered the absolute maximum allowable for Medicaid reimbursement.  In evaluating the reasonableness of a particular facility's capital cost or lease expense, regional costs of land and construction should be considered.  In cases where the reasonable regional costs are less than those derived from Subparagraph (l)(2)(C) of this Rule, then the regional costs should be used in determining the appropriate capital cost or lease expense limitations.

(i)            In determining fair and reasonable facility cost, the average cost of similar construction in the same local area should be used.  This test of reasonableness should be applied to all components of the facility's construction cost, including square footage and per unit costs.

(ii)           Absent strong, clear justification to the contrary, no six bed facility shall be allowed to recover capital cost and lease expense related to square footage in excess of 3200 square feet.

(3)           Failure to provide supporting evidence of actual facility cost incurred shall result in disallowance of said cost unless failure to provide the information was caused by reasons beyond the control of the provider.

(m)  For providers whose annual reimbursement from the Medicaid program exceeds one million dollars ($1,000,000,) all contracts with related parties as defined by HIM‑15 in the amount of ten thousand dollars ($10,000) or more shall receive prior approval from the Division of Medical Assistance.

(1)           Failure to file said contracts with the Division of Medical Assistance shall result in disallowance of the related cost from Medicaid reimbursement, unless failure to file said contracts was caused by reasons beyond the control of the provider.

(2)           The contracts shall be filed with the Division of Medical Assistance 90 days prior to the effective date of said contracts.

(n)  "Donations," for the purpose of this Section, shall mean grants, gifts, or income from endowments, cash or otherwise, given to a provider by a donor.  "Unrestricted donations" shall mean donations given without restrictions by the donor as to their use.  "Restricted donations" shall mean donations which the donor has specified the provider must use only for a specific purpose or within a specific time period designated by the donor, and shall not mean donations which the provider has restricted or designated for use for a specific purpose or within a specific time period.

(1)           Providers are encouraged to raise donations to support their operations.  Absent evidence to the contrary, donations shall be presumed used to support Medicaid program costs.

(2)           Restricted donations for which the donor has specified a time period for the use of the donation shall be deemed to have been applied to support the provider's costs within the donor‑specified time period.

(3)           Unrestricted donations or restricted donations without a donor‑specified time period for use shall be presumed to have been applied to support the provider's costs in the year in which such donations were acquired, unless the provider demonstrates otherwise by, without limitation, the following factors:

(A)          The documented decision of the Board of Directors or management as to the time period for use of the funds.

(B)          The provider's supporting documentation, including general ledger accounting, regarding the time period in which the donations were used.

(4)           In determining whether non‑Medicaid program costs are supported by donations, the following factors, without limitation, shall be considered:

(A)          The decision of the provider's Board of Directors or management regarding the use of unrestricted donations.

(B)          The donor's specifications, in cases of restricted donations.

(C)          The provider's supporting documentation, including general ledger accounting, regarding use of donations.

(5)           Costs included in the provider's Medicaid cost report which are supported by donations shall be reduced by the net value of the donations.

(A)          The "net value" of a donation shall mean the fair market value of the donation minus the provider's reasonable costs of acquiring the donation.

(B)          Reasonable costs of acquiring donations are those costs incurred by an economic and efficient provider.

(C)          The provider's general ledger and supporting documents shall support the provider's reported costs of acquiring donations.

(D)          The net value of a provider's donations shall not be less than zero.

(o)  When multiple facilities or operations are owned by a single entity with a central office, the central office records shall be maintained as a separate set of records with costs and revenues separately identified and appropriately allocated to individual facilities.  Allocation of central office costs shall be reasonable and conform to the directives of the Division of Medical Assistance and generally accepted accounting principles.  Such costs are allowable only to the extent that the central office is providing services related to client care and the provider can demonstrate that the central office costs improved efficiency, economy, or quality of recipient care.  The burden of demonstrating that costs are client related lies with the provider.

(1)           If a provider has business enterprises other than those reimbursed by Medicaid, then the revenues, expenses, statistical and financial records for such enterprises shall be clearly identifiable from the records of the operations reimbursed by Medicaid.

(2)           If an audit establishes that records are not maintained so as to clearly identify Medicaid information, none of the co‑mingled costs shall be recognized as Medicaid allowable costs and the provider's rate shall be adjusted to reflect the disallowance as of the earlier of the commencement of the rate period related to the co‑mingled costs, or the commencement of the co‑mingling of said costs.

(3)           After the co‑mingled costs have been satisfactorily allocated and reported to the Division of Medical Assistance, and based on a showing by the provider that procedures have been implemented to insure that the co‑mingling will not occur in the future, the Division of Medical Assistance shall retroactively adjust the facility's rate.

(4)           Central office costs are generally charged to the Administrative and General cost center.  In some cases, however, personnel costs which are direct patient care oriented may be allocated to direct 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,

(B)          client days in each facility to which the costs apply relative to the total client days in all the facilities to which the costs apply, or

(C)          any other allocation method approved by the Division of Medical Assistance, based on the HIM‑15, generally accepted accounting principles, and the preponderance of evidence of a case‑by‑case review.

(p)  All criteria and limitations used by the Division of Medical Assistance to subject individual provider cost data to tests of reasonableness shall be made available to a provider upon written request.  In determining reasonableness of costs, the Division of Medical Assistance may compare major cost centers or total costs of similar providers and may request satisfactory documentation from providers whose cost does not appear to be reasonable.  Similar providers are those with like levels of client care, size, and geographic location.

(q)  Start‑up costs are costs incurred by an ICF‑MR facility while preparing to provide services at said facility.  They include the cost incurred by providers to provide services at the level necessary to obtain certification less any revenue or grants related to start‑up.  The North Carolina Medicaid Program shall reimburse these start‑up costs up to a maximum equal to the facility's rate times its beds times 120 days.

(1)           Effective for all facilities whose Certificate of Need was granted on or after January 1, 1993, the start‑up cost reimbursement shall be added to the facility's per diem rate calculated in accordance to the related provisions of this plan.  These start‑up costs shall be amortized over a 36 month period and shall be reported as administrative and general in the cost report.  No advance of these start‑up costs shall be made.  These costs shall not be included in calculating the facility's total AG/OMP costs for rate setting purposes in accordance with this Rule.

(2)           Effective for all facilities whose CON was granted prior to January 1, 1993, the start‑up reimbursement shall be made in addition to the facility's per diem rate.  No advance of start‑up funds shall be made prior to the submission of the start‑up cost report.  An interim payment not to exceed 80 percent of the allowable start‑up costs can be made at the written request of a provider after a start‑up cost report has been filed.  The remaining balance of appropriately incurred start‑up costs shall be paid after the desk audit of the start‑up cost report has been completed.  Any balance due to the Medicaid program shall be repaid promptly.

(3)           A start‑up cost report shall be filed with the Division of Medical Assistance.  A copy of the start‑up cost report shall be provided by the Division of Medical Assistance to each newly Medicaid certified facility.

(A)          The start up cost report shall be filed with the Division of Medical Assistance Audit Section.

(B)          Schedule E of the start up cost report shall be filed with the Division of Medical Assistance's Rate Setting Section.

(4)           Allowable start‑up costs may include, but not be limited to:

(A)          personal services expenses,

(B)          utility expenses,

(C)          property taxes,

(D)          insurance expenses,

(E)           employee training expenses,

(F)           housekeeping expenses,

(G)          repair and maintenance expenses,

(H)          administrative expenses.

(5)           All costs that are properly identifiable as organization costs shall be classified as such and excluded from start‑up costs.

(6)           Cost related to increasing bed capacity in an existing facility shall not be treated as start‑up costs.

(r)  Only that portion of management fees that is directly related to client care and is not otherwise functionally covered by the current staffing pattern is allowable in the calculation of a facility's actual, allowable, and reasonable costs.  Management fees on a per diem basis shall be limited to seven percent of the maximum intermediate care rate for nursing facilities enrolled in the Medicaid Program.  Management fees shall be charged to the Administrative and General Cost Center.  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 to support these costs shall 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:

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

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

(s)  The following costs are considered non‑allowable facility costs because they are not related to client care or are specifically disallowed under the North Carolina State Plan:

(1)           bad debts;

(2)           advertising, except personnel want ads, and one line yellow page (indicating facility address);

(3)           charity, courtesy allowances, discounts, refunds, rebates and other similar items granted by the provider;

(4)           life insurance (except for employee group plans and reasonable key man life insurance premiums required by financial institutions in an outstanding loan agreement);

(5)           prescription drugs and insulin (available to recipients under the State Medicaid Drug Program);

(6)           vending machine expenses;

(7)           state or federal corporate income taxes, plus any penalties and interest;

(8)           telephone, television, or radio for personal use of client;

(9)           retainers, unless itemized services of equal value have been rendered;

(10)         fines or penalties;

(11)         ancillary costs that are billable to Medicare or other third party payors;

(12)         property taxes and other expenses related to real estate deemed by the Division of Medical Assistance to be in excess of the reasonable amount needed for the physical facility;

(13)         property taxes, insurance, maintenance and other expenses related to facility costs deemed by the Division of Medical Assistance to be in excess of the reasonable amount necessary for quality client care;

(14)         costs associated with lawsuits filed against the Department of Human Resources which are not upheld by the courts;

(15)         personal use of company assets resulting in unreasonable levels of compensation;

(16)         meals provided to employees not involved in the modeling process required to meet the clients' habilitation plan;

(17)         charitable contributions;

(18)         costs related to excessive or unnecessary levels of care;

(19)         interest associated with Medicaid overpayment repayment plans agreed to by both the provider and the Division of Medical Assistance;

(20)         costs related to frivolous appeals;

(21)         costs resulting from provider negligence;

(22)         costs related to any illegal activity;

(23)         costs disallowed on the associated tax return by the Internal Revenue Service or the North Carolina Department of Revenue, unless specifically allowable under this plan;

(24)         promotional items designed to promote the provider's public image;

(25)         costs associated with the interests of provider shareholders and not direct care related;

(26)         costs related to client care incurred in prior years, unless specific approval acquired from the Division of Medical Assistance; Approval of said costs shall be based on the HIM‑15, generally accepted accounting principles, and the preponderance of evidence on a case‑by‑case review;

(27)         country club dues.

(t)  Providers shall use a competitive bidding process in order to purchase or lease vehicles.

(1)           Providers shall explore cost differentials between leasing and purchasing of vehicles and shall choose the least expensive alternative.

(2)           Daily logs detailing the use of vehicles shall be maintained by the provider.

(u)  Purchase of services, major renovations, capital equipment, and supplies that exceed five thousand dollars ($5,000) annually per facility shall be reasonably made consistent with the prudent buyer provisions of the HCFA‑15.

(v)  Reasonable costs associated with self‑insurance programs are allowable, as determined by the Division of Medical Assistance.  All material facts related to said programs shall be disclosed to the Division of Medical Assistance.  Failure to disclose shall result in the disallowance of said costs, unless failure to disclose the information was caused by reasons beyond the control of the provider.

 

History Note:        Filed as a Temporary Adoption Eff. July 8, 1993 for a period of 180 days or until the permanent rule becomes effective, whichever is sooner;

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

Eff. November 1, 1993;

Amended Eff. August 1, 1995.