Article 5. Allowable Cost Identification
12VAC30-90-50. Allowable costs.
Article 5
Allowable Cost Identification
A. Costs which are included in rate determination procedures and final settlement shall be only those allowable, reasonable costs which are acceptable under the Medicare principles of reimbursement, except as specifically modified in the Plan and as may be subject to individual or ceiling cost limitations and which are classified in accordance with the DMAS uniform chart of accounts (see Appendix I (12VAC30-90-270 through 12VAC30-90-276) of Part III of this chapter).
B. Certification. The cost of meeting all certification standards for NF requirements as required by the appropriate state agencies, by state laws, or by federal legislation or regulations.
C. Operating costs.
1. Direct patient care operating costs shall be defined in 12VAC30-90-271.
2. Allowable direct patient care operating costs shall exclude (i) personal physician fees, and (ii) pharmacy services and prescribed legend and nonlegend drugs provided by nursing facilities which operate licensed in-house pharmacies. These services shall be billed directly to DMAS through separate provider agreements and DMAS shall pay directly in accordance with 12VAC30-80-10 et seq.
3. Indirect patient care operating costs include all other operating costs, not identified as direct patient care operating costs and NATCEPs costs in Appendix I (12VAC30-90-270 through 12VAC30-90-276) of Part III of this chapter, which are allowable under the Medicare principles of reimbursement, except as specifically modified herein and as may be subject to individual cost or ceiling limitations.
D. Allowances/goodwill. Bad debts, goodwill, charity, courtesy, and all other contractual allowances shall not be recognized as allowable costs.
Statutory Authority
§ 32.1-325 of the Code of Virginia and Item 319 (II) of Chapter 1073 of the 2000 Acts of Assembly.
Historical Notes
Derived from VR460-03-4.1940:1 Article 3, eff. July 1, 1994; amended, Virginia Register Volume 12, Issue 16, eff. July 1, 1996; Volume 17, Issue 18, eff. July 1, 2001.
12VAC30-90-51. Purchases/related organizations.
A. Costs applicable to services, facilities, and supplies furnished to the provider by organizations related to the provider by common ownership or control shall be included in the allowable cost of the provider at the cost to the related organization, provided that such costs do not exceed the price of comparable services, facilities or supplies. Purchases of existing NFs by related parties shall be governed by the provisions of 12VAC30-90-34 B 1.
Allowable cost applicable to management services furnished to the provider by organizations related to the provider by common ownership or control shall be lesser of the cost to the related organization or the per patient day ceiling limitation established for management services cost. (See 12VAC30-90-290.)
B. "Related to the provider" shall mean that the provider is related by reasons of common ownership or control by the organization furnishing the services, facilities, or supplies.
C. Common ownership exists when an individual or individuals or entity or entities possess significant ownership or equity in the parties to the transaction. Control exists where an individual or individuals or entity or entities have the power, directly or indirectly, significantly to influence or direct the actions or policies of the parties to the transaction. Significant ownership or control shall be deemed to exist where an individual is a "person with an ownership or control interest" within the meaning of 42 CFR 455.101. If the parties to the transaction are members of an immediate family, as defined below, the transaction shall be presumed to be between related parties if the ownership or control by immediate family members, when aggregated together, meets the definitions of "common ownership" or "control," as set forth above. Immediate family shall be defined to include, but not be limited to, the following: (i) husband and wife; (ii) natural parent; child and sibling; (iii) adopted child and adoptive parent; (iv) step-parent, step-child, step-sister, and step-brother; (v) father-in-law, mother-in-law, sister-in-law, brother-in-law, son-in-law and daughter-in-law; and (vi) grandparent and grandchild.
D. Exception to the related organization principle.
1. Effective with cost reports having fiscal years beginning on or after July 1, 1986, an exception to the related organization principle shall be allowed. Under this exception, charges by a related organization to a provider for goods or services shall be allowable cost to the provider if all four of the conditions set out in subdivision 2 of this subsection are met.
2. The exception applies if the provider demonstrates by convincing evidence to the satisfaction of DMAS that the following criteria have been met:
a. The supplying organization is a bona fide separate organization. This means that the supplier is a separate sole proprietorship, partnership, joint venture, association or corporation and not merely an operating division of the provider organization.
b. A substantial part of the supplying organization's business activity of the type carried on with the provider is transacted with other organizations not related to the provider and the supplier by common ownership or control and there is an open, competitive market for the type of goods or services furnished by the organization. In determining whether the activities are of similar type, it is important to also consider the scope of the activity.
For example, a full service management contract would not be considered the same type of business activity as a minor data processing contract. The requirement that there be an open, competitive market is merely intended to assure that the item supplied has a readily discernible price that is established through arm's-length bargaining by well informed buyers and sellers.
c. The goods or services shall be those which commonly are obtained by institutions such as the provider from other organizations and are not a basic element of patient care ordinarily furnished directly to patients by such institutions. This requirement means that institutions such as the provider typically obtain the good or services from outside sources rather than producing the item internally.
d. The charge to the provider is in line with the charge for such services, or supplies in the open market and no more than the charge made under comparable circumstances to others by the organization for such goods or services. The phrase "open market" takes the same meaning as "open, competitive market" in subdivision 2 b of this subsection.
3. Where all of the conditions of this exception are met, the charges by the supplier to the provider for such goods or services shall be allowable as costs.
4. This exception does not apply to the purchase, lease or construction of assets such as property, buildings, fixed equipment or major movable equipment. The terms "goods and services" may not be interpreted or construed to mean capital costs associated with such purchases, leases, or construction.
E. Three competitive bids shall not be required for the building and fixed equipment components of a construction project outlined in 12VAC30-90-31. Reimbursement shall be in accordance with subsection A of this section with the limitations stated in 12VAC30-90-31 B.
Statutory Authority
§ 32.1-325 of the Code of Virginia and Item 319 (II) of Chapter 1073 of the 2000 Acts of Assembly.
Historical Notes
Derived from Virginia Register Volume 12, Issue 16, eff. July 1, 1996; amended, Virginia Register Volume 17, Issue 18, eff. July 1, 2001.
12VAC30-90-52. Administrator/owner compensation.
A. Administrators' compensation, whether administrators are owners or nonowners, shall be based on a schedule adopted by DMAS and varied according to facility bed size. The compensation schedule shall be adjusted annually to reflect cost-of-living increases and shall be published and distributed to providers annually. The administrator's compensation schedule covers only the position of administrator and assistants and does not include the compensation of owners employed in capacities other than the nursing facility administrator (see 12VAC30-90-290, Cost reimbursement limitations).
B. Administrator compensation shall mean remuneration paid regardless of the form in which it is paid. This includes, but shall not be limited to, salaries, professional fees, insurance premiums (if the benefits accrue to the employee/owner or his beneficiary), director fees, personal use of automobiles, consultant fees, management fees, travel allowances, relocation expenses in excess of IRS guidelines, meal allowances, bonuses, pension plan costs, and deferred compensation plans. Management fees, consulting fees, and other services performed by owners shall be included in the total compensation if they are performing administrative duties regardless of how such services may be classified by the provider.
C. Compensation for all administrators (owner and nonowner) shall be based upon a 40-hour week to determine reasonableness of compensation.
D. Owner/administrator employment documentation.
1. Owners who perform services for a nursing facility as an administrator and also perform additional duties must maintain adequate documentation to show that the additional duties were performed beyond the normal 40-hour week as an administrator. The additional duties must be necessary for the operation of the nursing facility and related to patient care.
2. Services provided by owners, whether in employee capacity, through management contracts, or through home office relationships shall be compared to the cost and services provided in arm's-length transactions.
3. Compensation for such services shall be adjusted where such compensation exceeds that paid in such arm's-length transactions or where there is a duplication of duties normally rendered by an administrator. No reimbursement shall be allowed for compensation where owner services cannot be documented and audited.
Statutory Authority
§ 32.1-325 of the Code of Virginia.
Historical Notes
Derived from Virginia Register Volume 12, Issue 16, eff. July 1, 1996; amended, Virginia Register Volume 14, Issue 22, eff. August 19, 1998.
12VAC30-90-53. Depreciation.
The allowance for depreciation shall be restricted to the straight line method with a useful life in compliance with AHA guidelines. If the item is not included in the AHA guidelines, reasonableness shall be applied to determine useful life.
Statutory Authority
§ 32.1-325 of the Code of Virginia.
Historical Notes
Derived from Virginia Register Volume 12, Issue 16, eff. July 1, 1996.
12VAC30-90-54. Rent/Leases.
Rent or lease expenses shall be limited by the provisions of 12VAC30-90-280.
Statutory Authority
§ 32.1-325 of the Code of Virginia.
Historical Notes
Derived from Virginia Register Volume 12, Issue 16, eff. July 1, 1996.
12VAC30-90-55. Provider payments.
A. Limitations and effective for dates of service beginning July 1, 2001, through June 30, 2014:
1. Payments to providers, shall not exceed charges for covered services except for (i) public providers furnishing services free of charge or at a nominal charge (ii) a nonpublic provider whose charges are 60% or less of the allowable reimbursement represented by the charges and that demonstrates its charges are less than allowable reimbursement because its customary practice is to charge patients based on their ability to pay. Nominal charge shall be defined as total charges that are 60% or less of the allowable reimbursement of services represented by these charges. Providers qualifying in this section shall receive allowable reimbursement as determined in this Plan.
2. Allowable reimbursement in excess of charges may be carried forward for payment in the two succeeding cost reporting periods. A new provider may carry forward unreimbursed allowable reimbursement in the five succeeding cost reporting periods.
3. Providers may be reimbursed the carry forward to a succeeding cost reporting period (i) if total charges for the services provided in that subsequent period exceed the total allowable reimbursement in that period (ii) to the extent that the accumulation of the carry forward and the allowable reimbursement in that subsequent period do not exceed the providers' direct and indirect care operating ceilings plus allowable plant cost.
B. Payment for service shall be based upon the rate in effect when the service was rendered.
C. For cost reports filed on or after August 1, 1992, and used for cost reimbursement or rate setting based on cost:
1. An interim settlement shall be made by DMAS within 180 days after receipt and review of the cost report. The word "review," for purposes of interim settlement, shall include verification that all financial and other data specifically requested by DMAS is submitted with the cost report. Review shall also mean examination of the cost report and other required submission for obvious errors, inconsistency, inclusion of past disallowed costs, unresolved prior year cost adjustments and a complete signed cost report that conforms to the current DMAS requirements herein.
2. An interim settlement shall not be made when one of the following conditions exists:
a. Cost report filed by a terminated provider;
b. Insolvency of the provider at the time the cost report is submitted;
c. Lack of a valid provider agreement and decertification;
d. Moneys owed to DMAS;
e. Errors or inconsistencies in the cost report; or
f. Incomplete/nonacceptable cost report.
Statutory Authority
§ 32.1-325 of the Code of Virginia; 42 USC § 1396 et seq.
Historical Notes
Derived from Virginia Register Volume 12, Issue 16, eff. July 1, 1996; amended, Virginia Register Volume 17, Issue 18, eff. July 1, 2001; Volume 32, Issue 9, eff. February 11, 2016.
12VAC30-90-56. Legal fees/accounting.
A. Costs claimed for legal/accounting fees shall be limited to reasonable and customary fees for specific services rendered. Such costs must be related to patient care as defined by Medicare principles of reimbursement and subject to applicable regulations herein. Documentation for legal costs must be available at the time of audit.
B. Retainer fees shall be considered an allowable cost up to the limits established in 12VAC30-90-290. C. As mandated by the Omnibus Budget Reconciliation Act of 1990, effective November 5, 1990, reimbursement of legal expenses for frivolous litigation shall be denied if the action is initiated on or after November 5, 1990. Frivolous litigation is any action initiated by the nursing facility that is dismissed on the basis that no reasonable legal ground existed for the institution of such action.
Statutory Authority
§ 32.1-325 of the Code of Virginia.
Historical Notes
Derived from Virginia Register Volume 12, Issue 16, eff. July 1, 1996.
12VAC30-90-57. Documentation.
Adequate documentation supporting cost claims must be provided at the time of interim settlement, cost settlement, audit, and final settlement.
Statutory Authority
§ 32.1-325 of the Code of Virginia.
Historical Notes
Derived from Virginia Register Volume 12, Issue 16, eff. July 1, 1996.
12VAC30-90-58. Fraud and abuse.
Previously disallowed costs which are under appeal and affect more than one cost reporting period shall be disclosed in subsequent cost reports if the provider wishes to reserve appeal rights for such subsequent cost reports. The reimbursement effect of such appealed costs shall be computed by the provider and submitted to DMAS with the cost report. Where such disclosure is not made to DMAS, the inclusion of previously disallowed costs may be referred to the Medicaid Fraud Control Unit of the Office of the Attorney General.
Statutory Authority
§ 32.1-325 of the Code of Virginia.
Historical Notes
Derived from Virginia Register Volume 12, Issue 16, eff. July 1, 1996.
12VAC30-90-59. [Reserved]. (Reserved)