42 CFR § 417.564 - Apportionment and allocation of administrative and general costs.
(a) Costs not directly associated with providing medical care. Enrollment, marketing, and other administrative and general costs that benefit the total enrollment of the HMO or CMP and are not directly associated with furnishing medical care must be apportioned on the basis of a ratio of Medicare enrollees to the total HMO or CMP enrollment.
(b) Costs significantly related to providing medical services.
(1) The following administrative and general costs, which bear a significant relationship to the services furnished, are not apportioned to Medicare directly; they must be allocated or distributed to the HMO or CMP components and then apportioned to Medicare in accordance with §§ 417.552 through 417.560:
(i) Facility costs.
(ii) Interest expense.
(iii) Medical record costs.
(iv) Centralized purchasing costs.
(v) Accounting and data processing costs.
(vi) Other administrative and general costs that are not included in paragraph (a) of this section.
(2) The allocation or distribution process must be as follows:
(i) If a separate entity or department of an HMO or CMP performs administrative functions the benefit of which can be quantitatively measured (such as centralized purchasing and data processing), the total allowable costs of this entity or department must be allocated or distributed to the components of the HMO or CMP in reasonable proportion to the benefits received by these components.
(ii) If a separate entity or department of an HMO or CMP performs administrative functions the benefit of which cannot be quantitatively measured (such as facility costs), the total allowable costs of this entity or department must be allocated or distributed to the components of the HMO or CMP on the basis of a ratio of total incurred and distributed costs per component to the total incurred and distributed costs for all components.
(iii) For the costs incurred under paragraphs (b)(1)(i) through (iv) of this section that include personnel costs, the organization must be able to identify the person hours expended for each administrative task and the rate of pay for those persons performing the tasks. Administrative tasks performed and rate of pay for the persons performing those tasks must match in terms of the skill level needed to accomplish those tasks. This information must be made available to CMS upon request.
(c) Costs excluded from administrative costs. In accordance with section 1861(v) of the Act, the following costs must be excluded from administrative costs:
(2) Fines and penalties.
(3) Political and lobbying activities.
(4) Charity or courtesy allowances.
(5) Spousal education.
(7) Return on equity.
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