957 CMR, § 7.03 - Reporting Requirements

(1) Required Cost Reports.

(a) Nursing Facility Cost Report. Each Provider must complete and file a Nursing Facility cost report each calendar year with the Center. The Nursing Facility cost report must contain the complete financial condition of the Provider, including all applicable management company, central office, and real estate expenses. If a Provider has closed on or before November 30^th, the Provider is not required to file an HCF-1 report.

(b) Realty Company Cost Report. A Provider that does not own the real property of the Nursing Facility and pays rent to an affiliated or non-affiliated realty trust or other business entity must file or cause to be filed a realty company cost report with the Center.

(c) Management Company Cost Report. A Provider must file a separate management company cost report with the Center for each entity for which it reports management or central office expenses related to the care of Massachusetts Publicly-aided Residents. If the Provider identifies such costs, the Provider must certify that costs are reasonable and necessary for the care of Publicly-aided Residents in Massachusetts.

(d) Financial Statements. If a Provider or its parent organization is required or elects to obtain independent audited financial statements for purposes other than 957 CMR 7.00, the Provider must file a complete copy of its audited financial statements with the Center, that most closely correspond to the Provider's Nursing Facility cost report fiscal period. If the Provider or its parent organization does not obtain audited financial statements, the Provider must file with the Center a copy of its unaudited financial statements that most closely correspond to the Nursing Facility cost report fiscal period. Financial statements must accompany the Provider's Nursing Facility cost report filing. Nothing in this section shall be construed as an additional requirement that nursing homes complete audited, financial statements solely to comply with the Center's reporting requirements.

(e) CMS-2540 Reports. State operated Nursing Facilities that meet the definition in 42 CFR 433.50(a)(i) must file a CMS-2540 report with the Center annually. The State operated Nursing Facility must report the final disposition made by the Medicare intermediary.

(2) General Cost Reporting Requirements.

(a) Accrual Method. Providers must complete all required reports using the accrual method of accounting.

(b) Documentation of Reported Costs . Providers must maintain accurate, detailed and original financial records to substantiate reported costs for a period of at least five years following the submission of required reports or until the final resolution of any appeal of a rate for the period covered by the report, whichever is later. Providers must maintain complete documentation of all of the financial transactions and census activity of the Provider and affiliated entities including, but not limited to, the books, invoices, bank statements, canceled checks, payroll records, governmental filings, and any other records necessary to document the Provider's reported costs. Providers must be able to document expenses relating to affiliated entities for which it has identified costs related to the care of Massachusetts Publicly-aided Residents whether or not they are Related Parties.

(c) Fixed Asset Ledger. Providers must maintain a fixed asset ledger that clearly identifies each asset for which expenses are reported, including location, date of purchase, cost, salvage value, accumulated depreciation, and the disposition of sold, lost or fully depreciated assets.

(d) Job Descriptions and Time Records. Providers and management companies must maintain written job descriptions including qualifications, duties, responsibilities, and time records such as time cards for all positions that the Provider identifies as related to the care of Massachusetts Publicly-aided Residents. Facilities organized as sole proprietors or partnerships in which the sole proprietor or partner functions as administrator with no reported administrator salary or benefits must maintain documentation to support the provision of administrator services by the sole proprietor or partner.

(e) Indirect Restorative Therapy Services Record. Providers must maintain a record of Indirect Restorative Therapy services documented by a written summary available for inspection in the Nursing Facility as required by the Department in accordance with 105 CMR 150.010(F): Records and Reports.

(f) Other Cost Reporting Requirements.

1. Administrative Costs. The following expenses must be reported as administrative:

a. All compensation, including payroll taxes and benefits, for the positions of administrator, assistant administrator, Administrator-in-training, business manager, secretarial and clerical staff, bookkeeping staff, and all staff or consultants whose duties are primarily administrative rather than directly related to the provision of on-site care to residents or to the on-site physical upkeep of the Nursing Facility;

b. Expenses related to tasks performed by persons at a management level above that of an on-site Provider department head, that are associated with monitoring, supervising, and/or directing services provided to residents in a Nursing Facility as well as legal, accounting, financial and managerial services or advice including computer services and payroll processing; and

c. Expenses related to policy making, planning and decision making activities necessary for the general and long-term management of the affairs of a Nursing Facility, including but not limited to the following: the financial management of the Provider, including the cost of financial accounting and management advisory consultants, the establishment of personnel policies, the planning of resident admission policies and the planning of the expansion and financing of the Provider.

d. Providers must report the cost of administrative personnel to the appropriate account. The cost of administrative personnel includes all expenses, fees, payroll taxes, fringe benefits, salaries or other compensation.

e. Providers may allocate administrative costs among two or more accounts. The Provider must maintain specific and detailed time records to support the allocation.

2. Draw Accounts. Providers may not report or claim proprietorship or partnership drawings as salary expense.

3. Expenses that Generate Income. Providers must identify the expense accounts that generate income.

4. Fixed Costs.

a. Additions . If the square footage of the building is enlarged, Providers must report all Additions and renovations as building Additions.

b. Allocation. Providers must allocate all fixed costs, except Equipment, on the basis of square footage. A Provider may elect to specifically identify Equipment related to the Nursing Facility. The Provider must document each piece of Equipment in the fixed asset ledger. If a Provider elects not to identify Equipment, it must allocate Equipment on the basis of square footage.

c. Replacement of Beds. If a Provider undertakes construction to replace beds, it must write off the fixed assets that are no longer used to provide care to Publicly-aided Residents and may not identify associated expenses as related to the care of Massachusetts Publicly-aided Residents.

d. Fully Depreciated Assets. Providers must separately identify fully depreciated assets. Providers must report the costs of fully depreciated assets and related accumulated depreciation on all Cost Reports unless they have removed such costs and accumulated depreciation from the Provider's books and records. Providers must attach a schedule of the cost of the retired Equipment, accumulated depreciation, and the accounting entries on the books and records of the Provider to the cost report when Equipment is retired.

e. Major Repair Projects. Providers must report all expenditures for major repair projects whose useful life is greater than one year, including, but not limited to, wallpapering and painting as Improvements. Providers may not report such expenditures as prepaid expenses.

5. Laundry Expense. Providers must separately identify the expense associated with laundry services for which non-Publicly-aided Residents are billed. Providers must identify such expense as non-related to Medicaid patient care.

6. Mortgage Acquisition Costs . Providers must classify Mortgage Acquisition Costs as other assets. Providers may not add Mortgage Acquisition Costs to fixed asset accounts.

7. Nursing Costs . The costs must be associated with direct resident care personnel and be required to meet federal and state laws.

8. Related Parties. Providers must disclose salary expense paid to a Related Party and must identify all goods and services purchased from a Related Party. If a Provider purchases goods and services from a Related Party, it must disclose the Related Party's cost of the goods and services.

(g) Special Cost Reporting Requirements.

1. Facilities in which other programs are operated. If a Provider operates an adult day health program, an assisted living program, or provides outpatient services, the Provider may not identify expenses of such programs as related to the care of Massachusetts Publicly-aided Residents.

a. If the Provider converts a portion of the Provider to another program, the Provider must identify the existing Equipment no longer used in Nursing Facility operations and remove such Equipment from the Nursing Facility records.

b. The Provider must identify the total square footage of the existing Building, the square footage associated with the program, and the Equipment associated with the program.

c. The Provider must allocate all shared costs, including shared capital costs, using a well-documented and generally accepted allocation method. The Provider must directly assign to the program any additional capital expenditures associated with the program.

2. Hospital-based Nursing Facilities. A Hospital-based Nursing Facility must file cost reports on a fiscal year basis consistent with the fiscal year used in the DHCFP-403 Hospital Cost Report and any successor state agency template cost report. The Provider must:

a. identify the existing Building Costs and Improvement costs associated with the Nursing Facility. The Provider must allocate such costs on a square footage basis.

b. report major moveable Equipment and fixed Equipment in a manner consistent with the Hospital Cost Report. In addition, the Provider must classify fixed Equipment as either Building Improvements or Equipment in accordance with the definitions contained in 957 CMR 7.02. The Provider may elect to report major moveable and fixed Equipment by one of two methods:

i. A Provider may elect to specifically identify the major moveable and fixed Equipment directly related to the care of Publicly-aided Residents in the Nursing Facility. The Provider must maintain complete documentation in a fixed asset ledger that clearly identifies each piece of Equipment and its cost, date of purchase, and accumulated depreciation. The Provider must submit this documentation to the Center with its first notification of change in beds.

ii. If the Provider elects not to identify specifically each item of major moveable and fixed Equipment, the fixed Equipment will be allocated to the extent allowable on a square footage basis.

c. The Provider must report additional capital expenditures directly related to the establishment of the Nursing Facility within the hospital as Additions. Capital expenditures that relate to the total plant will be allocated to the extent allowable on a square footage basis.

d. The Provider must use direct costing whenever possible to obtain operating expenses associated with the Nursing Facility. The Provider must allocate all costs shared by the hospital and the Nursing Facility using the statistics specified in the Hospital Cost Report instructions. The Provider must disclose all analysis, allocations and statistics used in preparing the Nursing Facility cost report.

(3) General Cost Principles. In order to report a cost as related to Medicaid patient care, a cost must satisfy the following criteria:

(a) The cost must be ordinary, necessary and directly related to the care of Publicly-aided Residents;

(b) The cost must adhere to the Prudent Buyer Concept;

(c) Payments to related parties. Expenses otherwise allowable shall not be included for purposes of determining rates under 101 CMR 206.00: Standard Payments to Nursing Facilities where such expenses are paid to a Related Party unless the Provider identifies any such Related party and expenses attributable to it in the reports submitted under 957 CMR 7.00 and demonstrates that such expenses do not exceed the lower of the cost to the Related Party or the price of comparable services, facilities or supplies that could be purchased elsewhere. The Center may request either the Provider or the Related Party, or both, to submit information, books and records relating to such expenses for the purpose of determining whether the expenses are allowable;

(d) Employee Benefits. Only the Provider's contribution of Generally Available Employee Benefits shall be deemed an allowable cost. Providers may vary Generally Available Employee Benefits by groups of employees at the option of the employer. To qualify as a Generally Available Employee Benefit, the Provider must establish and maintain evidence of its nondiscriminatory nature. Generally Available Employee Benefits shall include but are not limited to group health and life insurance, pension plans, seasonal bonuses, child care, and job related education and staff training. Bonuses related to profit, private occupancy, or directly or indirectly to rates of reimbursement shall not be included for calculation of prospective rates. Benefits which are related to salaries shall be limited to allowable salaries. Benefits, including pensions, related to non-administrative and non-nursing personnel will be part of the other operating cost center. Benefits that are related to the Director of Nurses, including pensions and education, shall be part of the Nursing Cost Center. Providers may accrue expenses for employee benefits such as vacation, sick time, and holidays that employees have earned but have not yet taken, provided that these benefits are both stated in the written policy and are the actual practice of the Provider and that such benefits are guaranteed to the employee even upon death or termination of employment. Such expenses may be recorded and claimed for reimbursement purposes only as of the date that a legal liability has been established;

(e) The cost must be for goods or services actually provided in the Nursing Facility;

(f) The cost must be reasonable; and

(g) The cost must actually be paid by the Provider. Costs not considered related to the care of Massachusetts Publicly-aided Residents include, but are not limited to: costs discharged in bankruptcy; costs forgiven; costs converted to a promissory note; and accruals of self-insured costs based on actuarial estimates.

(h) A Provider must report the following costs as non-allowable costs:

1. Bad debts, refunds, charity and courtesy allowances and contractual adjustments to the Commonwealth and other third parties;

2. Federal and state income taxes, except the non income related portion of the Massachusetts Corporate Excise Tax;

3. Expenses not directly related to the provision of resident care including, but not limited to, expenses related to other business activities and fund raising, gift shop expenses, research expenses, rental expense for space not required by the Department and expenditure of funds received under federal grants for compensation paid for training personnel and expenses related to grants of contracts for special projects;

4. Compensation and fringe benefits of residents on a Provider's payroll;

5. Penalties and interest, incurred because of late payment of loans or other indebtedness, late filing of federal and state tax returns, or from late payment of municipal taxes;

6. Any increase in compensation or fringe benefits granted as an unfair labor practice after a final adjudication by the court of last resort;

7. Expenses for Purchased Service Nursing services purchased from temporary nursing agencies not registered with the Department under regulation 105 CMR 157.00: The Registration and Operation of Temporary Nursing Service Agencies or paid for at rates greater than the rates established by EOHHS pursuant to 101 CMR 345.00: Temporary Nursing Services;

8. Any expense or amortization of a capitalized cost that relates to costs or expenses incurred prior to the opening of the Nursing Facility;

9. All legal expenses, including those accounting expenses and filing fees associated with any appeal process;

10. Prescribed legend drugs for individual patients;

11. Recovery of expense items, that is, expenses that are reduced or eliminated by applicable income including but not limited to, rental of quarters to employees and others, income from meals sold to persons other than residents, telephone income, vending machine income and medical records income. Vending machine income shall be recovered against Other Operating Costs. Other recoverable income shall be recovered against an account in the appropriate cost group category, such as Administrative and General Costs, Other Operating Costs, nursing costs, and capital costs. The cost associated with laundry income which is generated from special services rendered to private patients shall be identified and eliminated from claims for reimbursement. Special services are those services not rendered to all patients (e.g., dry cleaning, etc.). In the event that the cost of special services cannot be determined, laundry income shall be recovered against laundry expense;

12. Costs of ancillary services required by a purchasing agency to be billed on a direct basis, such as prescribed drugs and direct therapy costs; and

13. Accrued expenses which remain unpaid more than 120 days after the close of the reporting year, excluding vacation and sick time accruals, shall not be included in the prospective rates. Upon receipt of satisfactory evidence of payment, the adjustment will be reversed and include that cost, if otherwise allowable, in the applicable prospective rates.

Notes

957 CMR, § 7.03

Adopted by Mass Register Issue 1264, eff. 7/4/2014. Amended by Mass Register Issue 1537, eff. 12/20/2024.