55 Pa. Code § 1181.260 - Interest allowance
(a)
Necessary and proper interest on capital and current indebtedness is an
allowable cost. The Department will recognize interest as an allowable cost
subject to the following conditions:
(1)
Interest on new or additional beds is an allowable cost only if one of the
following applies:
(i) The facility was
issued either a Section 1122 approval or letter of nonreviewability under 28
Pa. Code Chapter 301 (relating to limitation on Federal participation for
capital expenditures) or a Certificate of Need or letter of nonreviewability
under 28 Pa. Code Chapter 401 (relating to Certificate of Need program) for the
project by the Department of Health no later than August 31, 1982.
(ii) The facility was issued a Certificate of
Need or letter of nonreviewability under 28 Pa. Code Chapter 401 for the
construction of a nursing facility, and there was no nursing facility,
including county, private or hospital-based, located within the
county.
(2) The
Department will not recognize interest as an allowable cost if the facility
does not substantially implement the project as defined at 28 Pa. Code
§401.5(m)(3) (relating to Certificate of Need) within the effective period of
the original Section 1122 approval or the original Certificate of
Need.
(3) Interest on replacement
beds is an allowable cost only if the facility was issued a Certificate of Need
or a letter of nonreviewability by the Department of Health.
(b) Except as specified in
subsections (c) and (d), a facility will be reimbursed for allowable interest
on capital indebtedness with respect to assets only if the facility is the
recorded holder of legal title of the assets involved.
(c) A facility which participated in the MA
Program prior to July 1, 1983, which is not part of a related organization and
which is not the recorded holder of legal title to the facility, is considered
to meet the recorded holder of legal title requirement, and therefore, will be
reimbursed for allowable interest on a particular project, if, at the time
services were rendered the following existed:
(1) The particular project was wholly funded
through an Industrial Development Authority bond issue.
(2) The facility provided the Department with
documents relating to ownership and financial obligations relating to the
facility.
(3) The facility met the
standards of HIM-15, Section 110-B, with respect to virtual
purchases.
(d) A facility
which participated in the MA Program prior to July 1, 1983, which is part of a
related organization and which is not the recorded holder of legal title to the
facility, is considered to meet the recorded holder of legal title requirement,
and, therefore, will be reimbursed for allowable interest on a particular
project, if, at the time services were rendered the following existed:
(1) The particular project was wholly funded
through an Industrial Development Authority bond issue.
(2) The facility was a related organization
to a corporation, person or company which, if it operated the facility, could
qualify for reimbursement for allowable interest costs under subsection (c).
(3) The documentation necessary to
substantiate that the facility meets the requirements of subsection (c) and
documentation and statement of the fact that the two entities are related
organizations was supplied to the Department.
(4) The related organization agreed in
writing as required by the Department that it and its successors will be
responsible for an overpayment which the Department is unable to collect
directly from the facility.
(e) Allowable interest on capital
indebtedness may not exceed that amount which a prudent borrower would pay.
Interest on capital indebtedness may not be considered prudent if the provider
cannot demonstrate that the rate does not exceed the rate available from
lenders in this Commonwealth to nursing home borrowers at the time that the
funds were borrowed. In no event will the upper limit on interest on capital
indebtedness exceed the prime interest rate charged by the lending institution
at the time funds are borrowed. For the purpose of this section, the time that
the funds were borrowed is the date of the loan commitment.
(f) To be considered allowable, necessary and
proper, the interest expense shall be incurred and paid within 90 days of the
close of the cost reporting period on a loan made to satisfy a financial need
of the facility and for a purpose reasonably related to patient care.
(g) Necessary interest on capital
indebtedness applying to mortgages, bonds, notes or other securities on the
property and plant of the facility will be recognized subject to the limitation
of the amount recognized for depreciation purposes. The total value of
mortgages, bonds, notes or other securities on which interest on capital
indebtedness is allowed may not exceed the depreciation basis of the assets at
§
1181.259(m), (n) and
(o) (relating to depreciation
allowance).
(h) Investment income
shall be used to reduce allowable interest expense on capital and current
indebtedness unless the investment income is from one of the following:
(1) Gifts or grants, of which the corpus and
interest are restricted by the donor.
(2) Funded depreciation, if the interest
earned remains in the fund.
(3) The
facility's qualified pension fund, if the interest earned remains in the
fund.
(i) Investment
income including income on operating capital, shall be used to reduce interest
expense on capital indebtedness first, then used to reduce interest on
noncapital indebtedness.
(j)
Interest expense shall be allowable if paid on loans from the facility's
donor-restricted funds, the funded depreciation account or the facility's
qualified pension fund. The upper limit on allowable interest may not exceed
the limitations specified in subsection (e).
(k) Interest on capital indebtedness will be
recognized on debt services incurred to finance a maximum construction cost per
bed of $22,000 as defined in §
1181.259(m) and
(s). If the construction cost exceeds the
$22,000 per bed limit, the interest on the portion of the construction cost
which exceeds the $22,000 limit is not allowable.
(l) Moneys borrowed for the purchase or
redemption of capital stock will be considered as a loan for investment
purposes and the interest paid on these borrowed funds is not an allowable
cost.
(m) Income earned from funds
included in a trust agreement, including those funds deemed to be funded
depreciation, shall be offset against allowable interest on capital
indebtedness.
(n) Interest expense
on funds borrowed for capital purchases may not be allowed until the funds in
the facility's funded depreciation account are fully
expended.
Notes
The provisions of this § 1181.260 issued under sections 201 and 443.1 of the Public Welfare Code (62 P. S. §§ 201 and 443.1).
This section cited in 55 Pa. Code § 1181.69 (relating to annual adjustment).
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