Tenn. Comp. R. & Regs. 1200-13-06-.10 - MEDICAID NURSING FACILITY LEVEL I ACCOUNTING PRINCIPLES

(1) Reimbursable Cost

This cost report must be completed in accordance with Medicare laws and principles of cost reimbursement as updated, except as specified in the cost report, the Footnotes and Instructions, and below:

(a) Only the straight line method of computing depreciation is permitted.
(b) Expenses related to disallowed capital expenditures such as depreciation, interest on borrowed funds, the return on equity capital in the case of proprietary providers, and repairs, are not allowable costs. Disallowed capital expenditures are those that have not been approved by the Tennessee Health Facilities Commissioner or its successor agency in accordance with state law.
(c) Bad debt is not an allowable expense.
(d) Costs may be included only for covered services as defined by the Department of Health.
(e) The reimbursement of excessive capitol costs arising from low occupancy is not permitted by the Medicaid NF-1 Program. Accordingly, Medicaid capital-related costs before application of any ceilings shall be recalculated according to the following scale:

Facility % Occupancy Percent of Actual Allowable Costs
80% and above 100%
75% to 79.999% 95%
70% to 74.999% 90%
65% to 69.999% 85%
60% to 64.999% 80%
55% to 59.999% 75%
50% to 54.999% 70%
Below 50% 60%

In addition, no incentive provisions will apply to providers with occupancies below 80%.

(f) Assets not relating to patient care, uncollectible accounts and notes receivable, and advances or loans to owners are to be excluded from equity capital.
(g) On a new lease effective after June 30, 1976, and renewal of such lease between either related or unrelated persons or entities, the lesser of rent on real property or equipment or the amount of the lessor's depreciation, interest, other allowable costs, and return on equity capital, in accordance with principle 2 of this section, will be considered on an item by item basis. Renewal of a lease negotiated before July 1, 1976, at the same rental amount or at an amount fixed or determinable according to conditions provided for in the original lease will not be considered a new lease according to this provision. This provision does not apply to the rental of equipment for periods of less than one year.

In cases where a provider leases a facility from a municipality or other governmental unit or agency at a nominal rental fee (e.g., $1.00 per year) and the lease meets the Medicare criteria for the allowance of depreciation in lieu of rent, other costs to the governmental agency, which are otherwise allowable, may also be included in the reimbursable cost to the provider. When depreciation and other costs to the governmental agency are included by the provider, these costs must be specified as such and supporting documents must be available for audit in the same manner as the provider's own records.

(h) In regard to the revaluation of assets, recovery of depreciation, and limitation of capital related costs on assets sold or transferred at a gain, the Tennessee Medicaid Program will allow the lesser of
1. the asset's purchase price at the time of sale,
2. the fair market value at the time of sale, or
3. for bona fide arms length sales on and after July 1, 1988, the seller's allowable historical basis trended forward by the asset revaluation multipliers. These multipliers are computed by the Comptroller's Office based on the lesser of 50% of the Consumer Price Index or 50% of the Dodge Construction Index (measured from the seller's date of acquisition) and then reduced by the seller's accumulated deprecation to the time of sale.

Furthermore, for sales on and after July 1, 1988, the new provider's combination of down payment and loan principal cannot exceed the revalued basis. The down payment is applied to the revalued basis first, and the remaining amount is the allowable debt basis.

The new provider's allowable useful lives on assets purchased cannot be less than the seller's remaining useful lives at the time of purchase. The provider of record (buyer) is responsible for providing the necessary initial information to the Comptroller's Office in order to make the necessary revaluation. In subsequent years' cost reports, the provider is responsible for maintaining records on assets subject to the revaluation limitation and must enter in Section G.2.cc. the excess of book depreciation and interest over the Medicaid allowable amount. Assets and debt acquired subsequent to and not related to the change of ownership are not subject to revaluation limitations. In no case can interest expense on assets subject to revaluation limits exceed actual interest incurred by the new owner.

ILLUSTRATIVE EXAMPLE

Seller's original building cost was $1,250,000 on July 1, 1980, with a useful life of 40 years. On July 1, 1992, the facility is purchased by Buyer for $3,500,000 who decides to invest some of his own money in the purchase and finance the remainder at 9%. Accumulated depreciation for the building as of July 1, 1992 is $375,000, and the net book value is therefore $875,000. The portion of the selling price allocated to the building is $1,531,250. Buyer's remaining useful life for the building is 28 years. Buyer reported depreciation for the building for FYE 6/30/93 of $54,688. The building revaluation and depreciation limit is computed below. The index for assets acquired in 1980 and sold in 1992 is 1.17.

Seller's original building cost in 1980 $1,250,000
Cost multiplier 1.17
Revalued original cost $1,462,500
Accumulated depreciation ($375,000)
Allowable basis to buyer $1,087,500
Allowable depreciation ($1,087,500/28) $38,839
Reported depreciation $54,688
Non-allowable depreciation $15,849

Assuming the provider's allowable basis for all assets (including the building and equipment) is $2,292,322, allowable return on equity and interest would be computed as follows:

(i) If the buyer, (a for-profit entity), pays $1,000,000 down and finances the remaining $2,500,000 of the purchase, then he is allowed return on equity on $1,000,000 and interest expense of $1,292,322 at 9% for the loan term. Allowable interest expense decreases each year as principal is repaid.
(ii) If the buyer (a for-profit entity) pays $2,500,000 down and finances the remaining $1,000,000 of the purchase, then he is allowed return on equity of $2,292,322 and NO interest expense.
(iii) If the buyer (a not-for-profit entity) pays $1,000,000 down and finances the remaining $2,500,000 of the purchase, then he is allowed NO return on equity, and is allowed interest expense of $1,292,322 at 9% for the loan term. Allowable interest expense decreases each year as principal is repaid.
(i) A return on equity of no more than the amount allowed under Medicare principles in effect for services prior to October 1, 1993, shall be included as an allowable cost for proprietary providers, limited to $1.50 per patient day, and by the maximum payment rate.
(j) The effect of minimum wage and other direct pass-through cost items will be eliminated in the application of the inflation allowance.
(k) An incentive payment will be included in the reimbursable rate for providers who sufficiently contain costs as provided herein and maintain an average occupancy rate of 80% or greater. Certain expenses are fixed and not controllable on a day today basis. These expenses include allowable rent, property taxes and insurance, depreciation, and interest. Total costs are determined for each provider and converted to a per patient day basis. Fixed costs are also determined for each provider and converted to a per patient day basis. Variable costs are determined by subtracting the fixed costs from the total costs. All intermediate care providers whose variable costs are less than the maximum reimbursement rate shall be eligible to receive a fifty percent (50%) cost containment incentive for every dollar they are below the maximum reimbursement rate, limited to three dollars ($3) per patient day and by the maximum reimbursement rate.
(l) No carryover of allowable costs shall be allowed.
(m) Providers of ICF/MR Services
1. For providers of ICF/MR services, the total of management fees charged by a non-related management company plus the total of home office costs claimed by a related parent company, is limited to the lesser of:
(i) Allowable costs of the non-related management company and the related parent company.
(ii) Charges, or
(iii) 45% of total allowable administrative costs of the provider.
(iv) In addition, management fees of a non-related management company is further limited by:
I. The amount specified in the management contract between the management company and the ICF/MR facility; and
II. The maximum component fees as defined in (h) below.
2. A non-related management company is an independent entity not related to the provider by ownership or control and which obtains its contract with the provider by means of an arms-length transaction. If a management company does not obtain its contract by means of an arms-length transaction, it will be deemed a related parent company. The management fees of a non-related management company are not allowable unless the company manages at least two ICF/MR facilities. A related parent company is one which owns, in part or in whole, its subsidiary ICF/MR facilities, or exercises significant control over its subsidiary ICF/MR facilities. A related parent company, as well as a non-related management company, maintains offices and administrative staff separate from and in addition to the individual facilities' administrative offices and administrative staff.
3. For purposes of this rule, the term ownership is as defined to rule 1200-13-6-.09 E.9. Control exists where an individual or an organization has the power, directly or indirectly, significantly to influence or direct the actions or policies of an organization or institution. The term "control" includes any kind of control, whether or not it is legally enforceable and however it is exercisable or exercised. It is the reality of the control which is decisive, not its form or the mode of its exercise.
4. The allowable costs of a non-related management company may include a profit factor equal to the return on equity percentage currently allowed under the program. Unless otherwise indicated by state rules, allowable costs are determined in accordance with Medicare principles of retrospective reimbursement. Interest paid on overdue management fees is considered part of the management fees in the year paid.
5. For purposes of this provision, charges is the amount claimed for reimbursement by a non-related management company or related parent company on provider cost reports submitted to the state.
6. For purposes of this rule, administrative and general costs of the provider include the following:
(i) Salary of administrator;
(ii) Other administrative salaries;
(iii) Office supplies and printing;
(iv) Communications (telephone, fax);
(v) Travel expenses;
(vi) Advertising and public relations;
(vii) Licenses, dues and subscriptions;
(viii) Professional training and education;
(ix) Conference registration and fees;
(x) Accounting, bookkeeping, and auditing expenses;
(xi) Legal services;
(xii) Pharmacy, nursing, dietary, and all other consulting services;
(xiii) Franchise and filing fees;
(xiv) Excise taxes;
(xv) Insurance (other than property insurance);
(xvi) Utilization review expenses;
(xvii) Management fees; and
(xviii) Home office costs.
7. The provider services tax is not included in administrative and general costs of the provider.
8. For purposes of this rule, maximum component fees are upper limits for services documented as provided by non-related management companies to client ICF/MR facilities. Component fees are allowable only if the service is not provided by the ICF/MR with its own staff or by independent contractors separate from the management company. Management companies and/or ICF/MR must maintain documentation that the service(s) are actually provided on-site at the ICF/MR facilities. Accounting and bookkeeping services do not necessarily have to be performed onsite at the provider. The annual maximum component limits are as follows for facilities greater than 50 beds:

Nurse Consultant Services $10,500
Human Resource Services $10,500
Crisis Intervention Services $10,500
Pharmacy Consultant Services $7,000
Dietary Consultant Services $7,000
Social Service Consultant Services $3,000
Activity Service Consulting $1,500
Medical Records Consulting $1,500
Accounting Services $50,000
Bookkeeping Services $20,000
Staff Training Services $10,000
Retainer for Legal Counsel $3,000
General Oversight and Supervision $50,000
Total $184,500
9. The maximum annual allowable management fee for component services under this subsection, before consideration of allowances for management company profit and overhead, is $184,500. An additional 20% of the total allowed components will be added for overhead. In addition, a profit margin based on the total allowed components will be added. The profit percentage will be the current return on equity percentage used under the program. For facilities 50 beds or less, applicable amounts will be one-half the above amounts.

Illustrative Example

Assume the following: A non-related management company is limited to (a)4.(ii), maximum component fees. The management company manages five nursing facilities for the entire year. Four of the facilities have 100 beds and the fifth has 45 beds. Assume the applicable return on equity percentage is 7%. The management company documents that it has provided the following services to each of the five providers:

(i) Nurse Consulting
(ii) Human Resource Services
(ii) Crisis Intervention Services
(iv) Accounting
(v) Staff Training
(vi) General Oversight and Supervision

The maximum allowable management fee for each of the 100 bed facilities is $179,705 computed as follows:

Nurse Consulting $10,500
Human Resource Services $10,500
Crisis Intervention Services $10,500
Accounting $50,000
Staff Training $10,000
General Oversight/Supervision $50,000
Subtotal $141,500
Add overhead (20%) 28,300
Add profit (7%) 9,905
Total Allowable $179,705

The maximum allowable management fee for the 45 bed facility is $89,853.

10. It is the responsibility of ICF/MR providers to submit cost information of non-related management companies. Initially, the cost information is to be submitted on the effective date of this rule. Subsequently, the cost of non-related management companies shall include, but not be limited to, audited financial statements, a detailed trial balance, and allocation of costs to all managed facilities and owned facilities, if any, as well to other business activities of the management company. The cost information is subject to audit by the state Comptroller's Office. In the event that audited financial statements are not available, unaudited statements shall be submitted. In the event that the fiscal year end of the management company differs from the fiscal year end of the ICF/MR provider(s), information from the most recently completed fiscal year shall be submitted. Cost reports submitted without the required management company cost information shall be considered incomplete and will not be processed. Providers will be subject to a penalty of $10 per day in accordance with state law until the required cost information is filed.
11. The provisions of this section do not apply to ICF/MR services covered under a capitated payment system nor to management contracts with annual fees less than $75,000.
(2) Workers Compensation Expenses

For Medicaid cost reporting purposes, when additional costs for workers compensation premiums are incurred from an insurance audit subsequent to a nursing facility's fiscal year end and the cost report has been filed with the Comptroller's Office without including the costs, the costs will be considered an expense in the year the amount becomes known. Should a workers compensation audit result in a premium credit, the credit will be applied to the next premium payment. In either case, amended cost reports cannot be filed.

(3) Disclosure of Information

The Tennessee Medical Assistance program will follow federal requirements pertaining to the disclosure of certain information about ownership interest, business transactions, convictions of program related criminal offenses, etc. as required by 42 CFR Chapter IV, Part 420, Subpart C, and Part 455, Subpart B, Principle C effective October 1, 1983.

(4) Patient Accounts and Patient Funds

Gross charges to the patients' accounts must match the charges to the patient log. Adjustments to the patients' accounts must then be made to bring the actual charges in line with the contractual and legal collection limits of the various medical programs. All charges in the patients' accounts must be supported by charge slips and the proper notes in the patients' files and must correspond to the charges reported on the Department billing forms. Personal funds held by the provider for Medicaid patients used in purchasing clothing and personal incidentals must be properly accounted for with detailed records of amounts received and disbursed and shall not be commingled with nursing facility funds. Patient funds in excess of $50 per patient must be kept in an insured interest bearing account. Interest earned must be credited to the patients.

(5) Patient Logs and Census

Each facility must maintain daily census records and an adequate patient log. The format of the log is to be determined by each individual provider and may be combined with the revenue journal or other records at the convenience of the provider. This log, however, must be sufficient to provide the following information on an individual basis and to accumulate monthly and yearly totals for Medicaid NF-1 patients and for all other patients.

(a) Days of service,
(b) Charges for items and services covered by the Medicaid NF-1 Program,
(c) Charges for items and services not covered by Medicaid NF-1 Program,
(d) Patient income applicable to the cost of covered items and services received by Medicaid NF-1 patients,
(e) Amounts collected and receivable from the Medicaid NF-1 Program, and
(f) Amounts collected and receivable from all other sources.
(6) Patient Log Directions
(a) Suggested Patient Log

The headings below should be listed across the top of the page above the respective columns.

Column No. Heading
1 Patient Name
2 Patient Days
3 Room and Board Charge
4 Total Other NF-1 Covered Charges
5 Total NF-1 Covered Charges (Col. 3 + Col. 4 )
6 Total NF-1 Noncovered Charges
7 Total Actual Charges (Col. 5 + Col. 6 )
8 Date Medicaid NF-1 Claim Paid
9 Amounts Collected and Receivable from NF-1 Program
10 Patient Income Applicable to NF-1 Covered Services
11 Amounts Collected and Receivable from Patients from NF-1 Noncovered Services
12 Amounts Collected and Receivable from Other Sources
13 Total Amounts Collected and Receivable
14 Comments
(b) Directions for Completion of the Sample Patient Log

The log should be maintained on a monthly basis with separate pages used for each month. Medicaid NF-1 patients should be listed in a separate section of the log so that Medicaid NF-1 program statistics can be generated. The columns should be completed and totaled as soon after the end of the month as the figures are available. Adjustments should be made to the monthly totals to reflect adjustments in the log due to changes in patient status, additional information, or other reasons. Complete explanations should accompany each adjustment. For non-program patients, columns 8 through 14 can be omitted or adapted for other uses.

Column 1. Patient Name--Enter the individual patient's name.

Column 2. Patient Days--Enter the patient days that the patient was charged for as this category of patient.

Column 3. Room and Board Charge--Enter the actual room and board charge, according to the facility's charge schedule, for the month.

Column 4. Total Other NF-1-Covered Charges--Enter the total of the charges other than room and board, according to the facility's charge schedule, for services covered by the NF-1 program.

Column 5. Total NF-1 Covered Charges--Enter the sum of column 3 and 4.

Column 6. Total NF-1Noncovered Charges--Enter the total of the charges, according to the facility's charge schedule, for services not covered by the NF-1 program.

Column 7. Total Actual Charges--Enter the sum of column 5 and column 6.

Column 8. Date Medicaid NF-1 Claim Paid--For each Medicaid NF-1 patient, enter the date that each claim was paid by the Department of Health. For other types of patients, leave blank or adapt for other use.

Column 9. Amounts Collected and Receivable From NF-1 Program--For each Medicaid NF-1 patient, enter the amount paid by and receivable from the Department of Health. For other types of patients, leave blank or adapt for other use.

Column 10. Patient Income Applicable to NF-1 Covered Services--For each Medicaid NF-1 patient, enter the amount of each patient's income applicable to NF-1 services. For other types of patients, leave blank, or adapt for other use.

Column 11. Amounts Collected and Receivable from Patients for NF-1 Noncovered Services--For each Medicaid NF-1 patient, enter the amounts collected and receivable for services not covered by the NF-1 program. For other types of patients, leave blank, or adapt for other use.

Column 12. Amounts Collected and Receivable from Other Sources For each Medicaid NF-1 patient, enter the amounts collected from other sources. State the source under Column 14. For other types of patients, leave blank, or adapt for other use.

Column 13. Total Amounts Collected and Due--For each Medicaid NF-1 patient, enter the sum of columns 9, 10, 11, and 12. For other types of patients, leave blank, or adapt for other use.

Column 14. Comments--This column is for special notes relating to the entries in the log.

(7) Sample Entries to Patient Accounts, NF1 Turnaround Document, and the Patient Log.

Basic Data Example Example Example
Month-September 30 days 30 30 30
Comptroller's Office Rate Per Day 66.09 66.09 66.09
Charge Schedule:
Room and Board Rate Per Day 60.00 70.00 66.09
NF-1 Covered Items Per Month 45.00 ------- 30.00
NF-1 Noncovered Items Per Month 20.00 40.00 10.00
Patient Income Per Month (Form 2362) 482.70 482.70 482.70
Allowance Per Month 30.00 30.00 30.00

Example 1 - Basic charge is for Room and Board only for private paying patients, all other supplies and services are charged as used.

(a) Patient Account Entries

Date Debit Credit Other Account Nature of Charge or Credit
9/1 1,800.00 Revenue-Medicaid NF-1 Covered Services Room & Board Charge ($60.00 x 30 days)
9/1 482.70 Cash Collection of Patient Income Based on 2362 Information
9/30 45.00 Revenue-Medicaid NF-1 Covered Services NF-1 Covered Items for September
9/30 Non-covered Services 20.00 Revenue-Medicaid NF-1 for September NF-1 Noncovered Items
9/30 Non-covered Items from 20.00 Cash Collection for NF-1
Patient Personal Needs Funds
9/30 45.00 Contractual Adjustment To adjust charge for covered services to contractual limits
10/31 1,500. 00 Cash Medicaid NF-1 Payment
_________ $1,865.00 __________ $2,047.70

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(b) NF-1 TURNAROUND DOCUMENT

Number of Days of Service 30
Rate Assigned by the Comptroller of the Treasury $66.09

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(c) Patient Log (See Example 1 )

*An adjustment must be filed with the State of Tennessee.

Example 2 Basic charge is an all inclusive rate for all patients. No extra charges to any patients for routine covered service items are made. Non-covered services are charged to all patients.

(d) Patient Account Entries

Date Debit Credit Other Account Nature of Charge or Credit
9/1 2,100.00 Revenue-Medicaid NF-1 Covered Services Room & Board Charge (70.00 x 30 days)
9/1 482.70 Cash Collection of Patient Income Based on 2362 Information
9/30 40.00 Revenue-Medicaid NF-1 Noncovered Services NF-1 Non-Covered Items for September
9/30 30.00 Cash Collection for NF-1 Noncovered Items from Patient Personal Needs Funds
9/30 117.30 Contractual Adjustment To adjust charge for Covered Services to Contractual Limits
10/31 1,500.00 Cash Medicaid NF-1 Payment
$2,140.00 $2,130.00

Patient account balance applicable to September is $10.00. This balance is solely due to charges for noncovered services. This amount can be collected from personal funds if such funds are or become available.

(e) NF-1 TURNAROUND DOCUMENT

Number of Days of Service 30
Rate Assigned by the Comptroller of the Treasury $66.09

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(f) Patient Log (See Example 2 )

*An adjustment must be filed with the State of Tennessee.

Example 3 -Basic charge is for Room and Board only for private paying patients, all other supplies and services are charged as used.

(g) Patient Account Entries

Date Debit Credit Other Account Nature of Charges or Credit
9/1 1,982.70 Revenue-Medicaid NF-1 Covered Services Room & Board Charge (66.09 x 30 days)
9/1 482.70 Cash Collection of Patient Income Based on 2362 Information
9/30 30.00 Revenue-Medicaid NF-1 Covered Services NF-1 Covered Items for September
9/30 10.00 Revenue-Medicaid NF-1 Noncovered Services NF-1 Noncovered Items for September
9/30 10.00 Cash Collection for NF-1 Noncovered Items from Patient Personal Needs Funds
9/30 30.00 Contractual Adjustment To Adjust Charge for Covered Services to Contractual Limits
10/31 1,500.00 Cash Medicaid NF-1 Payment
$2,022.70 $2,022.70

Patient account balance applicable to September is zero.

(h) NF-1 TURNAROUND DOCUMENT

Number of Days of Service 30
Rate Assigned by the Comptroller of the Treasury $66.09

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(i) Patient Log (See Example 3)

PATIENT NAME (1) PATIENT DAYS (2) ROOM AND BOARD CHARGE (3) TOTAL OTHER NF1 COVERED CHARGES (4) TOTAL NF1 COVERED CHARGES (5) TOTAL NF1 NONCOVERED CHARGES (6) TOTAL ACTUAL CHARGE (7) DATE MEDICAID NF1 CLAIM PAID (8)
EXAMPLE 1 30 $1,800.00 $45.00 $1,845.00 $20.00 $1,865.00 10/31
EXAMPLE 2 30 $2,100.00 $0.00 $2,100.00 $40.00 $2,140.00 10/31
EXAMPLE 3 30 $1,982.70 $30.00 $2,012.70 $10.00 $2,022.70 10/31

AMOUNTS COLLECTED FROM NF1 PROGRAM (9) PATIENT INCOME APPLICABLE TO NF1 COVERED SERVICES (10) AMOUNTS COLLECTED FROM PATIENTS FOR NF1 NONCOVERED SERVICES (11) AMOUNTS COLLECTED FROM OTHER SOURCES (12) TOTAL AMOUNTS COLLECTED (13) COMMENTS (14)
EXAMPLE 1 (continued) $1,500.00 $482.70 $20.00 $0.00 $2,002.70 $182.70 OVERPAYMENT TO BE REFUNDED TO NF1 PROGRAM. $45.00 CONTRACTUAL ADJUSTMENT.
EXAMPLE 2 (continued) $1,500.00 $482.70 $30.00 $0.00 $2,012.70 $117.30 CONTRACTUAL ADJUSTMENT.
EXAMPLE 3 $1,500.00 $482.70 $10.00 $0.00 $1,992.70 $30.00 CONTRACTUAL ADJUSTMENT.

Notes

Tenn. Comp. R. & Regs. 1200-13-06-.10
Original rule filed January 12, 1988; effective February 26, 1988. Amendment filed June 15, 1989; effective July 30, 1989. Amendment filed August 17, 1990; effective October 1, 1990. Amendment filed September 14, 1992; effective October 29, 1992. Amendment filed August 17, 1995; effective October 31, 1995. Amendment filed July 15, 1996; effective September 28, 1996. Amendment filed May 18, 2000; effective August 2, 2000.

Authority: T.C.A. ยงยง 4-5-202, 12-4-301, 71-5-105, 71-5-109, and Executive Order 23.

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