Part 456 - Cost-Finding Practices And Procedures

Effective Date: 
Tuesday, December 23, 1980
Doc Status: 
Complete
Statutory Authority: 
Public Health Law, Sections 2803(2), 2803-b, 2805-e, 2808

Section 456.1 - Introduction

Section 456.1 Introduction. (a) Cost finding is the apportionment or allocation of the costs of the nonrevenue-producing centers to each other and to the revenue-producing centers and final program centers on the basis of statistical data reflective of the amount of service rendered by each center to the other centers.

(b) In general, each nonrevenue, ancillary revenue or program revenue center has a total expense of operation which can be described in an algebraic equation comprised of its own direct expense plus some fraction of the total expense of the operation of each of the other centers.

(c) Also, each center has a relationship to each of the other centers that can be described by a statistical allocation basis which is reflective of the relative amount of service rendered.

(d) Cost finding is a mathematical process used to solve the problem of allocating expenses to each center and subtotal expense in each ancillary or program center after the allocation of nonrevenue centers has been accomplished.

(e) While there are a number of methods that can be and have been used (direct allocation, single step down, multiple step down, matrix inversion, etc.), the matrix inversion process which solves equations simultaneously is the most accurate. This process recognizes all the services provided by one reporting center to all other centers. The complete recognition of services is not possible to the same degree in the other cost-finding processes. Although it is anticipated that the matrix inversion process will be used, the uniform system of statistical allocation is applicable to any process.

(f) This Part discusses the segregation of costs, the source for the compilation of data and other information pertinent to the cost allocation process.

(g) When the single step-down method of cost allocation is employed, the cost centers involved in the step down shall be arrayed in the following sequence:

Depreciation, Leases and Rentals

Depreciation on Major Movable Equipment

Interest on Capital Debt

Fiscal Services

Administrative Services

Plant Operation and Maintenance

Grounds

Security

Laundry and Linen

Housekeeping

Patient Food Service

Cafeteria

Nursing Administration

Activities Program

Non-Physician Education

Medical Education

Medical Director's Office

Medical Records

Utilization Review

Social Service

Transportation

Laboratory Service

Electrocardiology

Electroencephalogy

Radiology

Inhalation Therapy

Podiatry

Dental

Psychiatric

Physical Therapy

Occupational Therapy

Speech and Hearing Therapy

Pharmacy

Central Service Supply

Medical Staff Service

Ancillary--Other--A

Ancillary--Other--B

Ancillary--Other--C
 

Effective Date: 
Tuesday, January 1, 1991
Doc Status: 
Complete

Section 456.2 - Statistics and sampling

456.2 Statistics and sampling. (a) A standard statistical allocation has been set forth for each functional reporting center. This prescribed minimum statistic must be reported based on residential health care facility records for functional reporting centers which have their own direct costs as well as centers which may receive only indirect costs as a result of cost finding.

(b) Alternative statistics may be developed and utilized for cost allocation of a functional center if such alternative basis had been used in the past and approved through audit by the third-party reimbursement agency auditor.

(c) However, a residential health care facility utilizing an alternative statistical basis must also report the minimal acceptable statistics set forth in this Part. A residential health care facility wishing to change its statistical allocation basis at any time in the future must collect the data and submit same to the New York State Department of Health, or other body if established, for approval as an exception to the approved cost allocation basis before it can be used. See procedure for same in Part 457 of this Article. Once an alternative statistic is used, it must remain in use until approval is given to alter the approved statistical basis.

(d) It is understood that in some instances a residential health care facility may not be able to accumulate the statistics for a full year. Under these circumstances, the residential health care facility may use a sample for accumulation of the data. A discussion of the sampling technique is presented in section 456.4 of this Part. The minimum mandated statistical basis for cost allocation is presented in section 456.3. A more precise definition for the compilation of the data is provided in section 456.5.
 

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Section 456.3 - Mandated statistical bases for cost allocation

456.3 Mandated statistical bases for cost allocation. The following represent the minimum mandated statistical bases for cost allocation.
(a) Nonrevenue support services.

Functional reporting center Allocation basis

(1) Depreciation, Leases and Depreciation by building,
Rentals by Department

(2) Depreciation on Major Movable For assets acquired prior to
Equipment 1/1/78, depreciation may be
allocated to departments
based on square feet, net.
For major movable equipment
acquisitions subsequent to
1/1/78, depreciation on such
assets must be assigned based
on the physical location of
the equipment.

(3) Interest on Capital Debt Square feet of building for
incurred which debt incurred and
actual depreciation ofmajor
movable equipment.

(4) Fiscal Services Accumulated costs

(5) Administrative Services Accumulated costs

(6) Plant Operation and Maintenance Square feet, net

(7) Grounds Square feet, net

(8) Security Square feet, net

(9) Laundry and Linen Dry and Clean pounds
distributed, includes
the equivalent weight of
disposable linens
distributed

(10) Housekeeping Assigned time

(11) Patient Food Service Dietary meals served

(12) Cafeteria Average number of employees

(13) Nursing Administration* Total hours of direct nursing
service

(14) Activities Program Number of participants, by
program

(15) Non-Physician Education Assigned time of students

(16) Medical Education Assigned time--interns and
residents

(17) Medical Director's Office* Time spent

(18) Housing Number of rooms occupied by
department assigned

(19) Medical Records* Hours of service

(20) Utilization Review Number of cases reviewed, by
program area

(21) Social Services* Hours of service

(22) Transportation* Number of users, by program

(b) Ancillary service revenue centers.

Functional Reporting Center Allocation Basis

(1) Laboratory Services CAP workload measurement units

(2) Electrocardiology CAP workload measurement units

(3) Electroencephalogy CAP workload measurement units

(4) Radiology Relative value units

(5) Inhalation Therapy Number of treatments

(6) Podiatry Number of visits

(7) Dental Number of visits

(8) Psychiatric Number of visits

(9) Physical Therapy Number of treatments

(10) Occupational Therapy Number of treatments

(11) Speech and Hearing Therapy Number of treatments

(12) Medical Staff Services* Hours of service by physician

(13) Pharmacy** Costed requisitions

(14) Central Service Supply** Costed requisitions
(c) Exceptions.
*(1) For facilities with a single program service classification the cost allocation bases indicated in subdivisions (a) and (b) of this section by an asterisk (*) are waived.
**(2) In Pharmacy and Central Services Supply cost centers, indicated by (**) in subdivision (b) of this section, for facilities with a single program service classification, the cost allocation bases are waived. However, requisitions for these cost centers for the sample periods must be retained as an audit trail showing that such supplies were not utilized in areas other than the program area. Also, for Pharmacy costs in multicare facilities, see section 456.5(p) of this Part for alternate pricing out of requisitions allowable.

 

Effective Date: 
Tuesday, January 1, 1991
Doc Status: 
Complete

Section 456.4 - Sampling technique

456.4 Sampling technique. (a) The following allocation bases may be sampled for the functional reporting centers indicated, rather than having actual cost allocation statistics accumulated for a full year:

(1) dry and clean pounds distributed (Laundry and Linen);

(2) hours of service (Medical Records) (Medical Staff Services) (Social Services);

(3) time spent (Medical Director's Office);

(4) total hours of nursing service (Nursing Administration);

(5) costed requisitions (Pharmacy) (Central Service Supply);

(6) assigned time (Housekeeping); and

(7) the allocation basis for any cost center not having direct costs, but which receives indirect costs as a result of the cost-finding process.

(b) The sampling plan used by the residential health care facility need not conform to the strict mathematical concepts inherent to statistical sampling. The recommended approach to be used to sample statistics used as an allocation basis is as follows:

(1) A minimum of eight calendar weeks will be selected each year for the accumulation of data.

(2) These eight weeks will be representative of the full year. In order to achieve this, the facility will select a two-week block (14 consecutive days) within each fiscal quarter for the collection of data.

(3) The same two-week block need not be used for all statistics.

(4) During the testing period, actual counting, weighing, etc. will be done for all shifts involved in the particular area.

(c) Periods of unusual circumstances should be avoided as test weeks. The principle of representative samples is the ultimate goal.

(d) It should be noted that sampling techniques may only be utilized for those statistical bases indicated above and only with respect to cost allocation. Statistics utilized for the standard unit of measure may not be sampled.
 

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Section 456.5 - Compilation of statistical data

456.5 Compilation of statistical data. The cost allocation process utilizes statistics in distributing costs among the various residential health care facilities services. In order to facilitate the development of appropriate statistical data, set forth below is a definition and source of the required statistic for each nonrevenue-producing department. The statistical bases for cost allocation for ancillary services are the same as the standard units of measure except that such statistics must be segregated by program level of patients served.

Statistic Definition or method of computation Source

(a) Square The number of net square feet in each Blueprints of the feet, net department should be determined either residential health by a physical measurement of the facility care facility or or by a measurement from blueprints. actual measurement Floor area measurements should be taken if blueprints are from the center of walls to the center of not available. adjoining corridors if a hallway services more than one department. Exclude stairwells, elevators and other shafts. General and unused areas are also to be excluded. Hallways, waiting rooms, storage areas, etc., serving only one department should be included in that department. When changes in assigned areas have been made during the year as a result of new construction, departmental relocation, expansion or curtailment of service, statistical data should be maintained to allow for the development of weighted areas for the fractional part of the year. Where the same area serves more than one function, this area must be apportioned between functions. Where costs applicable to a particular building are identifiable, e.g., depreciation, the costs should be distributed by the square feet in that building alone, and to the corresponding department.

(b) Square The number of gross square feet in each Blueprints of the feet, gross department should be determined by a residential health physical measurement of the residential care facility or health care facility or by a measurement actual measurement from blueprints. Measurement should be if blueprints are taken from the exterior wall or railing to not available. the center of adjoining interior corridors if a hallway services more than one department. Exclude stairwells, elevators and other shafts. General and unused areas are also to be excluded. Hallways, waiting rooms, storage areas, etc., serving only one department should be included in that department. When changes in assigned areas have been made during the year as a result of new construction, departmental relocation, expansion or curtailment of service, statistical data should be maintained to allow for the development of weighted areas for the fractional part of the year. Where the same area serves more than one function, this area must be apportioned between or among the appropriate functions. Where costs applicable to a particular building are identifiable, e.g., depreciation, the costs should be distributed by the square feet of that building alone, and to the corresponding department.

(c) Major Depreciation on major movable equipment General accounting movable allocated to departments, based on the records and equipment department where the equipment is physically blueprints of the depreciation located and utilized. For acquisitions prior residential health by to 1/1/78, allocation may be based on square care facility or department feet, net. actual measurement.

(d) Square The interest expense related to the building General accounting feet of and fixed equipment must be allocated to records and building for departments in the building based upon gross blueprints of the which debt square feet. The interest expense related to residential health incurred and the major movable equipment will be care facility or actual allocated based upon actual department actual measurement. depreciation depreciation of major movable equipment. of major movable equipment

(e) Depre- The depreciation expense for each building General accounting ciation by distributed through gross square feet to records and building, by departments in that building. blueprints of the department. residential health care facility or actual measurement.

(f) Accumu- The direct costs of each reporting center Stepdown report lated costs and indirect costs previously allocated. (For) other than inversion process. matrix

(g) Hours of Accumulated hours of service to departments Departmental service or by program. records.

(h) Dietary Number of meals served shall include only Actual count meals served regularly scheduled meals and exclude maintained by snacks and fruit juices served between dietary regularly scheduled meals. Also includes department. tube feeding at the rate of three meals for each day so fed.

(i) Average The average number of employees in each Payroll records. number of department. This average should be computed employees computed by using at least one pay period per quarter. (j) Total Hours of nurses providing direct patient Payroll records. hours of care for which administration is provided. direct nursing service

(k) Assigned Hours of students enrolled in programs Education records. time of by assigned department. students

(l) Assigned Number of full-time equivalent interns and Education records. time--interns residents in approved teaching programs, and residents by assigned departments.

(m) Time Number of minutes/hours utilized by a Departmental log. spent department.

(n) Dry and Statistic shall include the weight of linen Actual count clean pounds distributed for the residential health care maintained inthe distributed facility's use (including linen of laundry and linen personnel quarters and employee housing). department. Also shall include equivalent weight of disposable linens distributed.

(o) Number of Where housing is provided, a count of the Personnel records rooms number of rooms occupied by physicians and and general occupied by employees, totaled by the departments they accounting records. department are assigned to, regardless of whether or assigned not the facility receives income.

(p) Costed The aggregate cost of goods supplied to General requisitions departments. For the Pharmacy cost center, accounting the prices shown in the Red Book or Blue records. Book reference manuals may be utilized rather than actual invoice price. Such reference manuals are published annually (the Red Book one half of the year; the Blue Book the other half).

(q) Number Number of patient cases reviewed by Department of cases Utilization Review personnel, by program records. reviewed, by area. program area

(r) Number of Number of patients using transportation, Department log. users, by by program area. program area

(s) Assigned The hours (or other unit of time) assigned Department log. time to service each department. Exclude common or unused areas. Time assigned to shared areas is to be allocated to the reporting centers sharing those areas on an equitable basis.
 

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