Title: Section 446.4 - Alternative cost allocation bases--sequence of allocation

446.4 Alternative cost allocation bases--sequence of allocation. (a) Effective dates.

(1) For cost reporting periods ending December 31, 1981 and before, alternative cost allocation bases/sequence of allocation may be utilized without the prior approval of the Medicare fiscal intermediary. When utilizing an alternative cost allocation base or sequence of allocation, full documentation as to the necessity, appropriateness, and methodology utilized must be provided. The criteria in subdivision (d) of this section must be met. This requirement applies to all third-party payors.

(2) For cost reporting periods beginning on January 1, 1982 and thereafter, when a hospital wishes to change its allocation basis for a particular cost center or the order in which the cost centers are allocated, because it believes the change will result in more appropriate and more accurate allocations, the hospital must make a written request to its Medicare fiscal intermediary for approval of the change and submit reasonable justification for such change no later than 90 days prior to the beginning of the cost reporting period for which the change is to apply. This requirement will apply to all cost-finding methods and all third-party payors.

(b) The Medicare fiscal intermediary's approval of a hospital's request will be furnished to the hospital in writing. Where the Medicare fiscal intermediary approves the hospital's request for an alternative basis or sequence of allocation, the change must be applied to the cost reporting period for which the request was made and to all subsequent cost reporting periods unless the intermediary approves a subsequent request for change by the hospital. The effective date of any change of basis or sequence of allocation will be the beginning of the first cost reporting period for which the request has been made.

(c) In reviewing the hospital's request, the Medicare fiscal intermediary will apply the following criteria:

(1) Basis of allocation. (i) The hospital must agree to maintain and report all statistics needed for the recommended basis of allocation as well as the alternative basis of allocation. The hospital will report the recommended basis on an additional completed Worksheet, prominently marked at the top "Original Recommended Basis". For New York State reporting purposes, this requirement is effective for cost reporting periods beginning in 1980. For Medicare reporting purposes, this requirement is effective for cost reporting periods beginning in 1981.

(ii) Any alternative basis of allocation expressed solely in terms of percentages will be not acceptable.

(iii) Any alternative basis of allocation must be supported by auditable statistics that are maintained on a regular basis.

(iv) The alternative basis of allocation must directly relate to the provision of services by the affected cost center.

(v) The alternative basis of allocation must produce a clearly more accurate allocation of cost than the recommended basis of cost. For example, the recommended basis of allocation for cafeteria costs is full-time equivalent employees. If the provider chooses to maintain an alternative basis of allocation of sales value of meals served to employees by functional cost center, a more accurate allocation would result. Alternatively, the recommended basis of allocation for laundry is pounds of laundry; however, the use of the number of items issued would not result in a more accurate allocation of costs.

(vi) Only one statistical basis of allocation may be used for each cost center.

(2) Sequence of allocation. The sequence of allocation of step-down cost finding is based upon the assumption that a cost center furnishes more services to the cost centers that follow it in the sequence of allocation than it receives from the cost centers that precede it in the sequence of allocation, and that a cost center receives more services from the cost centers that precede it in the sequence of allocation than it furnishes to the cost centers that follow it in the sequence of allocation. In order to justify the use of an alternative sequence of allocation, a provider must establish through auditable records that the dollar value of goods and services exchanged among cost centers is different than that contemplated in the sequence recommended in the cost reporting forms.

(d) Alternative cost allocation bases or the sequence of allocation, utilized in accordance with this section, must be utilized across all third-party payors.
 

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VOLUME C (Title 10)

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