Title: Section 86-2.19 - Depreciation for voluntary and public residential health care facilities
86-2.19 Depreciation for voluntary and public residential health care facilities.
(a) Reported depreciation based on approved historical cost of buildings, fixed equipment and capital improvements thereto is recognized as a proper element of cost for voluntary and public residential health care facilities. Useful lives shall be the higher of the reported useful life or those useful lives from the most recent edition of Estimated Useful Lives of Depreciable Hospital Assets, American Hospital Association.
(b) In the computation of rates effective for voluntary residential health care facilities, depreciation shall be included on a straight line method on plant and nonmovable equipment. Depreciation shall be funded unless the Commissioner of Health shall have determined, upon application by the residential health care facility, and after inviting written comments from interested parties, that the requested waiver of the requirements for funding is a matter of public interest and necessity. In instances where funding is required, such fund may be used only for capital expenditures with approval as required or for the amortization of capital indebtedness. Funding for plant and fixed equipment shall mean that the transfer of monies to the funded accounts shall occur by the end of the fiscal period in which the depreciation is recorded. Board-designated funds and the accrual of liabilities to the funded depreciation accounts (due to/from accounts) shall not be recognized as funding of depreciation. Deposits to the funded depreciation accounts must remain in such accounts to be considered as valid funding transactions unless expended for the purpose for which it was funded.
(c) In the computation of rates for public residential health care facilities, depreciation is to be included on a straight line method on plant and nonmovable equipment.
(d) Residential health care facilities financed by mortgage loans pursuant to the Nursing Home Companies Law or the Hospital Mortgage Loan Construction Law (defined as "facilities" for purposes of this subdivision only) shall conform to the requirements of this Subpart.
(1) In lieu of depreciation and interest, on the loan-financed portion of the facilities the State Commissioner of Health shall allow debt service on the mortgage loan as set forth in the mortgage repayment schedule computed by the Medical Care Facilities Finance Agency, together with such required fixed charges, sinking funds and reserves as may be determined by the commissioner as necessary to assure repayment of the mortgage indebtedness. Such mortgage repayment schedule may allow for the accelerated repayment of the soft costs, including, but not limited to, mortgage and bond insurance costs, start-up operating costs, underwriter discounts, government agency fees and investment contract fees, included in the approved total project cost.
(2) Effective January 1, 1995 for facilities in an initial period of operation, facilities which have approved discrete units serving specialty populations as defined in paragraphs (5), (6), (7) and (8) of section 86-2.15(b) of this Subpart, which serve AIDS residents, long term ventilator dependent residents, residents requiring behavioral interventions in specialized programs or traumatic brain injured residents who receive long term inpatient rehabilitation, respectively, shall be reimbursed for certain capital expenditures requiring a cash outlay as follows:
(i) Debt service amortization and interest, property insurance and SONYMA annual fees shall be divided by an estimate of patient days in the calculation of the capital component of the specialty population unit rate that is promulgated for the initial period of operation.
(a) An estimate of patient days shall be determined by the department based on a reasonable projection of utilization during the initial period of operation. The reasonable projection of utilization shall be based on factors that shall include, but not be limited to, prior initial utilization of similarly situated facilities.
(b) Initial period of operation is defined as the period commencing on the initial effective date on which the facility is certified by the department to begin operation of the discrete unit(s) identified in paragraph (2) of this subdivision, and ending on the last day of the twelfth month of continuous operation or the beginning date of the initial cost report filed in accordance with subdivision (e) of section 86-2.2 of this Subpart, whichever is shorter.
(ii) The capital component of the facility's rate for the initial period of operation shall be subject to audit for utilization based on actual patient days in the initial period of operation. Such capital component of the rate shall be retrospectively or prospectively adjusted based on such audit. (e) In the computation of rates for voluntary residential health care facilities which are rented from proprietary interests, the provisions of section 86-2.21 of this Subpart shall apply, except where the realty was previously owned by the voluntary residential health care facility or where the proprietary interest has representation on the board of directors of the voluntary residential health care facility.
(f)(1) In the event that a residential health care facility is sold or leased or is the subject of any other realty transaction, the capital cost component of such rate shall be considered to be continuing with the same force and effect as though such sale, lease or other realty transaction has not occurred.
(2) A lease with a related organization described in subdivisions (a) or (d) of section 86-2.26 of this Subpart shall be deemed to be a non-arms length lease.
(3) Any capital expenditures associated with non-arms length leases shall be approved and certified to, if required, pursuant to Article 28 of the Public Health Law. In the computation of reimbursement for non-arms length leases, the capital cost shall be included in allowable costs only to the extent that it does not exceed the amount which the facility would have included in allowable costs if it had legal title to the asset (the cost of ownership), such as straight-line depreciation, insurance and interest. Accelerated depreciation on these assets may not be included in allowable costs under any circumstances.
(g) (1) The provisions of subdivision (a) of this section may be waived for certain qualifying facilities. In order to be considered a qualifying facility, all of the following conditions must be met:
(i) A sale or transfer between nonrelated parties must take place.
(ii) The purchaser must assume the seller's remaining mortgage repayment schedule at the associated fixed rate of interest.
(iii) The difference between the unpaid principal balance of the seller's mortgage (first mortgage) and the Medicaid-allowable transfer price must be generated either from second mortgage proceeds or contributed equity capital or both.
(iv) The annual amount of allowable interest expense incurred as described in section 86-2.20 of this Subpart under terms of the first and second mortgage, plus the annual principal debt amortization, exclusive of that portion attributable to the acquisition of land must be less than that which would otherwise be reimbursed pursuant to subdivision (a) of this section and section 86-2.20 of this Subpart if no assumption of the existing first mortgage were made. (This comparison is hereinafter referred to as the comparative analysis test.)
(v) For purposes of this subdivision, the loan-financed portion of the Medicaid-allowable transfer price shall be held constant and the comparative analysis test shall be applied to each year of the effective term of the first and second mortgages. Equity capital will be considered as first applying to the acquisition of the land, then to the acquisition of the building. In instances where more than one facility is involved in the transaction, the facilities may be combined for purposes of the comparative analysis test.
(2) Qualifying facilities shall be reimbursed principal debt amortization, interest and return of equity in the following manner:
(i) Principal debt amortization. In each year, during the effective term of the mortgage, the capital cost component of the rate shall include a payment factor sufficient to reimburse the principal debt amortization component of the allowable portion of the mortgage, with the exception of that portion of the indebtedness which is attributable to the acquisition of the land.
(ii) Interest. The capital cost component shall include a payment factor sufficient to reimburse interest associated with the allowable portion of the mortgage at a rate which the commissioner finds to be reasonable and is in accordance with the provisions of section 86-2.20 of this Subpart.
(iii) Return of equity. The equity portion of the Medicaid-allowable transfer price, except for that portion which is attributable to the acquisition of the land, shall be reimbursed in equal annual amounts beginning in the first year following the expiration of the term of the mortgages over the remaining useful facility life.
VOLUME A-2 (Title 10)