Title: Section 86-2.22 - Movable equipment

Effective Date

10/25/1993

86-2.22 Moveable Equipment.

(a) Necessary and reasonable expenses related to movable equipment (depreciation computed on a straight-line method or accelerated under a double declining balance or sum-of-the-years-digits method, interest on indebtedness, lease, etc.) are considered allowable costs for residential health care facilities subject to such ceilings as may be established and promulgated by the Commissioner of Health.

(b) An arms length lease purchase agreement with a nonrelated lessor involving equipment entered into on or after October 23, 1992 which meets any one of the four following conditions, establishes the lease as a virtual purchase.

(1) The lease transfers title of the equipment to the lessee during the lease term.

(2) The lease contains a bargain purchase option.

(3) The lease term is at least 75 percent of the useful life of the equipment. This provision is not applicable if the lease begins in the last 25 percent of the useful life of the equipment.

(4) The present value of the minimum lease payments (payments to be made during the lease term including bargain purchase option, guaranteed residual value and penalties for failure to renew) equals at least 90 percent of the fair market value of the leased property. This provision is not applicable if the lease begins in the last 25 percent of the useful life of the equipment. Present value is computed using the lessee's incremental borrowing rate, unless the interest rate implicit in the lease is known and is less than the lessee's incremental borrowing rate, in which case the interest rate implicit in the lease is used.

(c) If a lease is established as a virtual purchase under subdivision (b) of this section, the rental charge is includable in capital-related costs as the lesser of the annual rent or the annual costs of ownership which shall be limited to depreciation and interest. When the cost of ownership becomes less than the annual rent, the rental charge shall be includable in capital-related costs. The aggregate rental or lease costs included in capital-related costs may not exceed the costs of ownership that would have been included in capital-related costs over the useful life of the asset had the provider received legal title to the asset.

(d) If a facility enters into a sale and leaseback agreement involving equipment on or after October 23, 1992, the amounts to be included in capital-related costs are the lesser of the annual rent or the annual costs of ownership. When the cost of ownership becomes less than the annual rent, the rental charge shall be includable in capital-related costs. The aggregate rental or lease costs included in capital-related costs may not exceed the costs of ownership which shall be limited to depreciation and interest that would have been included in capital-related costs over the useful life of the asset had the provider retained legal title to the asset.
 

Volume

VOLUME A-2 (Title 10)

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