1 TAC §§355.102, 355.103, 355.105, 355.106, 355.110, 355.111
The Texas Health and Human Services Commission (HSSC) adopts
amendments to §§355.102, 355.103, 355.105, 355.106, 355.110, and
355.111. The amendments to §§355.103, 355.105, 355.110, and 355.111
are adopted without changes to the proposed text published in the April 14,
2000, issue of the
Texas Register
(25 TexReg
3123). The amendment to §355.102 and §355.106 are adopted with technical
changes.
Justification for the amendments is to define approval processes and cost
reporting procedures, clarify allowable and unallowable costs, remove obsolete
references, replace an obsolete reference with a new reference, and correct
a typographical error. The amendments clarify current allowable and unallowable
costs rules regarding where to report different types of benefits on the cost
report and the definition of a passenger van. Clarifications are also being
made to the process for requesting a waiver of the related party requirements
for reporting costs on the cost report, the disclosure and process for requesting
approval of an acceptable allocation method, and the contact for sending a
request for an informal review of cost report adjustments. The adoption also
specifies that the request of a waiver of the related party requirement for
reporting costs on the cost report must be submitted within 45 days of the
due date of the cost report. Clarifications are also being made to the definition
of direct costing of certain costs on the cost report. The adoption clarifies
that prior approval must be obtained to use an allocation method that is not
in compliance with DHS rules. The adoption explains what is a functional allocation
method. The adoption also grants a compliance period of 15 calendar days before
a vendor hold can be placed for failure to submit a required cost report,
correct a typographical error regarding how often mandatory cost report training
must be attended. The rules requiring completion of cost reports according
to instructions and rules that differentiate between 1994, 1995, and 1996
cost reports and cost reports for 1997 and subsequent years have been deleted.
The requirement that cost reports must be completed according to instructions
and rules has been moved and restated without a differentiation between cost
report years. The rule reference to vendor hold for the nursing facility program
has been revised to a new rule reference.
The amendments will function by providing guidance to contracted providers
regarding the completion of required costs reports.
The department received no comments regarding adoption of the amendments.
The department has made technical changes to §355.102(j)(4)(D) to correct
the cite to §355.103(b)(10)(B)(ii) of this title (relating to Specifications
for Allowable and Unallowable Costs) and to §355.106 to correct the cite
to be 40 TAC §19.2703 (relating to Vendor Hold).
The amendments are adopted under the Government Code, §531.033,
which authorizes the commissioner of the Health and Human Services Commission
to adopt rules necessary to carry out the commission's duties, and §531.021(b),
which establishes the commission as the agency responsible for adopting reasonable
rules governing the determination of fees, charges, and rates for medical
assistance payments under Chapter 32, Human Resources Code.
The amendments implement the Government Code, §531.033 and §531.021(b).
§355.102.General Principles of Allowable and Unallowable Costs.
(a)
Allowable and unallowable costs. Allowable and unallowable
costs, both direct and indirect, are defined to identify expenses which are
reasonable and necessary to provide contracted client care and are consistent
with federal and state laws and regulations. When a particular type of expense
is classified as unallowable, the classification means only that the expense
will not be included in the database for reimbursement determination purposes
because the expense is not considered reasonable and/or necessary. The classification
does not mean that individual contracted providers may not make the expenditure.
The description of allowable and unallowable costs is designed to be a general
guide and to clarify certain key expense areas. This description is not comprehensive,
and the failure to identify a particular cost does not necessarily mean that
the cost is an allowable or unallowable cost.
(b)
Cost-reporting process. The primary objective of the cost-reporting
process is to provide a basis for determining appropriate reimbursement to
contracted providers. To achieve this objective, the reimbursement determination
process uses allowable cost information reported on cost reports or other
surveys. The cost report collects actual allowable costs and other financial
and statistical information, as required. Costs may not be imputed and reported
on the cost report when no costs were actually incurred (except as stated
in §355.103(b)(16)(A)(i) of this title (relating to Specifications for
Allowable and Unallowable Costs) or when documentation does not exist for
costs even if they were actually incurred during the reporting period.
(c)
Accurate cost reporting. Accurate cost reporting is the
responsibility of the contracted provider. The contracted provider is responsible
for including in the cost report all costs incurred, based on an accrual method
of accounting, which are reasonable and necessary, in accordance with allowable
and unallowable cost guidelines in this section and in §355.103 of this
title (relating to Specifications for Allowable and Unallowable Costs), revenue
reporting guidelines in §355.104 of this title (relating to Revenues),
cost report instructions, and applicable program rules. Reporting all allowable
costs on the cost report is the responsibility of the contracted provider.
The Texas Department of Human Services (DHS) is not responsible for the contracted
provider's failure to report allowable costs; however, in an effort to collect
reliable, accurate, and verifiable financial and statistical data, DHS is
responsible for providing cost report training, general and/or specific cost
report instructions, and technical assistance to providers. Furthermore, if
unreported and/or understated allowable costs are discovered during the course
of an audit desk review or field audit, those allowable costs will be included
on the cost report or brought to the attention of the provider to correct
by submitting an amended cost report.
(d)
Cost report training. DHS is responsible for conducting,
at no charge to the provider, comprehensive cost report training for each
contracted program. Beginning with the 1997 cost reports, it is the responsibility
of the provider to ensure that each preparer signing the Cost Report Methodology
Certification has attended cost report training conducted by DHS. Preparers
may be employees of the provider or persons who have been contracted by the
provider for the purpose of cost report preparation. Preparers must attend
cost report training for each program for which a cost report is submitted.
Preparers must attend cost report training for two consecutive years, after
which they are required to attend training on at least a biennial basis. A
copy of the most recent cost report training certificate for each preparer
of the cost report must be submitted with each cost report. Travel costs to
attend the state-sponsored cost report training are allowable within the travel
limits specified in §355.103(b)(12) of this title (relating to Specifications
for Allowable and Unallowable Costs). Contracted preparer's fees to attend
state-sponsored cost report training are allowable.
(1)
For nursing facilities, failure to file a completed cost
report signed by preparers who have attended the required cost report training
may result in vendor hold as specified in §355.403 of this title (relating
to Vendor Hold).
(2)
For all other programs, failure to file a completed cost
report signed by preparers who have attended the required cost report training
constitutes an administrative contract violation. In the case of an administrative
contract violation, procedural guidelines and informal reconsideration and/or
appeal processes are specified in §355.111 of this title (relating to
Administrative Contract Violations).
(e)
Generally accepted accounting principles. Except as otherwise
specified by the cost determination process rules of this chapter, cost report
instructions, or policy clarifications, cost reports should be prepared consistent
with generally accepted accounting principles (GAAP), which are those principles
approved by the American Institute of Certified Public Accountants (AICPA).
Internal Revenue Service (IRS) laws and regulations do not necessarily apply
in the preparation of the cost report. In cases where cost reporting rules
differ from GAAP, IRS, or other authorities, DHS rules take precedence for
provider cost-reporting purposes.
(f)
Allowable costs. Allowable costs are expenses, both direct
and indirect, that are reasonable and necessary, as defined in paragraphs
(1) and (2) of this subsection, and which meet the requirements as specified
in subsections (i), (j), and (k) of this section, in the normal conduct of
operations to provide contracted client services meeting all pertinent state
and federal requirements. Only allowable costs are included in the reimbursement
determination process.
(1)
"Reasonable" refers to the amount expended. The test of
reasonableness includes the expectation that the provider seeks to minimize
costs and that the amount expended does not exceed what a prudent and cost-conscious
buyer pays for a given item or service. In determining the reasonableness
of a given cost, the following are considered:
(A)
the restraints or requirements imposed by arm's-length
bargaining, i.e., transactions with nonowners or other unrelated parties,
federal and state laws and regulations, and contract terms and specifications;
and
(B)
the action that a prudent person would take in similar
circumstances, considering his responsibilities to the public, the government,
his employees, clients, shareholders, and members, and the fulfillment of
the purpose for which the business was organized.
(2)
"Necessary" refers to the relationship of the cost, direct
or indirect, incurred by a provider to the provision of contracted client
care. Necessary costs are direct and indirect costs that are appropriate in
developing and maintaining the required standard of operation for providing
client care in accordance with the contract and state and federal regulations.
In addition, to qualify as a necessary expense, a direct or indirect cost
must meet all of the following requirements:
(A)
the expenditure was not for personal or other activities
not directly or indirectly related to the provision of contracted services;
(B)
the cost does not appear as a specific unallowable cost
in §355.103 of this title (relating to Specifications for Allowable and
Unallowable Costs);
(C)
if a direct cost, it bears a significant relationship to
contracted client care. To qualify as significant, the elimination of the
expenditure would have an adverse impact on client health, safety, or general
well-being;
(D)
the direct or indirect expense was incurred in the purchase
of materials, supplies, or services provided to clients or staff in the normal
conduct of operations to provide contracted client care;
(E)
the direct or indirect costs are not allocable to or included
as a cost of any other program in either the current, a prior, or a future
cost-reporting period;
(F)
the costs are net of all applicable credits;
(G)
allocated costs of each program are adequately substantiated;
and
(H)
the costs are not prohibited under other pertinent federal,
state, or local laws or regulations.
(3)
Direct costs are those costs which are incurred by a provider
which are definitely attributable to the operation of providing contracted
client services. Direct costs include, but are not limited to, salaries and
nonlabor costs necessary for the provision of contracted client care. Whether
or not a cost is considered a direct cost depends upon the specific contracted
client services covered by the program. In programs in which client meals
are covered program services, the salaries of cooks and other food service
personnel are direct costs, as are food, nonfood supplies, and other such
dietary costs. In programs in which client transportation is a covered program
service, the salaries of drivers are direct costs, as are vehicle repairs
and maintenance, vehicle insurance and depreciation, and other such client
transportation costs.
(4)
Indirect costs are those costs which benefit, or contribute
to, the operation of providing contracted services, other business components,
or the overall entity with which DHS has contracted. These costs could include,
but are not limited to, administration salaries and nonlabor costs, building
costs, insurance expense, and interest expense. Central office and/or home
office administrative expenses are considered indirect costs.
(g)
Unallowable costs. Unallowable costs are expenses that
are not reasonable or necessary, according to the criteria specified in subsection
(f)(1)-(2) of this section and which do not meet the requirements as specified
in subsections (i), (j), and (k) of this section or which are specifically
enumerated in §355.103 of this title (relating to Specifications for
Allowable and Unallowable Costs) or program-specific reimbursement methodology.
Providers must not report as an allowable cost on a cost report a cost that
has been determined to be unallowable. Such reporting may constitute fraud.
(Refer to 40 TAC §79.2103 (Statutory Bases) for the statutory basis for
Medicaid fraud and §355.106(a) of this title (relating to Basic Objectives
and Criteria for Audit and Desk Review of Cost Reports)).
(1)
For nursing facilities, placement as an allowable cost
on a cost report of a cost which has been determined to be unallowable may
result in vendor hold as specified in §355.403 of this title (relating
to Vendor Hold).
(2)
For all other programs, placement as an allowable cost
on a cost report of a cost which has been determined to be unallowable constitutes
an administrative contract violation. In the case of an administrative contract
violation, procedural guidelines and informal reconsideration and/or appeal
processes are specified in §355.111 of this title (relating to Administrative
Contract Violations).
(h)
Other financial and statistical data. The primary purpose
of the cost report is to collect allowable costs to be used as a basis for
reimbursement determination. In addition, providers may be required on cost
reports to provide information in addition to allowable costs to support allowable
costs, such as wage surveys, workers' compensation surveys, or other statistical
and financial information. Additional data requested may include, when specified
and in the appropriate section or line number specified, costs incurred by
the provider which are unallowable costs. All information, including other
financial and statistical data, shown on a cost report is subject to the documentation
and verification procedures required for an audit desk review and/or field
audit.
(1)
For nursing facilities, inaccuracy in providing, or failure
to provide, required financial and statistical data may result in vendor hold
as specified in §355.403 of this title (relating to Vendor Hold).
(2)
For all other programs, inaccuracy in providing, or failure
to provide, required financial and statistical data constitutes an administrative
contract violation. In the case of an administrative contract violation, procedural
guidelines and informal reconsideration and/or appeal processes are specified
in §355.111 of this title (relating to Administrative Contract Violations).
(i)
Related party transactions.
(1)
In determining whether a contracted provider organization
is related to a supplying organization, the tests of common ownership and
control are to be applied separately. Related to a contracted provider means
that the contracted provider to a significant extent is associated or affiliated
with, has control of, or is controlled by the organization furnishing the
services, equipment, facilities, leases, or supplies. Common ownership exists
if an individual or individuals possess any ownership or equity in the contracted
provider and the institution or organization serving the contracted provider.
Control exists if an individual or an organization has the power, directly
or indirectly, to significantly influence or direct the actions or policies
of an organization or institution. If the elements of common ownership or
control are not present in both organizations, then the organizations are
deemed not to be related to each other. The existence of an immediate family
relationship will create an irrebuttable presumption of relatedness through
control or attribution of ownership or equity interests where the significance
tests are met. The following persons are considered immediate family for cost-reporting
purposes:
(A)
husband and wife;
(B)
natural parent, child, and sibling;
(C)
adopted child and adoptive parent;
(D)
stepparent, stepchild, stepsister, and stepbrother;
(E)
father-in-law, mother-in-law, sister-in-law, brother-in-law,
son-in-law, and daughter-in-law;
(F)
grandparent and grandchild;
(G)
uncles and aunts by blood or marriage;
(H)
nephews and nieces by blood or marriage; and
(I)
first cousins.
(2)
A determination as to whether an individual (or individuals)
or organization possesses ownership or equity in the contracted provider organization
and the supplying organization, so as to consider the organizations related
by common ownership, will be made on the basis of the facts and circumstances
in each case. This rule applies whether the contracted provider organization
or supplying organization is a sole proprietorship, partnership, corporation,
trust or estate, or any other form of business organization, proprietary or
nonprofit. In the case of a nonprofit organization, ownership or equity interest
will be determined by reference to the interest in the assets of the organization,
e.g., a reversionary interest provided for in the articles of incorporation
of a nonprofit corporation.
(3)
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. The facts and circumstances in each case must be examined
to ascertain whether legal or effective control exists. Since a determination
made in a specific case represents a conclusion based on the entire body of
facts and circumstances involved, such determination should not be used as
a precedent in other cases unless the facts and circumstances are substantially
the same. Organizations, whether proprietary or nonprofit, are considered
to be related through control to their directors in common.
(4)
Costs applicable to services, equipment, facilities, leases,
or supplies furnished to the contracted provider by organizations related
to the provider by common ownership or control are includable in the allowable
cost of the provider at the cost to the related organization. However, the
cost must not exceed the price of comparable services, equipment, facilities,
leases, or supplies that could be purchased or leased elsewhere. The purpose
of this principle is twofold: to avoid the payment of a profit factor to the
contracted provider through the related organization (whether related by common
ownership or control), and to avoid payment of artificially inflated costs
which may be generated from less than arm's-length bargaining. The related
organization's costs include all actual reasonable costs, direct and indirect,
incurred in the furnishing of services, equipment, facilities, leases, or
supplies to the provider. The intent is to treat the costs incurred by the
supplier as if they were incurred by the contracted provider itself. Therefore,
if a cost would be unallowable if incurred by the contracted provider itself,
it would be similarly unallowable to the related organization. The principles
of reimbursement of contracted provider costs described throughout this title
will generally be followed in determining the reasonableness and allowability
of the related organization's costs, where application of a principle in a
nonprovider entity would be clearly inappropriate.
(5)
An exception is provided to the general rule applicable
to related organizations. The exception applies if the contracted provider
demonstrates by convincing evidence to the satisfaction of DHS that certain
criteria have been met. If all of the conditions of this exception are met,
then the charges by the supplier to the contracted provider for such services,
equipment, facilities, leases, or supplies are allowable costs. If Medicare
has made a determination that a related party situation does not exist or
that an exception to the related party definition was granted, DHS will review
the determination made by Medicare to determine if it is applicable to the
current situation of the contracted provider and in compliance with this subsection
(relating to related party transactions). In order to have the Medicare determination
considered for approval by the department, a copy of the applicable Medicare
determination must accompany each written exception request submitted to the
department, along with evidence supporting the Medicare determination for
the current cost-reporting period. If the exception granted by Medicare no
longer is applicable due to changes in circumstances of the contracted provider
or because the circumstances do not apply to the contracted provider, DHS
may choose not to consider the Medicare determination. Written requests for
an exception to the general rule applicable to related organizations must
be submitted for approval to the Rate Analysis Department within 45 days of
the due date of the cost report in order to be considered for that year's
cost report. Each request must include documentation supporting that the contracted
provider meets each of the four criteria listed in subparagraphs (A)-(D) of
this paragraph. Requests that do not include the required documentation for
each criteria will not be considered for that year's cost report.
(A)
The supplying organization is a bona fide separate organization.
This means that the supplier is a separate sole proprietorship, partnership,
joint venture, association or corporation and not merely an operating division
of the contracted provider organization.
(B)
A majority of the supplying organization's business activity
of the type carried on with the contracted provider is transacted with other
organizations not related to the contracted provider and the supplier by common
ownership or control and there is an open, competitive market for the type
of services, equipment, facilities, leases, or supplies furnished by the organization.
In determining whether the activities are of similar type, it is important
also to consider the scope of the activity. The requirement that there be
an open, competitive market is merely intended to assure that the item supplied
has a readily discernible price that is established through arm's-length bargaining
by well-informed buyers and sellers.
(C)
The services, equipment, facilities, leases, or supplies
are those which commonly are obtained by entities such as the contracted provider
from other organizations and are not a basic element of contracted client
care ordinarily furnished directly to clients by such entities. This requirement
means that entities such as the contracted provider typically obtain the services,
equipment, facilities, leases, or supplies from outside sources, rather than
producing them internally.
(D)
The charge to the contracted provider is in line with the
charge of such services, equipment, facilities, leases, or supplies in the
open, competitive market and no more than the charge made under comparable
circumstances to others by the organization for such services, equipment,
facilities, leases, or supplies.
(6)
Disclosure of all related-party information on the cost
report is required for all costs reported by the contracted provider, including
related-party transactions occurring at any level in the provider's organization,
(e.g., the central office level, and the individual contracted provider level).
The contracted provider must make available, upon request, adequate documentation
to support the costs incurred by the related party. Such documentation must
include an identification of the related person's or organization's total
costs, the basis of allocation of direct and indirect costs to the contracted
provider, and other business entities served. If a contracted provider fails
to provide adequate documentation to substantiate the cost to the related
person or organization, then the reported cost is unallowable. For further
guidelines regarding adequate documentation, refer to §355.105(b)(2)
of this title (relating to General Reporting and Documentation Requirements,
Methods, and Procedures).
(7)
When calculating the cost to the related organization,
the cost-determination guidelines specified in §355.102 and §355.103
of this title (relating to General Principles of Allowable and Unallowable
Costs and Specifications for Allowable and Unallowable Costs) apply.
(j)
Cost allocation. Direct costing must be used whenever reasonably
possible. Direct costing means that allowable costs, direct or indirect, (as
defined in subsection (f)(3)-(4) of this section) incurred for the benefit
of, or directly attributable to, a specific business component must be directly
charged to that particular business component. For example, the payroll costs
of a direct care employee who works across cost areas within one DHS-contracted
program would be directly charged to each cost area of that program based
upon that employee's continuous daily time sheets and the costs of a direct
care employee who works across more than one service delivery area would also
be directly charged to each service delivery area based upon that employee's
continuous daily time sheets.
(1)
If cost allocation is necessary for cost-reporting purposes,
contracted providers must use reasonable methods of allocation and must be
consistent in their use of allocation methods for cost-reporting purposes
across all program areas and business entities.
(A)
The allocation method should be a reasonable reflection
of the actual business operations. Allocation methods that do not reasonably
reflect the actual business operations and resources expended toward each
unique business entity are not acceptable. Allocated costs are adjusted if
DHS considers the allocation method to be unreasonable. An indirect allocation
method approved by some other department, program, or governmental entity
is not automatically approved by DHS for cost-reporting purposes.
(B)
DHS reviews each cost-reporting allocation method on a
case-by-case basis in order to ensure that the reported costs fairly and reasonably
represent the operations of the contracted provider. If in the course of an
audit it is determined that an existing or approved allocation method does
not fairly and reasonably represent the operations of the contracted provider,
then an adjustment to the allocation method will be made consistent with subsection
(f)(3)-(4) of this section. A contracted provider may request an informal
review, and subsequently an appeal, of a decision concerning its allocation
methods in accordance with §355.110 of this title (relating to Informal
Reviews and Formal Appeals).
(C)
Any allocation method used for cost-reporting purposes
must be consistently applied across all contracted programs and business entities
in which the contracted provider has an interest.
(D)
Providers must use an allocation method approved or required
by DHS. Any change in cost-reporting allocation methods from one year to the
next must be fully disclosed by the contracted provider on its cost report
and must be accompanied by a written explanation of the reasons and justification
for such change. If the provider wishes to use an allocation method that is
not in compliance with the cost-reporting allocation methods in paragraphs
(3)-(4) of this subsection, the contracted provider must obtain written prior
approval from DHS's Rate Analysis Department.
(i)
Requests for approval to use an allocation method other
than those identified in paragraphs (3)-(4) of this subsection or for approval
of a provider's change in cost-reporting allocation method other than those
identified in paragraphs (3)-(4) of this subsection must be received by DHS's
Rate Analysis Department prior to the end of the contracted provider's fiscal
year. Requests for approval of allocation methods will not be acceptable as
a basis for the extension of the cost report due date.
(ii)
The Rate Analysis Department will forward its written
decision to the contracted provider within 45 days of its receipt of the provider's
original written request. If sufficient documentation is not provided by the
provider to verify the acceptability of the allocation method, then DHS may
extend the decision time frame. However, an extension of the due date of the
cost report will not be granted. Written decisions made on or after the due
date of the cost report will apply to the next year's cost report. A contracted
provider may request an informal review, and subsequently an appeal, of a
decision concerning its allocation methods in accordance with §355.110
of this title (relating to Informal Reviews and Formal Appeals).
(iii)
Failure to use an allocation method approved or required
by DHS or to disclose a change in an allocation to DHS will result in the
following.
(I)
For nursing facilities, failure to disclose a change in
an allocation method or failure to use the allocation method approved or required
by DHS may result in vendor hold as specified in §355.403 of this title
(relating to Vendor Hold).
(II)
For all other programs, failure to disclose a change in
an allocation method or failure to use the allocation method approved or required
by DHS constitutes an administrative contract violation. In the case of an
administrative contract violation, procedural guidelines and informal reconsideration
and/or appeal processes are specified in §355.111 of this title (relating
to Administrative Contract Violations).
(2)
Cost-reporting methods for allocating costs must be clearly
and completely documented in the contracted provider's workpapers, with details
as to how pooled costs are allocated to each segment of the business entity,
for both contracted and noncontracted programs.
(A)
If a contracted provider has questions regarding the reasonableness
of an allocation method, that contracted provider should request written approval
from the Rate Analysis Department prior to submitting a cost report utilizing
the allocation method in question. Requests for approval must be received
by the Rate Analysis Department prior to the end of the contracted provider's
fiscal year. Requests for approval of allocation methods will not be acceptable
as a basis for the extension of the cost report due date.
(B)
The Rate Analysis Department will forward its written decision
to the contracted provider within 45 days of its receipt of the original written
request. If sufficient documentation is not provided by the provider to verify
the acceptability of the allocation method, DHS may extend the decision time
frame. However, an extension of the due date of the cost report will not be
granted. Written decisions made on or after the due date of the cost report
will apply to the next year's cost report. A contracted provider may request
an informal review, and subsequently an appeal, of a decision concerning its
allocation methods in accordance with §355.110 of this title (relating
to Informal Reviews and Formal Appeals).
(3)
When a building is shared and the building usage is separate
and distinct for each entity using the building, the building costs, identified
as building and facility cost categories on the cost report, should be allocated
based upon square footage and may not be allocated with other indirect costs
as a pool of costs. When the same building space is shared by various entities,
the shared building costs, identified as building and facility cost categories
on the cost report, should be allocated using a reasonable method which reflects
the actual usage, such as an allocation based on time in shared activity areas
or a functional study of shared dietary costs related to shared dining and
kitchen areas.
(4)
Where costs are shared, are not directly chargeable and
are allocated as a pool of costs, the following allocation methods are acceptable
for cost-reporting purposes.
(A)
If all the business components of a contracted provider
have equivalent units of equivalent service, indirect costs must be allocated
based upon each business component's units of service. For example, if a provider
had two nursing facilities, indirect costs requiring allocation as a pool
of costs must be allocated based upon each nursing facility's units of service,
since the units of service are equivalent units and the services are equivalent
services. If a provider had a nursing facility and a residential care program,
indirect costs requiring allocation as a pool of costs could not be allocated
based upon units of service because even though the units of service for a
nursing facility and a residential care facility are equivalent units, the
services are not equivalent services. If a home health agency has indirect
costs requiring allocation as a pool of costs across its Medicare home health
services and its Medicaid primary home care services, it could not use units
of service to allocate those costs, since neither the units of service nor
the services are equivalent.
(B)
If all of a contracted provider's business components are
labor-intensive without programmatic residential facility or residential building
costs, the contracted provider must allocate its indirect costs requiring
allocation as a pool of costs based either on each business component's pro
rata share of salaries or labor costs or on a cost-to-cost basis.
(i)
For cost-reporting cost allocation purposes, the term "salaries"
includes wages paid to employees directly charged to the specific business
component. The term "salaries" also includes fees paid to contracted individuals,
excluding consultants, who perform services routinely performed by employees,
which are directly charged to the specific business component. The term "salaries"
does not include payroll taxes and employee benefits associated with the wages
of employees.
(ii)
For cost-reporting cost-allocation purposes, the term
"labor costs" includes salaries as defined in clause (i) of this subparagraph,
plus the payroll taxes and employee benefits associated with the wages of
the employees.
(iii)
The cost-to-cost method allocates costs based upon the
percentage of each business component's directly-charged costs to the total
directly-charged costs of all business components.
(C)
If a contracted provider's business components are mixed,
with some being labor-intensive and others having a programmatic residential
or institutional component, the contracted provider must allocate its indirect
costs requiring allocation as a pool of costs either:
(i)
based upon the ratio of each business component's total
costs less that business component's facility or building costs, as related
to the contracted provider's total business component costs less facility
or building costs for all the contracted provider's business components, with
"facility or building costs" referring to those cost categories as identified
on the cost report; or
(ii)
based upon the labor costs method stated in subparagraph
(B)(ii) of this paragraph.
(D)
In order to achieve a more accurate and representative
reporting of costs than results from allocating shared indirect costs as a
pool of costs, a provider may choose to allocate its indirect shared expenses
on an appropriate and reasonable functional basis. If allocating shared direct
client care costs, a provider may use an appropriate and reasonable functional
method. For example, costs of a central payroll operation could be allocated
to all business components based on the number of checks issued; the costs
of a central purchasing function could be allocated based on the number of
purchases made or requisitions handled; payroll costs for an administrative
employee working across business components could be directly charged based
upon that employee's time sheets and/or allocated based upon a documented
time study; food costs could be allocated based upon a functional study of
shared dietary costs; transportation equipment costs could be allocated based
upon mileage logs; and shared laundry costs could be allocated based upon
a functional study of the number of pounds/loads of laundry processed. Providers
choosing to allocate allowable employee-related self-insurance paid claims
in accordance with §20.103(b)(10)(B)(ii) of this title relating to Specifications
of Allowable and Unallowable Costs) should base the allocation on percentage
of salaries of employees benefiting from the coverage for fully self-insured
situations or on percentage of premiums of covered employees for partially
self-insured situations since purchased premiums must be directly charged.
(E)
Because the determination of reimbursement is based on
cost data, allocation methods based upon revenue streams are inappropriate
and unallowable.
(k)
Net expenses. Net expenses are gross expenses less any
purchase discounts or returns and allowances. Purchase discounts are cash
discounts reducing the purchase price as a result of prompt payment, quantity
purchases, or for other reasons. Purchase returns and allowances are reductions
in expenses resulting from returned merchandise or merchandise which is damaged,
lost, or incorrectly billed. Only net expenses may be reported on the cost
report. Expenses reported on the cost report must be adjusted for all such
purchase discounts or returns and allowances.
§355.106.Basic Objectives and Criteria for Audit and Desk Review of Cost Reports.
(a)
The Texas Department of Human Services (DHS) conducts desk
reviews and field audits of provider cost reports in order to ensure that
all financial and statistical information reported in the cost reports conforms
to all applicable rules and instructions. Cost reports must be completed according
to instructions and rules in accordance with §355.105(b)(4) of this title
(relating to General Reporting and Documentation Requirements, Methods, and
Procedures). DHS may require supporting documentation other than that contained
in the cost report to substantiate reported information.
(1)
For nursing facilities, failure to complete cost reports
according to instructions and rules in accordance with §355.105(b)(4)
of this title (relating to General Reporting and Documentation Requirements,
Methods, and Procedures) may result in vendor hold as specified in 40 TAC §19.2703
(relating to Vendor Hold).
(2)
For all other programs, failure to complete cost reports
according to instructions and rules in accordance with §355.105(b)(4)
of this title (relating to General Reporting and Documentation Requirements,
Methods, and Procedures) constitutes an administrative contract violation.
In the case of an administrative contract violation, procedural guidelines
and informal reconsideration and/or appeal processes are specified in §355.111
of this title (relating to Administrative Contract Violations).
(b)
The basic objective of audits and desk reviews is to verify
that each provider's cost report:
(1)
displays financial and other statistical information in
the format required by DHS;
(2)
reports expenses in conformity with DHS's lists of allowable
and unallowable costs;
(3)
follows generally accepted accounting principles, except
as otherwise specified in DHS's lists of allowable and unallowable costs,
and other pertinent rules or as otherwise permitted in the case of governmental
entities operating on a cash or modified accrual basis; and
(4)
is completed in accordance with each program's cost report
instructions and rules.
(c)
DHS verifies the information specified in subsection (b)
of this section by:
(1)
comparing each provider's reported costs to:
(A)
past patterns of expenditures for similar services;
(B)
the results of previous field audits;
(C)
normal operating cost relationships; and
(D)
industry average costs, when available;
(2)
reviewing each provider's reported costs for:
(A)
reported unallowable costs;
(B)
omitted allowable costs, if discovered during the course
of the audit or desk review; and
(C)
understated or overstated allowable costs, if discovered
during the course of the audit or desk review;
(3)
checking for completion of required information;
(4)
checking the format for proper cost classification;
(5)
checking for mathematical accuracy; and
(6)
adjusting the cost report, or notifying the provider that
research and/or corrections are required.
(d)
In accordance with methodology rules, cost report instructions
or policy clarifications, DHS may reassign allowable costs to the appropriate
line items of a cost report.
(e)
DHS seeks to maximize the number of field audited cost
reports available for use in its cost projections. In addition to cost reports
selected for field audit based upon risk analysis, other specific criteria
and random sampling, DHS may conduct field audits of cost reports that show
unusual fluctuations or trends in costs or other statistics. DHS may also
conduct field audits when desk reviews are insufficient to verify the accuracy
of reported costs.
(f)
For cost reports pertaining to providers' fiscal years
ending in calendar year 1997 and subsequent years, each provider entity or
its designated agent(s) must allow access to any and all records necessary
to verify information submitted to DHS on cost reports. This requirement includes
records pertaining to related party transactions or other business activities
engaged in by the provider.
(1)
For nursing facilities, failure to allow access to any
and all records necessary to verify information submitted to DHS on cost reports
may result in vendor hold as specified in §355.403 of this title (relating
to Vendor Hold).
(2)
For all other programs, failure to allow access to any
and all records necessary to verify information submitted to DHS on cost reports
constitutes an administrative contract violation. In the case of an administrative
contract violation, procedural guidelines and informal reconsideration and/or
appeal processes are specified in §355.111 of this title (relating to
Administrative Contract Violations).
(g)
A contracted provider may request an informal review, and
subsequently an appeal, of a desk review or field audit disallowance in accordance
with §355.110 of this title (relating to Informal Reviews and Formal
Appeals).
This agency hereby certifies that the adoption has been reviewed
by legal counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of
the Secretary of State on June 6, 2000.
TRD-200003989
Marina Henderson
Executive Deputy Commissioner
Texas Health and Human Services Commission
Effective date: June 26, 2000
Proposal publication date: April 14, 2000
For further information, please call: (512) 438-3108