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016.06.8-3-1. General Information

AR ADC 016.06.8-3-1Arkansas Administrative CodeEffective: August 14, 2022

West's Arkansas Administrative Code
Title 016. Department of Human Services
Division 06. Division of Medical Services
Rule 8. Medical Assistance Program Manual of Cost Reimbursement Rules for Long Term Care Facilities
Chapter 3. Allowable Costs
Effective: August 14, 2022
Ark. Admin. Code 016.06.8-3-1
016.06.8-3-1. General Information
Currentness
A. This chapter sets forth principles for determining the allowable costs for the facilities which:
1. Meet the definition of a Nursing Facility (NF) under 42 CFR Part 483, Subpart B, if licensed and certified as a NF.
2. Meet the definition of an Intermediate Care Facility for Individuals with Intellectual Disabilities (ICF/IID) under 42 CFR Part 483, Subpart I, if licensed and certified as an ICF/IID.
3. Meet certification requirements to participate in the Medicaid program as a NF or ICF/IID.
4. Are primarily engaged in providing to residents:
a) skilled nursing care and related services for residents who require medical or nursing care,
b) rehabilitation services for the rehabilitation of injured, disabled, or sick persons, or
c) on a regular basis, health-related care and services to individuals who because of their mental or physical condition require care and services (above the level of room and board) which can be made available to them only through institutional facilities.
B. The Medicare Provider Reimbursement Manual (HCFA Publication 15-1) and the Federal regulations appropriate to the recognition of costs for facilities under the Medicare program are a supplement to this chapter. A facility shall use the Medicare Provider Reimbursement Manual and Federal regulations for the sole purpose of determining the allowability of a specific cost not determinable by reference to this manual. A facility may not use the Medicare Provider Reimbursement Manual or Federal regulations for a cost that is determined to be unallowable in this chapter. A facility may not use the Medicare Provider Reimbursement Manual or Federal regulations to alter the treatment of a cost provided for in this chapter.
C. Generally Accepted Accounting Principles (GAAP) as interpreted in the opinions of the American Institute of Certified Public Accountants (AICPA) and in the statements by the Financial Accounting Standards Board (FASB) are a supplement to this chapter. A facility shall use GAAP for cost issues which are not specifically addressed in this chapter, the Medicare Provider Reimbursement Manual, or Federal regulations. A facility may not use GAAP for a cost that is determined to be unallowable in either this chapter, the Medicare Provider Reimbursement Manual, or Federal regulations. A facility may not use GAAP to alter the treatment of a cost provided for in this chapter, the Medicare Provider Reimbursement Manual, or Federal regulations.
D. Allowable costs must be reported on a full accrual basis of accounting. If a facility maintains its internal records on a basis other than the accrual method, it will be necessary to convert to the accrual basis for cost reporting purposes. This does not apply to State owned facilities.
E. The Arkansas Department of Human Services (DHS) defines allowable and unallowable costs to identify expenses which are reasonable and necessary to provide recipient care to Medicaid recipients by an economical and efficient provider. The primary objective of the cost reporting process is to provide adequate data for the determination of fair and reasonable reimbursement rates to providers. To achieve that objective, DHS compiles a rate base consisting, if possible, only of allowable cost information. If DHS classifies a particular type of expense as unallowable for purposes of compiling a rate base, it does not mean that individual providers may not make expenditures of this type.
F. Definitions. The following words and terms, when used in this subchapter, shall have the following meanings, unless the context clearly indicates otherwise.
1. Allowable costs -- Those expenses that are reasonable and necessary in the normal conduct of operations to provide recipient care in a facility.
a) Reasonable refers to the amount expended. The test of reasonableness is that the amount expended does not exceed the cost which would be incurred by a prudent business operator seeking to contain costs.
b) Necessary costs are those costs essential:
(1) to operate a long term care facility and deliver long term care in conformity with applicable federal, state, and local laws, rules, ordinances, and codes; and
(2) to attain or maintain the highest practicable physical, mental, and psychosocial well being of each resident.
c) Normal conduct of operations relating to recipient care refers to otherwise allowable costs that include, but are not limited to, the following:
(1) expenses for facilities, materials, supplies, or services used by a facility solely for providing longterm recipient care. Whenever otherwise allowable costs are attributable partially to personal or other business interests and partially to facility recipient care, the latter portion may be allowed on a pro rata basis if the basis for allocation of expense for recipient care purposes is well-documented. This documentation includes the allocation methodology and appropriate logs necessary to support amount attributed to recipient care;
(2) allowable costs which result from arms-length transactions involving unrelated parties. In transactions involving related organizations, the allowable cost to the facility is the cost to the related party. Allowable costs in this regard are limited to the lesser of the actual purchase price to the related party, or usual and customary charges for comparable goods or services.
d) Allowable costs must be reported net of any applicable returns, allowances, discounts, and refunds.
2. Costs of Related Organizations -- Costs for services or supplies furnished to the facility by related organizations are allowable at the cost to the related party to the extent that they are reasonable and necessary in the normal conduct of operations relating to recipient care in a facility and do not exceed those costs incurred by a prudent buyer. Providers should treat the cost incurred by the related party as if they were incurred by the provider itself. Providers must supply a detail income statement from the related party entity so the proper cost report classification can be determined. If the cost to the related party would be classified as a direct care cost by the nursing facility, then the related cost must be claimed on a direct care line on the cost report. If the cost to related party would be classified as an indirect, administrative, and operating cost by the nursing facility, then the related party cost must be claimed on an indirect, administrative, and operating cost report line. If the cost to related party would be classified as a property cost by the nursing facility, then the related party cost must be claimed on a property cost report line. Expenses for transactions with related organizations should not exceed expenses for like items in arms' length transactions with other non-related organizations.
a) Related Organization -- A related organization (includes individuals, partnerships, corporations, etc.) is one where the provider is associated or affiliated with, has common ownership, control, or common board members, or has control of or is controlled by the organization furnishing the services, facilities, or supplies.
b) Common ownership -- Common ownership exists when an entity, individual or individuals possess 5% or more ownership or equity in the provider and the institution or organization serving the provider.
c) Control -- Control exists where an individual or an organization has the power, directly or indirectly, significantly to influence or direct the actions or policies of an organization or institution.
d) Immediate Family Relationship -- Immediate family members are related parties. Immediate family members include husband/wife, natural parent, child, sibling, adoptive child and adoptive parent, step-parent, step-child, step-sibling, father-in-law, mother-in-law, brother-in-law, sister-in-law, son-in-law, daughter-in-law, grandparent, and grandchild.
e) Exception -- An exception to the general rule applicable to related organizations exists where large quantities of goods and services are furnished to the general public by the related organization and sales to the facility represent no more than five percent of the gross receipts of the related organization. The facility must demonstrate to the satisfaction of the Department that all of the following criteria are met:
(1) The supplying organization is a bona fide separate organization;
(2) A substantial part of the supplying organization's business activity with the facility is transacted with other organizations not related to the facility and the supplier by common ownership and there is an open, competitive market for the type of services, supplies or facilities furnished by the organization;
(3) The services, supplies, or facilities are those commonly obtained by facilities from other organizations and are a necessary element of resident care.
(4) The charge to the facility is no more than the charge for such services, supplies, or facilities in the open, competitive market, and no more than the charge made by the organization, under comparable circumstances, to other customers for such services, supplies, or facilities.
f) The facility must furnish to the Department adequate documentation to support the costs incurred by the related organization, including access to the related organization's books and records concerning supplies, services, or facilities furnished to the facility. Such documentation must include an identification of the organization's total costs, and the basis for allocating direct and indirect costs to the facility and to other entities served.
g) Limitations on cost for related party transactions will not apply to the sale of one or more nursing facilities by a person to that person's child or children for money equal to the fair market value of the facility or facilities. All other regulations relating to the sale of a facility will apply.
3. Unallowable Costs -- Those expenses that are not reasonable or necessary for the provision of recipient care in a facility, according to the criteria as specified in paragraph (1) of the subsection. Unallowable costs are not included in the rate base used for determining reimbursement rates.
4. Prudent Buyer Concept -- Allowable costs may not exceed the cost that a prudent buyer would pay in the open market to obtain products or services.
5. Arms-Length Transaction -- A voluntary transaction between a knowledgeable and willing buyer unrelated to the seller, with each acting for his or her own independent self-interest.

Credits

Amended Aug. 14, 2022.
Current with amendments received through February 15, 2024. Some sections may be more current, see credit for details.
Ark. Admin. Code 016.06.8-3-1, AR ADC 016.06.8-3-1
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