Alabama Administrative Code › Title 560 - ALABAMA MEDICAID AGENCY › Chapter 560-X-22 - NURSING FACILITY REIMBURSEMENT › Section 560-X-22-.11 - Interest Expense

Current through Register Vol. 42, No. 9, June 28, 2024
(1)
			 Necessary and reasonable interest expense is an allowable cost. In order to be
			 considered necessary, the interest must be incurred on a loan made to satisfy a
			 financial need directly related to patient care. Loans which result in excess
			 funds or which are not related to patient care are not considered necessary. In
			 order to be considered reasonable, the interest rate cannot be in excess of
			 that which a prudent borrower would agree to pay, and the lender must not be
			 related to the borrower. The provisions of HIM-15 shall be applicable in
			 determining whether a loan is between related parties. Interest paid by the
			 provider to owners, partners, stockholders, or other persons related to the
			 provider is not an allowable cost.
(2)
(a)
			 Bond discounts or premiums and loan costs will be amortized over the life of
			 the bond issue using the straight line method and such amortization will be
			 treated as interest. Amortization will be added to interest expense in the case
			 of discounts and loan costs and deducted from interest expense in the case of
			 premiums.
(b)
(1) For purposes of Medicaid reimbursement,
			 the term "discount," as applied to debt, means any front-end payment to a
			 lender or any reduction of principal received from a lender as a condition of
			 obtaining the loan. It encompasses the generic terms of discount, loan points,
			 and commitment fees.
(b)
(2) Allowable loan costs will be limited to
			 expenditures required by the lender, such as title searches, recording fees,
			 etc.; however, fees for project development, feasibility studies, or financial
			 advisors will not be allowed.
(c) Only the portion of the discount or
			 premium and loan cost that is related to the allowable basis of the facility,
			 as determined by Medicaid, can be amortized and claimed for reimbursement.
			 Allowable portion will be computed as follows: Current Asset Value x Current
			 Unamortized Disc./Premium = Allowable Discount/Premium Balance Due on Note.
			 Should the result be more than 100%, the full discount/premium will be
			 allowed.
(d) Interest expense will
			 be allowed for debt, discount and/ or premium, and loan costs that are related
			 to the allowable Medicaid basis. The computation of the allowed loan cost will
			 be the same as for allowable discounts as described in
			 560-X-22-.11(2)(c).
(e) Example:
1. Outstanding Debt at 9/1/91
			 $2,500,000
2. Remaining Term of
			 Debt 25 years
3. Interest Rate
			 10%
4. Current Asset Value at
			 9/1/91 1,826,000
5. Discount
			 125,000
6. Escrows
			 150,000
7. Loan Costs (Subject to
			 the provisions of
			 560-X-22-.11(2)(b)(2)560
			 -X-22-.22(3)(e)(f)) 120,000
8.
			 Allowable Interest Computation:
(i) Allowable
			 Discount
1,826,000 x 125,000 = $91,300
2,500,000
(ii) Allowable Loan Cost
1,826,000 x 120,000 = $87,648
2,500,000
(iii)
Medicaid Basis
$1,826,000
Discount
91,300
Loan Cost
87,648
Total Int. Basis
2,004,948
(iv)
			 Interest & Debt Allowable
2,004,948 = 80.2% of Annual Interest Incurred
2,500,000 on Notes Outstanding
(v)
First year Interest
$250,000
Medicaid Allowable
802
Allowable Interest
200,500
Allowable Amortization:
Discount
91,300
253,652
Loan Cost
87,648
253,506
Total Reimbursable Int. and Amortization
$207,658
(vi)
			 Once percentages of allowability have been established, they will remain in
			 effect until there is a change in ownership. Sale of stock or corporate
			 reorganization does not constitute a change of ownership. A revaluation of
			 assets will be permitted where the purchase of stock of a corporate provider is
			 followed within three (3) months by the liquidation of the provider. Any
			 revaluation of the assets of a provider as the result of such liquidation shall
			 be subject to the same prior approval and basis limitations as though an
			 outright sale of the assets has been made.