Alabama Administrative Code › Title 560 - ALABAMA MEDICAID AGENCY › Chapter 560-X-56 - FEDERALLY QUALIFIED HEALTH CENTER REIMBURSEMENT › Section 560-X-56-.10 - Property Costs

Current through Register Vol. 42, No. 9, June 28, 2024
(1) General
			 Principles Relating to Property Costs. Property Costs include, but are not
			 limited to, depreciation, interest, lease and rental payments, insurance on
			 buildings and contents, and property taxes. In addition to the limitations
			 contained in this rule, all property costs will be subject to the "prudent
			 buyer" concept with each case to be considered on its own merit. Also,
			 depreciation, interest, rent, insurance, and taxes associated with space and
			 equipment used for non-covered services or activities must be eliminated from
			 allowable property costs.
(2)
			 Depreciation
(a) Depreciation is that amount
			 which represents a portion of the depreciable asset's cost or other basis which
			 is allocable to a period or operation. The amount of depreciation is determined
			 by using the straight line method.
(b) The principles of reimbursement for
			 facility costs provide that payment for services should include depreciation on
			 all depreciable type assets that are used to provide covered services to
			 beneficiaries. This includes assets that may have been fully (or partially)
			 depreciated on the books for the facility but are in use at the time the
			 facility enters the program. The useful lives of such assets are considered not
			 to have ended and depreciation calculated on a revised extended useful life is
			 allowable. Likewise, a depreciation allowance is permitted on assets that are
			 used in a normal standby or emergency capacity. An appropriate allowance for
			 depreciation on buildings and equipment is an allowable cost. The depreciation
			 must be:
(1) identifiable and recorded in the
			 facility's accounting records;
(2)
			 based on the historical cost of the asset or fair market value at the time of
			 donation or inheritance, in the case of donated or inherited assets; and
(3) prorated over the estimated
			 useful life of the asset using the straight line method of
			 depreciation.
(c)
			 Depreciable Assets. Assets that a facility has an economic interest in through
			 ownership regardless of the manner in which they were acquired, are subject to
			 depreciation. Generally, depreciation is allowable on the assets described
			 below when required in the regular course of providing patient care. Assets
			 which a facility is using under a regular lease arrangement would not be
			 subject to depreciation by the facility.
(d) Buildings. Buildings include, in a
			 restrictive sense, the basic structure or shell and additions thereto. The
			 remainder is identified as building equipment.
(e) Building Equipment. Building equipment
			 includes attachments to buildings, such as wiring, electrical fixtures,
			 plumbing, elevators, heating system, air conditioning system, etc. The general
			 characteristics of this equipment are:
(1)
			 affixed to the building, and not subject to transfer; and
(2) a fairly long life, but shorter than the
			 life of the building to which affixed. Since the useful lives of such equipment
			 are shorter than those of the buildings, the equipment may be separated from
			 building cost and depreciated over this shorter useful life.
(f) Major Moveable Equipment.
			 Major moveable equipment includes such items as accounting machines, beds,
			 wheelchairs, desks, vehicles, X-ray machines, etc. The general characteristics
			 of this equipment are:
(1) a relatively fixed
			 location in the building;
(2)
			 capable of being moved as distinguished from building equipment;
(3) a unit cost sufficient to justify ledger
			 control;
(4) sufficient size and
			 identity to make control feasible by means of identification tags; and
(5) a minimum life of
			 approximately three years.
(g) Minor Equipment. Minor equipment must be
			 expensed as of the date of purchase. Minor equipment includes such items as
			 waste baskets, syringes, catheters, mops, buckets, etc. The general
			 characteristics of this equipment are:
(1) in
			 general, no fixed location and subject to use by various departments of the
			 facility;
(2) comparatively small
			 in size and unit cost;
(3) subject
			 to inventory control;
(4) fairly
			 large quantity in use; and
(5)
			 generally, a useful life of approximately three years or less.
(h) Land (Non-depreciable). Land
			 (non-depreciable) includes the land owned and used in facility operations.
			 Included in the cost of land are the costs of such items as off-site sewer and
			 water lines, public utility charges necessary to service the land, governmental
			 assessments for street paving and sewers, the cost of permanent roadways and
			 grading of a non-depreciable nature, the cost of curbs and sidewalks whose
			 replacement is not the responsibility of the facility, and other land
			 expenditures of a non-depreciable nature.
(i) Land Improvements (Depreciable).
			 Depreciable land improvements include paving, tunnels, underpasses, on-site
			 sewer and water lines, parking lots, shrubbery, fences, walls, etc. (if
			 replacement is the responsibility of the facility).
(j) Lease Hold Improvements. Lease hold
			 improvements include betterments and additions made by the lessee to the leased
			 property. Such improvements become the property of the lessor after the
			 expiration of the lease.
(k)
			 Accounting Records. The depreciation allowance, to be acceptable, must be
			 adequately supported by the facility's accounting records. Appropriate
			 recording of depreciation requires the identification of the depreciable assets
			 in use, the assets' historical cost (or fair market value at the time of
			 donation in case of donated assets), the method of depreciation, and the
			 assets' accumulated depreciation.
(l) Useful Life of Depreciable Assets. The
			 depreciable life of an asset is its expected useful life to the facility; not
			 necessarily the inherent useful or physical life. The useful life is determined
			 in light of the facilities experience and the general nature of the asset and
			 other pertinent data. Some factors for consideration are:
(1) normal wear and tear,
(2) obsolescence due to normal economic and
			 technological advances,
(3)
			 climatic and other local conditions, and
(4) facility's policy for repairs and
			 replacement. In projecting a useful life, facility's are to follow the useful
			 life guidelines published by the American Hospital Association (See Schedule at
			 end of Chapter). The agency may allow lives different from these guidelines, if
			 the provider requests consideration in writing. However, the deviation must be
			 based on convincing reasons supported by adequate documentation, generally
			 describing the realization of some unexpected event. Factors such as an
			 expected earlier sale, retirement or demolition of an asset may not enter into
			 a determination of the expected useful life of an asset.
(m) Acquisitions. If a depreciable asset has
			 at the time of its acquisition an estimated useful life of at least two (2)
			 years and a historical cost of at least $300, or, if it is acquired in quantity
			 and the cost of the quantity is at least $500, its cost must be capitalized,
			 and written off ratably over the estimated useful life of the asset. If a
			 depreciable asset has a historical cost of less than $300 or, if it is acquired
			 in quantity and the cost of the quantity is less than $500 or if the asset has
			 a useful life less than two (2) years, its cost is allowable in the year it is
			 acquired. The facility may, if it desires, establish a capitalization policy
			 with lower minimum criteria, but under no circumstances may the above criteria
			 be exceeded.
(n) Determining
			 Depreciation in Year of Acquisition and Disposal. The amount of depreciation
			 recorded during the year of acquisition and year of disposal varies among
			 centers. The following methods are acceptable for computing first and last year
			 depreciation amounts. Any other method for computing first and last year
			 depreciation must be approved by the Medicaid Agency. Whatever method is
			 adopted, it must be applied to all assets subsequently acquired.
1. Time Lag Alternatives. These result in
			 delayed recording of depreciation after the actual date of acquisition.
			 However, they provide the convenience of updating detailed, supportive
			 accounting records at the end of certain time intervals.
(i) Up to Six Months Lag. Assets acquired
			 during the first six months of the reporting year are subject to depreciation
			 beginning with the first day of the seventh month of the reporting year. Assets
			 acquired during the second six months of the reporting year are subject to
			 depreciation beginning with the first day of the subsequent reporting year.
			 Depreciation on disposal is based on the portion of the year in which the asset
			 is disposed. If the asset is disposed of in the first half of the reporting
			 year, one-half year's depreciation is taken. If the asset is disposed of in the
			 second half of the year, a full year's depreciation is taken.
(ii) Up to One Year Time Lag. Assets acquired
			 during the reporting year become effective for depreciation on the first day of
			 the subsequent reporting year. In the year of disposal a full year's
			 depreciation is taken.
2. Half Year Depreciation. One-half year
			 depreciation is taken in the year of acquisition regardless of acquisition date
			 and one-half year depreciation is taken on disposition regardless of
			 disposition date.
3. Actual Time
			 Depreciation. Depreciation for the first reporting period is based on the
			 length of time from the date of acquisition to the end of the reporting year.
			 Depreciation on disposal is based on the length of time from the beginning of
			 the reporting year in which the asset was disposed to the date of
			 disposal.
(o) Disposal
			 of Assets. Depreciable assets may be disposed of through sale, trade-in,
			 scrapping, exchange, theft, wrecking, fire or other casualty. In such cases,
			 depreciation can no longer be taken on the asset, and gain or loss on the
			 disposition must be computed. Where an asset has been retired from active
			 service, but is being held for standby or emergency services, depreciation may
			 continue to be taken on such assets. However, where asset has been permanently
			 retired, or there is little or no likelihood that it can be effectively used in
			 the future, no further depreciation can be taken on the asset. In such case,
			 gain or loss on the retirement must be computed.