Virginia Administrative Code › Title 12 - HEALTH › Agency 30 - DEPARTMENT OF MEDICAL ASSISTANCE SERVICES › Chapter 90 - METHODS AND STANDARDS FOR ESTABLISHING PAYMENT RATES FOR LONG-TERM CARE › Part II - Nursing Home Payment System › Subpart II - Rate Determination Procedures › Article 2 - Plant Cost Component › Section 12VAC30-90-33 - Financing

Current through Register Vol. 40, No. 24, July 15, 2024
A. DMAS shall
						continue its policy to disallow cost increases due to the refinancing of a
						mortgage debt, except when required by the mortgage holder to finance
						expansions or renovations. Refinancing shall also be permitted in cases where
						refinancing would produce a lower interest rate and result in a cost savings.
						The total net aggregate allowable costs incurred for all cost reporting periods
						related to the refinancing cannot exceed the total net aggregate costs that
						would have been allowable had the refinancing not occurred.
1. Refinancing incentive. Effective July 1,
						1991, for mortgages refinanced on or after that date, DMAS will pay a
						refinancing incentive to encourage nursing facilities to refinance fixed-rate,
						fixed-term mortgage debt when such arrangements would benefit both the
						Commonwealth and the providers. The refinancing incentive payments will be made
						for the 10-year period following an allowable refinancing action, or through
						the end of the refinancing period should the loan be less than 10 years,
						subject to a savings being realized by application of the refinancing
						calculation for each of these years. The refinancing incentive payment shall be
						computed on the net savings from such refinancing applicable to each provider
						cost reporting period. Interest expense and amortization of loan costs on
						mortgage debt applicable to the cost report period for mortgage debt which is
						refinanced shall be compared to the interest expense and amortization of loan
						costs on the new mortgage debt for the cost reporting period.
2. Calculation of refinancing incentive. The
						incentive shall be computed by calculating two index numbers, the old debt
						financing index and the new debt financing index. The old debt financing index
						shall be computed by multiplying the term (months) which would have been
						remaining on the old debt at the end of the provider's cost report period by
						the interest rate for the old debt. The new debt index shall be computed by
						multiplying the remaining term (months) of the new debt at the end of the cost
						reporting period by the new interest rate. The new debt index shall be divided
						by the old debt index to achieve a savings ratio for the period. The savings
						ratio shall be subtracted from a factor of 1 to determine the refinancing
						incentive factor.
3. Calculation of
						net savings. The gross savings for the period shall be computed by subtracting
						the allowable new debt interest for the period from the allowable old debt
						interest for the period. The net savings for the period shall be computed by
						subtracting allowable new loan costs for the period from allowable gross
						savings applicable to the period. Any remaining unamortized old loan costs may
						be recovered in full to the extent of net savings produced for the
						period.
4. Calculation of incentive
						amount. The net savings for the period, after deduction of any unamortized old
						loan and debt cancellation costs, shall be multiplied by the refinancing
						incentive factor to determine the refinancing incentive amount The result shall
						be the incentive payment for the cost reporting period, which shall be included
						in the cost report settlement, subject to per diem computations under
						12VAC30-90-30 B and C and
						12VAC30-90-55 A.
5. Where a savings is produced by a provider
						refinancing his old mortgage for a longer time period, DMAS shall calculate the
						refinancing incentive and payment in accordance with subdivisions 1 through 4
						of this subsection for the incentive period. Should the calculation produce
						both positive and negative incentives, the provider's total incentive payments
						shall not exceed any net positive amount for the entire incentive period. Where
						a savings is produced by refinancing with either a principal balloon payment at
						the end of the refinancing period, or a variable interest rate, no incentive
						payment will be made, since the true savings to the Commonwealth cannot be
						accurately computed.
6. All
						refinancings must be supported by adequate and verifiable documentation and
						allowable under DMAS regulations to receive the refinancing savings
						incentive.
7. Balloon loan
						reimbursement. This subdivision applies to the construction and acquisition of
						nursing facilities (as defined in
						12VAC30-90-31 and
						12VAC30-90-34 ) and major capital
						expenditures (as defined in
						12VAC30-90-32 ) that are financed
						with balloon loans. A balloon loan requires periodic payments to be made that
						do not fully amortize the principal balance over the term of the loan; the
						remaining balance must be repaid at the end of a specified time period. Demand
						notes and loans with call provisions shall not be deemed to be balloon loans.
a. Incurred interest. Reimbursement for
						interest of a balloon loan and subsequent refinancings shall be considered a
						variable interest rate loan under subsection B of this section.
(1) A standard amortization period of 27
						years, from the inception date of the original balloon loan, must be computed
						by the provider and submitted to DMAS and used as the amortization period for
						loans for renovation, construction, or purchase of a nursing
						facility.
(2) A standard
						amortization period of 15 years, from the inception date of the original
						balloon loan, must be used as the amortization period for loans on furniture,
						fixtures, and equipment.
(3) A loan
						which is used partially for the acquisition of buildings, land, and land
						improvements and partially for the purchase of furniture, fixtures, and
						equipment must be prorated for the purpose of determining the amortization
						period.
b. The allowable
						interest rate shall be limited to the interest rate upper limit in effect on
						the date of the original balloon loan, unless another rate is allowable under
						subsection B of this section.
c.
						Financing costs. The limitations on financing costs set forth in subsection B
						of this section shall apply to balloon loans. Financing costs exceeding the
						limitations set forth in these sections shall be allowed to the extent that
						such excess financing costs may be offset by any available interest savings.
(1) A 27-year amortization period must be
						used for deferred financing costs associated with the construction or purchase
						of a nursing facility.
(2) A
						15-year amortization period must be used for deferred financing costs
						associated with financing of furniture, fixtures, and movable
						equipment.
(3) Financing costs
						associated with a loan used partially for the acquisition of buildings, land,
						and land improvements and partially for the purchase of furniture, fixtures,
						and equipment must be prorated for determination of the amortization
						period.
d. Cumulative
						credit computation. The computation of allowable interest and financing costs
						for balloon loans shall be calculated using the following procedures:
(1) A standard amortization schedule of
						allowable costs based upon the upper limits for interest and financing costs
						shall be computed by the provider and submitted to DMAS for the applicable
						27-year or 15-year periods on the original balloon loan.
(2) For each cost reporting period, the
						provider shall be allowed the lesser of loan costs (interest and financing
						costs) computed in accordance with subdivision 7 a of this subsection, or the
						actual loan costs incurred during the period.
(3) To the extent that there is a "credit"
						created by the actual loan costs being less than the loan costs computed on the
						amortization schedule in some periods, the provider may recover any otherwise
						allowable costs which result from the refinancing, extension, or renewal of the
						balloon loan, and any loan costs which have been disallowed because the loan
						costs are over the limitation for some periods. However, the cumulative actual
						loan cost reimbursement may not exceed the cumulative allowable loan cost as
						computed on the amortization schedule to that date.
(4) In refinancing or refinancings of the
						original balloon loan which involve additional borrowings in excess of the
						balance due on the original balloon loan, the excess over the balance due on
						the balloon loan shall be treated as new debt subject to the DMAS financing
						policies and regulations. Any interest and financing costs incurred on the
						refinancing shall be allocated pro rata between the refinancing of the balloon
						loan and the new debt.
(5) In the
						event of a sale of the facility, any unused balance of cumulative credit or
						cumulative provider excess costs would follow the balloon loan or the
						refinancing of the balloon loan if the balloon loan or its refinancing is paid
						by the buyer under the same terms as previously paid by the seller. Examples of
						this are (i) the buyer assumes the existing instrument containing the same
						rates and terms by the purchaser; or (ii) the balance of the balloon loan or
						its refinancings is financed by the seller to the buyer under the same rates
						and terms of the existing loan as part of the sale of the facility. If the loan
						is otherwise paid in full at any time and the facility is sold before the full
						27-year or 15-year amortization period has expired, the balance of unused
						cumulative credit or cumulative provider excess costs shall expire and not be
						considered an allowable cost.
e. In accordance with subdivision 5 of this
						subsection, no refinancing incentive shall be available for refinancings,
						extensions, or renewals of balloon loans.
f. The balloon loan and refinancing of the
						balloon loan shall be subject to all requirements for allowable borrowing,
						except as otherwise provided by this subsection.