Variable Cost Allowance

(1) Scope. EOHHS will include in each provider’s rate a variable cost allowance to compensate for variable costs. (2) Base Year Variable Cost Per Diem. EOHHS will calculate the base year variable cost per diem for each provider by dividing the total allowable base year variable costs by the greater of base year resident days or 87% of the mean licensed bed capacity in the base year times the days in the base year. For providers that are organized as sole proprietors, EOHHS will include an imputed amount of $114,622 for the personal services of an owner. (3) Cost Adjustment Factor. EOHHS will apply a cost adjustment factor of 8.78% to 2023 base year costs. If there has been a change of ownership in the base year, and the rates are based on the new owner’s reported base year costs, EOHHS will modify the cost adjustment factor to reflect the number of months from the midpoint of the new owner’s reporting period to the midpoint of the prospective rate period. (4) Variable Cost Allowance. The variable cost allowance equals the lower of base year variable cost per diem or $195.74, which is further adjusted by the cost adjustment factor. (5) Special Provisions. (a) Accrued Expenses. EOHHS will not allow accrued expenses that remain unpaid for more than 120 days after the close of the reporting year, excluding vacation and sick time accruals. If the provider submits evidence of satisfactory payment to the Center, EOHHS may reverse the adjustment and include that cost, if otherwise allowable, in the applicable rates. (b) Accounting and Auditing Expenses. Reasonable and necessary accounting and auditing expenses in matters directly related to providing adequate care to publicly aided residents are included, provided that the books and records of the provider are maintained in accordance with generally accepted accounting principles. (c) Staff Training Expenses. The net cost, which is the cost of required staff training activities less any reimbursement from grants, tuition, specific donations, employee contributions, or other sources is included, only if the training is 1. conducted within the Commonwealth of Massachusetts; 2. directly related to improving resident care to publicly aided residents; and 3. conducted by a recognized school, other authorized organization, or a qualified professional as required in 105 CMR 150.000: Standards for Long-term Care Facilities. (d) Advertising Expenses. The reasonable and necessary expense of newspaper or other public media advertisements for the purpose of hiring necessary employees. (e) Generally Available Employee Benefits. The extent of the facility's contribution to the cost of generally available fringe benefits are included so long as they are nondiscriminatory. (f) Membership Dues. Reasonable and necessary membership dues are included if the organization’s function and purpose are directly related to the development and operation of the facility and providing adequate resident care. (g) Services of Volunteer Workers. Services performed under an agreement between the organization and the provider for the performance of the services without direct payment. The value of services normally provided on a voluntary basis, such as distribution of magazines and newspapers to residents, does not constitute a reasonable variable cost. The net value of services for unpaid persons in positions customarily held by paid employees, performing such services on a regular basis as unpaid members of religious or other organizations, is allowable as a variable cost if 1. the amount allowed does not exceed that which would be paid others for similar work; 2. the amount paid by the provider to the organization is identifiable in the records of the provider as a legal obligation; and 3. the services are performed on a regular, scheduled basis and are necessary for the provision of adequate resident care to publicly aided residents and for the efficient operation of the provider. (h) Non-legend Drugs. The reasonable and necessary costs of providing the non-legend drugs, including non-legend drugs ordered by a doctor. Non-legend drugs must not be billed directly to any governmental unit or charged against the personal care funds of any resident. (i) Pension Plans. Reasonable and necessary expenses incurred by a provider relating to a pension plan are included as a generally available employee benefit. Reimbursable pension plans must provide for either a fixed determinable amount to be contributed by the employer on a regular basis or for a fixed determinable benefit to be received by the employee at retirement. Reimbursement of pension costs is subject to the following specific provisions. 1. Required by State Statute. Providers required by enabling statute to make payments to municipal or county pension funds will be reimbursed for the compensation paid by the plan, provided that the provider submits detail of the allocations provided to the Public Employees Retirement Administration Commission, and for funded pension plans, a schedule of the individuals associated with the resident care facility, to the Center. 2. Not Required by State Statute. Providers not required by state statute to make payments to a municipal pension fund will be reimbursed for expenses incurred to the extent that a. the claimed expenses represent an amount based on fair, reasonable, and necessary compensation for services performed by employees; b. the claimed expenses are costs incurred on current year payroll and do not include payments for prior year payroll; c. the plan does not provide for contributions by the employer based on the contingency of profit or is at the discretion of the employer; d. the pension plan must have met the current requirements of and, if applicable, received the approval of the Internal Revenue Service. All applicable Internal Revenue Service forms documenting Internal Revenue Service approval must be filed with the Center along with copies of the plan; e. the employer’s contribution to a pension plan will be included, along with other increments in the calculation of limits to the reimbursement of individual employee compensation as referred to in 101 CMR 204.00; and f. any forfeiture by an employee must be applied against the cost to reduce the premiums paid by the employer. A forfeiture is considered to have occurred when any employee who participated in the pension plan terminates employment prior to becoming vested. This reduction in the claim for reimbursement must be made notwithstanding the terms or lack of terms in the pension plan.