Determination of Reasonable Financial Requirements (RFR)

(1) Purpose. The Divisionshalldetermine the Reasonable Financial Requirement (RFR) in accordance with CMR 114.1 40.06 for the purposes defined in 114.1 CMR 40.01. (2) Method of Determination of RFR. The Division will determine the RFR for each non-acute hospital for a rate year by summing [a] the rate year operating requirements, [b] the rate year capital requirement, [c] the rate year working capital requirement, and then subtracting [d] the labor cost recovery pursuant to 40.08(2)(b). The calculation of these elements of RFR is described below. (a) The rate year operating requirement is the sum of: 1. The base year allowed operating cost under 114.1 CMR 40.07(2), and 2. The adjusted base year to rate year adjustments calculated pursuantto 114.1 CMR 40.08. (b) The rate year capital requirement is the sum of: 1. The base year allowed capital cost under 114.1 CMR 40.07(3), and 2. The adjusted base year to rate year adjustments pursuant to 114.1 CMR 40.08(6). (c) The rate year working capital requirement is calculated by multiplying the sum of the rate year operating and capital requirements by 0.0055. (3) The FY 1997 RFR. (a) For hospitals with rate years beginning 7/1/96, the FY 1997 RFR is the RFR derived from the FY 1997 RSC-440 as reviewed and adjusted by the Division. (b) For hospitals with rate years beginning 10/1/96, the FY 1997 RFR is the FY 1996 RFR approved by the Division. Therefore, the Division will not make adjustments pursuant to 114.1 CMR 40.07 and/or 40.08 for changes affecting costs in FY 1997.