Ch. 7, § 28. Non-Allowable Costs

(a) If a field audit or desk review discloses non-allowable costs or costs for services and supplies not included in the per diem rate, the Department will adjust the per diem rate retroactively to the beginning of the applicable rate period, recover any overpayments, and adjust the per diem rate for the remainder of the rate period. (i) Costs which are not reasonably related to services included in the per diem rate or which are against public policy, contractual allowances, courtesy discounts, charity allowances, or similar adjustments are adjustments to revenue and are not an allowable cost. Non-allowable costs include, but are not limited to: (A) Advertising expense (other than help wanted ads and telephone directory expense); (B) Attorney fees and other costs associated with negotiations, administrative proceedings, or litigation involving the Department, except as specified in a settlement; (C) Bad debts; (D) Cost arising from joint use of resources (including central office and pooled cost) not reasonably related to patient care; (E) Capital costs due solely to changes in ownership; (F) Costs incurred in transactions with an entity related to the nursing facility by common ownership or control, to the extent that such costs exceed the price of comparable services, facilities, or supplies that could be purchased elsewhere (42 C.F.R. § 413.17); (G) Costs incurred as a result of enforcement actions taken by the Department pursuant to Chapter 5 in response to nursing facility deficiencies, including costs of directed in-service training, suspended or denied per diem rate payments, reimbursement expenses, transfer costs, and costs relating to state monitoring and/or the appointment of a temporary manager; (H) Costs not reasonably related to patient care; (I) Costs associated with ancillary and other services attributable to Medicare Part A or Medicare Part B, including direct and indirect costs: (I) Ninety percent of these costs are non-allowable costs; (II) One hundred percent of Medicare bed days are non-allowable costs, and (III) When determining the capital costs for nursing facilities with occupancy below 90% Medicare days will be computed to reflect Medicare occupancy. (J) Costs related to the acquisition, establishment, or operation of an in-house pharmacy, other than the reasonable costs of a pharmacy consultant; (K) Costs related to extraordinary care clients that exceed the per diem rate; (L) Costs related to hospice services; (M) Costs (such as legal fees, accounting and administration costs, travel costs, and the costs of feasibility studies) which are related to the negotiation or settlement of the sale or purchase of any capital asset by acquisition or merger for which any Medicaid payment has been previously made; (N) Federal income and excess profit taxes; (O) Fees paid to directors and salaries, wages, and fees paid to non-working officers, employees or consultants; (P) Fund-raising expenses; (Q) Interest or penalties on federal or state taxes; (R) Judgments entered against a nursing facility or settlements entered into by a nursing facility arising out of actions or inactions of the nursing facility's agents or employees, including judgments entered against a nursing facility's agent or employee that a nursing facility pays, or settlements involving the nursing facility's agent or employee that the nursing facility pays; (S) Life insurance premiums for officers and owners and related parties, except the amount relating to a bona fide nondiscriminatory employee benefits plan; (T) Meals and lodging provided to guests and employees. If the cost cannot be ascertained, the revenue from meals and lodging furnished to guests and employees must be offset against the appropriate cost; (U) Prescription drugs; (V) Public relations expenses; (W) Resident personal purchases; (X) Return on equity; (Y) Self-employment taxes; (Z) Stockholder relations or stock proxy expenses; (AA) Taxes and assessments; (BB) Telephone, television, and radio which are located in patient accommodations and which are furnished solely for the personal comfort of patients; (CC) Value of services (imputed or actual) rendered by non-paid workers or volunteers; and (DD) Vending machines and related supplies. (ii) Costs of services or supplies provided by a related entity are allowable at the actual cost incurred by the related entity. If the actual cost can not be determined, the profit percentage from the related entity's records will be used to calculate the profit percentage adjustment to the related party cost. (b) Unsubstantiated cost. (i) Upon written request by the Department, a nursing facility must substantiate costs or other information reported on the nursing facility's cost report. The nursing facility must provide in writing, within thirty days after the date of the request, documentation substantiating the costs or information. (ii) Any cost which a provider cannot substantiate shall be disallowed. (iii) Substantiation may include, but is not limited to, home office cost statement, resident census, statistical and related information, cost allocations, account analyses, invoices, stock ownership information, related parties' financial information, or subcontractor's financial information.