10-144-115 Me. Code R. § 20

Current through 2024-51, December 18, 2024

Section 144-115-20 - FIXED/CAPITAL COSTS

All allowable room and board costs not specified for inclusion in the fixed cost category pursuant to these rules shall be included in the routine cost component subject to the limitations set forth in Principles 30 and 31.

20.1 Fixed/Capital Costs include:

20.1.1 Depreciation on buildings, fixed equipment, land improvements, furnishings, moveable equipment, and amortization of leasehold improvements. The minimum dollar limitation on furnishings and moveable equipment that must be depreciated and treated as a fixed cost is three hundred dollars ($300).

20.1.2 Interest expense attributed to debt associated with the acquisition or improvement of buildings, moveable equipment, furnishings, fixed equipment and land improvements.

20.1.3 Real estate taxes.

20.1.4 Fire insurance premiums.

20.1.5 In cases where facilities are rented from an unrelated party, the actual costs of ownership attributable to items in Sections 20.1.1, 20.1.2, 20.1.3 and 20.1.4 will be compared to the lease payments allowed under Principle 20.3.7(b). Except as provided in subparagraph 20.3.7(a)(3), return on equity is not included as a cost of ownership in the comparison.

20.1.6 Administrative allowance.

20.1.7 The cost of Workers' Compensation Insurance (less the portion covered by MaineCare under Chapter III, Section 97, Appendix C or F of the MBM.

20.1.8 Water and sewer fees.

20.1.9 Amortization.

20.2Depreciation:Allowance for depreciation based on asset costs.

20.2.1Principle - An appropriate allowance for depreciation of buildings, moveable equipment, furnishings, and fixed equipment is an allowable cost. The depreciation must be:

20.2.1(a) Identified and recorded in the provider's accounting records.

20.2.1(b) In the case of donated (or inherited) assets, depreciation will be based on the lesser of the net book value of the asset, or the fair market value at the time of donation (or inheritance). Where an asset that has been used or depreciated under the program is donated to a provider, or where a provider acquires such assets through testate or in testate distribution, (e.g. a widow inherits a residential care facility upon the death of her husband and becomes a newly certified provider) the basis of depreciation for the asset is the lesser of the fair market value, or the net book value of the asset in the hands of the owner last participating in the program. The basis for depreciation shall be determined as of the date of donation or the date of death, whichever is applicable.

20.2.1(c). In the event of a Federal or State grant or gift that is received for the purchase of property, which is not required to be paid back, then the basis of the property will be the cost, less the amount of the grant or gift.

20.2.1(d) Prorated over the estimated useful life of the asset using the straight-line method. Providers obtaining initial financing through tax-exempt bonds after January 1, 1991 may depreciate assets so financed over the life of the mortgage as long as it is no shorter than twenty (20) years. If this provision is applied, no component depreciation will be allowed and all assets so financed shall be depreciated on the same schedule.

20.2.1(e) Special Reimbursement Provisions for energy efficient improvements that include:

20.2.1(e)(1) For the energy efficient improvements listed below that are made to existing facilities, reimbursement will be allowed based on the length of the loan received, with the limitations listed below:

Up to $5000	Minimum depreciable period:	3 years
From $5000.11 to $10,000.99	Minimum depreciable period:	5 years
$10,001.00 and over	Minimum depreciable period:	7 years

20.2.1(e)(2) The above limitations are minima and if a loan is obtained for a period of time in excess of these minima amounts, the depreciable period then becomes the length of the loan. In no case shall the depreciable period exceed the useful life, as stated in the Chart of Accounts published by the American Hospital Association.

20.2.1(e)(3) The reimbursement for the energy efficient improvements that are one hundred percent (100%) financed will consist of reimbursement of the principal and interest payments, based on the length of the loan or above listed minima. If no loans are obtained, then the depreciable lives will be based on the above minima. If only partially financed, then the interest and the principal payments will be reimbursed in addition to depreciation on the unfinanced amount according to the minimums spelled out above.

20.2.1(e)(4) Effective November 13, 2013, for an energy efficiency improvement to be reimbursable, the energy efficiency improvement must be recommended as a cost-effective energy efficiency improvement in an energy audit conducted by an independent energy audit firm, as evidenced in a written document, or must be determined to be cost-effective by the Efficiency Maine Trust, established in 35-A MRSA §10103, as evidenced in a written document.

20.2.1(e)(5) Reasonable energy efficient improvements may include:

* Insulation (fiberglass, cellulose, etc.)

* Energy efficient windows or doors for the outside of the facility, including insulating shades and shutters.

* Caulking or weather stripping for windows or doors for the outside of the facility.

* Fans specifically designed for circulation of heat inside the building.

* Wood and coal burning furnaces or boilers (not fireplaces).

* Furnace replacement burners that reduce the amount of fuel used.

* Regulating devices (i.e., Enetrol) or other devices connected to furnaces to control fuel used.

* A device or capital expenditure for modifying an existing furnace that reduces the consumption of fuel.

* Active solar systems for water and space heating.

* Retrofitting structures for the purpose of creating or enhancing passive solar gain, must be prior approved by the Department regardless of amount of expenditure. A request for prior approval will be evaluated on the basis of whether energy costs would be decreased to such an extent as to render the expenditure reasonable. The age and condition of facility requesting approval will also be considered.

* Any other energy saving devices that might qualify as energy efficient may be submitted for prior approval and they will be evaluated to determine that the energy savings device is reliable and sufficient energy cost reductions will be achieved.

20.2.1(e)(6) In the event of a sale of the facility; the principle payments, as listed above, will be recaptured in lieu of depreciation.

20.2.2 Recording of Depreciation: Prorating of the cost of an asset over its useful life is allowed on the straight-line method. Appropriate recording of depreciation includes the identification of the depreciable assets in use, the assets' historical costs, the method of depreciation, estimated useful lives, and the assets' accumulated depreciation. The most recent edition of the "Estimated Useful Lives of Depreciable Hospital Assets" published by the American Hospital Association and publications of the Internal Revenue Service are to be used as guides for the estimation of the useful life of assets.

For new buildings, the minimum useful life to be assigned is:

20.2.2(a) Wood Frame, Wood Exterior - 30 years

20.2.2(b) Wood Frame, Masonry Exterior - 35 years

20.2.2(c) Steel Frame, or Reinforced Concrete Masonry Exterior - 40 years

If a mortgage obtained on the property exceeds the minimum life as listed above, then the terms of the mortgage will be used as the minimum useful life.

20.2.3 For facilities providing multiple levels of care, the allocation method to be used for allocating the interest, depreciation, property taxes, and insurance will be based on the actual square footage utilized in each level of care. However, when new construction occurs that is added on to an existing facility the complete allocation based on square footage will not be used. Discrete costing will be used to determine the cost of the portion of the building used for each level of care and the related fixed cost will be allocated on the basis of that cost.

20.2.4 Replacement Reserves: Some lending institutions require funds to be set aside periodically for replacement of fixed assets. The periodic amounts set aside for this purpose are not allowable costs in the period in which they were set aside by the provider, but will be allowed when withdrawn and utilized either through depreciation or expense after considering the usage of these funds. Since the replacement reserves are essentially the same as funded depreciation the same regulations regarding interest and equity will apply.

20.2.4(a) If a facility is leased from an unrelated party and the ownership of the reserve rests with the lessor, then the replacement reserve payment becomes part of the lease payment and is considered an allowable cost in the year expended. If for any reason the lessee is allowed to use this replacement reserve for the replacement of the lessee's assets then during that year the allowable lease payment will be reduced by that amount. The lessee will be allowed to depreciate the assets purchased in this situation. However, if the premises are vacated before the improvements are fully depreciated, loss on disposal of the asset would not be reimbursable to the lessee.

20.2.4(b) If a rebate of a replacement reserve is returned to the lessee for any reason, it will be treated as a reduction of the allowable lease expense in the year review.

20.2.5Funding of Depreciation: Although funding of depreciation is not required, it is strongly recommended that providers use this mechanism as a means of conserving funds for replacement of depreciable assets. As an incentive for funding, investment income on funded depreciation will not be treated as a reduction of allowable interest expense or other costs.

20.2.6Gains and Losses on Disposal of Assets: Gains and losses realized from the disposal of depreciable assets while a provider is participating in this program, or within one (1) year after leaving the program, are to be included in the determination of allowable cost. The extent to which such gains and losses are included is calculated on a proration basis recognizing the amount of depreciation charged under the program in relation to the amount of depreciation, if any, charged or assumed in a period prior to the provider's participation in the program, and in the current period. For sales of facilities that occur on or after January 1, 2010, the Department shall either:

(1) At the time of the sale, recapture depreciation paid by the Department under the MaineCare program, from the proceeds of the sale using the procedures outlined below;

(a) The recapture will be made in cash from the seller. During the first eight (8) years of operation, all depreciation allowed on buildings and fixed equipment by the Department will be recaptured from the seller in cash at the time of the sale. From the ninth (9^th) to the fifteenth (15^th) year all but three percent (3%) per year will be recaptured and from the sixteenth (16^th) to the twenty-fifth (25^th) year, all but eight percent (8%) per year will be recaptured, not to exceed one hundred percent (100%). Accumulated depreciation is recaptured to the extent of the gain on the sale. For sales of residential care facilities, the calculation of the credits for buildings and fixed equipment will be from the date the owner began operating the facility with the original license.

(b) For sales of residential care facilities, moveable equipment will accumulate credits as follows: for the first four years the asset is placed into service, all but ten percent (10%) per year will be recaptured and from the fifth (5^th) and sixth (6^th) year, all but thirty percent (30%) per year will be recaptured, not to exceed one hundred percent (100%). The calculation of credits for moveable equipment will be from the date the asset is placed into service by the provider.

(c) The buyer must demonstrate how the purchase price is allocated between depreciable and non-depreciable assets. The cost of land, building and equipment must be clearly documented. Unless there is a sales agreement specifically detailing each piece of moveable equipment, the gain on the sale will be determined by the total selling price of all moveable equipment compared to the book value at the time of the sale. No credits are allowed on moveable equipment.

(d) Accumulated depreciation is recaptured to the extent of the gain on the sale. In calculating the gain on the sale the entire purchase price will be compared to net book value unless the buyer demonstrates by an independent appraisal that a specific portion of the purchase price reflects the cost of non-depreciable assets.

(e) Depreciation will not be recaptured if depreciable assets are sold to a purchaser who will not use the assets for a health care service for which future Medicare, MaineCare, or State payments will be received. The purchaser must use the assets acquired within five (5) years of the purchase. The purchaser will be liable for recapture if the purchaser violates the provisions of this rule; OR

(2) At the election of the buyer and seller, waive the recapture of depreciation at the time of the sale and allow the asset to transfer at the historical cost of the seller less depreciation allowed under the MaineCare program to the buyer for reimbursement purposes.

20.2.7Limitation on the Participation of Capital Expenditures: The criteria for approval are the same as those found in Section 20.5.

20.3Purchase, Rental, Donation, and Lease of Capital Assets

20.3.1 When a facility is sold and then reacquired by the same seller, with no intervening transactions, the cost basis will be that recognized at the time of the first sale. Accumulated depreciation of the buyer shall be considered as incurred by the seller who reacquires the facility for the purpose of computing gains and applying the depreciation recapture rules (Section 20.2.6) to subsequent sales. Since no step-up of depreciable assets is permitted, there will be no recapture at the time of reacquisition.

20.3.1(a) If a seller has extended a still outstanding loan to the buyer, and the seller reacquires possession after its sale, the cost basis will revert to what it would have been had the continued to own the facility. The amounts paid by the Department for interest on the increase in basis will be recaptured within six (6)months of reacquisition or at the time of resale, whichever occurs first. Depreciation originally recaptured by the Department shall be credited against the amount due the Department on any subsequent sale.

20.3.2Purchase of Facilities from Related Individuals and/or Organizations

20.3.2(a) In the circumstances specified below, the purchaser's basis for depreciation shall not exceed the seller's basis under the program, less accumulated depreciation recognized under the program. Additionally, accumulated depreciation of the seller under the program shall be considered as incurred by the purchaser for the purpose of computing gains and applying the depreciation recapture rules (Section 20.2.6) to subsequent sales by the buyer. Since no step-up in the basis of depreciable assets is permitted to the buyer, there will be no recapture of depreciation from the related party seller on a sale. These provisions apply:

20.3.2(a)(1) Where a facility is purchased from an individual or organization related to the purchaser by common control and/or ownership; or

20.3.2(a)(2) Where a facility is purchased after March 1, 1990, by an individual related to the seller as:

(i) a child,

(ii) a grandchild,

(iii) a brother or sister,

(iv) a spouse of a child, grandchild, or brother or sister, or

(v) an organizational entity controlled by a child, grandchild, brother, sister or spouse of child, grandchild or brother or sister thereof; or some combination of the above.

20.3.2(a)(3) Where a facility, through purchase, converts from a proprietary to a nonprofit status and the buyer and seller are entities related by Section 20.3.2(a)(1) or Section 20.3.2(a)(2) above.

20.3.2(b) At the election of the seller, Section 20.3.2(a) will not apply to a sale made to a buyer defined in Section 20.3.2(a)(2), as an exception, if:

20.3.2(b)(1) The seller is an individual or an entity owned or controlled by individuals or related individuals who were selling assets to a related party, as defined in Section 20.3.2(a)(2);

20.3.2(b)(2) The seller has attained the age of fifty-five (55) before the date of the sale or exchange;

20.3.2(b)(3) During the twenty-year (20) period ending on the day of the sale, the seller has owned or operated the facility for periods aggregating ten (10) years or more, or the seller has inherited the facility as property of a deceased spouse to satisfy the holding requirements; and 20.3.2(b)(4) If the seller makes a valid election to be exempted from the application of 20.3.2, the allowable basis of depreciable assets for reimbursement of interest and depreciation expense to the buyer will be determined in accordance with the historical cost as though the parties were not related. This transaction is subject to depreciation recapture if there is a gain on the sale.

20.3.2(c) The exception listed in 20.3.2(b) can be applied to all facilities owned by the same seller.

20.3.3Basis of Assets Used and Donated to a Provider:When an asset which has been used or depreciated under cost reimbursement is donated to a provider, the basis of depreciation for the asset shall be the lesser of the fair market value or the net book value of the asset in the hands of the last participating owner. The net book value of the asset is defined as the depreciable basis used by the asset's last participating owner less the depreciation recognized.

20.3.4Allowance for Depreciation on Assets Financed with Federal or State Funds: Depreciation is allowed on assets financed with Hill Burton or other Federal or State funds, only to the extent that repayments are required. Facilities with Federal or State rental subsidies that offset a provider's interest and principal payments may not claim depreciation expense on those same assets.

20.3.5Rental Expense Paid to an Organization Related to the Provider: A provider may lease a facility from an organization related to the provider by common ownership or control within the meaning of the Principles of Reimbursement. In such case, the rent paid to the lessor by the provider is not allowable as a cost. The provider, however, would include in its costs the costs of ownership of the facility. These costs are depreciation, interest on the mortgage, real estate taxes and other expenses that would otherwise be allowable room and board costs, and are attributable to the leased facility. The effect is to treat the facility as though it were owned by the provider.

20.3.6Sale and Lease back Agreements - Rental Charges: Rental costs specified in sale and lease back agreements incurred by providers through selling physical plant facilities or equipment to a purchaser not connected with or related to the provider, and concurrently leasing back the same facilities or equipment, are included in allowable cost if these conditions are met:

20.3.6(a) The rental charges are reasonable based on consideration of rental charges for comparable facilities and market conditions in the area, the type, expected life, condition and value of the facilities or equipment rented and other provisions of the rental agreements; and

20.3.6(b) Adequate alternate facilities or equipment are not or were not available at lower cost.

20.3.7Leases, Capitalized Leases, and Limited Partnerships

20.3.7(a) To be an allowable cost, lease payments must:

20.3.7(a)(1) be pursuant to a lease between parties not related by common ownership and control; and

20.3.7(a)(2) not exceed the annual cost that would be allowed under these Principles if the lessee owned the facility and return on owner's equity was not included in calculating the owner's cost.

20.3.7(a)(3) if the lease agreement was in effect prior to July 1,2003, not exceed the annual cost that would be allowed under these Principles if the lessee owned the facility and return on owner's equity was included in calculating the owner's cost. All of the following criteria must be met:

i. the calculation of the owner's cost does not include interest;

ii. the provider remains legally obligated to pay the lease amount;

iii. the lease agreement has not been amended or modified after July 1, 2003;

iv. the lessor must be a Real Estate Investment Trust (REIT); and

v. the rate of the return on owner's equity will not exceed eight percent (8%) or the lessor's cost of capital, whichever is less.

20.3.7(b) In lease arrangements between individuals or organizations not related by common control or ownership, the allowable cost between two (2) unrelated organizations is the lesser of:

20.3.7(b)(1) Except as provided in subparagraph 20.3.7(a)(3), the actual costs of ownership as defined in Principle 20.1.5; or

20.3.7(b)(2) the actual lease payments made by the lessee to the lessor.

20.3.7(c) If the actual lease payments are less than the actual cost of ownership, then the difference can be deferred to a subsequent fiscal period. If in a later fiscal period, the lease costs exceed the cost of ownership, the deferred cost may begin to be amortized. Amortization will increase allowable costs up to the level of the actual lease payments for any given year. These deferred costs are of interest or return of owners' equity and, except as specified, do not represent assets that a provider or creditor of a provider may claim as a monetary obligation from the program.

20.3.7(d)Limited Partnerships: When a lessee participates as a limited partner in the lessor's partnership, the rules regarding related organizations set forth in Section 20.3.5 shall apply.

20.3.7(e)Recapture of Depreciation: In order for lease or rent payments to be an allowable cost in a non-related party transaction, the owner of the asset who incurs the depreciation expense is generally responsible for repayment of the accumulated depreciation expense. Recapture under approved lease agreements will be limited to depreciation expense on buildings and fixed equipment. Any depreciation expense for leasehold improvements or on any other depreciable asset owned by the lessee shall be recaptured pursuant to Section 20.2.6. In related party leases, the asset will be treated as if owned by the lessee, and recapture will be made in accordance with Section 20.2.6. Whenever rent or lease payments are allowed there shall be a written guarantee for repayment between the lessor, lessee and the Department. Failure of the lessee to secure such an agreement will result in the disallowance of costs representing depreciation. The amount of recapture pursuant to a lease agreement will be calculated in accordance with Section 20.2.6.

20.3.7(f) Capitalized leases shall not be allowed.

20.3.7(g)Historical Cost: If the facility is sold to be used as a residential care facility or nursing care facility, the historical cost of the new owner will be determined in the manner defined in the Definition section.

20.3.8 When a facility is purchased from a seller who has been terminated from the MaineCare program by the Department because of a criminal conviction and the conviction is related to violation of these Principles or the Department's applicable licensing regulations, including but not limited, to conviction under Title 17-A of the Maine Revised Statutes Annotated or Title 22, Section 47 of those statutes, the basis for depreciation for the purchaser will be that of the seller under the program.

20.4Interest Expense on Indebtedness

20.4.1 Necessary and proper interest on both current and capital indebtedness is an allowable cost.

20.4.2Interest: Interest is the cost incurred for the use of borrowed funds. Interest on current indebtedness is the cost incurred for funds borrowed for a relatively short term, usually one (1) year or less, but in no event more than fifteen (15) months. This is usually for such purposes as working capital for normal operating expenses.

Interest on capital indebtedness is the cost incurred for funds borrowed for capital purposes, such as acquisition of facilities, fixed and moveable equipment, capital improvements, and vehicles. Generally, loans for capital purposes are long-term loans. Except as provided in subsection 20.4.7, interest does not include interest and penalties charged for failure to pay accounts when due.

20.4.3Necessary: In order to be considered "necessary", interest must be:

20.4.3(a) incurred on a loan made to satisfy a financial need of the provider. Loans which result in excess funds or investments would be considered unnecessary; and

20.4.3(b) reduced by investment income except where such income is from gifts, grants and endowments, whether restricted or unrestricted, and which are held separate and not commingled with other funds.

Investment income from gifts, grants and endowments which are held separate and not comingled with other funds will be applied in accordance with Section 30.6.2. Income from funded depreciation is not used to reduce interest expense.

20.4.3(c) Proper requires that interest:

(i.) Be incurred at a rate not in excess of what a prudent borrower would have had to pay in the money market existing at the time the loan was made.

20.4.3(d) Approved for Refinancing. Any refinancing of property mortgages or loans on fixed assets must be prior approved in writing by the Department's Division of Licensing and Certification, prior to the closing of the loan. If written prior approval is not obtained the Department will pay the lowest of the following;

1. The actual interest paid, or

2. The amount of interest the provider would have paid in the current fiscal year, under the terms of the original loan. Original loan means the last department approved loan.

(A) If the original loan had a variable rate, the last variable rate will be the rate that is utilized throughout the term of the refinanced loan. If the original loan had a fixed rate, that will be the rate utilized throughout the term of the refinanced loan.

(B) Closing costs for a refinanced loan are not allowed.

The Department may condition refinancing approvals.

The Department will not pay for swap investments. Swap investment is defined as an interest rate swap agreement between two counterparties in which one stream of future interest payments is exchanged for another, based on a specified principal amount.

20.4.4Borrower - Lender Relationship

20.4.4(a) To be allowable, interest expense must be incurred on indebtedness established with lenders or lending organizations not related through control, ownership, or personal relationship to the borrower. Presence of any of these factors could affect the "bargaining" process that usually accompanies the making of a loan, and could thus be suggestive of an agreement on higher rates of interest or of unnecessary loans. Loans should be made under terms and conditions that a prudent borrower would make in arm's length transactions with lending institutions. The Division of Licensing and Certification shall make the determination for written prior approvals. The intent of this provision is to assure that loans are legitimate and needed, and that the interest rate is reasonable. Thus, interest paid by the provider to partners, stockholders, or related organizations of the provider would not be allowable.

20.4.4(b) Exceptions to the general rule regarding interest on loans from controlled sources of funds are made in the following circumstances. When the general fund of a provider borrows from a donor-restricted fund and pays interest to the restricted fund, this interest expense is an allowable cost. The same treatment is accorded interest paid by the general fund on money borrowed from the funded depreciation account of the provider. In addition, if a provider of a facility operated by members of a religious order borrows from the order, interest paid to the order is an allowable cost.

20.4.4(c) When funded depreciation is used for purposes other than improvement, replacement, or expansion of facilities or equipment related to member care, allowable interest expense is reduced to adjust for offsets not made in prior years for earnings on funded depreciation.

20.4.5Loans Not Reasonably Related to Member Care: Loans made to finance that portion of the cost of acquisition of a facility that exceeds the amount approved by the Department as the provider's historical cost are not considered to be for a purpose reasonably related to member care.

20.4.6Interest Expense of Related Organizations: When a provider leases facilities from a related organization and the rental expense paid to the related organization is not allowable as a cost, costs of ownership of the leased facility are allowable costs of the provider. Therefore, in such cases, mortgage interest paid by the related organization is allowable as an interest cost to the provider.

20.4.7Interest on Property Taxes: Interest charged by a municipality for late payment of property taxes is an allowable cost when the following conditions have been met:

20.4.7(a) The rate of interest charged by the municipality is less than the interest that a prudent borrower would have had to pay in the money market existing at the time the loan was made;

20.4.7(b) The payment of property taxes is deferred under an arrangement acceptable to the municipality;

20.4.7(c) The late payment of property taxes results from the financial needs of the provider and does not result in excess funds.

20.4.8Interest on Construction Loans: Construction interest incurred as part of an approved capital budget to make approved capital improvements (new construction, acquisitions, or renovations) is allowable only during the approved construction period and up to sixty (60) days after the completion date of the approved capital improvements. The Department shall determine the completion date.

20.5New Construction, Acquisitions and Renovations

Effective November 1, 2017, for all proposed new construction, acquisitions or renovations involving capital expenditures, in the aggregate, that exceed Five Hundred Thousand Dollars ($500,000) or more in one (1) fiscal year, providers must submit plans, financial proposals, and projected operating costs to the Department for written prior approval in order for costs to be reimbursed. A provider shall not separate costs into components, such as land, land improvements, buildings, building improvements, or moveable equipment, to evade the cost limitations that require prior approval. Effective November 1, 2017, capital expenditures for energy efficiency improvements, for replacement equipment, for information systems, for communications systems and for parking lots and garages are permitted without written prior approval; these expenditures shall be excluded from the $500,000 threshold referenced herein. These written requests are reviewed by Licensing and Certification. See Principle 20.2.1(e).

Decisions will be made based on the following criteria:

20.5.1 Members in the facility demonstrate a need for the service;

20.5.2 Less costly alternatives or more effective methods of providing the services are not available;

20.5.3 The service is required by the licensing regulations;

20.5.4 Costs are reasonable, including pre-development, construction and financing costs;

20.5.5 The improvement will add considerably to the useful life of the asset;

20.5.6 If the application is for reimbursement of costs associated with additional beds, the facility must be in compliance with any rules and the statute covering the approval of additional beds, 22 MRS §§333 through 334-A as approved by the Division of Licensing and Certification.

20.5.7 Funds are available to reimburse the facility for applicable expenses.

20.5.8 Design and construction standards applicable to projects reviewed by the Department include, but are not limited to, the following:

20.5.8(a)Building Area Requirements. Gross building area, which shall include all living area as well as all support area such as the mechanical room, shall not exceed five hundred (500) square feet per licensed bed without justification of need.

20.5.8(b)Land and Land Improvements. Only the minimum amount of land necessary to satisfy local requirements, if applicable, or to situate the building and provide adequate parking will be allowed. The Department will not reimburse the cost of any land improvement, such as a gazebo, which it determines to be either unnecessary or extravagant. Land and land improvement costs must be supported by comparative cost information to confirm that the costs are reasonable and necessary.

20.5.8(c)Architectural and Engineering Fees. Fees that exceed the State of Maine Recommended Fee Schedule for Public Buildings (current edition) will not be allowed without Department approval.

20.5.8(d)Construction Contingency. Construction Contingency shall not exceed five percent (5%) of the construction budget, which shall be net of any subcontractor contingency fees. If the Department determines that alarger contingency is justified, the fee may increase to a maximum of eight percent (8%) of the construction budget. The contingency may not be used with out written prior approval of the Division that approved the construction and the Division of Licensing and Certification.

20.5.8(e)Developer and Marketing Fees. Developer and marketing fees will not be allowed.

20.5.8(f)Moveable Equipment. Moveable equipment, excluding computers, printers, and networking, shall not exceed five thousand dollars ($5,000) per licensed bed. The Department will not reimburse the cost of any moveable equipment, such as televisions in resident rooms, which it determines to be not necessary for resident care.

20.5.8(g)Computer System. Only computer hardware may be considered a capital cost; the Department will not consider software purchase or upgrades as an allowable capital expenditure. The computer system must be described in detail and include a description of the system's functionality, which must justify the system's cost.

20.5.8(h)Construction Cost per Square Foot. The calculation of the construction cost per square foot shall include land improvement cost, architect/engineering fees, construction supervision, building construction cost, other design/consultant costs related to the construction, insurance during construction, municipal permits, and interest during construction. Construction cost per square foot shall be compared, for reasonableness, to the Calculator and Segregated Cost methods in the Marshall Valuation Service cost estimating manual.

20.6Administration and Management Allowance

20.6.1 An administration and policy-planning allowance shall be permitted in lieu any other compensation for the administration and policy planning functions and in lieu of all fees for management or financial consultants. Compensation includes all fees, salaries, wages, payroll taxes, fringe benefits, contributions to deferred compensation plan, and other increments paid to or for the benefit of, those providing the administration and policy planning services. Compensation also includes the cost of food, lodging, use of the provider's vehicles and other services supplied by the provider that benefit those carrying out the administrative and policy planning services. Outside accounting fees associated with preparation of financial reports required by the DHHS, Division of Audit are not included in the allowance but are allowed as a routine cost. The administrator is not entitled to reimbursement for any other services performed for the facility, including but not limited to direct care, cooking, and bookkeeping, even if the administrator is not the owner of the facility, unless the facility qualifies for a waiver of this principle as set forth below.

A facility with six (6) or fewer beds may request a waiver of the above principle by submitting a written application for waiver to the Director, DHHS, Division of Audit. The facility's application shall describe other services to be performed, the rate of pay for these other services, the hours to be spent performing such other services and the facility's operational need to have such other services performed. The facility must obtain the written approval of the Director, DHHS, Division of Audit, prior to such services being performed and in advance of claiming reimbursement. In addition, the facility must submit evidence such as time studies with the cost report to prove that such other services were actually rendered to the facility. Such other service costs will be reconciled at cost settlement in accordance with the Director's written approval and applicable cost settlement principles.

In the event the Department determines that the administrator has delegated significant responsibilities, such as described in this section and under Section 10 of the Regulations Governing the Licensing and Functioning of Assisted Living Facilities -IV, allocation of wages from routine services to the administrative allowance will be made.

20.6.2 The allowance is the calculation of the administrative and policy planning allowance for an administrator who is responsible for only one (1) facility and is based on the total number of licensed beds in that facility. The following table, effective July 1, 2001, for fiscal year ending June 30, 2002, reflects the allowance for an administrator who is responsible for one facility. To the extent that funds are available, the Commissioner of DHHS may, at his or her discretion, determine if an inflation adjustment will be made.

Total Beds	Allowance
3 to 10 beds	$22,382 plus $1,085 for each bed in excess of 3.
11 to 30 beds	$29,985 plus $566 for each bed in excess of 10.
31 to 50 beds	$41,372 plus $290 for each bed in excess of 30.
51 to 100 beds	$47,133 plus $153 for each bed in excess of 50.
Over 100 beds	$54,774 plus $84 for each bed in excess of 100.

20.6.3 When the individual is designated as administrator, for more than one (1) facility, several factors are considered in the calculation of the allowances for each facility. If the facilities are located on separate sites, the combined number of beds will be used and applied to one hundred and twenty percent (120%) of the above schedule. The total allowance will be prorated to the facilities based on the ratio of each facility's number of beds to the combined number of beds for all facilities under the direction of the administrator.

20.6.4 If the facilities or levels of care are located on the same site, the total allowance corresponding to the combined number of beds will be prorated to the facilities based on the ratio of each facility's number of beds to the combined number of beds for all facilities or levels of care under the direction of the administrator.

20.6.5 In the instances where there is a shared administrator for both the nursing and residential facility levels of care, the administrative and management allowance will be calculated using the total number of beds (for which the administrator is responsible) in the facility on the nursing care administrative allowance schedule less two hundred dollars ($200) per licensed residential care bed. The Department recognizes that accounting fees are included as part of the administrative allowance for nursing facilities and are also utilized in determining the routine cap on service costs for all residential care facilities.

However, the Department has determined that the deduction of two hundred dollars ($200) per licensed residential care bed will offset this factor.

20.6.6 In instances where there is a shared administrator for nursing facility, and/or residential care, and/or congregate housing services programs, the administrative and management allowance will be calculated using the total number of beds/units (for which the administrator is responsible) in the facility on the nursing care administrative allowance schedule less two hundred dollars ($200) per licensed residential care bed and congregate housing unit.

20.6.7 In instances where there is a shared administrator for residential care and/or congregate housing services programs, the administrative and management allowance will be calculated using the total number of beds/units (for which the administrator is responsible) in the facility on the residential care administrative allowance schedule less two hundred dollars ($200) per licensed congregate housing unit.

20.6.8 For facilities of six (6) or fewer beds with a shared administrator, each six (6) bed facility shall be allowed an administrative allowance according to the above schedule.

20.6.9 When the owner of the residential care facility is also the administrator, only one (1) administrative allowance/salary shall be permitted. In instances where the owner/administrator is also the employed administrator for another residential care facility(ies) that he/she neither owns nor has a financial interest in, the two (2)situations shall be considered as completely separate entities, upon prior approval by the Department.

20.7Administrative Functions

The administrative function includes those duties that are necessary to the general supervision and direction of the current operations of the facility, including, but not limited to the following:

20.7.0(a) Administration of the policies of the facility.

20.7.0(b) Day to day operation and management.

20.7.0(c) Control, conversion and utilization of the physical and financial aspects. Obtaining adequate personnel.

20.7.0(d) Discharge of such functions as the licensee may be properly delegated.

20.7.0(e) Completion of any duties/responsibilities described by the applicable licensing regulations as being the responsibility of the administrator.

20.7.0(f) Administrators, assistant administrators, business managers, controllers, office managers, personnel directors, and purchasing agents, personal secretaries to any of the above, typify those who are included in the administrative function category. Bookkeepers, secretaries, clerks, telephone operators, etc., are not included in this category.

20.7.0(g) This allowance is not to include those individuals whose prime duties are not of an administrative nature, who may be responsible for hiring or purchasing for their department.

20.7.0(h)Policy-planning functions. The policy-planning function includes the policy-making, planning, and decision-making activities necessary for the general and long term management of the affairs of the facility, including, but not limited to the following:

20.7.0(h)(1) The financial management of the facility.

20.7.0(h)(2) The establishment of personnel policies.

20.7.0(h)(3) The planning of expansion and financing thereof.

20.7.0(i) For purposes of these rules, owners include any individual or organization with equity interest in the provider's operation and any members of such individual's family or his or her spouse's family. Owners also include all partners and all stockholders in the provider's operation and all partners and stockholders or organizations that have an equity interest in the provider's operation.

10-144 C.M.R. ch. 115, § 20