| (7) Central office costs. A chain organization consists
of a group of two or more contracted entities which are owned, leased
or controlled through any other arrangement by one organization. A
chain may also include business organizations which are engaged in
other activities and which are not contracted program entities. Central
offices of a chain organization vary in the services furnished to
the components in the chain. The relationship of the central office
to an entity providing contracted services is that of a related party
organization to a contracted provider. Central offices usually furnish
central management and administrative services such as central accounting,
purchasing, personnel services, management direction and control,
and other necessary services. To the extent the central office furnishes
services related directly or indirectly to contracted client care,
the reasonable costs of such services are allowable. Allowable central
office costs include costs directly related to those services necessary
for the provision of client care for contracted services in Texas
and an appropriate share of allowable indirect costs. Where functions
of the central office have no direct or indirect bearing on delivering
contracted client care, the cost for those functions are not allowable
costs. Costs which are unallowable to the contracted provider are
also unallowable as central office costs. Where a contracted provider
is furnished services, facilities, leases, or supplies from its central
office, the costs allowed are subject to the guidelines of related
party transactions in §355.102(i) of this title. Owner-employees
and related parties receiving compensation for services provided through
the central office are allowable to the extent provided in paragraph
(2)(A) and (B) of this subsection, concerning compensation of owners
and related parties.
(8) Utilities. To be allowable, the utilities must
be used directly or indirectly in the provision of contracted services.
(9) Repairs and maintenance. For cost-reporting purposes,
repairs and maintenance are categorized as ordinary or extraordinary
(major) repairs and should be handled as follows.
(A) Ordinary repairs and maintenance are defined as
outlays for parts, labor, and related supplies that are necessary
to keep the asset in operating condition, but neither add materially
to the use value of the asset nor prolong its life appreciably. Ordinary
repairs are recurring and usually involve relatively small expenditures.
Ordinary repairs include, but are not limited to, painting, wall papering,
copy machine repair, repairing an electrical circuit, or replacing
spark plugs. Because maintenance costs and ordinary repairs are similar,
they are usually combined for accounting purposes. Ordinary repairs
may be expensed.
(B) Extraordinary repairs (major repairs) involve relatively
large expenditures, are not normally recurring in nature, and usually
increase the use value (efficiency and use utility) or the service
life of the asset beyond what it was before the repair. Extraordinary
repairs costing $2,500 or more, with a useful life in excess of one
year, should be capitalized and depreciated. The cost of the extraordinary
repair should be added to the cost of the asset and depreciated over
the remaining useful life of the original asset. If the life of the
asset has been extended due to the repair, the useful life should
be adjusted accordingly. Extraordinary repairs include, but are not
limited to, major vehicle overhauls, major improvements in a building's
electrical system, carpeting an entire building, replacement of a
roof, or strengthening the foundation of a building.
(10) Depreciation and amortization expense. For DHS
contracted providers: for purchases made after the beginning of the
contracted provider's fiscal year 1997, an asset valued at $1,000
or more and with an estimated useful life of more than one year at
the time of purchase must be depreciated or amortized, using the straight
line method. For purchases made after the beginning of the contracted
provider's fiscal year 2004, an asset valued at $2,500 or more and
with an estimated useful life of more than one year at the time of
purchase must be depreciated or amortized, using the straight line
method. For TDMHMR contracted providers: for purchases made after
the beginning of the contracted provider's fiscal year 1997, an asset
valued at $2,500 or more and with an estimated useful life of more
than one year at the time of purchase must be depreciated or amortized,
using the straight line method. For all contracted providers: for
purchases made after the beginning of the contracted provider's fiscal
year 2015, an asset valued at $5,000 or more and with an estimated
useful life of more than one year at the time of purchase must be
depreciated or amortized, using the straight line method. In determining
whether to expense or depreciate a purchased item, a contracted provider
may expense any single item costing less than the capitalization level
for that fiscal period as described above or having a useful life
of one year or less. Depreciation and amortization expenses for unallowable
assets and costs are also unallowable, including amounts in excess
of those resulting from the straight line method, capitalized lease
expenses in excess of actual lease payments, and goodwill or any excess
above the actual value of physical assets at the time of purchase.
The minimum useful lives to be assigned to common classes of depreciable
property are as follows:
(A) Buildings. A building's life must be reported as
a minimum of 30 years, with a minimum salvage value of 10%. All buildings,
excluding the value of the land, are uniformly depreciated on a 30-year
life basis, regardless of the actual date of construction or original
purchase. Exceptions to this policy are permissible when contracted
providers choose a useful-life basis in excess of 30 years. An example
of depreciation on a 30-year life basis is:
Attached Graphic
(B) Building equipment; buildings and grounds improvements
and repairs; durable medical equipment, furniture, and appliances;
and power equipment and tools used for buildings and grounds maintenance.
Use minimum schedules consistent with the most current version of
"Estimated Useful Lives of Depreciable Hospital Assets," published
by the American Hospital Association. Copies of this publication may
be obtained by contacting the American Hospital Association, 155 North
Wacker Drive, Chicago, IL 60606 or at www.aha.org. Leasehold improvements
whose estimated useful lives according to the guidelines for depreciable
hospital assets are longer than the term of the lease must be depreciated
and/or amortized over the life of the leasehold improvement. Building
improvements which are not structural in nature and do not extend
the depreciable life of the building, but whose estimated useful lives
according to the guidelines for depreciable hospital assets are longer
than the remaining depreciable life of the building, must be depreciated
over the normal useful life of the building improvements. Once the
estimated useful life of the leasehold improvement has been established
using the guidelines above, subsequent extensions of the lease period
do not change the useful life of the leasehold improvement. Any exceptions
to this policy shall be stated in each program-specific reimbursement
methodology rules.
(C) Transportation equipment used for the transport
of clients, staff, or materials and supplies utilized by the contracted
provider. Cost reporting must reflect a minimum of three years for
automobiles (including minivans); five years for light trucks and
vans (up to and including 15-passenger vans); and seven years for
buses and airplanes. Depreciation expenses for transportation equipment
not generally suited or not commonly used to transport clients, staff,
or provider supplies are unallowable costs. This includes motor homes
and recreational vehicles; sports automobiles; motorcycles; heavy
trucks, tractors and equipment used in farming, ranching, and construction;
and transportation equipment used for other activities unrelated to
the provision of contracted client care, unless program-specific reimbursement
methodology rules provide otherwise. Refer to §355.105(b)(2)(B)(iii)
of this title for requirements for the maintenance of mileage logs
and other documentation required to substantiate transportation equipment
costs.
(i) Luxury automobiles are defined for cost-reporting
purposes as passenger vehicles, including automobiles, light trucks,
and vans (up to and including 15-passenger vans) and excluding buses,
with an historical cost at time of purchase or a market value at execution
of the lease exceeding $30,000 when purchased or leased before January
1, 1997. For vehicles leased or purchased on or after January 1, 1997,
luxury vehicles are defined as a base value of $30,000 with 2.0% being
added (using the compound method) to the base value each January 1
beginning on January 1, 1998. Any amount above the definition of a
luxury vehicle stated above is an unallowable cost. When a passenger
vehicle's cost exceeds the amount determined by the definition of
a luxury vehicle stated above, the historical cost is reduced to the
amount determined by the definition of a luxury vehicle. When a passenger
vehicle's market value at the execution of the lease exceeds the amount
determined by the definition of a luxury vehicle stated above, the
allowable lease payment is limited to the lease amount for a vehicle
with the base value as determined above, with substantiating documentation
as specified in §355.105(b)(2)(B)(iv) of this title. Luxury vehicles
must be depreciated according to depreciation guidelines in this paragraph.
Expenses for passenger luxury vehicles will be allowable if the contracted
provider maintains adequate mileage logs substantiating the use of
the luxury vehicles to transport clients, contracted provider staff
or provider supplies. Refer to §355.105(b)(2)(B)(iii) of this
title for requirements for the maintenance of mileage logs. The base
value does not include specialized equipment, such as wheelchair lifts,
added to assist clients.
(ii) The estimated life of a previously owned (used)
vehicle is the longer of the number of years remaining in the vehicle's
depreciable life or three years. For example, if a 2013 van were purchased
in 2014, it would have four years remaining in its five-year depreciable
life and that would become the depreciable life for the used vehicle.
If a 2013 minivan were purchased in 2014, it would have two years
remaining in its three-year depreciable life and the depreciable life
for the used vehicle would then be three years.
(iii) Specialized equipment added to a vehicle to assist
a client should be depreciated separately from the vehicle. Wheelchair
lifts have an estimated useful life of five years.
(D) Depreciation for the first reporting period. Depreciation
for the first reporting period is based on the length of time from
the date of acquisition to the end of the reporting period. Depreciation
on disposal is based on the length of time from the beginning of the
reporting period in which the asset was disposed to the date of disposal.
(E) Planning and evaluation expenses. Planning and
evaluation expenses for the purchase of depreciable assets are allowable
costs only where purchases are actually made and the assets are put
into service in the provision of care by the provider for contracted
services.
(F) Gains and losses. Gains and losses realized from
the trade-in or exchange of depreciable assets are included in the
determination of allowable cost. When an asset is acquired by trading-in
an asset that was being depreciated, the historical cost of the new
asset is the sum of the undepreciated cost of the asset traded-in
plus any cash or other assets transferred or to be transferred to
acquire the new asset. Losses resulting from the involuntary conversion
of depreciable assets, such as condemnation, fire, theft, or other
casualty, are includable as allowable costs in the year of involuntary
conversion, provided the total aggregate allowable losses incurred
in any cost-reporting period do not exceed $5,000 and provided the
assets are replaced. If the total aggregate allowable losses in any
cost-reporting period exceed $5,000, the total amount of the losses
over $5,000 is recognized as a deferred charge and treated as follows:
(i) If a depreciable asset is destroyed by an involuntary
conversion beyond repair, then the amount of the loss over $5,000
must be capitalized as a deferred charge over the estimated useful
life of the asset which replaces it. The allowable loss for a total
casualty is the undepreciated cost of the asset, less insurance proceeds,
gifts, and grants from any source as a result of the involuntary conversion.
If the unrepairable asset is disposed of by scrapping, income received
from salvage is treated as a reduction in the amount of the allowable
loss. Conversely, where additional expense is incurred in the scrapping
operation, such cost would be added to the allowable loss of the destroyed
asset.
(ii) If a depreciable asset is partially destroyed
or damaged as a result of an involuntary conversion, a reduction in
its cost basis is assumed to have taken place. Therefore, the cost
basis of the asset must be reduced to reflect the amount of the casualty
loss, regardless of whether the loss is covered by insurance.
(I) The amount of the casualty loss is the difference
between the fair market value immediately before the casualty and
the fair market value immediately after the casualty; however, for
cost-reporting purposes, the allowable loss is limited to the percent
of loss in fair market value applied to the net book value of the
asset at the time the casualty occurred. This method of calculating
the allowable loss recognizes the actual reduction in the cost value
of the asset rather than the reduction in replacement value.
(II) Any loss over $5,000 must be capitalized as a
deferred charge and amortized over the useful life of the restored
asset.
Cont'd... |
