(a)(No change.)
(b)Cost report requirements. Unless specifically stated
in program rules or excused as described in paragraph (4)(D) of this
subsection, each provider must submit financial and statistical information
on cost report forms provided by HHSC, [or] on facsimiles
that are formatted according to HHSC specifications and are pre-approved
by HHSC staff, or electronically in HHSC-prescribed format in programs
where these systems are operational. The cost reports must be submitted
to HHSC in a manner prescribed by HHSC. The cost reports must be prepared
to reflect the activities of the provider while delivering contracted
services during the fiscal year specified by the cost report. Cost
reports or other special surveys or reports may be required for other
periods at the discretion of HHSC. Each provider is responsible for
accurately completing any cost report or other special survey or report
submitted to HHSC.
(1)Accounting methods. All financial and statistical
information submitted on cost reports must be based upon the accrual
method of accounting, except where otherwise specified in §355.102
and §355.103 of this subchapter [title]
(relating to General Principles of Allowable and Unallowable Costs
and Specifications for Allowable and Unallowable Costs) and in the
case of governmental entities operating on a cash or modified accrual
basis. For cost-reporting purposes, accrued expenses must be incurred
during the cost-reporting [cost reporting] period
and must be paid within 180 days after the end of that cost-reporting
[cost reporting] period. In situations where a contracted
provider, any of its controlling entities, its parent company/sole
member, or its related-party management company has filed for bankruptcy
protection, the contracted provider may request an exception to the
180-day requirement for payment of accrued allowable expenses by submitting
a written request to the HHSC Provider Finance Department. The written
request must be submitted within 60 days of the date of the bankruptcy
filing or at least 60 days prior to the due date of the cost report
for which the exception is being requested, whichever is later. The
contracted provider will then be requested by the HHSC Provider Finance
Department to provide certain documentation, which must be provided
by the specified due date. Such exceptions due to bankruptcy may be
granted for reasonable, necessary, and documented accrued
allowable expenses that were not paid within the 180-day requirement.
Accrued revenues must be for services performed during the cost-reporting
[cost reporting] period and do not have to be received
within 180 days after the end of that cost reporting period in order
to be reported as revenues for cost-reporting purposes. Except as
otherwise specified by the cost determination process rules of this
chapter, cost report instructions, or policy clarifications, cost
reports should be prepared consistent with generally accepted accounting
principles (GAAP), which are those principles approved by the American
Institute of Certified Public Accountants (AICPA). Internal Revenue
Service (IRS) laws and regulations do not necessarily apply in the
preparation of the cost report. In cases where cost-reporting [
cost reporting] rules differ from GAAP, IRS, or other authorities,
HHSC rules take precedence for provider cost-reporting purposes.
(2)Recordkeeping and adequate documentation. There
is a distinction between noncompliance in recordkeeping, which equates
with unauditability of a cost report and constitutes an administrative
contract violation or, for the Nursing Facility program, may result
in vendor hold, and a provider's inability to provide adequate documentation,
which results in disallowance of relevant costs. Each is discussed
in the following paragraphs.
(A)Recordkeeping. Providers must ensure that records
are accurate and sufficiently detailed to support the legal, financial,
and other statistical information contained in the cost report. Providers
must maintain all work papers [workpapers] and
any other records that support the information submitted on the cost
report relating to all allocations, cost centers, cost or statistical
line items, surveys, and schedules. HHSC may require supporting documentation
other than that contained in the cost report to substantiate reported
information.
(i)For contracted providers subject to 40 TAC Chapter
49, each provider must maintain records according to the requirements
stated in 40 TAC §49.307 (relating to Record Retention and Disposition)
and according to the HHSC's prescribed chart of accounts, when available.
(ii)If a contractor is terminating business operations,
the contractor must ensure that:
(I)records are stored and accessible; and
(II)someone is responsible for adequately maintaining
the records.
(iii)For nursing facilities, failure to maintain all
work papers [workpapers] and any other records that
support the information submitted on the cost report relating to all
allocations, cost centers, cost or statistical line items, surveys,
and schedules may result in vendor hold as specified in §355.403
of this chapter [title] (relating to Vendor
Hold).
(iv)For all other programs, failure to maintain all
work papers [workpapers] and any other records that
support the information submitted on the cost report relating to all
allocations, cost centers, cost or statistical line items, surveys,
and schedules constitutes an administrative contract violation. In
the case of an administrative contract violation, procedural guidelines
and informal reconsideration and/or appeal processes are specified
in §355.111 of this subchapter [title]
(relating to Administrative Contract Violations).
(B)Adequate documentation. The [To
be allowable, the] relationship between reported costs and contracted
services must be clearly and adequately documented to be allowable.
Adequate documentation consists of all materials necessary to demonstrate
the relationship of personnel, supplies, and services to the provision
of contracted client care or the relationship of the central office
to the individual service delivery entity level. These materials may
include but are not limited to, accounting records, invoices, organizational
charts, functional job descriptions, other written statements, and
direct interviews with staff, as deemed necessary by HHSC auditors
to perform required tests of reasonableness, necessity, and allowability.
(i)The minimum allowable statistical duration for
a time study upon which to base salary allocations is four weeks per
year, with one week being randomly selected from each quarter so as
to assure that the time study is representative of the various cycles
of business operations. One week is defined as only those days the
contracted provider is in operation for [during]
seven continuous days. The time study can be performed for one continuous
week during a quarter, or it can be performed over five or seven individual
days, whichever is applicable, throughout a quarter. The time study
must be a 100% time study, accounting for 100% of the time paid to the
employee, including vacation and sick leave.
(ii)To support the existence of a loan, the provider
must have available a signed copy of the loan contract, which
contains the pertinent terms of the loan, such as amount, rate of
interest, method of payment, due date, and collateral. The documentation
must include an explanation for the purpose of the loan, and
an audit trail must be provided showing the use of the loan proceeds.
Evidence of systematic interest and principal payments must be available
and supported by the payback schedule in the note or amortization
schedule supporting the note. Documentation must also include substantiation
of any costs associated with the securing of the loan, such as broker's
fees, due diligence fees, lender's fees, attorney's fees, etc. To
document allowable interest costs associated with related party loans,
the provider is required to maintain documentation verifying the prime
interest rate in accordance with §355.103(b)(11)(C) of this subchapter
[title] for a similar type of loan as of the effective
date of the related party loan.
(iii)For ground transportation equipment, a mileage
log is not required if the equipment is used solely (100%) for the provision
of contracted client services in accordance with program requirements
in delivering one type of contracted care. However, the contracted
provider must have a written policy that states that the ground transportation
equipment is restricted to that use, and that policy must
be followed. For ground transportation equipment that is used for
several purposes (including for personal use) or multiple programs
or across various business components, mileage logs must be maintained.
Personal use includes, among other things, driving to and from a personal
residence. At a minimum, mileage logs must include for each individual
trip the date, the time of day (beginning and ending), driver, persons
in the vehicle, trip mileage (beginning, ending, and total), purpose
of the trip, and the allocation centers (the departments, programs,
and/or business entities to which the trip costs should be allocated).
Flight logs must include dates, mileage, passenger lists, and destinations,
along with any other information demonstrating the purpose of the
trips so that a relationship to contracted client care in Texas can
be determined. For the purpose of comparison to the cost of commercial
alternatives, documentation of the cost of operating and maintaining
a private aircraft includes allowable expenses relating to the lease
or depreciation of the aircraft; aircraft fuel and maintenance expenses;
aircraft insurance, taxes, and interest; pilot expenses; hangar and
other related expenses; mileage, vehicle rental or other ground transportation
expense; and airport parking fees. Documentation demonstrating the
allowable cost of commercial alternatives includes commercial airfare
ticket costs at the lowest fare offered (including all
discounts) and associated expenses, including mileage, vehicle rental
or other ground transportation expenses [expense];
airport parking fees; and any hotel or per diem due to necessary layovers
(no scheduled flights at the time of return trip).
(iv)To substantiate the allowable cost of leasing
a luxury vehicle as defined in §355.103(b)(10)(C)(i) of this subchapter
[title], the provider must obtain at the time of
the lease a separate quotation establishing the monthly lease costs
for the base amount allowable for cost-reporting purposes as specified
in §355.103(b)(10)(C)(i) of this subchapter [title].
Without adequate documentation to verify the allowable lease costs
of the luxury vehicle, the reported costs shall be disallowed.
(v)For adequate documentation purposes, a written
description of each cost allocation method must be maintained that
includes, at a minimum, a clear and understandable explanation of
the numerator and denominator of the allocation ratio described in
words and in numbers, as well as a written explanation of how and
to which specific business components the remaining percentage of
costs were allocated.
(vi)To substantiate the allowable cost for staff training
as defined in §355.103(b)(15)(A) of this subchapter [
title], the provider must maintain a description of the training
verifying that the training pertained to contracted client care-related
services or quality assurance. At a minimum, a program brochure describing
the seminar or a conference program with a description
of the workshop must be maintained. The documentation must provide
a description clearly demonstrating that the seminar or workshop provided
training for [pertaining to] contracted client
care-related services or quality assurance.
(vii)Documentation regarding the allocation of costs
related to noncontracted services, as specified in §355.102(j)(2)
of this subchapter [title], must be maintained
by the provider. At a minimum, the provider must maintain written
records verifying the number of units of noncontracted services provided
during the provider's fiscal year, along with adequate documentation
supporting the direct and allocated costs associated with those noncontracted
services.
(viii)Adequate documentation to substantiate legal,
accounting, and auditing fees must include, at a minimum, the amount
of time spent on the activity, a written description of the activity
performed which clearly explains to which business component the cost
should be allocated, the person performing the activity, and the hourly
billing amount of the person performing the activity. Other legal,
accounting, and auditing costs, such as photocopy costs, telephone
costs, court costs, mailing costs, expert witness costs, travel costs,
and court reporter costs, must be itemized and clearly denote to which
business component the cost should be allocated.
(ix)Providers who self-insure [self
insure] for all or part of their employee-related insurance
costs, such as health insurance and workers' compensation costs, must
use one of the two following methods for determining and documenting
the provider's allowable costs under the cost ceilings and any carry
forward as described in §355.103(b)(13)(E) of this subchapter [
title].
(I)Providers may obtain and maintain each fiscal year's
documentation to establish what their premium costs would have been
had they purchased commercial insurance for total coverage. The documentation
should include, at a minimum, bids from two commercial carriers. Bids
must be obtained no less frequently than every three years.
(II)If providers choose not to obtain and maintain
commercial bids as described in subclause (I) of this clause, providers
may claim as an allowable cost the health insurance actual paid claims
incurred on behalf of the employees that do [does]
not exceed 10% of the payroll for employees eligible for receipt of
this benefit. In addition, providers may claim as an allowable cost
the workers' compensation actual paid claims incurred on behalf of
the employees, an amount each cost report period not to exceed 10%
of the payroll for employees eligible for receipt of this benefit.
(III)Providers who self-insure [self
insure] must also maintain documentation that supports the amount
of claims paid each year and any allowable costs to be carried forward
to future cost-reporting periods.
(x)Providers who self-insure [self
insure] for all or part of their coverage for nonemployee-related
insurance, such as malpractice insurance, comprehensive general liability,
and property insurance, must maintain documentation for each cost-reporting
period to establish what their premium costs would have been had they
purchased commercial insurance for total coverage. The documentation
should include, at a minimum, bids from two commercial carriers. Bids
must be obtained no less frequently than every three years. Providers
who self-insure [self insure] must also maintain
documentation that supports the amount of claims paid each year and
any allowable costs to be carried forward to future cost-reporting
periods. Governmental providers must document the existence of their
claims management and risk management programs.
(xi)Regarding compensation of owners and related parties,
providers must maintain the following documentation, at a minimum,
for each owner or related party: a detailed written description of
actual duties, functions, and responsibilities; documentation substantiating
that the services performed are not duplicative of services performed
by other employees; time sheets or other documentation verifying the
hours and days worked; the amount of total compensation paid for these
duties, with a breakdown detailing regular salary, overtime, bonuses,
benefits, and other payments; documentation of regular, periodic payments
and/or accruals of the compensation, documentation that the compensation
is subject to payroll or self-employment taxes; and a detailed allocation
worksheet indicating how the total compensation was allocated across
business components receiving the benefit of these duties.
(I)Regarding bonuses paid to owners and related parties,
the provider must maintain clearly defined bonus policies in its written
agreements with employees or in its overall employment policy. At
a minimum, the bonus policy must include the basis for distributing
the bonuses, including qualifications for receiving the
bonus[,] and how the amount of each bonus is calculated.
Other documentation must specify who received bonuses, whether the
persons receiving bonuses are owners, related parties, or arm's-length
employees, and the bonus amount received by each individual.
(II)Regarding benefits provided to owners and related
parties, the provider must maintain clearly defined benefit policies
in its written agreements with employees or in its overall employment
policy. At a minimum, the documentation must include the basis for
eligibility for each type of benefit available, who is eligible to
receive each type of benefit, who actually receives each type of benefit,
whether the persons receiving each type of benefit are owners, related
parties, or arm's-length employees, and the amount of each benefit
received by each individual.
(xii) Cont'd...
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