(i) The provider's investment in plant, property and equipment related to patient care (net of depreciation) and funds deposited by a provider who leases plant, property, or equipment related to patient care and is required by the terms of the lease to deposit such funds (net of noncurrent debt related to such investment or deposited funds), and

(ii) Net working capital maintained for necessary and proper operation of patient care activities. 1. However, debt representing loans from partners, stockholders, or related organizations on which interest payments would be allowable as costs but for the provisions of § 405.419(b) (3) (ii), is not substracted in computing the amount of equity capital as defined in paragraph (b) (1) (i) of this section and this paragraph (b) (1) (ii), in order that the proceeds from such loans be treated as a part of the provider's equity capital. In computing the amount of equity capital upon which a return is allowable, investment in facilities is recognized on the basis of the historical cost, or other basis, used for depreciation and other purposes under the health insurance program.

(2) Acquisitions after July 1970. With respect to a facility or any tangible assets of a facility acquired on or after August 1, 1970, the excess of the price paid for such facility or such tangible assets over the historical cost, as defined in § 405.415 (b), or the cost basis, as determined under § 405.415(g) (whichever is appropriate), is not includable in equity capital, and loans made to finance such excess portion of the cost of such acquisitions (see 405.419 (d)) are excluded in computing equity capital.

(3) Acquisitions prior to August 1970. With respect to a facility or any tangible assets of a facility acquired before August 1970, the excess of the price paid for such facility or assets over the fair market value of tangible assets at the time of purchase is includable in equity capital to the extent that it is reasonable except that the cumulative allowable return for such excess shall not exceed 100 percent of such excess. For purposes of this section, the cumulative allowable return means the sum of the allowable rate of return on equity capital for all months starting from August 1, 1970. For example, if the allowable rates of return on equity capital for a provider are 9 percent for the first year (and such year started August 1, 1970), 8.5 percent for the second year, and 10.5

percent for the third year, the cumulative allowable return at the end of the third year would be 28 percent. After the cumulative allowable return equals 100 percent, the inclusion in equity capital of the excess shall no longer be allowable.

(4) Computation of return of equity capital. For purposes of computing the allowable return, the amount of equity capital is the average investment during the reporting period. The rate of return allowed, as derived from time to time based upon interest rates in accordance with this principle, is determined by the Social Security Administration and communicated through intermediaries. Return on investment as an element of allowable costs is subject to apportionment in the same manner as other elements of allowable costs.

Example of calculation of cumulative allowable return. X purchased a provider on July 1, 1969, paying $100,000 in excess of the fair market value of the assets acquired. Provider X files its cost report on a calendar-year basis. The allowable rate of return on equity capital for August 1, 1970December 31, 1970 (4.538 percent), is obtained by multiplying the allowable rate of return for the period ending December 31, 1970 (10.891) by 5/12 (a fraction of which the numerator is the number of months from August 1, 1970, to the end of the cost-reporting period and the denominator is the number of months in the cost-reporting period). The cumulative allowable return for Provider X for the period August 1, 1970-December 31, 1973 (32.367 percent) is computed as follows:

pursuant to section 1122 of the Act, whichever date is later (and subject to the exceptions in § 405.435 (c)), a provider's investment in plant, property, and equipment related to patient care, and funds deposited by a provider which leases plant, property, or equipment related to patient care which are found to be expenditures which have not been submitted to the designated planning agency as required or have been determined to be inconsistent with health facility planning requirements (see 42 CFR 100.101-100.110) are not included in the provider's equity capital for computing the allowance for a reasonable return on equity capital.

|41 FR 46292, Oct. 20, 1976]

(a) Principle. In recognition of the above-average cost of inpatient routine nursing care furnished to aged patients, an inpatient routine nursing salary cost differential is allowable as a reimbursable cost of a provider after June 30, 1969, and before that provider's first cost-reporting period which begins after June 1975 (the month after publication in the FEDERAL REGISTER). The allowable differential applicable to such inpatient routine nursing salary costs of aged patients for the specified period is reimbursable at the rate of 82 percent. Recognition of the differential by the health insurance program is accomplished through an inpatient routine nursing salary cost differential adjustment factor as defined in paragraph (b) (8) of this section.

(b) Definitions-(1) Aged day. Aged day means a day of care rendered to an Inpatient 65 years of age or older. Effective for cost reporting periods starting after December 31, 1971, aged days will not include any days of care rendered to an inpatient 65 years of age or older in an intensive care unit, coronary care unit, or other special care inpatient hospital units.

(2) Pediatric day. Pediatric day means a day of care rendered to an inpatient less than age 14 who is not occupying a bassinet for the newborn in the nursery. Effective for cost reporting periods starting after December 31, 1971, pediatric days will not include any days of care rendered to an inpatient less than 14 years of age in an intensive care unit. coronary care unit, or other special care inpatient hospital units.

(3) Maternity day. Maternity day means a day of care rendered to a female Inpatient admitted for delivery of a child. Effective for cost reporting periods starting after December 31, 1971, maternity days will not include any days of care rendered to a female inpatient admitted for delivery of a child in an intensive care unit, coronary care unit, or other special care inpatient hospital units.

(4) Nursery day. Nursery day means a day of care rendered to an inpatient occupying a bassinet for the newborn in the nursery.

(5) Inpatient day. Inpatient day means a day of care rendered to any inpatient (except an individual occupying a bassinet for the newborn in the nursery). Effective for cost reporting periods starting after December 31, 1971, inpatient days will not include any days of care rendered to inpatients in an intensive care unit, coronary care unit, or other special care inpatient hospital units.

(6) Inpatient routine nursing salary cost. Inpatient routine nursing salary cost includes only the gross salaries and wages of nurses and other personnel for nursing activities performed in nursing units not associated with the nursery and not associated with services for which a separate charge is customarily made. This cost includes gross salaries and wages of head nurses, registered nurses, licensed practical and vocational nurses, aides, orderlies, and ward clerks. It does not include salaries and wages of administrative nursing personnel assigned to the departmental office or nursing personnel who perform their work in surgery, central supply, recovery units. emergency units, delivery rooms, nurseries, employee health service, or any other areas not providing general inpatient care, nor does it include the salaries and wages of personnel performing maintenance or other activities that do not directly relate to the care of patients. Effective for cost reporting periods starting after December 31, 1971, inpatient routine nursing salary cost will not include salaries or wages of nursing personnel assigned to an intensive care unit, coronary care unit, or other special care inpatient hospital units.

(7) Adjusted inpatient routine nursing salary cost. The adjusted inpatient routine nursing salary cost attributable to title XVIII beneficiaries is determined on a per diem basis and is arrived at by dividing (1) total inpatient routine nurs

(9) Intensive care units, coronary care units, and other special care inpatient hospital units. To be considered an intensive care unit, coronary care unit, or other special care inpatient hospital unit, the unit must be in a hospital, must be one in which the care required is extraordinary and on a concentrated and continuous basis and must be physically identifiable as separate from general patient care areas. There shall be specific written policies for each of such designated units which include, but are not limited to burn, coronary care, pulmonary care, trauma, and intensive care units but exclude postoperative recovery rooms, post anesthesia recovery rooms, or maternity labor rooms.

(c) Application. (1) In the determination of health insurance inpatient routine service costs, the rate of 81⁄2 percent has been established as the inpatient routine nursing salary cost differential for aged, pediatric, and maternity patients. This inpatient routine nursing salary cost differential is applicable to inpatient routine nursing salary costs incurred by a provider after June 30, 1969, and before that provider's first cost-reporting period which begins

after June 1975 (the month after publication in the FEDERAL REGISTER).

(2) Although the inpatient routine nursing salary cost differential under the health insurance program is established at a rate of 81⁄2 percent. the effect of the differential on reimbursement to a par ticular provider is also a function of the relationship that total aged, pediatric and maternity patient days of service bears to total patient days of service (excluding nursery days) rendered by that provider.

(d) Effective dates-(1) Cost-reporting periods beginning after June 30, 1969, and before July 1975 (the second month after publication in the FEDERAL REGISTER). For cost-reporting periods beginning after June 30, 1969, and before July 1975. The inpatient routine nursing salary cost differential adjustment factor is applicable for the entire reporting period as an element in the computation of the provider's reimbursable cost.

(2) Cost-reporting periods ending before July 1, 1969, or cost-reporting periods beginning after June 1975 (the month after publication in the FEDERAL REGISTER). For cost-reporting periods ending before July 1, 1969, or cost

reporting periods beginning after June 1975 (the month after publication in the FEDERAL REGISTER). There shall not be included as an element in the computation of the provider's reimbursable costs any inpatient routine nursing salary cost differential adjustment factor.

(3) Cost reporting period beginning before July 1, 1969, and ending after June 30, 1969. With respect to any cost reporting period beginning before July 1, 1969, and ending after June 30, 1969, an inpatient routine nursing salary cost clifferential adjustment factor shall be Computed in accordance with the provisions of paragraph (b) (8) of this section; but only the portion of the inpatient routine nursing salary cost differential adjustment factor equivalent to the part of the cost reporting period falling after June 30, 1969, shall be included as an element of reimbursable cost. The amount of the differential adjustment factor inIcluded in the provider's reimbursable costs is computed by multiplying the per diem differential adjustment factor by the number of covered health insurance days during the reporting period and apportioning this amount by applying a fraction whose numerator is the number of months after June 30, 1969, in the reporting period and whose denominator is the total number of months in the reporting period. (Where a cost reporting period ends on a day other than the last day of the month, the days after June 30, 1969, in the reporting period shall be included in the numerator and the total days in the reporting period shall be included in the denominator.)

(e) Examples—(1) Illustration of calculation of differential adjustment factor for a cost-reporting period beginning after June 30, 1969, and before July 1975.

Inpatient routine nursing salary

costs (excluding nursery costs) - $160,000 Total inpatient days__

$13.12

(1) Adjusted per diem inpatient routine nursing salary cost per computation in (e) (1)---(11) Total adjusted inpatient routine nursing salary cost for these patients (5,120 x $13.12) – $67, 174. 40 (111) Total inpatient routine nursing salary cost for the remainder of the adult patient population ($160,000$67,174.40)

(iv) Per diem inpatient routine nursing salary cost for the remaining adult patient population

Total patient days..

Aged, pediatric, and maternity days

$92,825.60

$12.09 12,800

-5, 120

7,680

$1.03

$12.50

12,800

Total inpatient days applicable to

$0.62

beneficiaries

8,840

Total aged, pediatric, and maternity

days

5, 120

Adjusted per diem inpatient rou

tine nursing salary (excluding nursery salary) cost----

(ix) Portion of the per diem inpatient routine nursing salary cost differential included in the cost of routine service ($12.50$12.09)

$0.41

$13.12

(3) Illustration of differential adjustment factor for a cost reporting period beginning before July 1, 1969 and ending after June 30, 1969. Assume the same statistical and financial data in paragraph (e) (1) of this section and that the provider's cost reporting period was for a 12-month period ending March 31, 1970

$2, 381

Potential routine nursing salary cost differential adjustment factor applicable to beneficiaries for the reporting period____. Allowable routine nursing salary cost differential adjustment factor applicable to beneficiaries for the reporting period-------9/12 × 82,381=81,786 [36 F.R. 12606, July 2, 1971; 36 F.R. 13206. July 16, 1971, as amended at 37 F.R. 10354, May 20, 1972; 40 FR 22540, May 23, 1975] § 405.432 Reasonable cost of physical and other therapy services furnished under arrangements.

(a) Principle. The reasonable cost of the services of physical, occupational, speech, and other therapists, and services of other health specialists (other than physicians), furnished under arrangements (as defined in section 1861 (w) of the Social Security Act) with a provider of services, a clinic, a rehabilitation agency or a public health agency, shall not exceed an amount equivalent to the prevailing salary and additional costs that would reasonably have been incurred by the provider or other organization had such services been performed by such person in an employment relationship, plus the cost of other reasonable expenses incurred by such person in furnishing services under such an arrangement. However, if the services of a therapist are required on a limited part-time basis, or to perform intermittent services, payment may be made on the basis of a reasonable rate per unit of service, even though this rate may be greater per unit of time than salary-related amounts, where the greater payment is, in the aggregate, less than the amount that would have been paid had a therapist been employed on a full-time or regular parttime salaried basis. Pursuant to section 17(a) of Pub. L. 93-233 (87 Stat. 967), the provisions of this section shall be effective for cost reporting periods beginning after March, 1975.

(b) Definitions—(1) Prevailing salary. The prevailing salary is the hourly salary rate based on the 75th percentile of salary ranges paid by providers in the geographical area, by type of therapy, to therapists working full time in an employment relationship.

(2) Fringe benefit and expense factor. The standard fringe benefit and expense factor is an amount that takes account of

fringe benefits, such as vacation pay, insurance premiums, pension payments, allowances for job-related training, meals, etc., generally received by an employee therapist, as well as expenses, such as maintaining an office, appropriate insurance, etc., an individual not working as an employee might incur in furnishing services under arrangements.

(3) Adjusted hourly salary equivalency amount. The adjusted hourly salary equivalency amount is the prevailing hourly salary rate plus the standard fringe benefit and expense factor. This amount is determined on a periodic basis for appropriate geographical areas.

(4) Travel allowance. A standard travel allowance is an amount that will be recognized, in addition to the adjusted hourly salary equivalency amount.

(5) Limited part-time or intermittent services. Therapy services will be held to be on a limited part-time or intermittent basis if the provider or other organization furnishing the services under arrangements requires the services of a therapist or therapists on an average of less than 15 hours per week. This determination shall be made by dividing the total hours of service furnished during the cost reporting period by the number of weeks in which the services were furnished in the cost reporting period regardless of the number of days in each week in which services were performed.

(6) Guidelines. Guidelines are the amounts published by the Social Security Administration reflecting the application of paragraph (b)(1), (2), (3) and (4) of this section to an individual therapy service and a geographical area. Other statistically valid data may be used to establish guidelines for a geographical area, provided that the study designs, questionnaires and instructions, as well as the resultant survey data for determining the guidelines are submitted to and approved in advance by the Social Security Administration. Such data must be arrayed so as to permit the determination of the 75th percentile of the range of salaries paid to full-time employee therapists.

(7) Administrative responsibility. Administrative responsibility is the performance of those duties which normally fall within the purview of a department head or other supervisor. This term does