SUNSET NURSING HOME

Equipment & Fixtures

Illustration B-1

Cost by Dept. Depr. Amt.

DEPRECIATION: An accounting procedure which aims to distribute the cost of an asset, less any salvage value, over the estimated useful life in

Optional Allowance for Depreciation Based on a Percentage of Operating Cost

For all depreciable assets acquired before January 1, 1966, the provider, at its option, may at the time it enters the program choose an allowance for depreciation based on a percentage of operating costs. This option is available to any provider, regardless of whether or not the provider has historical cost records of these assets. However, a provider that has elected to use. actual depreciation cannot at a later date switch to the optional allowance.

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The operating costs to be used are the lower of the provider's 1965 operating costs or the provider's current year's allowable costs. The percentage to be applied is 5 percent for all reporting periods beginning in the year 1966-67 (July 1, 1966 - June 30, 1967); percent for all reporting periods beginning in the year 1967-68 (July 1, 1967 June 30, 1968), with such percentage being uniformly reduced by one-half percent each succeeding year.

The allowance based on operating costs is in addition to regular depreciation on assets acquired after 1965. However, when the optional allowance is selected, the combined amount of such allowance on pre-1966 assets and the straight-line depreciation on assets acquired after 1965, and the estimated depreciation on a straight-line basis on all rented assets used during the current year may not exceed 6 percent of the provider's adjusted allowable cost for the current year. In applying this limitation, if the actual depreciation claimed on post-1965 assets is on an accelerated basis, it must be converted to a straight-line basis only for use in computing this limitation. The actual depreciation claimed on an accelerated basis is properly includable in allowable costs.

Notes

1.

2.

3.

A provider does not have to use the same method of depreciation for Medicare purposes that is presently being used for federal tax purposes or for other third-party purchasers.

A formal election procedure is unnecessary initially. However, if a provider wishes to subsequently change methods, a formal request and approval by the intermediary is necessary.

A provider is not required to use the same method of depreciation for all depreciable property.

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Reference

U. S. Department of Health, Education, and Welfare: Social Security Administration. Principles of Reimbursement for Provider Costs and for Services by Hospital-Based Physicians, HIR-11, February 1968.

Case prepared by:

Mr. James B. Riley, Jr.

Supervisory Accountant (Acting)
Division of Reimbursement.
Bureau of Health Insurance

Social Security Administration

CASE STUDY

TRANSFER AGREEMENT

THE DEVELOPMENT OF A TRANSFER AGREEMENT BETWEEN A

NURSING HOME AND A HOSPITAL

Background Information:

The Colonial Hills Nursing Home is a newly-opened proprietary medical and nursing care facility with 100 beds, near Fernville and Dixon in Tiller County. The owners of this nursing home, consisting of a group of physicians and other community leaders, seek to offer skilled nursing care to the aged population of Tiller County. The city of Dixon and the surrounding area have been described in the Teaching Reference Community.

The physicians in the owner group for this nursing home are, for the most part, staff members of the Fernville Hospital. Dr. Harold Prince, a member of the board of Colonial Hills, is Director of the Fernville Hospital. Although the home's physical location close to that hospital makes possible close working relationships between the nursing home and hospital, the owners visualize that the patient population of this new home can be drawn from the entire area of Tiller County, including the city of Dixon.

One of the first responsibilities designated for you, as administrator, has been to organize services for the long-term patient which will enable Colonial Hills to become a provider of service under Medicare and Medicaid, and to become accredited by the Joint Commission on Accreditation of Hospitals. Transfer agreements, required by Medicare, Medicaid, and the Joint Commission on Accreditation of Hospitals must be worked out with hospitals in the area. (See attachment, "Requirements for Transfer Agreements under Title XVIII and XIX of the Social Security Act Medicare and Medicaid 7 and by the Joint Commission on Accreditation of Hospitals.") An informal transfer agreement already exists between Fernville Hospital and Colonial Hills, through Dr. Prince, but he agrees that formal agreements are necessary with all Tiller County hospitals.

Problems:

1. What steps should you as administrator take to work out transfer agreements with the hospitals?

3.

4.

What are the relative merits of community-wide and individual transfer
agreements?

Where would you get advice as to the form of transfer agreement to be used?

5.

6.

Can you be a signatory in a community-wide transfer agreement and still
give preferred status to one or more hospitals?

What if you cannot reach agreement with one or more of the hospitals in the community?