AGING AND DISABILITY SERVICES ADMINISTRATION

August 10, 2001

AASA No. 01-018

Re: 2002 Joint Cost Allocation Disclosure

Dear Nursing Facility Administrator:

By September 30 of each year, Revised Code of Washington Section 74.46.270 requires all central servicing organizations to submit a Joint Cost Allocation Disclosure (JCAD).  Central servicing organizations include related organiza­tions which provide services to more than one nursing facility, or one nursing facility and any other entity.  Examples of organizations that must submit a disclosure if joint costs are incurred are: 

• chain operations;
• organizations operating more than one type of facility at a location (for example, a nursing facility and a hospital or a nursing facility and a boarding home);
• organizations operating more than one type of business (for elixample, a nursing facility and an apartment complex); and
• facilities providing services to another facility (for example, a facility providing laundry services to another facility).

One disclosure form for each servicing organization is required.  For example, if a central office provides services to five facilities, the central office is the servicing organization and should submit one disclosure.  All servicing organizations allocating joint facility costs in 2002 must complete the form in its entirety and sign the certification on page 4.  All signatures must be original signatures in ink.

The disclosure must identify the nature and purpose of all costs, which represent an allocation of joint facility costs, describe the allocation methodology utilized, and list the entities to which the costs are to be allocated.  Please note that an organization chart for the servicing organization is to be submitted.  The organization chart must define all positions and define services provided.  Please disclose all management positions.

To have joint facility costs for calendar year 2002 considered in the determination of allowable costs under Washington Administrative Code (WAC) 388-96-585 and other related sections of WAC 388-96, the allocation disclosure must be postmarked by September 30, 2001 per WAC 388-96-534 (3).  The department will review the methodology and notify the contractor of approval or denial by December 31, 2001 for all timely received JCADs in accordance with WAC 388-96-534 (4).  

PLEASE NOTE:  In accordance with WAC 388-96-534 (5), an amendment or revision to a JCAD must be submitted at least thirty days prior to the effective date of the amendment or revision.  Also, contractors who will begin to incur joint costs at some time other than the beginning of the calendar year must submit a new JCAD ninety days prior to the time the costs will be incurred per WAC 388-96-534 (6). 

For guidelines on the disclosure of joint facility cost allocation, please review RCW 74.46.270; WACs 388-96-534, 388-96-535, and 388-96-542; and the State of Washington Nursing Home Accounting and Reporting Manual pages I-12, III-31, through 33, IV-41 and 45, V-11 through 13 and 22, and VI-34 through 37.

If your JCAD for calendar year 2001 was not approved, please complete the 2001 form and return the form to the address below.  The department will review your 2001 JCAD and then apply its findings to your 2002 JCAD.  JCADs for 2001 that were conditionally approved last year will be automatically disap­proved if the department has not received the requested information.

Enclosed are:

• A 2002 disclosure form
• Copies of relevant sections of state law (RCW) and regulations (WAC)
• Joint facility organization types
• Criteria for Approval of Provider Statements

Disclosures for calendar year 2002 must be postmarked by September 30, 2001 and submitted to:

Department of Social and Health Services
Aging and Disability Services Administration
Nursing Home Rates Section
Post Office Box 45600
Olympia, Washington  98504-5600

If you have any questions, please call the analyst responsible for your facility.  If you do not know your assigned analyst, please call Donna Smith (360) 725-2477.

Sincerely,

Tom Kearns, Chief

Office of Rates Management

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Enclosures

2002 JOINT COST ALLOCATION DISCLOSURE

PAGES 1 THROUGH 4 ARE TO BE COMPLETED BY ALL CONTRACTORS INCURRING JOINT FACILITY COSTS IN 2002.

1. SERVICING ORGANIZATION:

Name         __________________________________________

Address     __________________________________________

                  __________________________________________

Separate disclosures must be submitted by each related organization that provides services to more than one facility, or one facility and any other entity.  This includes central offices, related organization consultants, headquarters management, etc.

2.     CONTACT INDIVIDUAL:

        Name, Title, and Telephone Number of person to be contacted if additional information is required.

                                                                                            /                                          /                                     

                        Name                                                     Title                        Telephone No.

FOR ITEMS 3 AND 4, PLEASE REFER TO THE NURSING HOME ACCOUNTING AND REPORTING MANUAL, PAGES III-31 THROUGH 33.

3.     SERVICES PROVIDED:

        Briefly describe the nature and purpose of all services provided by the organization.  If a service type (accounting, for example) is provided at both a central office and a facility, please indicate the functions performed at each locale.  Attach additional pages as necessary.

SERVICE	PURPOSE

4. ALLOCATION METHODOLOGY:

Describe the allocation methodology used to distribute the costs of the above services to the benefiting entities.  If more than one allocation methodology is used, indicate service(s) to which each methodology applies.  Attach additional pages as necessary.

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5.ENTITIES SERVICED:

List and briefly describe all entities and facilities serviced by this organization starting with Washington nursing facilities and vendor numbers. Indicate estimated percentage of total joint costs to be allocated to each entity or facility.  If available, please submit copies of worksheets used to develop allocations.  Attach additional pages as necessary.

ENTITY	VENDOR NOS. & BEDS OR OTHER DESCRIPTION	ESTIMATED %        OF COST

NOTE: MISLEADING, FALSE OR CONCEALED INFORMATION MAY BE IN VIOLATION OF RCW 74.09, SUBJECT TO THE PENALTIES DESCRIBED THEREIN.

6. CERTIFICATION:

I HEREBY CERTIFY that the services described in this disclosure are necessary and nonduplicative, and that the described methodology allocates costs in accordance with the benefits received from the resources represented by those costs.

                                         Signed    ______________________________________________

                                                       Authorized Provider Representative

                                                       ______________________________________________

                                                       Printed Name and Title

                                                       ____________________________

                                                       Date

JOINT FACILITY ORGANIZATION TYPES

1.Chain Organization:

A health care or other organization consisting of a group of two or more facilities that are owned, leased, or, through any other device, controlled by one business entity.

-OR-

Two or more nursing facilities, or a nursing facility (or facilities) and one or more additional business entities with central office or other central services provided from a location distinct from the entities served.

2. Distinct Part/Combination Facility:

A nursing facility (not part of a chain) that operates as a part of a larger facility such as hospital or retirement home, that is, as a distinct part in a shared building operated as a single health care related institution.

3.Shared Services/Combination Facility:

        A nursing facility (not part of a chain) operated in its own separate building as a separated business entity, but located on a common site and sharing one or more services provided at that site with a related organization devoted primarily to institutional health care related services, e.g., retirement home/nursing facility complex or hospital/nursing facility complex.

4. Distinct Part or Shared Services/Other:

        A nursing facility (not part of a chain) sharing services in the same manner as described in paragraphs 2 or 3 above (i.e., same building or common site) but with an entity not devoted to providing institutional health care related services, e.g., nursing facility/restaurant, nursing facility/pharmacy.

                                           Aging and Disability Services                                   

                                  JOINT COST ALLOCATION DISCLOSURE

                      CRITERIA FOR APPROVAL OF PROVIDER STATEMENTS

3.     Services Provided  (Page 1 on Disclosure Form)

        A.     Service Type:

                Under the column heading "Service," the provider's statement should consist of an adequate description(s) of the specific service(s) to be provided, as called for by the explanatory statement on the form and in WAC 388-96-534.  Examples of correct descriptions of services are:  Accounting service, bookkeeping service, dietary consultation, nursing care consultation, laundry service, meal preparation and food service, computer service, general administrative management.

B. Purpose:

The provider's statement should constitute an adequate description of the purpose of a service and a sufficiently detailed explanation of "the functions performed at each locale" as called for by the statement on the form and in WAC 388-96-534.  Examples of adequate statements of purpose are:  To provide for the compilation and completion of quarterly financial and other operating statements from the bookkeeping data generated by office personnel in each facility; to provide centralized and computerized bookkeeping, medical records, patient statistics, and administrative management data; to provide consistent general and special dietary consultation and training to dietary and nursing personnel in each facility; to provide complete laundry service for all entities and facilities serviced.

4. Allocation Methodology (Page 2 on Disclosure Form)

The provider's statement should adequately describe an allocation methodology which distributes the costs of services in accordance with the benefits of such services, as called for by the statement on the form and in WAC 388-96-534.  The allocation methodology should incorporate the following criteria (for a more detailed explanation, see the Nursing Home Accounting and Reporting Manual, especially pages III-31 through III-33, V-11 through V-13, and V-22):

A. Direct Charges on Nursing Facility Books:

When a chain organization or combination facility purchases supplies, equipment, or services which are to be utilized or consumed directly and exclusively by or in a given nursing facility (or other related entity) the costs for such items do not require an allocation methodology, and should not be allocat­ed on a statistical or other similar allocation basis.  Such costs should be charged directly to and accounted for on the books of account of the facility or entity, using an appropri­ate system of charge vouchers or requi­sitions and should be excluded from the cost allocation meth­odology.  The methodology in this case is actually the system of the facility's accounting for these direct costs.  For example, cost of food purchased for a nursing facility through a central purchasing operation should be charged to the nursing facility; cost should not be allocated through an allocation mechanism.

B. Allocation of Direct Costs:

Where personnel, services, facilities, or equipment (not supplies which are consumed in only one entity) are used or shared by more than one facility or entity, the costs for such items may be "for the benefit of, or directly attributable to, a specific nursing facility or other enterprise."  In this case, they should be allocated directly to (but not charged directly on the books of account for) the entity for which they are incurred.  The methodology in such instances typically involves an allocation basis such as actual salaries and wages, payroll hours or actual recorded time spent at, or in behalf of, a given facility or entity.  Other similar methods of directly assigning and accounting for the costs of shared servic­es, facilities or equipment are also acceptable, so long as they directly attribute costs to a given facility on the basis of actual usage or benefit.  Therefore, the allocation methodology in such instances typically utilizes the existing or standard accounting data normally maintained by a chain organization or combination facility, such as actual payroll hours or similar time records, actual equipment usage (miles, time of use) to allocate these direct costs.

C. Allocation of Indirect & Overhead Costs:

Direct costs for services provided by a chain organization or combination facility commonly involve an appropriate share of indirect or overhead costs such as administrative manage­ment sala­ries, office rent, utilities, telephone, supplies, and other office costs.  Such indirect overhead costs are not, by their essential nature, directly assignable to specific nursing facilities using account­ing methods described in paragraphs 4A or 4B.  Indirect costs should be allocated on a functional basis designed to distribute costs to the compo­nents or activities in a manner reasonably related to the services received.  The allocation method­ology should propor­tionately allocate­ these kinds of costs in a manner that most accurately reflects the benefits of services provided.  This alloca­tion methodology usually employs some type of basic cost accounting rationale or standard health care institution­al cost finding method­ology (such as that employed in the Medicare program) using statis­tics or time studies that are designed as measures of the functional benefits or services provided.  The statistics or measures used constitute the primary elements of the allocation methodology; the correctness or accuracy of such measures can only be judged in relation to the unique or special characteristics of the services performed.  Some of the statistical bases that may be used to ensure proper apportionment of such common costs are shown on page III-32 of the Nursing Home Accounting and Reporting Manual.  In a chain organization, these kinds of indirect costs are often appor­tioned among the direct costs, on the basis of the pro­portionate share that each function's or service's direct costs (usually salaries and wages along with other direct costs for general administrative management accounting, dietary consultation, etc.) bear to the total of direct costs for all functions or servic­es provided.  In combina­tion facilities, other statistics such as square feet, meals served, or gross charges are often used to measure and allocate such indi­rect and overhead costs.  It is essential that this kind of alloca­tion provide that such costs be apportioned between both appropriate allowable and nonallowable costs centers, since costs incurred in selected areas may benefit both allowable and nonallowable cost centers.

D. Allocation by Functional Benefits:

An allocation methodology requires appropriate basis to allocate the costs of services to each of the entities receiving and benefiting from the services.  Where it can be clearly demonstrated that each of the entities is receiving benefits approx­imately equal and uniform, (except for proportionate variations caused by size and number of beds) then inpatient days or set-up beds (depending on the service) may be used as the method and statistical basis for such allocation.  However, if it appears that specific services, functions, or equipment are not equally and uniformly used by each facility or entity, then the direct costs for such items, along with an appropriate share of indirect costs for each function or service, must be allocated on some statistical or cost accounting basis that most accurately reflects actual usage or benefit.  Percentages based on time studies or estimates must be carefully and completely documented and periodically updated to ensure consistency and accuracy from period to period, and to ensure that such time studies or estimates are current and readily available for purposes of an on-site audit.

5. Entities Serviced  (Page 3 on Disclosure Form)

The provider's statement must be consistent with other entries on the form, or with cost report data previously filed with Aging and Disability Services, as follows:

A. Under the column heading "Entity," the list of facilities or enti­ties must be complete.

B. Under Number and Beds/or Other Description," the data must be complete.

C. Under "Estimated Percent of Cost," the data shown should correlate with the allocation methodol­ogy and other data on the form.

6. Certification (Page 4 on Disclosure Form)

This certification must be signed, the title given, and the date entered.  The JCAD submitted to the department must contain an original signature in ink.