Effective Date: 07/31/91
Title: Section 86-4.23 - Depreciation
86-4.23 Depreciation. (a) Allowable depreciation shall be limited to those assets which are used for purposes of providing or supporting direct patient care. Reported depreciation based on historical cost is recognized as a proper element of cost. Useful lives for assets purchased after 1991 shall be the higher of the reported useful life or those useful lives from the Estimated Useful Lives of Depreciable Hospital Assets, 1988 edition, American Hospital Association, consistent with title XVIII provisions. Useful lives for assets purchased prior to 1991 shall be determined by use of the 1983 edition. Copies of these publications are available from the American Hospital Association, 840 North Lake Shore Drive, Chicago, IL 60611, and copies are available for inspection and copying at the offices of the Records Access Officer of the Department of Health, Corning Tower Building, Empire State Plaza, Albany, NY 12237.
(b) In the computation of rates for voluntary facilities, depreciation shall be included on a straight-line method on plant and nonmovable equipment. Depreciation on movable equipment may be computed on a straight-line method or accelerated under a double declining balance or sum-of-the-years' digits method.
(1) Voluntary facilities shall fund depreciation unless the commissioner determines, upon application by the facility and after inviting written comments from interested parties, that a waiver of the requirement for funding is necessary and in the public interest. Funding shall mean the transfer of monies to the funded accounts. Board-designated funds and the accrual of liabilities to the funded depreciation accounts shall not be recognized as funding of depreciation. Deposits to the funded depreciation accounts must remain in such accounts for six months or more to be considered as valid funding transactions unless expended for the purposes for which the account was funded.
(2) Funding for plant and fixed equipment shall mean that the transfer of monies to the funded accounts shall occur by the end of the fiscal period in which the depreciation is recorded.
(3) Depreciation on major movable equipment shall be funded in the year revenue is received from the reimbursement of each expense and in the amount included in reimbursement for that year.
(4) Such funds may be used only for capital expenditures with approval as required for the amortization of capital indebtedness.
(c) In the computation of rates for public facilities, depreciation shall be included on a straight-line method on plant and nonmovable equipment. Depreciation on movable equipment may be computed on a straight-line method or accelerated under a double declining balance or sum-of-the-years' digits method.
(d) In the computation of reimbursement rates for proprietary facilities, depreciation shall be computed on a straight-line basis on plant and nonmovable equipment. Depreciation on movable equipment may be computed on a straight-line method or accelerated under a double declining balance or sum-of-the-years' digits method.
(e) Facilities financed by mortgage loans pursuant to the Hospital Mortgage Loan Construction Law shall conform to the requirements of this Subpart. In lieu of depreciation and interest, on the loan-financed portion of the facilities, the commissioner shall allow level debt service on the mortgage loan, together with such required fixed charges, sinking funds and reserves as may be determined by the commissioner as necessary to assure repayment of the mortgage indebtedness.
(f) Article 43 corporations may elect to include in their reimbursement rates depreciation computed by a method other than that used in subdivisions (b), (c) and (d) of this section, subject to approval of the commissioner.
(g) An amount for rent will be reimbursed as capital cost in lieu of depreciation, provided the following conditions are met:
(1) if required, the lease is reviewed and approved by the department;
(2) the applicant has no interest, direct or indirect, beneficial or of record, in the ownership of the building or any overlease;
(3) the rental per square foot, in the judgment of the department, is the same as or is comparable to other rentals in the building in which the facility is to be located, and the rental per square foot is comparable to the rental of similar space in other comparable buildings in the area when such comparisons can be made; and
(4) the rent, if the lease is a sublease, is the same as or less than rent in comparable leases in the geographic area.