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a.ordinary, necessary, and related to the delivery of care;
b.what a prudent and cost conscious business person would pay for the specific goods or services in the open market or in an arm’s length transaction; and
c.for goods or services actually provided to the center.

B.Through the desk review and/or audit process, adjustments and/or disallowances may be made to a provider’s reported costs. The Medicare Provider Reimbursement Manual is the final authority for allowable costs unless the department has set a more restrictive policy.

AUTHORITY NOTE:Promulgated in accordance with R.S. 36:254 and Title XIX of the Social Security Act.

HISTORICAL NOTE:Promulgated by the Department of Health and Hospitals, Office of Aging and Adult Services, LR 34:2168 (October 2008).

§2909.Nonallowable Costs

A.Costs that are not based on the reasonable cost of services covered under Medicare and are not related to the care of recipients are considered nonallowable costs.

B.Reasonable cost does not include the following:

1.costs not related to client care;
2.costs specifically not reimbursed under the program;
3.costs that flow from the provision of luxury items or services (items or services substantially in excess or more expensive than those generally considered necessary for the provision of the care);
4.costs that are found to be substantially out of line with other centers that are similar in size, scope of services and other relevant factors;
5.costs exceeding what a prudent and cost-conscious buyer would incur to purchase the goods or services.

C.General nonallowable costs:

1.services for which Medicaid recipients are charged a fee;
2.depreciation of non-client care assets;
3.services that are reimbursable by other state or federally funded programs;
4.goods or services unrelated to client care;
5.unreasonable costs.

D.Specific nonallowable costs (this is not an all inclusive listing):

1.advertising—costs of advertising to the general public that seeks to increase patient utilization of the ADHC center;
2.bad debts—accounts receivable that are written off as not collectible;
3.contributions—amounts donated to charitable or other organizations;
4.courtesy allowances;
5.director’s fees;
6.educational costs for clients;
8.goodwill or interest (debt service) on goodwill;
9.costs of income producing items such as fund raising costs, promotional advertising, or public relations costs and other income producing items;
10.income taxes, state and federal taxes on net income levied or expected to be levied by the federal or state government;
11.insurance, officers—cost of insurance on officers and key employees of the center when the insurance is not provided to all employees;
12.judgments or settlements of any kind;
13.lobbying costs or political contributions, either directly or through a trade organization;
14.non-client entertainment;
15.non-Medicaid related care costs—costs allocated to portions of a center that are not licensed as the reporting ADHC or are not certified to participate in Title XIX;
16.officers’ life insurance with the center or owner as beneficiary;
17.payments to the parent organization or other related party;
18.penalties and sanctions—penalties and sanctions assessed by the Centers for Medicare and Medicaid Services, the Internal Revenue Service or the State Tax Commission; insufficient funds charges;
19.personal comfort items; and
20.personal use of vehicles.

AUTHORITY NOTE:Promulgated in accordance with R.S. 36:254 and Title XIX of the Social Security Act.

HISTORICAL NOTE:Promulgated by the Department of Health and Hospitals, Office of Aging and Adult Services, LR 34:2169 (October 2008).


A.Each provider shall file an annual center cost report and, if applicable, a central office cost report.

B.The provider shall be subject to financial and compliance audits.

C.All providers who elect to participate in the Medicaid Program shall be subject to audit by state or federal regulators or their designees. Audit selection shall be at the discretion of the department.

1.The Department conducts desk reviews of all of the cost reports received and also conducts on-site audits of provider cost reports.
2.The records necessary to verify information submitted to the department on Medicaid cost reports, including related-party transactions and other business activities engaged in by the provider, must be accessible to the department’s audit staff.

D.In addition to the adjustments made during desk reviews and on-site audits, the department may exclude or adjust certain expenses in the cost report data base in order to base rates on the reasonable and necessary costs that an economical and efficient provider must incur.

E.The center shall retain such records or files as required by the department and shall have them available for inspection for five years from the date of service or until all audit exceptions are resolved, whichever period is longer.

F.If a center’s audit results in repeat findings and adjustments, the department may:

1.withhold vendor payments until the center submits documentation that the non-compliance has been resolved;
2.exclude the provider’s cost from the database used for rate setting purposes; and
3.impose civil monetary penalties until the center submits documentation that the non-compliance has been resolved.

G.If the department’s auditors determine that a center’s financial and/or census records are unauditable, the vendor

Louisiana Register   Vol. 34, No. 10   October 20, 2008

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