# Title 75 — Department of Human Services

## Article 75-02 — Economic Assistance

## Chapter 75-02-09 — Ratesetting for Psychiatric Residential Treatment Facilities

### § 75-02-09-01. Definitions.

1. "Accrual basis" means the recording of revenue in the period when it is earned, regardless of
when it is collected, and the recording of expenses in the period when incurred, regardless of
when they are paid.
2. "Adjustment factor" means the legislatively approved inflation rate for psychiatric residential
treatment facilities services.
3. "Allowable cost" means the facility's actual and reasonable cost after adjustments required by
department rules.
4. "Capital asset" means a facility's buildings, land improvements, fixed equipment, movable
equipment, leasehold improvements, and all additions to or replacements of those assets
used directly for resident care.
5. "Certification of need" has the same meaning as provided in section 75-02-02-03.2.
6. "Chain organization" means a group of two or more health care facilities owned, leased, or,
through any other device, controlled by one business entity. This includes not only proprietary
chains, but also chains operated by various religious and other charitable organizations. A
chain organization may also include business organizations engaged in other activities not
directly related to health care.
7. "Cost category" means the classification or grouping of similar or related costs for purposes of
reporting which are used in the determination of cost limitations and rates.
8. "Cost report" means the department-approved form for reporting costs, statistical data, and
other relevant information to the department.
9. "Department" means the department of health and human services.
10. "Depreciation" means an allocation of the cost of an asset over its estimated useful life.

11. "Depreciation guidelines" means the American hospital association's depreciation guidelines
as published by American hospital publishing, inc., in "Estimated Useful Lives of Depreciable
Hospital Assets", revised 2021 edition.
12. "Desk rate" means the rate established by the department based upon a review of the cost
report submission prior to an audit of the cost report.
13. "Direct costing" means identification of actual costs directly to a facility or cost category
without use of any means of allocation.
14. "Education" means the cost of activities related to academic and vocational training generally
provided by a school district.
15. "Facility" means an entity that is a licensed psychiatric residential treatment facility for children
under chapter 75-03-17.
16. "Fair market value" means value at which an asset could be sold in the open market in a
transaction between informed, unrelated parties.
17. "Final rate" means the rate established after any adjustments by the department, including
adjustments resulting from cost report reviews and audits.
18. "Fringe benefits" means workers' compensation insurance, group health, dental or vision
insurance, group life insurance, payment toward retirement plans, uniform allowances,
employer's share of Federal Insurance Contributions Act, unemployment compensation taxes,
and medical services furnished at facility expense.
19. "Generally accepted accounting principles" means the accounting principles approved by the
American institute of certified public accountants.
20. "Historical costs" means the allowable costs incurred by the facility during the report year
immediately preceding the rate year for which the established rate becomes effective.
21. "Hospital leave day" means any day that a resident is not in the facility, but is in an acute care
or psychiatric hospital or psychiatric unit setting and admitted as an inpatient.
22. "In-house day" means a day that an individual was actually residing in the facility and was not
on leave.
23. "Interest" means cost incurred for the use of borrowed funds.
24. "Leave day" means any day that an individual is not in the facility but is expected to return to
the facility.
25. "Private-pay resident" means an individual on whose behalf the facility is not receiving medical
assistance payments.
26. "Rate year" means the calendar year from January first through December thirty-first.
27. "Reasonable cost" means the cost that must be incurred by an efficiently and economically
operated facility to provide services in conformity with applicable state and federal laws, rules,
and quality and safety standards. Reasonable cost takes into account that the facility seeks to
minimize its costs and that its actual costs do not exceed what a prudent and cost-conscious
buyer pays for a given item or service.
28. "Related organization" means an organization that a facility is, to a significant extent,
associated with, affiliated with, able to control, or controlled by; and which furnishes services,
facilities, or supplies to the facility. Control exists when an individual or organization has the

power, directly or indirectly, to significantly influence or direct the policies of an organization or
facility.
29. "Report year" means fiscal year from July first through June thirtieth of the year immediately
preceding the rate year.
30. "Resident day" means a day for which service is actually provided or for which payment is
ordinarily sought.
31. "Special rate" means a desk rate or a final rate adjusted for nonrecurring or initial costs not
included in the historical cost basis.
32. "Therapeutic leave day" means any day that a resident is not in the facility, another psychiatric
residential treatment facility, an intermediate care facility for individuals with intellectual
disabilities, or an acute care or psychiatric hospital or psychiatric unit setting, or, if not in an
institutional setting, is not receiving home and community-based waivered services.
33. "Working capital debt" means debt incurred to finance facility operating costs, but does not
include debt incurred to acquire or refinance a capital asset or to refund or refinance debt
associated with acquiring a capital asset.
History: Effective May 1, 1994; amended effective October 1, 2011; January 1, 2025; January 1, 2026.
General Authority: NDCC 50-24.1-04
Law Implemented: 42 USC 1396a(a)(30)(A)
### § 75-02-09-02. Financial reporting requirements.

1. Records.
a. The facility shall maintain on the premises census records and financial information
sufficient to provide for a proper audit or review. For any cost being claimed on the cost
report, sufficient data must be available as of the audit date to fully support the report
item.
b. If several facilities are associated with a group and their accounting and reports are
centrally prepared, added information must be submitted for those items known to be
lacking support at the reporting facility prior to the audit or review of the facility.
Accounting or financial information regarding a related organization must be readily
available to substantiate cost.
c. Each facility shall maintain, until any rate based upon a cost report is final and not
subject to any appeal, but in any event, for a period of not less than five years following
the date of submission of the cost report to the state agency, accurate financial and
statistical records of the period covered by the cost report in sufficient detail to
substantiate the cost data reported. Each facility shall make the records available upon
reasonable demand to representatives of the department.
2. Accounting and reporting requirements.
a. The accrual basis of accounting, in accordance with generally accepted accounting
principles, must be used for cost reporting purposes. Ratesetting procedures must
prevail if conflicts occur between ratesetting procedures and generally accepted
accounting principles. A facility may maintain its accounting records on a cash basis
during the year, but adjustments must be made to reflect proper accrual accounting
procedures at yearend and when subsequently reported.

b. To properly facilitate auditing, the accounting system must be maintained in a manner
that allows cost accounts to be grouped by cost category and readily traceable to the
cost report.
c. The cost report must be submitted on or before October first. The report must contain all
actual costs of the facility, adjustments for nonallowable costs, and resident days.
d. The department may impose a nonrefundable penalty of ten percent of any amount
claimed for services furnished after the due date if the facility fails to file the cost report
on or before the due date. The penalty may be imposed on the first day of the fourth
month following the facility's fiscal yearend and continues to the end of the month in
which the statement or report is received.
e. Upon request, the following information must be made available:
(1) A statement of ownership including the name, address, and proportion of ownership
of each owner;
(2) Copies of leases, purchase agreements, appraisals, financing arrangements, and
other documents related to the lease or purchase of the facility or a certification that
the content of those documents remains unchanged since the most recent
statement given pursuant to this subsection;
(3) Supplemental information reconciling the costs on the financial statements with
costs on the cost report; or
(4) Copies of leases, purchase agreements, and other documents related to the
acquisition of equipment, goods, and services claimed as allowable costs.
f. The facility shall make all adjustments and allocations necessary to arrive at allowable
costs. The department may reject any cost report when the information filed is incomplete
or inaccurate. If a cost report is rejected, the department may impose the penalties
described in subdivision d.
g. The department may grant one thirty-day extension of the reporting deadline to a facility.
To receive an extension, a facility must submit a written request to the department's
medical services division.
h. If a facility fails to file the required cost report on or before the due date, the department
may reduce the current payment rate to eighty percent of the facility's most recently
established rate. Reinstatement of the rate must occur on the first of the month beginning
after receipt of the required information, but is not retroactive.
3. The department shall perform an audit of the latest available report year of each facility at
least once every six years and retain for at least three years all audit-related documents,
including cost reports, working papers, and internal reports on rate calculations used and
generated by audit staff in the performance of audits and in the establishment of rates. Audits
must meet generally accepted governmental auditing standards.
4. A false report is one where a facility knowingly supplies inaccurate or false information in a
required report which results in an overpayment. If a false report is received, the department
may:
a. Immediately adjust the facility's payment rate to recover the entire overpayment within
the rate year;
b. Terminate the department's agreement with the facility;

c. Prosecute under applicable state or federal law; or
d. Use any combination of the foregoing actions.
5. The department may determine a report is a false report if a facility claims previously adjusted
costs as allowable costs. Previously adjusted costs being appealed must be identified as
nonallowable costs. The facility may indicate that the costs are under appeal and not claimed
under protest to perfect a claim should the appeal be successful.
History: Effective May 1, 1994; amended effective October 1, 2011; January 1, 2025; January 1, 2026.
General Authority: NDCC 50-24.1-04
Law Implemented: 42 USC 1396a(a)(30)(A)
### § 75-02-09-03. General cost principles.

1. For ratesetting purposes, a cost must:
a. Be ordinary, necessary, and related to resident care;
b. Be no more than an amount a prudent and cost-conscious business person would pay
for the specific good or service in the open market in an arm's-length transaction; and
c. Be for goods or services actually provided by the facility.
2. The cost effects of transactions which circumvent these rules are not allowable under the
principle that the substance of the transaction prevails over the form.
3. Reasonable resident-related costs will be determined in accordance with the ratesetting
procedures set forth in this chapter and instructions issued by the department.
History: Effective May 1, 1994; amended effective October 1, 2011.
General Authority: NDCC 50-24.1-04
Law Implemented: 42 USC 1396a(a)(30)(A)
### § 75-02-09-04. Ratesetting.

1. The established rate is based on prospective ratesetting procedures. The establishment of a
rate begins with historical costs. Adjustments are then made for claimed costs not includable
in allowable costs. Adjustment factors are then applied to allowable costs. Retroactive
settlements for actual costs incurred during the rate year exceeding the final rate may not be
made unless specifically provided in this chapter.
2. The department shall establish a desk rate, based on the cost report, which must be effective
January first of each rate year or on an alternate effective date determined by the department.
a. The desk rate must continue in effect until a final rate is established.
b. The cost report must be reviewed taking into consideration the prior year's adjustments.
A facility must be notified by telephone or electronic mail of any desk adjustments based
on the desk review. Within seven working days after notification, the facility may submit
information to explain why a desk adjustment should not be made. The department shall
review the submitted information, make appropriate adjustments, including adjustment
factors, and issue the desk rate.
c. Reconsideration may not be given by the department for the desk rate unless the facility
has been notified that the desk rate is the final rate.
d. A desk rate may be adjusted at any time if subsection 4 applies to the facility.

3. The cost report may be field audited by the department to establish a final rate. If no field audit
is performed, the desk rate will become the final rate upon notification to the facility from the
department.
a. The final rate must be effective as of the effective date of the desk rate.
b. The final rate must include any adjustments for nonallowable costs, errors, or omissions
that result in a change from the desk rate of at least twenty-five cents per day.
c. Adjustments, errors, or omissions found after a final rate has been established must be
included as an adjustment in the report year the adjustments, errors, or omissions are
found.
d. The final rate may be adjusted at any time if subsection 4 applies.
4. A special rate must be established for a facility providing services for the first time, changing
ownership, having a capacity increase or major renovation or construction, or having changes
in services or staff.
a. The rate for a facility providing first-time services purchased by the department must be
established using this subdivision for the first two fiscal years of the facility if that period
is less than twenty-four months.
(1) The facility shall submit a budget, to the department's medical services division, for
the first twelve months of operation. A final rate based on the budget and
adjustments, if any, must be established for a rate period beginning on the first of
the month in which the facility begins operation. This rate must remain in effect for
eighteen months. Adjustment factors may not be included in the first year final rate.
No retroactive settlements may be made.
(2) Upon completion of the first twelve months of operation, the facility must submit a
cost report for the twelve-month period regardless of the fiscal yearend of the
facility.
(a) The twelve-month cost report is due on or before the last day of the third
month following the end of the twelve-month period.
(b) The twelve-month cost report must be used to establish a rate for the
remainder of the second rate year. Appropriate adjustment factors must be
used to establish the rate.
(3) The facility shall submit a cost report that must be used to establish rates in
accordance with subsections 2 and 3 after the facility has been in operation for the
entire twelve months of the facility's fiscal year.
b. For a facility with a change in ownership, the rate established for the previous owner
must be retained until the end of the rate year in which the change of ownership occurs.
The rate for the second rate year after a change in ownership occurs must be
established as follows:
(1) For a facility with four or more months of operation under the new ownership during
the report year, a cost report for the period since the ownership change occurred
must be used to establish the rate for the next rate year; and
(2) For a facility with less than four months of operation under the new ownership in the
reporting year, the prior report year's costs as adjusted for the previous owner must
be indexed forward using the appropriate adjustment factor.

c. For a facility that increases licensed capacity by twenty percent or more or has a
renovation or construction project in excess of fifty thousand dollars, the established desk
or final rate may be adjusted for the period after the licensed capacity increase occurs or
the construction or renovation is complete to include projected property costs.
(1) For the rate year in which the capacity increase occurs or construction or renovation
is completed, an adjusted rate must be calculated based on a rate for historical
costs, exclusive of property costs, as adjusted, divided by historical census, plus a
rate for property costs based on projected property costs divided by projected
census. The adjusted rate will be effective on the first day of the month in which the
renovation or construction is complete or when the capacity increase is approved if
no construction or renovation is necessary.
(2) For the rate year immediately following the rate year in which the capacity increase
occurred or construction and renovation was completed, a rate must be established
based on historical costs, exclusive of property costs, as adjusted for the report
year, divided by reported census plus a rate for property costs, based on projected
property costs, divided by projected census.
d. The department may provide for an increase in the established rate for additional costs
necessary to add services or staff to the existing program.
(1) The facility shall submit information, to the department's medical services division,
supporting the request for the increase in the rate. Information must include a
detailed listing of new or additional staff or costs associated with the increase in
services.
(2) The department shall review the submitted information and may request additional
documentation or conduct onsite visits. The established rate must be adjusted if an
increase in costs is approved. The effective date of the rate increase must be the
later of the first day of the month following approval by the department or the first
day of the month following the addition of services or staff. The adjustment may not
be retroactive to the beginning of the rate year and will exclude adjustment factors
provided for in subsection 8.
(3) For the rate year immediately following a rate year in which a rate was adjusted
under paragraph 2, the facility may request consideration be given to additional
costs. The facility shall demonstrate to the department's satisfaction that historical
costs do not reflect twelve months of actual costs of the additional staff or added
services in order to adjust the rate for the second rate year. The additional costs
must be based on a projection of costs for the remainder of a twelve-month period,
exclusive of adjustment factors provided for in subsection 8.
5. The final rate must be considered as payment for all accommodations that include items
identified in section 75-02-09-06. For any resident whose rate is paid in whole or in part by the
department, no payment may be solicited or received from the resident or any other person to
supplement the rate as established.
6. When a facility terminates its participation in the program, whether voluntarily or involuntarily,
the department may authorize the facility to receive continued payment until residents can be
relocated.
7. Limitations.
a. The department shall accumulate and analyze statistics on costs incurred by psychiatric
residential treatment facilities. Statistics may be used to establish reasonable ceiling

limitations and incentives for efficiency and economy based on reasonable determination
of standards of operations necessary for efficient delivery of needed services. Limitations
and incentives may be established on the basis of cost of comparable facilities and
services and may be applied as ceilings on the overall costs of providing services or on
specific areas of operations. The department may implement ceilings at any time based
upon information available.
b. The department shall review, on an ongoing basis, aggregate payment to facilities to
determine that payments do not exceed an amount that can be reasonably estimated
would have been paid for these services under federally required payment principles. If
aggregate payments to facilities exceed estimated payments under federally required
payments principles, the department may make adjustments to rates so that aggregate
payments do not exceed an amount that can be estimated would have been paid under
an upper payment limit.
c. Allowable administration costs to be included in the established rate are the lesser of the
actual cost of administration as direct costed or allocated to the facility or an amount
equal to seventeen percent of the total allowable costs, exclusive of administration costs,
for the facility.
8. An adjustment factor may be used to adjust historical allowable costs but may not be used to
adjust property costs.
History: Effective May 1, 1994; amended effective October 1, 2011; January 1, 2025; January 1, 2026.
General Authority: NDCC 50-24.1-04
Law Implemented: 42 USC 1396a(a)(30)(A)
### § 75-02-09-05. Resident census.

1. A daily census record must be maintained by the facility. Any day services provided or for
which payment is ordinarily sought for an available bed must be counted as a resident day.
The day of admission and day of death are resident days. The day of discharge must be
counted if payment is sought for that day. For a medical assistance resident, payment may not
be sought for the day of discharge.
2. The daily census records must include:
a. Identification of the resident;
b. Entries for all days, and not just by exception;
c. Identification of type of day, i.e., in-house, hospital leave, or therapeutic leave day; and
d. Monthly totals by resident and by type of day.
3. A maximum of fifteen consecutive days per occurrence are allowed for payment by the
medical assistance program for hospital leave. Hospital leave days in excess of fifteen
consecutive days not billable to the medical assistance program are not resident days unless
any payment is sought as provided for in subsection 2 of section 75-02-09-19.
4. A maximum of fifteen days per certification of need period are allowed for payment by the
medical assistance program for therapeutic leave. Prior authorization is necessary for
additional days beyond the fifteen-day certification of need period. The payment rate for
therapeutic leave days must be five hundred dollars per day.
History: Effective May 1, 1994; amended effective October 1, 2011; January 1, 2025; January 1, 2026.
General Authority: NDCC 50-24.1-04

Law Implemented: 42 USC 1396a(a)(30)(A)
### § 75-02-09-06. Allowable costs by cost category.

1. Administration costs are the allowable costs of activities performed by the staff in which the
direct recipient of the activity is the organization itself, including fiscal activities, statistical
reporting, recruiting, and general office management indirectly related to reimbursable
services provided. Administration personnel includes administrators, regional directors,
program directors, accounting personnel, clerical personnel, secretaries, receptionists, data
processing personnel, purchasing personnel, and security personnel. Administration costs
directly assignable to the facility must be reported as facility administration. Administration
costs not directly assignable to the facility must be reported as other administration. Costs for
administration include:
a. Salary and fringe benefits for individuals who provide services administrative in nature or
who are not included specifically in any other cost category;
b. Office supplies;
c. Insurance, except property insurance and insurance included as a fringe benefit;
d. Postage and freight;
e. Professional fees for services such as legal, accounting, and data processing;
f. Central or home office costs;
g. Personnel recruitment costs;
h. Management consultants and fees;
i. Dues, license fees, and subscriptions;
j. Travel and training for employees, except for training for personnel required to maintain
licensure, certification, or professional standards requirements;
k. Interest on funds borrowed for working capital if repayment of working capital debt is
made within three years of the borrowing;
l. Startup costs;
m. Security personnel or services;
n. Telephone service not included in other cost categories; and
o. All costs not specifically identified in other cost categories.
2. Direct care costs are the allowable costs incurred for providing services for the maximum
reduction of physical or mental disability and restoration of a resident to the best possible
functional level and for providing for the personal needs of the resident. The services may
include any medical or remedial service recommended by a physician or other licensed
practitioner of the healing arts, within the scope of the practitioner's practice under state law.
Direct care costs include:
a. Salaries and fringe benefits for individuals providing treatment or supervision of
residents;
b. Personal supplies used by an individual resident;

c. Clothing necessary to maintain a resident's wardrobe;
d. School supplies and activity fees, when not provided by or at the expense of the school;
e. Costs incurred for providing recreation to the residents including subscriptions, sports
equipment, and admission fees to sporting, recreation, and social events;
f. All costs related to transporting residents, and transportation costs that may include
actual expenses of facility-owned vehicles or mileage paid to employees for use of
personal vehicle;
g. The cost of services purchased and not provided at the facility, including case
management, addiction, psychiatric, psychological, and other clinical evaluations,
medication review, and partial care or day treatment; and
h. Training required to maintain licensure, certification, or professional standards
requirements, and the related travel costs.
3. Dietary costs are the allowable costs associated with the preparation and serving of food.
Dietary costs include:
a. Salaries and fringe benefits for all personnel involved with the preparation and delivery of
food;
b. Food; and
c. Dietary supplies and utensils including paper products and noncapitalized dietary
equipment.
4. Laundry costs are the allowable costs associated with gathering, transporting, sorting, and
cleaning of linen and clothing. Laundry costs include:
a. Salaries and fringe benefits of personnel who gather, transport, sort, and clean linen and
clothing;
b. The cost of laundry supplies; and
c. Contracted laundry services.
5. Plant and housekeeping costs are the allowable costs related to repairing, cleaning, and
maintaining the facility's physical plant. Plant and housekeeping costs include:
a. Salaries and fringe benefits of personnel involved in cleaning, maintaining, and repairing
the facility;
b. Supplies necessary to maintain the facility, including such items as cleaning supplies,
paper products, and hardware goods;
c. Utility costs, including heating and cooling, electricity, water, sewer, garbage, and cable
television;
d. Local telephone service to the living quarters and long distance telephone service directly
related to providing treatment; and
e. Routine repairs and maintenance of property and equipment, including maintenance
contracts and purchased services.
6. Property costs are the allowable capital costs associated with the physical plant of the facility.
Property costs include:

a. Depreciation;
b. Interest;
c. Lease costs on equipment and buildings;
d. Property taxes; and
e. Property insurance on buildings and equipment.
History: Effective May 1, 1994; amended effective October 1, 2011; January 1, 2025.
General Authority: NDCC 50-24.1-04
Law Implemented: 42 USC 1396a(a)(30)(A)
### § 75-02-09-07. Cost allocation.

1. Direct costing of allowable facility costs must be used whenever possible. If direct costing is
not possible, the allocation methods for facility and nonfacility operations described in this
subsection must be used.
a. Salaries for direct care employees, which cannot be reported based on direct costing,
must be allocated using time studies. Time studies must be conducted at least
semiannually for a two-week period or quarterly for a one-week period. The time study
must represent a typical period of time when employees are performing normal work
activities in each of their assigned areas of responsibility. Allocation percentages based
on the time studies must be used starting with the next pay period following completion of
the time study or averaged for the report year.
b. Salaries of supervisory personnel must be allocated based on full-time equivalents of the
employees supervised or on a ratio of salaries.
c. Fringe benefits must be allocated based on the ratio of salaries to total salaries.
d. Plant and housekeeping expenses must be allocated based on square footage.
e. Property costs must be allocated based on square footage.
f. Administration costs must be allocated on the basis of the percentage of total costs,
excluding the allocable administration, property, and utility costs.
g. Dietary costs must be allocated based on meals served.
h. Laundry costs must be allocated on the basis of pounds of laundry or in-house resident
days.
i. Vehicle expenses must be allocated based on mileage logs. Mileage logs must include
documentation for all miles driven and purpose of travel. If sufficient documentation is not
available to determine which cost category vehicle expenses are to be allocated, vehicle
expenses must be allocated in total to administration.
j. Costs not direct costed or allocable using methods identified in subdivisions a through i
must be included as administration costs.
2. If the facility cannot use any of the allocation methods described in subsection 1, a waiver
request may be submitted to the department's medical services division. The request must
include an adequate explanation as to why the referenced allocation method cannot be used
by the facility. The facility shall also provide a rationale for the proposed allocation method.

Based on the information provided, the department shall determine the allocation method
used to report costs.
History: Effective May 1, 1994; amended effective October 1, 2011; January 1, 2025.
General Authority: NDCC 50-24.1-04
Law Implemented: 42 USC 1396a(a)(30)(A)
### § 75-02-09-08. Nonallowable costs.

Nonallowable costs include:
1. Promotional, publicity, and advertising expenses, exclusive of personnel procurement;
2. Political contributions;
3. Salaries or expenses of a lobbyist;
4. Basic research;
5. Fines or penalties including interest charges on the penalty, bank overdraft charges, and late
payment charges;
6. Bad debts;
7. Compensation and expenses for officers, directors, or stockholders, except as provided for in
section 75-02-09-15;
8. Contributions or charitable donations;
9. Costs incurred for activities directly related to influencing employees with respect to
unionization;
10. Costs of membership or participation in health, fraternal, or social organizations such as
eagles, country clubs, or knights of columbus;
11. Corporate costs such as organization costs, reorganization costs, costs associated with
acquisition of capital stock, costs relating to the issuance and sale of capital stock or other
securities, and other costs not related to resident services;
12. Home office costs that would be nonallowable if incurred directly by the facility;
13. Stockholder servicing costs incurred primarily for the benefit of stockholders or other investors,
including annual meetings, annual reports and newsletters, accounting and legal fees for
consolidating statements, stock transfer agent fees, and stockbroker and investment
analyses;
14. The cost of any equipment, whether owned or leased, not exclusively used by the facility
except to the extent the facility demonstrates to the satisfaction of the department that any
particular use of equipment was related to resident care;
15. Costs, including by way of illustration and not by way of limitation, for legal fees, accounting
and administrative costs, travel costs, and the costs of feasibility studies, attributed to the
negotiation or settlement of the sale or purchase of any capital assets, whether by sale or
merger, when the cost of the asset has been previously reported and included in the rate paid
to any facility;
16. Depreciation expense for facility assets not related to resident care;

17. Personal expenses of owners and employees for items or activities including vacation, boats,
airplanes, personal travel or vehicles, and entertainment;
18. Costs not adequately documented (adequate documentation includes written documentation
of date of purchase, vendor name, listing of items or services purchased, cost of items
purchased, account number to which the cost is posted, and a breakdown of any allocation of
costs between accounts or facilities);
19. The following taxes, if levied on a facility:
a. Federal income and excess profit taxes, including any interest or penalties paid thereon;
b. State or local income and excess profit taxes;
c. Taxes in connection with financing, refinancing, or refunding operations such as taxes in
the issuance of bonds, property transfers, issuance or transfer of stocks, etc., which are
generally either amortized over the life of the securities or depreciated over the life of the
asset, but not recognized as tax expense;
d. Taxes such as real estate and sales tax for which exemptions are available to the facility;
e. Taxes on property not used in the provision of covered services; and
f. Taxes such as sales taxes, levied, collected, and remitted by the facility;
20. The unvested portion of a facility's accrual for sick or annual leave;
21. Expenses or liabilities established through or under threat of litigation against the state of
North Dakota or any of its agencies, provided that reasonable insurance expenses may not be
limited by this subsection;
22. Fringe benefits, not within the definition of that term, which have not received written prior
approval of the department;
23. Fringe benefits that discriminate in favor of certain employees, excluding any portion that
relates to costs that benefit all employees;
24. Fundraising costs, including salaries, advertising, promotional, or publicity costs incurred for
such a purpose;
25. Funeral and cemetery expenses;
26. Travel not directly related to professional conferences, state or federally sponsored activities,
or resident services;
27. Items or services such as telephone, television, and radio located in a resident's room and
furnished solely for the convenience of the resident;
28. Value of donated goods and services;
29. Religious salaries, space, and supplies;
30. Miscellaneous expenses not related to resident services;
31. Premiums for top management personnel life insurance policies, except that the premiums
shall be allowed if the policy is included within a group policy provided for all employees, or if a
policy is required as a condition of a mortgage or loan and the mortgagee or lending institution
is listed as the beneficiary;

32. Travel costs involving the use of vehicles not exclusively used by the facility unless:
a. Vehicle travel costs do not exceed the amount established by the internal revenue
service;
b. The facility supports vehicle costs related to resident care with sufficient documentation,
including mileage logs for all miles, purpose of travel, and receipts for purchases; and
c. The facility documents all costs associated with a vehicle not exclusively used by the
facility;
33. Vehicle and aircraft costs not directly related to facility business or resident services;
34. Nonresident-related operations and the associated administrative costs;
35. Costs related to income-producing activities regardless of the profitability of the activity;
36. Costs incurred by the facility's subcontractors or by the lessor of property the facility leases,
and which become an element in the subcontractor's or lessor's charge to the facility, if such
costs would not have been allowable had they been incurred by a facility directly furnishing
the subcontracted services or owning the leased property;
37. All costs for services paid directly by the department to an outside facility;
38. Depreciation on the portion of assets acquired with government grants;
39. Costs incurred due to management inefficiency, unnecessary care or services, agreements
not to compete, or activities not commonly accepted in the industry;
40. The cost of consumable food products, in excess of income from employees, guests, and
nonresidents offset in accordance with subsection 1 of section 75-02-09-16, consumed by
individuals other than residents or direct care personnel;
41. Payments to residents, whether in cash or in kind, for work performed or for bonuses or
rewards based on behavior;
42. In-house education costs including:
a. Compensation for teachers and teacher aides who provide academic training to residents
in-house;
b. Property and plant operation expenses for space used to provide in-house academic
training to residents; and
c. The cost of supplies and equipment used in a classroom normally provided by a school
district as part of the academic training; and
43. Medical assistance noncovered services.
History: Effective May 1, 1994; amended effective October 1, 2011; January 1, 2025.
General Authority: NDCC 50-24.1-04
Law Implemented: 42 USC 1396a(a)(30)(A)
### § 75-02-09-09. Depreciation.

1. Ratesetting principles require that payment for services should include depreciation on all
depreciable type assets used to provide necessary services. This includes assets that may
have been fully or partially depreciated on the books of the facility, but are in use at the time
the facility enters the program. The useful lives of such assets are considered not to have

ended and depreciation calculated on the revised extended useful life is allowable. Likewise, a
depreciation allowance is permitted on assets used in a normal standby or emergency
capacity. If any depreciated personal property asset is sold or disposed of for an amount
different than its undepreciated value, the difference represents an incorrect allocation of the
cost of the asset to the facility and must be included as a gain or loss on the cost report.
2. Depreciation methods.
a. The straight-line method of depreciation must be used. All accelerated methods of
depreciation including depreciation options made available for income tax purposes,
such as those offered under the asset depreciation range system, are unacceptable. The
method and procedure for computing depreciation must be applied on a basis consistent
from year to year, and detailed schedules of individual assets must be maintained. If the
books of account reflect depreciation different than that submitted on the cost report, a
reconciliation must be prepared by the facility.
b. A facility must use a minimum composite useful life of ten years for all equipment and
land improvements, and four years for vehicles. Buildings and improvements to buildings
are to be depreciated over the length of the mortgage or a minimum of twenty-five years,
whichever is greater.
3. Acquisitions.
a. If a depreciable asset has at the time of its acquisition historical cost of at least one
thousand dollars for each item, its cost must be capitalized and depreciated over the
estimated useful life of the asset except as provided for in subsection 3 of section
### § 75-02-09-11. Costs, such as architectural, consulting and legal fees, and interest,

incurred during the construction of an asset must be capitalized as a part of the cost of
the asset.
b. All repair or maintenance costs in excess of five thousand dollars per project on
equipment or buildings must be capitalized and depreciated over the remaining useful life
of the equipment or building or one-half of the original estimated useful life, whichever is
greater.
4. Proper records must provide accountability for the fixed assets and also provide adequate
means by which depreciation can be computed and established as an allowable
resident-related cost. Tagging of major equipment items is not mandatory, but alternate
records must exist to satisfy audit verification of the existence and location of the assets.
5. Basis for depreciation.
a. Determination of the cost basis of a facility's depreciable assets, which have not been
involved in any programs funded in whole or in part by the department, depends on
whether or not the transaction is a bona fide purchase. Should the issue arise, the
purchaser has the burden of proving that the transaction was a bona fide purchase.
Purchases where the buyer and seller are related organizations are not bona fide.
(1) If the purchase is bona fide, the cost basis will be the lower of the actual cost of the
buyer or the fair market value of the asset at the time of the purchase.
(2) If the purchase is not bona fide, the cost basis will be the seller's cost basis less
accumulated depreciation.
b. Cost basis of a facility's depreciable assets purchased as an ongoing operation will be
the seller's cost basis less accumulated depreciation.

c. Cost basis of a facility's depreciable assets used in any programs funded in whole or in
part by the department will be the cost basis used by the other program less
accumulated depreciation.
d. Sale and leaseback transactions will be considered a related party transaction. The cost
basis of a facility's depreciable assets purchased and subsequently leased to an entity
who continues to operate the facility will be the seller's cost basis less accumulated
depreciation.
History: Effective May 1, 1994; amended effective October 1, 2011.
General Authority: NDCC 50-24.1-04
Law Implemented: 42 USC 1396a(a)(30)(A)
### § 75-02-09-10. Interest expense.

1. To be allowable under the program, interest must be:
a. Supported by evidence of an agreement that funds were borrowed and that payment of
interest and repayment of the funds are required. Repayment of operating loans must be
made within two years of the borrowing;
b. Identifiable in the facility's accounting records;
c. Related to the reporting period in which the costs are incurred;
d. Necessary and proper for the operation, maintenance, or acquisition of the facility.
Necessary means that the interest be incurred on a loan made to satisfy a financial need
of the facility and for a purpose reasonably related to resident care. Proper means that
the interest be incurred at a rate not in excess of what a prudent borrower would have
had to pay in an arm's-length transaction. In addition, the interest must be paid to a
lender not related to the facility through common ownership or control;
e. Unrelated to funds borrowed to finance costs of assets in excess of the depreciable cost
of the asset as recognized in section 75-02-09-09; and
f. If associated with refinancing or refunding debt, interest expense associated with the
original borrowing must have been allocable when the debt was initially incurred.
2. If it is necessary to issue bonds to finance the costs of assets, any bond premium or discount
must be amortized on a straight-line basis over the life of the bond issue.
History: Effective May 1, 1994; amended effective October 1, 2011.
General Authority: NDCC 50-24.1-04
Law Implemented: 42 USC 1396a(a)(30)(A)
### § 75-02-09-11. Taxes.

1. Taxes assessed against the facility in accordance with the levying enactments of the several
states and lower levels of government and for which the facility is liable for payment are
allowable costs except for those taxes identified as nonallowable in section 75-02-09-08.
2. Whenever exemptions to taxes are legally available, the facility is to take advantage of them.
If the facility does not take advantage of available exemptions, the expense incurred for such
taxes is not an allowable cost.
3. Special assessments in excess of one thousand dollars paid in a lump sum must be
capitalized and depreciated. Special assessments not paid in a lump sum may be expensed
as they are billed by the taxing authority.

History: Effective May 1, 1994; amended effective October 1, 2011.
General Authority: NDCC 50-24.1-04
Law Implemented: 42 USC 1396a(a)(30)(A)
### § 75-02-09-12. Home office costs.

1. Home offices of chain organizations vary greatly in size, number of locations, staff, mode of
operations, and services furnished to their member facilities. Although the home office of a
chain is normally not a facility in itself, it may furnish to the individual facility central
administration or other services such as centralized accounting, purchasing, personnel, or
management services. Only the home office's actual costs of providing services is includable
in the facility's allowable costs under the program.
2. Costs not allowed in the facility are not allowed as home office costs allocated to the facility.
3. Any service provided by the home office included in costs as payments by the facility to an
outside vendor or which duplicates costs for services provided by the facility is a duplication of
costs and is not allowed.
4. Where the home office makes a loan to or borrows money from one of the components of a
chain organization, the interest paid is not an allowable cost and interest income is not used to
offset interest expense.
History: Effective May 1, 1994; amended effective October 1, 2011.
General Authority: NDCC 50-24.1-04
Law Implemented: 42 USC 1396a(a)(30)(A)
### § 75-02-09-13. Related organizations.

1. Costs applicable to services, buildings, equipment, and supplies furnished to a facility by a
related organization may not exceed the lower of the costs to the related organization or the
price of comparable services, buildings, equipment, or supplies purchased elsewhere primarily
in the local market. A facility must identify such related organizations and costs. If any such
costs are allocated, the allocation methods and statistics supporting the allocations must be
submitted with the cost report.
2. A facility may lease buildings or equipment from a related organization within the meaning of
ratesetting principles. In such a case, the rent paid to the lessor by the facility is not allowable
as cost unless the rent paid is less than the allowable costs of ownership. If rent paid exceeds
the allowable costs of ownership, the facility may include only the allowable costs of
ownership. These costs are property insurance, depreciation, interest on the mortgage, real
estate taxes, and plant operation expenses incurred by the lessor.
History: Effective May 1, 1994; amended effective October 1, 2011.
General Authority: NDCC 50-24.1-04
Law Implemented: 42 USC 1396a(a)(30)(A)
### § 75-02-09-14. Startup costs.

In the first stages of operation, a new facility incurs certain costs in developing its ability to care for
residents prior to their admission. Staff is obtained and organized, and other operating costs are
incurred during this time of preparation which cannot be allocated to resident care during that period
because there are not residents receiving services. These costs are commonly referred to as startup
costs. The startup costs are to be capitalized and will be recognized as allowable administration costs
amortized over sixty consecutive months on a straight-line basis starting with the month the first
resident is admitted.

History: Effective May 1, 1994; amended effective October 1, 2011.
General Authority: NDCC 50-24.1-04
Law Implemented: 42 USC 1396a(a)(30)(A)
### § 75-02-09-15. Compensation.

Reasonable compensation for an individual with a minimum of five percent ownership, individuals
on the governing board, or family members of top management personnel, including spouses and
individuals in the following relationship to top management personnel or their spouses: parent,
stepparent, child, stepchild, grandparent, stepgrandparent, grandchild, stepgrandchild, brother, sister,
half-brother, half-sister, stepbrother, and stepsister will be considered an allowable cost if services are
actually performed and required to be performed. The amount allowed must be in an amount not to
exceed the average of salaries paid to individuals in like positions in all psychiatric residential treatment
facilities that are nonprofit organizations and have no top management personnel who have a minimum
of five percent ownership or are on the governing board. Salaries used to determine the average must
be based on the latest information available to the department. Reasonableness also requires that
functions performed be necessary in that, had the services not been rendered, the facility would have
to employ another individual to perform them.
History: Effective May 1, 1994; amended effective October 1, 2011; January 1, 2025.
General Authority: NDCC 50-24.1-04
Law Implemented: 42 USC 1396a(a)(30)(A)
### § 75-02-09-16. Revenue offsets.

A facility must identify income to offset facility costs when applicable so state financial participation
does not supplant or duplicate other funding sources. Any income whether in cash or in any other form
received by the facility, with the exception of the established rate, income from payments made under
the Workforce Investment Act, donations, and income from charges for private rooms, special services,
or bed holds will be offset up to the total of the appropriate actual costs. If actual costs are not
identifiable, income will be offset in total to the appropriate cost category. If costs relating to income are
reported in more than one cost category, the income must be offset based on the ratio of costs in each
of the cost categories. Sources of income include:
1. Income received from or on behalf of employees, guests, or other nonresidents for meals or
snacks, or the income received for food and related costs from other government programs
such as the United States department of agriculture or the department of public instruction
must be offset against dietary costs.
2. Income received from the sale of beverages, candy, or other food items must be offset against
dietary costs.
3. Any amount received from insurance for a loss incurred must be offset against the appropriate
cost category regardless of when the cost was incurred if the facility did not adjust the basis
for depreciable assets.
4. Any refund, rebate, or discount received for a reported cost must be offset against the
appropriate cost.
5. Any amount received for use of the facility's vehicles must be offset against transportation
costs.
6. Gain on the sale of an asset must be offset against depreciation expense.
7. Revenue received from outside sources for the use of facility buildings or equipment will be
offset against property expenses.

8. Any amount received by the facility from outside sources for services provided by facility
employees will be offset against salaries.
9. Revenue from investments will be offset against interest expense.
10. Grants, gifts, restricted donations, and awards from the federal, state, local, or philanthropic
agencies will be offset against the appropriate cost.
11. Gifts or endowment income designated by a donor for paying specific operating costs incurred
in providing contract services must be offset against costs in the year the cost is incurred
regardless of when the gift or endowment is received.
12. Other cost-related income or miscellaneous income, including amounts generated through the
sale of a previously expensed item, e.g., supplies or equipment, must be offset against the
cost category where the item was expensed.
13. Other income to the facility from local, state, or federal units of government may be
determined by the department to be an offset against costs.
History: Effective May 1, 1994; amended effective October 1, 2011.
General Authority: NDCC 50-24.1-04
Law Implemented: 42 USC 1396a(a)(30)(A)
### § 75-02-09-17. Private pay rates.

1. The medical assistance rate may not exceed the rate charged to nonmedical assistance
residents for the same service. The rate being charged nonmedical assistance residents at the
time the services are provided will govern. In cases where the residents are not charged a
daily rate, a daily rate will be computed by dividing the total nonmedical assistance charges for
each month by the total nonmedical assistance census for each month.
2. If the established medical assistance rate exceeds the rate charged to nonmedical assistance
residents for a service, on any given date, the facility shall immediately report that fact to the
department and charge the department at the lower rate. If payments were received at the
higher rate, the facility shall, within thirty days, refund the overpayment. The refund must be
the difference between the established rate and the rate charged to nonmedical assistance
residents times the number of medical assistance resident days paid during the period in
which the established rate exceeded the nonmedical assistance rate plus interest calculated
at two percent over the Bank of North Dakota prime rate on any amount not repaid within thirty
days. Interest charges on these refunds are not allowable costs.
History: Effective May 1, 1994; amended effective October 1, 2011.
General Authority: NDCC 50-24.1-04
Law Implemented: 42 USC 1396a(a)(30)(A)
### § 75-02-09-18. Reconsiderations and appeals.

1. Reconsiderations.
a. A facility dissatisfied with the final rate established must request a reconsideration of the
final rate before a formal appeal may be made. Any requests for reconsideration must be
filed with the department's medical services division within thirty days of the date of the
rate notification.
b. A request for reconsideration must include:
(1) A statement of each disputed item and the reason or basis for the dispute;

(2) The dollar amount of each item that is disputed; and
(3) The statute or rule upon which the facility is relying for each disputed item.
c. The department may request additional documentation or information relating to a
disputed item. If additional documentation is not provided within fourteen days of the
department's request, the department shall make its determination based on the
information and documentation available as of the fourteenth day following the date the
department requested additional documentation.
d. The department's medical services division shall make a determination regarding the
reconsideration within forty-five days of receiving the reconsideration filing and any
requested documentation.
2. Appeals.
a. A facility dissatisfied with the final rate established may appeal upon completion of the
reconsideration process as provided in subsection 1. An appeal must be filed with the
department within thirty days of the date on the written notice of the determination by the
medical services division with respect to a request for reconsideration.
b. An appeal under this section is timely perfected only if accompanied by written
documents, including:
(1) A copy of the letter received from the department's medical services division
advising of that division's decision on the request for reconsideration;
(2) A statement of each disputed item and the reason or basis for the dispute;
(3) A computation and the dollar amount which reflects the appealing party's claim as to
the correct computation and dollar amount for each disputed item;
(4) The authority in statute or rule upon which the appealing party relies for each
disputed item; and
(5) The name, address, and telephone number of the person upon whom all notices will
be served regarding the appeal.
History: Effective May 1, 1994; amended effective October 1, 2011.
General Authority: NDCC 50-24.1-04
Law Implemented: 42 USC 1396a(a)(30)(A)
### § 75-02-09-19. Participation requirement.

1. A facility shall have an effective provider agreement with the department.
2. A facility may charge to hold a bed for a period in excess of the period covered under
subsection 3 of section 75-02-09-05, if:
a. The resident, or a person acting on behalf of the resident, has requested the bed be held
and the facility informs the person making the request, at the time of the request, of the
amount of the charge; and
b. For a medical assistance resident, the payment comes from sources other than the
resident's monthly income.
History: Effective January 1, 2025.
General Authority: NDCC 50-24.1-04

Law Implemented: 42 USC 1396a(a)(30)(A)
