(1) Costs will be unallowable if they are not documented, necessary, ordinary, and related to the provision of care services to authorized patients.

     (2) Unallowable costs include, but are not limited to, the following:

     (a) Costs of items or services not covered by the medical care program. Costs of such items or services will be unallowable even if they are indirectly reimbursed by the department as the result of an authorized reduction in patient contribution;

     (b) Costs of services and items provided to recipients which are covered by the department's medical care program but not included in the medicaid per-resident day payment rate established by the department under this chapter;

     (c) Costs associated with a capital expenditure subject to section 1122 approval (part 100, Title 42 C.F.R.) if the department found it was not consistent with applicable standards, criteria, or plans. If the department was not given timely notice of a proposed capital expenditure, all associated costs will be unallowable up to the date they are determined to be reimbursable under applicable federal regulations;

     (d) Costs associated with a construction or acquisition project requiring certificate of need approval, or exemption from the requirements for certificate of need for the replacement of existing nursing home beds, pursuant to chapter 70.38 RCW if such approval or exemption was not obtained;

     (e) Interest costs other than those provided by RCW 74.46.290 on and after January 1, 1985;

     (f) Salaries or other compensation of owners, officers, directors, stockholders, partners, principals, participants, and others associated with the contractor or its home office, including all board of directors' fees for any purpose, except reasonable compensation paid for service related to patient care;

     (g) Costs in excess of limits or in violation of principles set forth in this chapter;

     (h) Costs resulting from transactions or the application of accounting methods which circumvent the principles of the payment system set forth in this chapter;

     (i) Costs applicable to services, facilities, and supplies furnished by a related organization in excess of the lower of the cost to the related organization or the price of comparable services, facilities, or supplies purchased elsewhere;

     (j) Bad debts of non-Title XIX recipients. Bad debts of Title XIX recipients are allowable if the debt is related to covered services, it arises from the recipient's required contribution toward the cost of care, the provider can establish that reasonable collection efforts were made, the debt was actually uncollectible when claimed as worthless, and sound business judgment established that there was no likelihood of recovery at any time in the future;

     (k) Charity and courtesy allowances;

     (l) Cash, assessments, or other contributions, excluding dues, to charitable organizations, professional organizations, trade associations, or political parties, and costs incurred to improve community or public relations;

     (m) Vending machine expenses;

     (n) Expenses for barber or beautician services not included in routine care;

     (o) Funeral and burial expenses;

     (p) Costs of gift shop operations and inventory;

     (q) Personal items such as cosmetics, smoking materials, newspapers and magazines, and clothing, except those used in patient activity programs;

     (r) Fund-raising expenses, except those directly related to the patient activity program;

     (s) Penalties and fines;

     (t) Expenses related to telephones, radios, and similar appliances in patients' private accommodations;

     (u) Televisions acquired prior to July 1, 2001;

     (v) Federal, state, and other income taxes;

     (w) Costs of special care services except where authorized by the department;

     (x) Expenses of an employee benefit not in fact made available to all employees on an equal or fair basis, for example, key-man insurance and other insurance or retirement plans;

     (y) Expenses of profit-sharing plans;

     (z) Expenses related to the purchase and/or use of private or commercial airplanes which are in excess of what a prudent contractor would expend for the ordinary and economic provision of such a transportation need related to patient care;

     (aa) Personal expenses and allowances of owners or relatives;

     (bb) All expenses of maintaining professional licenses or membership in professional organizations;

     (cc) Costs related to agreements not to compete;

     (dd) Amortization of goodwill, lease acquisition, or any other intangible asset, whether related to resident care or not, and whether recognized under generally accepted accounting principles or not;

     (ee) Expenses related to vehicles which are in excess of what a prudent contractor would expend for the ordinary and economic provision of transportation needs related to patient care;

     (ff) Legal and consultant fees in connection with a fair hearing against the department where a decision is rendered in favor of the department or where otherwise the determination of the department stands;

     (gg) Legal and consultant fees of a contractor or contractors in connection with a lawsuit against the department;

     (hh) Lease acquisition costs, goodwill, the cost of bed rights, or any other intangible assets;

     (ii) All rental or lease costs other than those provided in RCW 74.46.300 on and after January 1, 1985;

     (jj) Postsurvey charges incurred by the facility as a result of subsequent inspections under RCW 18.51.050 which occur beyond the first postsurvey visit during the certification survey calendar year;

     (kk) Compensation paid for any purchased nursing care services, including registered nurse, licensed practical nurse, and nurse assistant services, obtained through service contract arrangement in excess of the amount of compensation paid for such hours of nursing care service had they been paid at the average hourly wage, including related taxes and benefits, for in-house nursing care staff of like classification at the same nursing facility, as reported in the most recent cost report period;

     (ll) For all partial or whole rate periods after July 17, 1984, costs of land and depreciable assets that cannot be reimbursed under the Deficit Reduction Act of 1984 and implementing state statutory and regulatory provisions;

     (mm) Costs reported by the contractor for a prior period to the extent such costs, due to statutory exemption, will not be incurred by the contractor in the period to be covered by the rate;

     (nn) Costs of outside activities, for example, costs allocated to the use of a vehicle for personal purposes or related to the part of a facility leased out for office space;

     (oo) Travel expenses outside the states of Idaho, Oregon, and Washington and the province of British Columbia. However, travel to or from the home or central office of a chain organization operating a nursing facility is allowed whether inside or outside these areas if the travel is necessary, ordinary, and related to resident care;

     (pp) Moving expenses of employees in the absence of demonstrated, good-faith effort to recruit within the states of Idaho, Oregon, and Washington, and the province of British Columbia;

     (qq) Depreciation in excess of four thousand dollars per year for each passenger car or other vehicle primarily used by the administrator, facility staff, or central office staff;

     (rr) Costs for temporary health care personnel from a nursing pool not registered with the secretary of the department of health;

     (ss) Payroll taxes associated with compensation in excess of allowable compensation of owners, relatives, and administrative personnel;

     (tt) Costs and fees associated with filing a petition for bankruptcy;

     (uu) All advertising or promotional costs, except reasonable costs of help wanted advertising;

     (vv) Outside consultation expenses required to meet department-required minimum data set completion proficiency;

     (ww) Interest charges assessed by any department or agency of this state for failure to make a timely refund of overpayments and interest expenses incurred for loans obtained to make the refunds;

     (xx) All home office or central office costs, whether on or off the nursing facility premises, and whether allocated or not to specific services, in excess of the median of those adjusted costs for all facilities reporting such costs for the most recent report period;

     (yy) Tax expenses that a nursing facility has never incurred; and

     (zz) Effective July 1, 2007, and for all future rate settings, any costs associated with the quality maintenance fee repealed by chapter 241, Laws of 2006.

[2007 c 508 § 1; 2001 1st sp.s. c 8 § 3; 1998 c 322 § 17; 1995 1st sp.s. c 18 § 97; 1993 sp.s. c 13 § 6; 1991 sp.s. c 8 § 15; 1989 c 372 § 2; 1986 c 175 § 3; 1983 1st ex.s. c 67 § 17; 1980 c 177 § 41.]

NOTES:

     Effective date -- 2007 c 508: "This act is necessary for the immediate preservation of the public peace, health, or safety, or support of the state government and its existing public institutions, and takes effect July 1, 2007." [2007 c 508 § 8.]

     Severability -- Effective dates -- 2001 1st sp.s. c 8: See notes following RCW 74.46.020.

     Conflict with federal requirements -- Severability -- Effective date -- 1995 1st sp.s. c 18: See notes following RCW 74.39A.030.

     Effective date -- 1993 sp.s. c 13: See note following RCW 74.46.020.

     Effective date -- 1991 sp.s. c 8: See note following RCW 18.51.050.

     Effective date -- 1989 c 372 § 2: "Section 2 of this act is necessary for the immediate preservation of the public peace, health, or safety, or support of the state government and its existing public institutions, and shall take effect July 1, 1989." [1989 c 372 § 19.]