MDHHS Issues Letter to Clarify Cost Report, Audit and Reimbursement Policy Changes

On February 13, the Michigan Department of Health and Human Services (MDHHS) issued Numbered Letter L 24-08, Principal Payment Nursing Facilities to clarify various cost report, audit and reimbursement policy changes made in 2019. Specifically, Bulletin MMP 19-28 issued October 1, 2019, described revisions MDHHS made to various cost report, audit and reimbursement policies to comply with the requirements of Public Act 612 of 2018 and to update certain outdated policies. Letter L 24-08 clarifies these policy changes regarding the principal balance payment requirement and allowable interest expense incurred on the use of borrowed funds:

• If a loan issued on or after October 1, 2019, has a loan period greater than four years, a principal balance payment paid to a lender on at least an annual basis is required for each year for the respective interest expense to be considered an allowable cost.
• If a loan issued on or after October 1, 2019, has a total loan period of four years or less, a principal balance payment is not required for the related interest expense to be considered allowable.
• Refinancing of a loan or refinancing multiple loans does not count as making a principal balance payment. This includes when a short-term loan balance is paid off with borrowed funds, including bridge and balloon type loans.

According to the CMS Provider Reimbursement Manual, Chapter 15-1, Section 218, for interest to be considered “proper” or allowable, it must be paid to a lender not related through control, ownership or personal relationship to the borrowing organization. Therefore, it is expected that documentation from the unrelated lender must be provided to support the principal balance payments required to consider the related interest expense an allowable cost.