Chapter 514 - Nursing Facility Services - DHHR - State of West ...

Appraised Value (SAV) uses the cost approach to value modified by the Model Nursing FacilityStandard. This valuation is the basis for capitalization to determine a PPD cost of capital. Thisallowance replaces leases, rental agreements, depreciation, mortgage interest and return onequity in the traditional approach to capital cost allowance.A. Cost Approach to ValueThe value of a property is derived by estimating the replacement or reproduction cost ofthe improvements, deducting from them the estimated accrued depreciation and addingthe market value of the land (actually used if required for use as if vacant and availablefor development of such use). Established sources of cost information are used tosupply costs to reproduce the structure. Construction indexes used are MarshallValuation Services and Boeckle Building Valuation Manual.B. Accrued DepreciationAccrued depreciation in a cost approach is the difference between the value of a buildingor other improvement at a certain date and its cost of reproduction as of the same date.The method used to measure accrued depreciation is known as the “breakdown” methodwhich involves an analysis of loss in value from the following sources:1. Physical deterioration; curable and incurable2. Functional obsolescence; curable and incurable3. Economic obsolescenceThe nursing facility appraisal method modifies the property value by deducting accrueddepreciation. Those facilities meeting the appraisal criteria will receive their maximumstandard appraisal value; those not meeting a standard will have their plant valuationreduced by the amount reflected in physical and functional depreciation. This includesboth physical depreciation, curable and incurable, as well as functional obsolescence,curable and incurable. The summation of each component of the process results in afinal Standard Appraised Value. This value will then be treated as a cost of providingpatient care.C. Model Nursing Facility StandardThe Model Nursing Facility Standard is a composite of current regulations and criteriaderived from several sources which include “Minimum Requirements of Construction andEquipment for Hospital and Medical Facilities” - HHS Publication No. (HRS) 81-14500and 64CSR13 (Nursing Home Licensure Rule).These criteria form a living document drawn from Federal and State regulations andguidelines, as well as from accepted industry practice. They will be updated periodicallyto reflect changes which foster improved resident care or cost effective measures whichdo not compromise resident care.Department of Health and Human Resources Chapter 514: Nursing Facility Services Page 59January 1, 2013DISCLAIMER: This manual does not address all the complexities of Medicaid policies and procedures,and must be supplemented with all State and Federal Laws and Regulations.