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subtracted interest expense and depreciation and amortization
allocable to the SNF, ALU, and SCU. Mr. Powell included both
interest expense and depreciation and amortization in his
calculations.
Mr. Powell testified that it was not technically accurate to
subtract depreciation and interest expense from total costs and
medical expenses. He explained that entrance fees and monthly
service fees are used to cover the total costs of AFVW, which
includes capital costs. Therefore, he felt that excluding these
two items from total costs would distort the allocation
percentages. Petitioners argue that under the percentage method
only operating expenses are included in the denominator of the
equation. They claim that interest should not be included
because it is simply the cost of borrowing capital to fund the
investment in Village West and does not represent an operating
expense. Petitioners claim that depreciation and amortization
are not operating expenses because they represent the initial
capital costs of investing in plant and equipment.
Under the percentage method, the medical expenses of the
CCRC are calculated and then compared to all the expenses of the
community to determine the appropriate percentage of expenses
allocable to medical care. In applying the percentage method in
this case, both the numerator and denominator in the equation
should include interest expenses and depreciation and
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