[Code of Federal Regulations]
[Title 42, Volume 2]
[Revised as of October 1, 2006]
From the U.S. Government Printing Office via GPO Access
[CITE: 42CFR413.144]

[Page 732-733]
 
                         TITLE 42--PUBLIC HEALTH
 
                    CHAPTER IV--CENTERS FOR MEDICARE
                          & MEDICAID SERVICES,
                        DEPARTMENT OF HEALTH AND
                             HUMAN SERVICES
 
PART 413_PRINCIPLES OF REASONABLE COST REIMBURSEMENT; PAYMENT FOR END-STAGE 
 
                     Subpart G_Capital-Related Costs
 
Sec.  413.144  Depreciation: Allowance for depreciation on fully depreciated 
or partially depreciated assets.

    (a) Principle. Depreciation on assets being used by a provider at 
the time it enters into the Medicare program is allowed. This principle 
applies even

[[Page 733]]

though such assets may be fully or partially depreciated on the 
provider's books.
    (b) Application. Depreciation is allowable on assets being used at 
the time the provider enters into the program. This applies even though 
such assets may be fully depreciated on the provider's books or fully 
depreciated with respect to other third-party payers. So long as an 
asset is being used, its useful life is considered not to have ended, 
and consequently the asset is subject to depreciation based upon a 
revised estimate of the asset's useful life as determined by the 
provider and approved by the intermediary. Correction of prior years' 
depreciation to reflect revision of estimated useful life should be made 
in the first year of participation in the program unless the provider 
has used the optional method (Sec.  413.139), in which case the 
correction should be made at the time of discontinuing the use of that 
method. If an asset has become fully depreciated under Medicare, further 
depreciation is not appropriate or allowable, even though the asset may 
continue in use.
    (c) Example of an allowance for a fully-depreciated asset. For 
example, if a 50-year-old building is in use at the time the provider 
enters into the program, depreciation is allowable on the building even 
though it has been fully depreciated on the provider's books. Assuming 
that a reasonable estimate of the asset's continued life is 20 years (70 
years from the date of acquisition), the provider may claim depreciation 
over the next 20 years--if the asset is in use that long--or a total 
depreciation of as much as twenty-seventieths of the asset's historical 
cost.
    (d) Corrections to depreciation. If the asset is disposed of before 
the expiration of its estimated useful life, the depreciation would be 
adjusted to the actual useful life. Likewise, a provider may not have 
fully depreciated other assets it is using and finds that it has 
incorrectly estimated the useful lives of those assets. In such cases, 
the provider may use the corrected useful lives in determining the 
amount of depreciation, provided such corrections have been approved by 
the intermediary.