Allocation methodologies
Page posted: 8/27/24
A cost allocation methodology is how the cost report preparer assigns the reported costs to the cost categories. The preparer can either:
The type of allocation methodology used is highly dependent on the business structure and financial management of the provider organization.
DHS does not require the cost report preparer to use a specific cost allocation methodology. However, the preparer should use the general principles of cost allocation on this page to ensure the allocations throughout the cost report are equitable and reasonable.
The cost report preparer must include an explanation of the methodology used for each section of the cost report. This explanation must include enough detail so a person unfamiliar with the organization can understand the methodology used. The provider organization must also maintain records to validate how the cost report preparer completed all reported allocations in the event of an audit. This record could include calculations and supporting documentation.
Example: To validate its wage allocation, Provider ABC includes a record of how it calculated the allocation methodology, and it includes payroll records to show how it determined FTE costs.
If an organization provides services in only one cost category for people only using CFSS services, the cost report preparer does not need to use a cost allocation methodology.
Example: Provider XYZ serves two people with personal care assistance and does not offer other services. The provider allocates all direct care allocations to the PCA/CFSS direct care staff cost category and all administrative costs to the PCA/CFSS services administration cost category.
Single-allocation-based methodology
The cost report preparer may use a single-allocation-based methodology if the organization’s business costs to provide services align equally across all program areas. A single-allocation-based methodology uses only one factor across the entire cost report. The cost report preparer chooses the factor used in the allocation methodology.
Examples of a single factor include:
Each section of the cost report uses the same factor to determine how to assign costs to the available cost categories.
Example: Provider XYZ allocates all of its costs based on the revenue of each program. The organization provides CFSS agency services that represent 70% of its total revenue and unit-based waiver services that represent 30% of its total revenue. Provider XYZ allocates 70% of costs for all sections in the cost report to the PCA/CFSS direct care staff cost category and 30% of costs for all sections in the cost report to the other HCBS services cost category.
Multiple-allocation-based methodology
The cost report preparer might need to allocate the organization’s costs differently based on cost types (e.g., administration costs, wage costs, facility costs). The preparer should use a multiple-allocation-based methodology if the organization has variable accounting practices in its financial management.
A multiple-allocation-based methodology uses more than one factor across the cost report to distribute costs to cost categories. The cost report preparer chooses the factors used in the allocation methodology. Examples of these factors include:
Each section of the cost report uses a factor that best fits the accounting practices for that cost type to determine how to assign costs to the available categories.
The allocation factor the cost report preparer chooses for each section should have a financial connection to the cost categories. The preparer should document this connection in the allocation methodology field.
Example: Provider Q allocates its personal care staff salaries, wages and benefits based on the service type it provides, and it allocates its facility costs based on the square footage used by each service type. Provider Q’s personal care services account for 40% of its staff and 80% of its facilities usage. To account for the costs appropriately, Provider Q allocates 40% of all salaries, wages and benefits to PCA/CFSS direct care staff cost category and 80% of facilities to PCA/CFSS services administration cost category.
Direct care worker allocation methodology
The cost report sections for direct care and supervisor cost allocation – employees and direct care and supervisor payment allocations – contractors include additional cost categories, as outlined on the direct care worker cost categories section of the cost categories page. Due to the specific nature of these categories, the cost report preparer might need to take additional considerations to allocate wage and benefit costs.
DHS suggests basing the allocation of direct care wages and benefits by the portion of the work performed in the different roles, as defined in the direct care worker cost categories section of the cost categories page. There could be many different ways to allocate the work done by direct care staff. This includes, but is not limited to:
Example: XYZ Organization requires all personal care staff to report their working time by the service they provide. Yanni works 10 hours a week providing CFSS services and 15 hours a week providing other HCBS services while working as an adult companion. She reports those hours separately on her time card. XYZ Organization knows that Yanni spends 40% of her working time as CFSS staff and 60% of her time working on other HCBS services as an adult companion. XYZ Organization is able to report based on actual hours worked.
Example: ABC Organization only requires staff to report hours worked. Joe works 40 hours a week as a direct support professional I and reports those hours on his time card. Based on his position, ABC Organization knows Joe works Monday, Wednesday and Friday at a day service center, and he works Tuesday and Thursday providing personal care under CFSS services. ABC Organization could reasonably allocate 60% of Joe’s time to the other HCBS services cost category and 40% of his time to the PCA/CFSS direct care staff cost category.
If an organization does not currently track the different services and roles its staff members fulfill, DHS recommends determining a way to start gathering that information. For help determining staff time allocation for an organization, use the Time-study worksheet, DHS-7190 (PDF) and refer to EVV data.
Direct care allocation for multiple service types
If an organization provides multiple types of services, it might be easier to allocate costs by aligning groupings of multiple employees on the section for direct care and supervisor wages – employees with the direct care worker cost categories.
Example: Organization ABC has a job title of “personal care services worker I” for all personal care workers. However, people in that classification can provide PCA services or PCA complex services. Organization ABC finds it easier to allocate each worker’s time by creating working job title groupings of “personal care services worker I – PCA” and “personal care services worker I – PCA complex.”
Next step
Next, review provider information and attestations.
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