N.Y. Comp. Codes R. & Regs. tit. 10, § 86-5.20 – Interest for all LTHHCPs.

(a) Necessary interest on both current and capital indebtedness is an allowable cost for all LTHHCPs.
(b) To be considered as an allowable cost, interest shall be incurred to satisfy a financial need, and at a rate not in excess of what a prudent borrower would have had to pay in the money market at the time the loan was made. Also, the interest shall be paid to a lender not related through control, ownership, affiliation or personal relationship to the borrower except in instances where the prior approval of the Commissioner of Health has been obtained. Financial need for capital indebtedness relating to a specific project shall exist when all available restricted funds designated for capital acquisition of that type have been considered for equity purposes.
(c) Interest expense shall be reduced by investment income, with the exception of income from funded depreciation, qualified pension funds, trusteed malpractice insurance funds or in instances where income from gifts or grants is restricted by donors. Interest on funds borrowed from a donor-restricted fund or funded depreciation is an allowable expense. Investment income shall be defined as the aggregate net amount realized from dividends, interest, rental income, interest earned on temporary investment of withholding taxes, as well as all gains and losses. If the aggregate net amount realized is a loss, the loss is not allowable. Rate year investment income shall reduce rate year interest expense allowed for reimbursement as follows:
1. (1) for all LTHHCPs, investment income shall first be used to reduce operating interest expense for that year; and
2. (2) any remaining amount of investment income, after application of (1), shall be used to reduce capital interest expense reimbursed that year for LTHHCP's; and
3. (3) any remaining amount of investment income after application of (2) shall not be considered in the determination of allowable costs.
(d) Interest on current indebtedness shall be treated and reported as an operating administrative expense.
(e) Where a public finance authority has established a mortgage rate of interest such that sufficient cash flows exist to retire the mortgage prior to the stated maturity, the amount of the mortgage to be forgiven, at the time of such forgiveness, shall be capitalized as deferred asset and amortized over the remaining mortgage life, as a reduction of the facility's capital expense.
(f) Voluntary facilities shall report mortgage obligations financed by public finance authorities for their benefit and which they are responsible to repay, as liabilities in the general fund when such mortgage obligations are incurred.