(c) Allowable costs are determined from hospital cost reports, as defined in section 577.5 of this Part, subject to the following priority of definitions of allowable cost:

1. (1) this Part;
2. (2) allowable costs under Federal Medical Assistance Program;
3. (3) allowable cost under the Medicare Program;
4. (4) generally accepted accounting principles; and
5. (5) as determined by audit in accordance with section 577.6 of this Part.

(e) Operating costs from the base year are subject to a cost limitation. The limitation is the allowable costs one year prior to the base year, increased by inflation for one year.

1. (1) Allowable operating costs in the rate year are calculated by choosing the lower of the base year cost computed on a per diem basis or the limitation cost computed on a per diem basis, and trending this amount forward two years by the inflation factor, except for the rate period effective January 1, 2010 to December 31, 2010, when the inflation factor used to trend costs will be limited to the inflation factor for the first year of the two-year period, and the rate period effective January 1, 2014, to December 31, 2014, when there will be no inflation factor used to trend costs. Administration costs, as contained in and part of operating costs, shall be subject to an administrative cost screen. Two separate administrative cost screens shall be calculated, one for hospitals with greater than 100 beds (group one), and one for hospitals with 100 or less beds (group two). The administrative cost screen is derived from the costs in the fiscal year one year prior to the base year (i.e., the same cost year from which the limitation is derived), and shall be the group average per diem cost plus 10 percent.
2. (2) The inflation factor is the Medicare inflation factor for hospitals and units excluded from the prospective payment system.

(h) Payment rates for new hospitals which have no prior cost experience from which to establish base year costs and a cost limitation, as defined in subdivision (e) of this section, shall be determined as follows:

1. (1) Payment rates shall be for the time period as approved in a financial plan submitted by the hospital and approved by the commissioner under Part 551 of this Title.
2. (2) Allowed capital costs during the period of the financial plan will be computed based upon the approved budgeted capital costs, divided by the approved budgeted patient days for the rate year, and retroactively adjusted to actual certified cost divided by the higher of actual patient days or approved budgeted patient days. Capital costs are subject to the provisions of subdivision (f) of this section.
3. (3) Operating costs during the period of the financial plan will be the lower of the approved budgeted operating costs divided by the approved budgeted patient days or 110 percent of the statewide weighted average of the operating cost per diem of all private psychiatric hospitals for which the Office of Mental Health promulgates rates of payment pursuant to this Part.
4. (4) The operating cost component of the rate will be updated annually, except for the period January 1, 2010 to December 31, 2010, and the period January 1, 2014, to December 31, 2014, with the Medicare inflation factor for hospitals and units excluded from the prospective payment system, until the hospital has operated for six months at a minimum occupancy level of at least 75 percent and files its first cost report for that same period in accordance with section 577.5 of this Part.
5. (5) The actual cost report data will be used to establish the rate of payment for that hospital on a retroactive basis to the period covered by the hospital cost report. If the resulting rate of payment is higher than the per diem costs approved in the financial plan, the hospital will continue on the budget based method described in paragraphs (1)-(4) of this subdivision, until such time as the hospital submits subsequent financial reports and the methodology in subdivision (e) of this section can be applied.