[Code of Federal Regulations]
[Title 42, Volume 2]
[Revised as of October 1, 2002]
From the U.S. Government Printing Office via GPO Access
[CITE: 42CFR413.17]

[Page 498]
 
                         TITLE 42--PUBLIC HEALTH
 
                             HUMAN SERVICES
 
PART 413--PRINCIPLES OF REASONABLE COST REIMBURSEMENT; PAYMENT FOR END-STAGE RENAL DISEASE SERVICES; PROSPECTIVELY DETERMINED PAYMENT RATES FOR SKILLED NURSING 
FACILITIES--Table of Contents
 
                Subpart A--Introduction and General Rules
 
Sec. 413.17  Cost to related organizations.

    (a) Principle. Except as provided in paragraph (d) of this section, 
costs applicable to services, facilities, and supplies furnished to the 
provider by organizations related to the provider by common ownership or 
control are includable in the allowable cost of the provider at the cost 
to the related organization. However, such cost must not exceed the 
price of comparable services, facilities, or supplies that could be 
purchased elsewhere.
    (b) Definitions. (1) Related to the provider. Related to the 
provider means that the provider to a significant extent is associated 
or affiliated with or has control of or is controlled by the 
organization furnishing the services, facilities, or supplies.
    (2) Common ownership. Common ownership exists if an individual or 
individuals possess significant ownership or equity in the provider and 
the institution or organization serving the provider.
    (3) Control. Control exists if an individual or an organization has 
the power, directly or indirectly, significantly to influence or direct 
the actions or policies of an organization or institution.
    (c) Application. (1) Individuals and organizations associate with 
others for various reasons and by various means. Some deem it 
appropriate to do so to assure a steady flow of supplies or services, to 
reduce competition, to gain a tax advantage, to extend influence, and 
for other reasons. These goals may be accomplished by means of ownership 
or control, by financial assistance, by management assistance, and other 
ways.
    (2) If the provider obtains items of services, facilities, or 
supplies from an organization, even though it is a separate legal 
entity, and the organization is owned or controlled by the owner(s) of 
the provider, in effect the items are obtained from itself. An example 
would be a corporation building a hospital or a nursing home and then 
leasing it to another corporation controlled by the owner. Therefore, 
reimbursable cost should include the costs for these items at the cost 
to the supplying organization. However, if the price in the open market 
for comparable services, facilities, or supplies is lower than the cost 
to the supplier, the allowable cost to the provider may not exceed the 
market price.
    (d) Exception. (1) An exception is provided to this general 
principle if the provider demonstrates by convincing evidence to the 
satisfaction of the fiscal intermediary (or, if the provider has not 
nominated a fiscal intermediary, CMS), that--
    (i) The supplying organization is a bona fide separate organization;
    (ii) A substantial part of its business activity of the type carried 
on with the provider is transacted with others than the provider and 
organizations related to the supplier by common ownership or control and 
there is an open, competitive market for the type of services, 
facilities, or supplies furnished by the organization;
    (iii) The services, facilities, or supplies are those that commonly 
are obtained by institutions such as the provider from other 
organizations and are not a basic element of patient care ordinarily 
furnished directly to patients by such institutions; and
    (iv) The charge to the provider is in line with the charge for such 
services, facilities, or supplies in the open market and no more than 
the charge made under comparable circumstances to others by the 
organization for such services, facilities, or supplies.
    (2) In such cases, the charge by the supplier to the provider for 
such services, facilities, or supplies is allowable as cost.