[Code of Federal Regulations]
[Title 42, Volume 2]
[Revised as of October 1, 2007]
From the U.S. Government Printing Office via GPO Access
[CITE: 42CFR413.102]

[Page 744-745]
 
                         TITLE 42--PUBLIC HEALTH
 
                             HUMAN SERVICES
 
 PART 413_PRINCIPLES OF REASONABLE COST REIMBURSEMENT; PAYMENT FOR 
 END-STAGE RENAL DISEASE SERVICES; PROSPECTIVELY DETERMINED PAYMENT 
 
                 Subpart F_Specific Categories of Costs
 
Sec.  413.102  Compensation of owners.

    (a) Principle. A reasonable allowance of compensation for services 
of owners is an allowable cost provided that the services are actually 
performed in a necessary function.
    (b) Definitions--(1) Compensation. Compensation means the total 
benefit received by the owner for the services he furnishes to the 
institution. It includes the following items:
    (i) Salary amounts paid for managerial, administrative, 
professional, and other services.
    (ii) Amounts paid by the institution for the personal benefit of the 
proprietor.
    (iii) The cost of assets and services that the proprietor receives 
from the institution.
    (iv) Deferred compensation.
    (2) Reasonableness. Reasonableness requires that the compensation 
allowance--
    (i) Be such an amount as would ordinarily be paid for comparable 
services by comparable institutions; and
    (ii) Depend upon the facts and circumstances of each case.
    (3) Necessary. Necessary requires that the function be--
    (i) Such that had the owner not furnished the services, the 
institution would have had to employ another person to perform the 
services; and
    (ii) Pertinent to the operation and sound conduct of the 
institution.
    (c) Application. (1) Owners of provider organizations often furnish 
services as managers, administrators, or in other capacities. In such 
cases, it is equitable that reasonable compensation for the services 
furnished to be an allowable cost. To do otherwise would disadvantage 
such owners in comparison with corporate providers or providers 
employing persons to perform similar services.
    (2) Ordinarily, compensation paid to proprietors is a distribution 
of profits. However, if a proprietor furnishes necessary services for 
the institution, the institution is in effect employing his services, 
and a reasonable compensation for these services is an allowable cost. 
In corporate providers, the salaries of owners who are also employees 
are subject to the same requirements of reasonableness. If the services 
are

[[Page 745]]

furnished on less than a full-time basis, the allowable compensation 
should reflect an amount proportionate to a full-time basis. 
Reasonableness of compensation may be determined by reference to, or in 
comparison with, compensation paid for comparable services and 
responsibilities in comparable institutions; or it may be determined by 
other appropriate means.