42 C.F.R. § 413.17

Cost to related organizations

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(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 contractor, 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.

[51 FR 34793, Sept. 30, 1986, as amended at 81 FR 57270, Aug. 22, 2016]

Notes of Decisions

Cited in 73 cases (2 in the last 5 years), 1986–2023 · leading case: United States v. Mahendra Pratap Gupta, 463 F.3d 1182 (11th Cir. 2006).

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United States v. Mahendra Pratap Gupta, 463 F.3d 1182 (11th Cir. 2006). · cites it 10× “42 C.F.R. § 413.17 provides: (a) Principle---- [C]osts 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…”

UNITED STATES of Am., Plaintiff-Appellee, v. John E. CALHOON, Defendant-Appellant, 97 F.3d 518 (11th Cir. 1996). · cites it 15× “§ 1395x(v)(l)(A); 42 C.F.R. § 413.17 . It argues that the royalty fee amounted to a franchise fee paid to a *525 related party for the use of the Charter name.”

UPMC-Braddock Hosp. v. Sebelius, 592 F.3d 427 (3rd Cir. 2010). · cites it 22× “[6] The transfer of assets in a statutory merger can give rise to a depreciation adjustment only if the merger was between "unrelated parties" as defined by 42 C.F.R. § 413.17 , and, if the merged corporation was a health care provider before the merger, only if the merger was a…”

United States v. White, 492 F.3d 380 (6th Cir. 2007). · cites it 4× “42 C.F.R. § 413.17 . Providers are required to identify any costs attributable to a "related party" on the annual Cost Report and elsewhere to permit the Fiscal Intermediary to determine whether there are any "related party" costs which might be adjusted.”

Via Christi Reg'l Med. Ctr., Inc. v. Leavitt, 509 F.3d 1259 (10th Cir. 2007). · cites it 6× “134(f)(2)’s “bona fide sale” requirement “means simply that the parties to the sale are not related within the meaning of regulations section 42 CFR 413.17 and PRM section lOOOff.” Jan.”

United States v. Jones, 475 F.3d 701 (5th Cir. 2007). · cites it 6× “” 2 42 C.F.R. § 413.17 (a). Two organizations are “related” when “the provider to a significant extent is associated or affiliated with or has control of or is controlled by the organizations furnishing the services, facilities, or supplies.”

Liberty Nursing Ctr., Inc. v. Dep't of Health & Mental Hygiene, 624 A.2d 941 (Md. 1993). · cites it 6× “” In 42 C.F.R. § 413.17 , it is provided: (a) Principle.”

Thomas Jefferson Univ. v. Shalala, 512 U.S. 504 (1994). · cites it 2× “42 CFR § 413.17 (a) (1993). As a result, the Hospital is entitled to reimbursement for all eligible patient-care, educational, and administrative costs carried on the books of the Medical College.”

United States v. John Woodley, United States of Am. v. John Woodley, 9 F.3d 774 (9th Cir. 1993). · cites it 4× “1 42 C.F.R. § 413.17 (1992). This regulation limits reimbursement to providers from related suppliers.”

Albert Einstein Med. Ctr. v. Sebelius, 566 F.3d 368 (3rd Cir. 2009). · cites it 3× “The District Court held that the Secretary’s interpretations of 42 C.F.R. § 413.17 (“Related Party Regulation”), 42 C.”

Marymount Hosp., Inc. v. Donna E. Shalala, Sec'y, Hhs, 19 F.3d 658 (D.C. Cir. 1994). · cites it 4× “” 42 C.F.R. § 413.17 . This regulation provides that “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…”

United States v. Gupta, 572 F.3d 878 (11th Cir. 2009). · cites it 2× “The indictment charged that the defendants violated the related-party regulation, 42 C.F.R. § 413.17 , which required home healthcare agencies to report services provided by related companies and provided that, subject to cost caps, Medicare would reimburse the agency for only…”

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— 42 C.F.R. § 413.17(b)(1) — 2 cases

United States v. Mahendra Pratap Gupta, 463 F.3d 1182 (11th Cir. 2006). “42 C.F.R. § 413.17 provides: (a) Principle---- [C]osts 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…”

Brookline Manor v. Dep't of Pub. Welfare, 823 A.2d 1069 (Pa. Commw. Ct. 2003).

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