C.F.R. » Title 42 » CHAPTER IV—CENTERS FOR MEDICARE & MEDICAID SERVICES, DEPARTMENT OF HEALTH AND HUMAN SERVICES › SUBCHAPTER B—MEDICARE PROGRAM › PART 413—PRINCIPLES OF REASONABLE COST REIMBURSEMENT; PAYMENT FOR END-STAGE RENAL DISEASE SERVICES; PROSPECTIVELY DETERMINED PAYMENT RATES FOR SKILLED NURSING FACILITIES; PAYMENT FOR ACUTE KIDNEY INJURY DIALYSIS › Subpart A—Introduction and General Rules

42 C.F.R. § 413.9

Cost related to patient care

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(a) Principle. All payments to providers of services must be based on the reasonable cost of services covered under Medicare and related to the care of beneficiaries. Reasonable cost includes all necessary and proper costs incurred in furnishing the services, subject to principles relating to specific items of revenue and cost. However, for cost reporting periods beginning after December 31, 1973, payments to providers of services are based on the lesser of the reasonable cost of services covered under Medicare and furnished to program beneficiaries or the customary charges to the general public for such services, as provided for in § 413.13.

(b) Definitions—(1) Reasonable cost. Reasonable cost of any services must be determined in accordance with regulations establishing the method or methods to be used, and the items to be included. The regulations in this part take into account both direct and indirect costs of providers of services. The objective is that under the methods of determining costs, the costs with respect to individuals covered by the program will not be borne by individuals not so covered, and the costs with respect to individuals not so covered will not be borne by the program. These regulations also provide for the making of suitable retroactive adjustments after the provider has submitted fiscal and statistical reports. The retroactive adjustment will represent the difference between the amount received by the provider during the year for covered services from both Medicare and the beneficiaries and the amount determined in accordance with an accepted method of cost apportionment to be the actual cost of services furnished to beneficiaries during the year.

(2) Necessary and proper costs. Necessary and proper costs are costs that are appropriate and helpful in developing and maintaining the operation of patient care facilities and activities. They are usually costs that are common and accepted occurrences in the field of the provider's activity.

(c) Application. (1) It is the intent of Medicare that payments to providers of services should be fair to the providers, to the contributors to the Medicare trust funds, and to other patients.

(2) The costs of providers' services vary from one provider to another and the variations generally reflect differences in scope of services and intensity of care. The provision in Medicare for payment of reasonable cost of services is intended to meet the actual costs, however widely they may vary from one institution to another. This is subject to a limitation if a particular institution's costs are found to be substantially out of line with other institutions in the same area that are similar in size, scope of services, utilization, and other relevant factors.

(3) The determination of reasonable cost of services must be based on cost related to the care of Medicare beneficiaries. Reasonable cost includes all necessary and proper expenses incurred in furnishing services, such as administrative costs, maintenance costs, and premium payments for employee health and pension plans. It includes both direct and indirect costs and normal standby costs. However, if the provider's operating costs include amounts not related to patient care, specifically not reimbursable under the program, or flowing from the provision of luxury items or services (that is, those items or services substantially in excess of or more expensive than those generally considered necessary for the provision of needed health services), such amounts will not be allowable. The reasonable cost basis of reimbursement contemplates that the providers of services would be reimbursed the actual costs of providing quality care however widely the actual costs may vary from provider to provider and from time to time for the same provider.

[51 FR 34795, Sept. 30, 1986; 51 FR 37398, Oct. 22, 1986]
Notes of Decisions
Cited in 97 cases (13 in the last 5 years), 1987–2024 · leading case: Shalala v. Guernsey Mem'l Hosp., 514 U.S. 87 (1995).
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Shalala v. Guernsey Mem'l Hosp., 514 U.S. 87 (1995). · cites it 6× “maintaining the operation of patient care facilities," 42 CFR § 413.9 (b)(2) (1994); see generally §§ 413.”
United States of Am., Ex Rel. A+ Homecare, Inc. v. Medshares Mgmt. Grp., Inc. Trevecca Home Health Servs., Inc., Stephen H. Winters, 400 F.3d 428 (6th Cir. 2005). · cites it 3× “” 42 C.F.R. § 413.9 (c)(3). To receive a reimbursement from the Medicare program, a service provider “must provide adequate cost data” to the fiscal intermediary based on “the accrual basis of accounting.”
Visiting Nurse Ass'n of Brooklyn v. Thompson, 378 F. Supp. 2d 75 (E.D.N.Y 2004). · cites it 7× “” 42 C.F.R. §§ 413.9 (a), (e)(3); see also 42 C.”
Visiting Nurse Ass'n Gregoria Auffant, Inc. v. Thompson, 447 F.3d 68 (1st Cir. 2006). · cites it 3× “” 42 C.F.R. § 413.9 (a). The burden of proof is on the provider seeking reimbursement to demonstrate whether a cost is eligible for reimbursement.”
Dana Farber Cancer Inst. v. Eric Hargan, 878 F.3d 336 (D.C. Cir. 2017). · cites it 7× “§ 1395b-9(a)(l), (3), has by regulation defined “reasonable costs” as “all necessary and proper costs incurred in furnishing the [Medicare] services,” 42 C.F.R. § 413.9 (a)., “All discounts, allowances, and refunds of expenses are reductions in, the cost of goods or services…”
Catholic Health Initiatives v. Sebelius, 658 F. Supp. 2d 113 (D.D.C. 2009). · cites it 5× “§ 1395x(v)(1)(A) [the statutory definition of “reasonable cost”] and 42 C.F.R. § 413.9 and are, therefore, compulsory.”
GranCare, Inc. v. Shalala, 93 F. Supp. 2d 24 (D.D.C. 2000). · cites it 15× “42 C.F.R. § 413.9 (c)(2) (1993) (emphasis added).”
United States v. Bourseau, 531 F.3d 1159 (9th Cir. 2008). · cites it 2× “§ 1395f(b); 42 C.F.R. § 413.9 . In the event that an intermediary deems a cost nonallowable but the provider disagrees, the provider may still include the cost in a cost report if “[t]he provider clearly indicates [the] item(s) is being included in the cost report only to…”
Horras v. Leavitt, 495 F.3d 894 (8th Cir. 2007). · cites it 3× “” 42 C.F.R. § 413.9 (c)(3). “However, if the provider’s operating costs include amounts not related to patient care .”
Abraham Lincoln Mem'l Hosp. v. Sebelius, 698 F.3d 536 (7th Cir. 2012). · cites it 2× “§ 1395f(b)(l); 42 C.F.R. § 413.9 (a). To obtain reimbursement, health care providers submit cost reports at the end of their fiscal year to a fiscal intermediary, detailing the cost of services and amount of reimbursement a participating provider believes it is due.”
UNITED STATES of Am., Plaintiff-Appellee, v. John E. CALHOON, Defendant-Appellant, 97 F.3d 518 (11th Cir. 1996). · cites it 2× “§ 1395x(v)(l)(A); 42 C.F.R. § 413.9 , and (2) they were not an actual expense, see 42 U.”
Catholic Health Initiatives v. Sebelius, 617 F.3d 490 (D.C. Cir. 2010). · cites it 2× “The regulations describe reasonable costs as "related to the care of Medicare beneficiaries," 42 C.F.R. § 413.9 (c)(3), and "determined in accordance with regulations," id.”
Show all 97 citing cases →
— 42 C.F.R. § 413.9(a) — 3 cases
Visiting Nurse Ass'n Gregoria Auffant, Inc. v. Thompson, 447 F.3d 68 (1st Cir. 2006). “” 42 C.F.R. § 413.9 (a). The burden of proof is on the provider seeking reimbursement to demonstrate whether a cost is eligible for reimbursement.”
Acadian Homecare LLC v. Leavitt, 513 F. Supp. 2d 684 (W.D. La. 2007).
North Broward Hosp. Dist. v. Sullivan, 769 F. Supp. 1217 (S.D. Fla. 1990).
— 42 C.F.R. § 413.9(b)(1) — 2 cases
Dana Farber Cancer Inst. v. Eric Hargan, 878 F.3d 336 (D.C. Cir. 2017). “§ 1395b-9(a)(l), (3), has by regulation defined “reasonable costs” as “all necessary and proper costs incurred in furnishing the [Medicare] services,” 42 C.F.R. § 413.9 (a)., “All discounts, allowances, and refunds of expenses are reductions in, the cost of goods or services…”
Baptist Healthcare Sys. v. Leavitt (D.D.C. 2009).
— 42 C.F.R. § 413.9(b)(2) — 1 case
North Broward Hosp. Dist. v. Sullivan, 769 F. Supp. 1217 (S.D. Fla. 1990).
— 42 C.F.R. § 413.9(c)(2) — 2 cases
Eagle Healthcare, Inc. v. Shalala, 52 F. Supp. 2d 1 (D.D.C. 1999).
Maximum Home Health Care, Inc. v. Shalala, 136 F. Supp. 2d 814 (M.D. Tenn. 2000).
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