(a) Principle. Discounts and allowances received on purchases of goods or services are reductions of the costs to which they relate. Similarly, refunds of previous expense payments are reductions of the related expense.
(b) Definitions—(1) Discounts. Discounts, in general, are reductions granted for the settlement of debts.
(2) Allowances. Allowances are deductions granted for damage, delay, shortage, imperfection, or other causes, excluding discounts and returns.
(3) Refunds. Refunds are amounts paid back or a credit allowed on account of an overcollection.
(c) Normal accounting treatment—Reduction of costs. All discounts, allowances, and refunds of expenses are reductions in the cost of goods or services purchased and are not income. If they are received in the same accounting period in which the purchases were made or expenses were incurred, they will reduce the purchases or expenses of that period. However, if they are received in a later accounting period, they will reduce the comparable purchases or expenses in the period in which they are received.
(d) Application. (1) Purchase discounts have been classified as cash, trade, or quantity discounts. Cash discounts are reductions granted for the settlement of debts before they are due. Trade discounts are reductions from list prices granted to a class of customers before consideration of credit terms. Quantity discounts are reductions from list prices granted because of the size of individual or aggregate purchase transactions. Whatever the classification of purchase discounts, like treatment in reducing allowable costs is required. In the past, purchase discounts were considered as financial management income. However, modern accounting theory holds that income is not derived from a purchase but rather from a sale or an exchange and that purchase discounts are reductions in the cost of whatever was purchased. The true cost of the goods or services is the net amount actually paid for them. Treating purchase discounts as income would result in an overstatement of costs to the extent of the discount.
(2) As with discounts, allowances, and rebates received from purchases of goods or services, refunds of previous expense payments are clearly reductions in costs and must be reflected in the determination of allowable costs. This treatment is equitable and is in accord with that generally followed by other governmental programs and third-party payment organizations paying on the basis of cost.
Notes of Decisions
Abraham Lincoln Mem'l Hosp. v. Sebelius, 698 F.3d 536 (7th Cir. 2012).
· cites it 8× “” 42 C.F.R. § 413.98 (a). Refunds are defined as “amounts paid back or a credit allowed on account of an overcollection.”
Dana Farber Cancer Inst. v. Eric Hargan, 878 F.3d 336 (D.C. Cir. 2017).
· cites it 9× “2016) (quoting 42 C.F.R. § 413.98 (a)). Finding the Fund payments were made to reduce Dana-Far-ber’s costs of providing care to under- and uninsured patients, and not to reduce the expense of the Hospital Tax, the district court vacated the Board’s decision.”
Dana Farber Cancer Inst. v. Burwell, 216 F. Supp. 3d 49 (D.D.C. 2016).
· cites it 7× “And under 42 C.F.R. § 413.98 (a), “refunds of previous expense payments are reductions of the related expense.”
Breckinridge Health, Inc. v. Burwell, 193 F. Supp. 3d 788 (W.D. Ky. 2016).
· cites it 5× “42 C.F.R. § 413.98 . B. Medicaid “Medicaid is a state-specific program where, pursuant to a federally approved ‘state Medicaid plan,’ the federal government provides matching payments for medical assistance to eligible, low-income individuals.”
Kindred Hospitals East v. Kathleen Sebelius, 694 F.3d 924 (8th Cir. 2012).
“rom the pool reduce a Medicare provider’s costs actually incurred? And more specifically in this case, was the agency’s affirmative answer to this question arbitrary, capricious, contrary to law or unsupported by substantial evidence? Kindred argues that the Administrator’s…”
Breckinridge Health v. Thomas Price, 869 F.3d 422 (6th Cir. 2017).
· cites it 3× “42 C.F.R. § 413.98 (b)(3). Refunds are “clearly reductions in costs,” so must be taken into account in determining the “true cost” of services, or the “net amount actually paid for them.”
Breckinridge Health, Inc. v. Thomas Price, 860 F.3d 358 (6th Cir. 2017).
· cites it 3× “42 C.F.R. § 413.98 (b)(3). Refunds are “clearly reductions in costs,” so must be taken into account in determining the “true cost” of services, or the “net amount actually paid for them.”
Sta-Home Home Health Agency, Inc. v. Shalala (5th Cir. 1994).
· cites it 3× “8 Along that line, the Administrator found that, "[i]n substance", the contributions were "reductions or refunds of salary expense" under 42 C.F.R. § 413.98 (c), and should properly reduce the expenses for the period in which they are received.”
Scott & White Health Plan v. Becerra (D.D.C. 2023).
“20 In a final effort, the Secretary analogizes to regulations on “discounts” and “allowances” that are deducted from the reasonable cost calculation, see Cross MSJ at 18 (citing 42 C.F.R. § 413.98 (a)), and cites to a collection of cases holding that healthcare companies cannot…”
42 C.F.R. § 413.98(d): 1 case
Breckinridge Health, Inc. v. Burwell, 193 F. Supp. 3d 788 (W.D. Ky. 2016).
“42 C.F.R. § 413.98 . B. Medicaid “Medicaid is a state-specific program where, pursuant to a federally approved ‘state Medicaid plan,’ the federal government provides matching payments for medical assistance to eligible, low-income individuals.”
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