Opinion ID: 727292
Heading Depth: 6
Heading Rank: 1

Heading: Reimbursability

Text: 23 We reject Calhoon's contention that there is no provision making the royalty fees paid to CMCI clearly nonreimbursable. Calhoon's arguments focus on whether any provision made the royalty fees clearly nonreimbursable by virtue of their nature as royalty fees. The critical fact is, however, that these royalty fees were paid to CMCI, a company related to the hospitals by common ownership. CMC, the parent company, owned both the hospitals that were paying the royalty fees for use of the Charter name and CMCI, the Nevada subsidiary that owned the Charter name and collected the royalty fees. Therefore, regardless of whether certain royalty fees are generally reimbursable, whether the royalty fees here were reimbursable is governed by 42 C.F.R. § 413.17 which applies to expenses paid to related organizations. 1 That regulation provides in relevant part:(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 included in the allowable cost of the organization 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. 24 . . . . . 25 (c) Application.... (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. 26 42 C.F.R. § 413.17. 27 Under this regulation, expenses paid by the hospitals to CMCI--including the royalty fees at issue here--are reimbursable only at the cost to [CMCI], the supplying organization. See 42 C.F.R. § 413.17(c). At trial, the government's expert, Bessie Wheeler, explained that royalty fees paid to a related company solely for the use of a name would not be an actual expense for the company and, therefore, would not be reimbursable by Medicare. R.A. Vol. 6, p. 106. She explained that, for the fee to be reimbursable, it would have to be paid in exchange for an actual service that the related company provided at a real cost. Id. The reimbursable costs related to the Charter name may have been actual costs of acquiring and maintaining the Charter trademark. Whether the royalty fee paid is reimbursable depends in part on whether it reflected actual cost to CMCI of the acquisition or maintenance of the Charter name. See 42 C.F.R. § 413.17. If the royalty fees did not directly reflect such an actual cost, they would not have been reimbursable. See 42 C.F.R. § 413.17; cf. Prov.Reimb.Man., Part 1, § 1011.5 (Govt.Supp.Br., Ex. 7, p. 20) (policy guideline illustrating the application of § 413.17 in the context of a rental expense: where provider leases a facility from a related organization, costs of ownership of the facility are the allowable costs, not the rent paid to the lessor by the provider). The government, having apparently offered no evidence on this issue, failed to sustain its burden to prove the claim false by virtue of the nonreimbursable nature of the interest. 28