General cost principles

1. For ratesetting purposes, a cost must: a. Be ordinary, necessary, and related to resident care; b. Be what a prudent and cost-conscious business person would pay for the specific good or service in the open market in an arm's-length transaction; and c. Be for goods or services actually provided in the facility. 2. The cost effects of transactions which circumvent this chapter are not allowable under the principle that the substance of the transaction prevails over form. 3. Costs incurred due to management inefficiency, unnecessary care, unnecessary facilities, agreements not to compete, or activities not commonly accepted in the nursing facility industry are not allowable. 4. Reasonable resident-related costs must be determined in accordance with the ratesetting procedures of this chapter, the ratesetting manual, instructions issued by the department, and principles of reimbursement for provider costs (Centers for Medicare and Medicaid Services Provider Reimbursement Manual). If conflicts occur between this chapter, the ratesetting manual, or instructions issued by the department and Centers for Medicare and Medicaid Services Provider Reimbursement Manual, this chapter, the ratesetting manual, or instructions issued by the department must prevail.