General cost principles

1. For ratesetting purposes, a cost must: a. Be ordinary, necessary, and related to resident care; b. Be no more than an amount 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 by the facility. 2. The cost effects of transactions which circumvent these rules are not allowable under the principle that the substance of the transaction prevails over the form. 3. Reasonable resident-related costs will be determined in accordance with the ratesetting procedures set forth in this chapter and instructions issued by the department.