Hospital Corporation of America and Subsidiaries - Page 17

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          film, chemicals, dyes, and nuclear materials are used in                    
          radiological diagnostic procedures.  Anesthetic gases are                   
          administered to patients during surgery.  Oxygen is administered            
          to patients by the respiratory therapy department.  Dyes are                
          injected in patients with possible coronary artery disease during           
          the diagnostic procedure known as cardiac catheterization.                  
          Petitioners' Purchases of Supplies                                          
               Petitioners' hospitals purchase medical supplies and medical           
          equipment for use in the treatment of patients.  They purchase              
          some of those items from their suppliers (usually the                       
          manufacturer of the items) at discounts not available to                    
          wholesalers, retailers, or resellers of such items.  Most of the            
          pharmaceutical supply contracts entered into by petitioners'                
          hospitals prohibit the resale of pharmaceuticals by the hospitals           
          and limit the hospitals’ purchases to items for their own use.              
               The majority of the medical supplies are physically located            
          in four departments:  The operating room, materials management              
          and central supply, the pharmacy, and the laboratory.  Each                 
          hospital takes physical inventories of its medical supplies at              
          yearend.                                                                    
               For tax years ended 1982 through 1988, petitioners'                    
          hospitals claimed the following supplies expenses and total                 
          deductions on their consolidated Federal income tax returns:                








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