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when purchased by petitioners' hospitals; and that the medical
supplies therefore are merchandise which must be inventoried and
are subject to section 471. Respondent posits that the test for
distinguishing merchandise inventory from supplies inventory is
whether the applicable item has been separately charged to a
patient.
Petitioners disagree with respondent's definition of
merchandise. They assert that the hospitals do not acquire
medical supplies for sale to patients, the transactions between
hospitals and patients are not intended as sales, the
transactions are not viewed as sales, and sales do not occur.
Petitioners contend that the hospitals' patients obtain no right
to select, control, transfer to others, dispose of, or otherwise
exercise normal ownership rights over the supplies used in
providing services to them. Petitioners argue that even such
items as crutches or admission kits are provided by a hospital
because of the particular treatment needs of the patient while in
the hospital, and not as a means of selling those items to the
patient.
In support of their respective positions, the parties
presented the opinions of various experts.
Because we conclude below that petitioners’ use of the
hybrid method clearly reflects the income of the hospitals, we do
not decide the question of whether the furnishing of medical
supplies by petitioners’ hospitals as a part of the rendering of
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