Hospital Corporation of America and Subsidiaries - Page 49

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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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