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Medical supplies play a necessary and vital role in the
diagnosis, prognosis, and treatment of the hospitals' patients.
In many cases, medical services can not be rendered without using
medical supplies. The furnishing of medical supplies by the
hospitals is merely incidental to the main purpose of rendering
health care services that a patient seeks when entering a
hospital. The hospitals do not acquire medical supplies for sale
to patients but rather to render medical services. Moreover,
under current payment arrangements between the hospitals and
public and private insurers, the hospitals' bills to patients
generally bear no particular relationship to the amounts that the
hospitals actually will be paid for the services provided.
Patients, furthermore, do not come to the hospitals to buy
medical supplies; rather, they are there primarily to obtain a
course of treatment. In many cases patients are not even aware
of all of the medical supplies that are used in the course of the
medical treatment. Patients generally are concerned with the
treatment and healing processes and not with the medical supplies
utilized by the hospitals in rendering medical treatment.
18 (...continued)
Regs. Our conclusion here does not change the result in our
prior Memorandum Opinion, given that for the years ended 1981
through 1986 petitioners' hospitals employed a hybrid method of
accounting, not the cash method or an accrual method. Our
holding applies equally to any accounts receivable attributable
to medical supplies that are dispensed to employees or dependents
of employees for their personal use.
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