Code of Federal Regulations Title 42. Public Health § 42.413.102 Compensation of owners

(1) Compensation. Compensation means the total benefit received by the owner for the services he furnishes to the institution. It includes the following items:

(2) Reasonableness. Reasonableness requires that the compensation allowance—

(3) Necessary. Necessary requires that the function be—

(1) Owners of provider organizations often furnish services as managers, administrators, or in other capacities. In such cases, it is equitable that reasonable compensation for the services furnished to be an allowable cost. To do otherwise would disadvantage such owners in comparison with corporate providers or providers employing persons to perform similar services.

(2) Ordinarily, compensation paid to proprietors is a distribution of profits. However, if a proprietor furnishes necessary services for the institution, the institution is in effect employing his services, and a reasonable compensation for these services is an allowable cost. In corporate providers, the salaries of owners who are also employees are subject to the same requirements of reasonableness. If the services are furnished on less than a full-time basis, the allowable compensation should reflect an amount proportionate to a full-time basis. Reasonableness of compensation may be determined by reference to, or in comparison with, compensation paid for comparable services and responsibilities in comparable institutions;  or it may be determined by other appropriate means.