Authority: IC 12-15-1-10; IC 12-15-21-3

Affected: IC 4-21.5-3; IC 12-13-7-3; IC 12-15

Sec. 10. (a) Common ownership exists when an individual, individuals, or any legal entity possesses ownership or equity of not less than five percent (5%) in a provider, as well as the institution or organization serving the provider. An individual is considered to own the interest of immediate family for the determination of percentage of ownership. For purposes of this subsection, the following individuals are considered immediate family:

1. (1) Spouse.
2. (2) Natural parent, child, and sibling.
3. (3) Adopted child and adoptive parent.
4. (4) Stepparent, stepchild, stepsister, and stepbrother.
5. (5) Father-in-law, mother-in-law, sister-in-law, brother-in-law, son-in-law, daughter-in-law, stepson-in-law, and stepdaughter-in- law.
6. (6) Grandparent and grandchild.
7. (7) Anyone previously considered immediate family.

(b) Control exists where an individual or organization has the power, directly or indirectly, to influence or direct the actions or policies of an organization or institution, whether or not actually exercised. A general partner is considered to control an entity.

(c) Transactions between related parties are not considered to have arisen through arms length negotiations. Costs applicable to services, facilities, and supplies issued to a provider by related parties shall not exceed the lower of the cost to the related party, or the price of comparable services, facilities, or supplies purchased as an arms length transaction in an open competitive market. An exception to this subsection may be granted by the office if requested in writing by the provider before the annual rebase effective date to which the exception is to apply. The provider's request shall include a comprehensive representation that each condition in subsection (d) has been met. This representation shall include the percentage of business the provider transacts with related and nonrelated parties based on revenue. When requested by the office, the provider shall submit documentation, such as invoices, standard charge master listings, and remittances, to prove the provider's charges for services, facilities, or supplies to related and nonrelated parties.

(d) The office may grant an exception when a related organization meets all the following conditions:

1. (1) The supplying organization is a bona fide separate organization, whose services, facilities, and supplies are made available to the public in an open competitive market.
2. (2) A sufficient part of the supplying organization's business activity is transacted with other than the provider and organizations related to the supplier in common ownership or control, and there is an open competitive market for the type of services, facilities, or supplies issued by the organization. Transactions with residents of nursing facilities owned, operated, or managed by the provider, or organizations related to the provider or a former provider or related entity currently serving as the management company or entity in a similar decision making capacity for a nonstate government owned (NSGO) provider shall not be considered an arms length business activity transacted in an open competitive market.
3. (3) The services, supplies, or facilities are those commonly obtained by institutions, such as the provider, from other organizations and not a basic element of patient care ordinarily issued directly to patients by those institutions.

4. (4) For facilities other than NSGO nursing facilities, the organization provides the services, facilities, or supplies to other nonrelated party organizations. The charge to the provider shall be:

   1. (A) in line with the charge for those services, facilities, or supplies in the open market; and
   2. (B) not more than the charge made under comparable circumstances to others by the organization for those services, facilities, or supplies.

5. (5) For NSGO nursing facilities, the organization issues the services, facilities, or supplies to organizations not related to the NSGO provider or a former provider or related entity currently serving as the management company or entity in a similar decision making capacity for the NSGO provider. The charge to the provider shall be:

   1. (A) in line with the charge for those services, facilities, or supplies in the open market; and
   2. (B) not more than the charge made under comparable circumstances to others by the organization for those services, facilities, or supplies.

(e) A related party exception shall be granted for any period, up to the maximum period of two (2) years.

(f) If a provider rents, leases, or purchases facilities or equipment from a related party property company, the historical cost to the related party, not to exceed fair market value, shall be used in computing the average historical cost of property of the median bed, except as described in this section for the sale of facilities between family members.

(g) If a sale of facilities between family members meets the following conditions, the cost basis of the facility shall be recognized for the purpose of computing the average historical cost of property of the median bed under this rule as a bona fide sale arising from an arms length transaction, based on the limitations of subsection (h):

1. (1) There is no current or previous spousal relationship between parties.

2. (2) The following individuals are considered family members:

   1. (A) Natural parent, child, and sibling.
   2. (B) Adopted child and adoptive parent.
   3. (C) Stepparent, stepchild, stepsister, and stepbrother.
   4. (D) Father-in-law, mother-in-law, sister-in-law, brother-in-law, son-in-law, and daughter-in-law.
   5. (E) Grandparent and grandchild.
   6. (F) Anyone previously considered a family member.
3. (3) The transfer is recognized and reported by each party as a sale for federal income tax purposes.
4. (4) The seller is not associated with the facility in any way after the sale other than as a passive creditor.
5. (5) The buyer is actively engaged in the operation of the facility after the sale, with earnings from the facility accruing to at least one (1) principal buyer primarily as salaries or self-employment income and not as leases, rents, or other passive income.
6. (6) The family sale exception has not been used during the previous eight (8) years on this facility.
7. (7) None of the entities involved is a publicly held corporation as defined by the Securities and Exchange Commission.
8. (8) If any of the entities involved are corporations, they shall be family owned corporations, where members of the same family control the corporations through ownership of fifty percent (50%) or more of the voting stock.

(h) To establish a historical cost basis in the sale of facilities between family members, the buyer shall obtain a Member Appraiser Institute (MAI) appraisal. The MAI appraisal is based on the approval of the office. The appraisal shall be done within ninety (90) days of the date of the sale. The historical cost basis for purposes of determining the average historical cost of property of the median bed shall be the lower of the historical cost basis of the buyer or the MAI appraisal of facilities and equipment.

(i) If a lease of facilities between family members under subsection (g) qualifies as a capitalized lease under the Statement of Financial Accountant Standards Number 13 as issued by the Financial Accounting Standards Board, the transaction shall be treated as a sale of facilities between family members for purposes of determining the average historical cost of property of the median bed.

(Office of the Secretary of Family and Social Services; 405 IAC 1-14.7-10; filed Aug 20, 2024, 9:11 a.m.: 20240918-IR- 405240088FRA)