The Oakland County Hospital performs lots of work for Medicare and Medicaid patients. This results in both reimbursement of certain operating costs and some profit."Transfers" among related subsidiaries within the Hospital also contain some Medicare and Medicaid "profits."For example, the pharmacy, nursing and anesthesiology subsidiaries often all participate in a Medicare and Medicaid surgical operation.When the Hospital prepares consolidated financial statements, it asks you whether the Hospital should "eliminate" gains on such transactionsespecially if others consider such transactions as dealings with "regulated affiliates."

Problem Identification:Should a Hospital eliminate profits on intercompany sales and assets among "controlled" groups that participate in Medicare and Medicaid reimbursement policies?