Understanding IRS’s Proposed Regulations related to 501(r), Schedule H, Part V Reporting and Schedule S-10 Reporting Presented by: Scott Bezjak, CPA Partner

Understanding IRS’s Proposed Regulations related to 501(r), Schedule H, Part V Reporting and Schedule S-10

Reporting

Presented by: Scott Bezjak, CPA

PartnerBKD, LLP

AGENDA

• Overview of Section 501(r)• Sections 501(r)(4) – 501(r)(6) & Proposed

Regulations• Section 501(r)(3) and IRS Notice 2011-52-

Anticipated Regulatory Provisions• IRS Form 990, Schedule H• Medicare Cost Report Worksheet S-10

Overview of Section 501(r)(3) – 501(r)(6)

Background

• 501(r) enacted March 23, 2010• Notice 2010-39 – IRS requested comments regarding

new 501(r) requirements (May 27, 2010)• Notice 2011-52 – IRS addressed CHNA requirement

(July 8, 2011)• Proposed Regulation on requirements described in

501(r)(4) – (r)(6) (June 22, 2012)

Overview of IRC Section 501(r)

• Enacted by Patient Protection and Affordable Care Act of 2010 (PPACA)

• Four new requirements for nonprofit hospitals to obtain and maintain 501(c)(3) tax-exempt status: Community Health Needs Assessment (CHNA) Financial Assistance Policy Limitation on Charges Billing and Collection Practices

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IRC Section 501(r)(3)

• Community Health Needs Assessment (CHNA) Must be conducted once every three years for community served by

each hospital Include community input and public health expertise Be made “widely available” to public Hospital must adopt implementation strategy to meet identified

needs $50,000 excise tax applies for failure to meet assessment rules (IRC

sec. 4959) Tax potentially applicable annually


• Financial Assistance Policy (FAP) Eligibility criteria Basis for calculating amounts charged Method for applying If no separate billing and collection policy exists, the actions the

organization may take in the event of non-payment Measures to widely publicize the policy Policy relating to emergency medical care


• 501(r)(5) – Limitation on Charges Limits amounts charged for emergency or other

medically necessary care provided to individuals eligible for assistance under the FAP to not more than the amounts generally billed to individuals having insurance covering such care

Prohibits the use of gross charges


• 501(r)(6) – Billing and Collection Requirement May not engage in extraordinary collection actions

before the organization has made reasonable efforts to determine whether the individual is eligible for assistance

Overview of IRC Section 501(r)

Section Requirement Effective Date501(r)(3)

Community Health Needs Assessment – CHNA required once every three years and adopt an “implementation strategy” to meet the needs identified by the assessment.

Taxable years beginning after March 23, 2012

501(r)(4) Financial Assistance Policy – Each tax exempt hospital must establish, implement and make widely available written policies regarding financial assistance and emergency medical care.


501(r)(5) Limitation on Charges – Charges for emergency or other medically necessary care provided to patients eligible for financial assistance can not be more than the lowest amounts charged to insured patients.


501(r)(6) Billing and Collections – A tax exempt hospital cannot take “extraordinary collection actions” (lawsuits, arrests, liens or other similar actions) until it has made “reasonable efforts” to determine whether a patient is eligible for financial assistance.


Issues

• Guidance before release of Proposed Regulations and Advanced Regulatory Provisions was vague

• Requirements have been in place since March 23, 2010

• May rely on, but not required to comply with, Proposed Regulations or Anticipated Regulatory Provisions

Issues

• Does your FAP explain the basis for amounts charged (i.e. discount applied against gross charges)?

• Does your FAP document measures that you take to publicize your FAP?

• Do you provide discounts for FAP eligible patients that are less than those negotiated with insurance companies?

PROPOSED REGULATIONS

Sections 501(r)(4) – 501(r)(6) & Proposed Regulations

Hospital Facilities

• Licensed, registered, or similarly recognized by a state as a hospital

• May treat multiple buildings operated under a single state license as a single hospital facility

• Facilities outside U.S. are not required to comply• Disregarded entities operating hospitals must comply• Governmental hospitals with 501(c)(3) status must comply

Financial Assistance Policy

• Previous requirements still apply• May publicize a summary of FAP as certain

information may change regularly (such as federal poverty references)

• No mandate for a particular eligibility criteria • Must state the amounts, such as gross charges, to

which any discount percentages will be applied

Eligibility Criteria and Basis Calculating Amounts Charged

• Must state that a FAP eligible patient will not be charged more than amounts generally billed (AGB) for emergency or other medically necessary care

• Must state which of the IRS permitted methods used to determine AGB will be used

• Must either state the % of gross charges the hospital facility applies to determine AGB and how these AGB %’s were calculated or how members of the public may readily obtain this information in writing free of charge

Method for Applying and Actions Taken for Nonpayment• Financial assistance may not be denied based on the omission of

information not specifically required by the FAP or FAP application form• Must describe actions that may be taken in the event of nonpayment if no

separate billing and collections policy exists• Must describe the process and time frames the hospital will use in taking

these actions, including reasonable efforts to determine if the individual is FAP eligible

• Must describe who has final authority for determining that the hospital has made reasonable efforts

Widely Publicizing

• Four types of measures required Measures taken to make paper copies of the FAP, the FAP application,

and a plain language summary available (in English and language of minority populations comprising > 10% of hospital’s community)

Public display measures Measures to inform and notify members of the hospital’s community Measures to make the FAP, application form, and a plain language

summary available on the website

Establishing the FAP

• Authorized body must adopt the policy and the hospital must implement in the policy

• Authorized body includes Governing body, A committee of the governing body permitted under state

law to act on behalf of the governing body, Other parties authorized by the governing body of the

hospital to act on its behalf

Limitations on Charges

• Must limit the charges to FAP-eligible patients to not more than AGB to individuals with insurance covering that care and charges must be less than gross charges

• Two methods for computing AGB Look-back method Prospective method

• Two methods are mutually exclusive• Claims paid under Medicare Advantage are treated as claims

paid by private insurance

Look-Back Method

• Based on actual claims paid to the hospital by either Medicare fee-for-service only or Medicare fee-for-service together with all private health insurers paying claims

• Calculated by multiplying gross charges by one or more AGB percentages

• Must calculate AGB percentages no less than annually by dividing the sum of certain claims paid by the sum of associated gross charges

Look-Back Method

• Must begin applying AGB percentages by the 45th day after the end of the 12-month period used in calculation

• May calculate one average AGB percentage for all emergency and medically necessary care or multiple AGB percentages for separate categories of care

Prospective Method

• Determine AGB by using the same billing and coding process the hospital would use if the individual were a Medicare fee-for-service beneficiary

Gross Charges

• May use gross charges as starting point to which discounts are applied

• Safe harbor provided for situations where an individual does not complete FAP application before the time of charges

Billing and Collection

• Must engage in reasonable efforts to determine FAP eligibility before engaging in extraordinary collections actions (ECA)

• ECAs include Any action that requires legal or judicial process Reporting to credit agencies Sale of individual’s debt to another party

Reasonable Efforts

• Notify the individual about the FAP• If an individual provides an incomplete

application, provide them with information relevant to complete the application

• Make and document determination as to whether an individual is FAP-eligible

Notification Period

• Period in which hospital must notify an individual about the FAP

• Begins on the date care is provided and ends on the 120th day after the hospital provides the first billing statement

Application Period

• Must accept and process FAP applications during a longer period that ends on the 240th day after the hospital provides the individual with the first billing statement

Notification About the FAP

• Must distribute a plain language summary of the FAP and offer an application before discharge

• Must distribute a plain language summary of the FAP with all (and at least 3) billing statements during the notification period

• Must inform the individual of the FAP in all oral communications during the notification period

• Must provide at least one written notice about the ECAs the hospital may take if the individual does not submit an FAP application or pay the amount due by the last day of the notification period

Plain Language Summary

• Brief description of eligibility requirements and assistance offered

• Direct website address and physical location copies may be obtained

• Instructions on how to obtain a free copy by mail• Contact information• Statement of availability of translations if applicable• Statement that no FAP-eligible patient will be charged more

than AGB

Incomplete FAP Applications

• If received during application period, the hospital must Suspend ECAs when received Provide written notice that describes additional information needed Provide at least one written notice describing ECAs that may be

initiated or resumed if the individual does not complete by a deadline that is no earlier than the later of 30 days from the written notice or the last day of the application period

Complete FAP Applications

• If received during the application period, the hospital must Provide a billing statement indicating the amount

owed Refund any excess payments made by the individual Take all reasonably available measures to reverse any

ECA

Section 501(r)(3) and IRS Notice 2011-52Anticipated Regulatory Provisions

IRS Notice 2011-52: Notice and Request for Comments Regarding the Community Health Needs Assessment Requirements for Tax Exempt Hospitals

IRS Notice 2011-52

IRS Notice 2011-52 Key Guidance

• 12 Parts within section 3 of the Notice• Provides Key Guidance on the following:

Which Hospitals are required to conduct CHNA Required Documentation for CHNA Level and Type of Input Required for CHNA Implementation Strategy Timing

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IRS Notice 2011-52 Anticipated Regulatory Provisions

• Organization that operates a facility which is required by state to be licensed, registered or similarly recognized as a hospital

Includes disregarded entities, joint ventures, partnerships Excludes hospital facilities located outside the United States

• Hospital must meet requirements for each facility it operates


• Treasury and IRS intend to require a hospital organization to document a CHNA for a hospital facility in a written report that includes descriptions of the following information:

Community Process and methods Community input Community needs Existing health care facilities


• CHNA must involve Persons Representing the Broad Interests of the Community with special knowledge of or expertise in public health:• Health departments or other agencies, with current data

or other information relevant to the health needs of the community served by the hospital.

• Leaders, representatives or members of medically underserved, low-income and minority populations and populations with chronic disease needs.


• When is a CHNA Considered Conducted? Taxable year the written report is made widely

available to the public• CHNA Must be made widely available to the Public

Post CHNA and findings on hospital website CHNA report must be made “widely available” to the

public until the date it makes a subsequent CHNA report “widely available”


Implementation Strategy: Written Plan that is attached to Form 990 A separate plan for each hospital facility Adopted the date it is approved by an authorized

governing body of the hospital organization Must be adopted by the end of the SAME tax year

in which it conducts that CHNA


• CHNA must be conducted once every three years for community served by each hospital – first must be completed by end of tax year beginning after March 23, 2012

Summary of Initial Cycle for CHNA

Year EndBeginning of Fiscal Year

Due Date for Initial CHNA

03/31/2012 04/01/2012 03/31/2013

06/30/2012 07/01/2012 06/30/2013

09/30/2012 10/01/2012 09/30/2013

12/31/2012 01/01/2013 12/31/2013

01/31/2013 02/01/2014 01/31/2014

To-Do Item

Assess if Your Hospital is Required to Conduct a CHNA and Determine the Due Date of Your

Initial CHNA

Hospital needs to “Conduct” the CHNA and “Adopt” an Implementation Strategy by the Due

Date!

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CHNA Planning & ExecutionSample Time Line

CHNA - Common Missing ElementsObservations from the Field

• Implementation Strategy• Documentation of Processes• Proper Identification of Hospital “Community”

County may not be the service area• Community Input

Persons with specialized knowledge or public health expertise Representatives or members of medically underserved

populations/minority populations• List and Description of Existing Health Resources• Listing/Prioritization of Identified Health Needs

Document Process

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IRS Form 990, Schedule H

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Reporting Requirements

• Affordable Care Act added two specific reporting requirements to §6033(b).1. §6033(b)(10)(D) - hospital organization required to

report on Form 990 amount of excise tax imposed under §4959

2. §6033(b)(15)(A) - hospital organization required to report on Form 990 a description of how it is addressing the needs identified in each CHNA and a description of any needs not being addressed with the reasons why needs are not being addressed

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• Questions added to Form 990, Schedule H to reflect the new reporting requirements under §6033(b)(15)(A)

• Questions reflecting the new reporting requirements under §6033(b)(10)(D) will be added to the Form 990 in the future.

• Responses to Schedule H, Part V, Section B questions are optional for taxable years beginning on or before March 23, 2012.

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• §501(r)(3)(A)(ii) requires a hospital organization to adopt an implementation strategy for each of its hospital facilities.

• Hospital required to attach to its Form 990 its most recently adopted implementation strategy for each of its hospital facilities. If only one CHNA and one implementation strategy in

a 3-year period, hospital may attach the same implementation strategy for that hospital facility to the Form 990 for each of those three years.

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• 2012 Form 990 – organizations with tax years beginning after March 23, 2012 will be required to attached implementation strategy to Form 990

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To-Do Item

Evaluate whether your Hospital’s CHNA and Implementation Strategy will adhere to the

guidance provided by Notice 2011-52

Most Hospitals have not contemplated their “Implementation Strategy” and associated

timing constraints of the Due Date!

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• Rev. Proc. 95-48 - Relieved certain governmental units and affiliates of governmental units from the requirement to file Form 990.

• Affordable Care Act did not change the requirements regarding what organizations are required to file Form 990

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• A government hospital (other than one described in §509(a)(3)) excused from filing Form 990 under Rev. Proc. 95-48 is not required to file Form 990. Relieved from the annual filing requirements under

§6033. Also relieved from any new reporting requirements

imposed §6033, including the requirements under §6033(b)(10)(D) and (b)(15)(A) and the anticipated requirement to attach one or more implementation strategies to a Form 990.

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Schedule H, Part V – Section B

Schedule H (Form 990) 2011

Part V Facility Information

Section A. Hospital Facilities

(list in order of size, from largest to smallest)

How many hospital facilities did the organization operate during the tax year? _____________________________

Name and address

Licensed

hospita

l

Gen

era

l medica

l & surgical

Ch

ildren

’s hospital

Te

achin

g hosp

ital

Critical acce

ss hospita

l

Re

search fa

cility

ER

–24

hou

rs

ER

–oth

er

Other (describe)

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Schedule H, Part V – Section A-Facility Information

• List all hospital facilities operated by the organization during the tax year. “Hospital facilities” are facilities that, at any time

during the tax year, were required to be licensed, registered, or similarly recognized as a hospital under state law.

A hospital facility is operated by an organization whether the facility is operated directly by the organization or indirectly through a disregarded entity or joint venture treated as a partnership.

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Schedule H, Part V – Section A-Facility Information

• The organization must complete Section B for each of its hospital facilities listed in Section A.

• Proper identification of “hospital facilities” is very important! Each hospital facility identified in Section A must meet

the requirements of §501(r). Verify the hospital facility is licensed with State.

• State’s department of health or similar state department responsible for licensing hospitals.

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Schedule H, Part V – Section B-CHNA

• Compliance with new rules outlined in Part V, Section B, Facility Policies and Practices For 2010, Section B was optional For 2011, Section B is required

• Must be completed on a facility by facility basis• Be prepared to respond to all questions

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To-Do Item

Make certain that your CHNA and Implementation Strategy will include the

documentation required to complete Schedule H of the Hospital’s Form 990

Can you sit with your CHNA document and Implementation Strategy and check yes to the

questions on Schedule H?

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Medicare Cost Report Worksheet S-10

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S-10 Uncompensated Care

• Computes difference between net revenue & cost for: Medicaid SCHIP Other state or local government indigent programs Charity Bad Debt

• Uses overall CCR (see changes to Worksheet C)• Now required for Critical Access Hospitals• Data should exclude physician and/or other professional

services for all lines


• Line 2 Report net patient service revenue for Medicaid inpatient & outpatient covered services Includes payments from Medicaid managed care programs Include payments for any expansion SCHIP program which

covers recipients who have been eligible for coverage under Medicaid

Disproportionate share (DSH) and supplemental payments can be reported here if not separately identifiable

DSH and/or supplemental payments should be reported net of provider taxes or assessments

• Line 3 Answer yes if you received or expect to receive DSH and/or supplemental payments from Medicaid


• Line 4 If you answered yes to Line 3; enter yes if all of the DSH and/or supplemental payments you received from Medicaid are included in Line 2. Otherwise answer no and complete Line 5

• Line 5 Enter DSH and/or supplemental payments received or expects to receive from Medicaid not included on Line 2. Must be net of provider taxes or assessments What if your provider tax has been allowable and is

included in the cost to charge ratio from Worksheet C?


• Line 17 Enter the amount of all non-government grants, gifts, and investment income received that is restricted to funding uncompensated care or indigent care

• Line 18 Enter all grants, appropriations or transfers received or expected from government entities for purposes related to hospital operations (including but not limited to funding uncompensated care) Include 1011 funds for undocumented aliens, if applicable Do not include funds from government entities designated for

non-operating purposes (e.g., research or capital projects)


• Charity care defined as Hospital demonstrates patient unable to pay Patient qualifies under hospital’s charity care policy Includes full & partial charity care write-offs Excludes courtesy discounts Excludes discounts to uninsured who fail to qualify for charity Unpaid amounts associated with charity care are not considered as an

allowable Medicare bad debt• Line 20 is separated into two columns

Uninsured patients Insured patients

• Line 20 is used within E series for EHR computation


• Line 20 Charity Care Column 1 enter full charges of patients who are given a full or

partial charity write-off Column 2 for patients covered by a government or private

insurer enter the deductible and/or coinsurance payments given a charity write-off

• Non-covered services to Medicaid eligible patients or other indigent care programs can be included in charity care; if such inclusion is specified in the hospital’s charity care policy. Includes charges for days exceeding a length of stay

requirement Must answer the question on Line 24 and complete

Line 25


• Line 22 enter partial payments received or expected from patients who have been approved for partial charity care write-offs Exclude payments from payers

• The expected payment is necessary to not double dip bad debt and charity


• Bad Debt Line 26 Enter total facility charges for bad debts written off or expected

to be written off (bad debt expense) Exclude physician and/or other professional services Include the sum of all Medicare allowable bad debts (the

amount before the reduction) Insured patients do not include bad debts that are the

obligation of the insurer rather than the patient (e.g., denials)• Bad Debt Line 27

Enter the Medicare reimbursable bad debts (e.g., WS E Part A Line 65)

Additional To-do List

• Read “Assessing & Addressing Community Health Needs” from Catholic Health Association http://www.chausa.org/Assessing_and_Addressing_Community_Health_Needs.aspx

• Obtain and read a copies of Federal Rules and Regulations ( IRS Notice 2011-52)

• Consider Related Compliance, Operational and Public Relations Issues

• Any multi-disciplinary approach must include Finance personnel

• Make Certain that your Hospital and is compliant with 501(r)!

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http://www.chausa.org/Assessing_and_Addressing_Community_Health_Needs.aspx

Questions

Scott Bezjak, CPA

Senior Manager

[email protected]

513.562.5529

www.bkd.com

Documents

Understanding IRS’s Proposed Regulations related to 501(r), Schedule H, Part V Reporting and Schedule S-10 Reporting Presented by: Scott Bezjak, CPA Partner