WEALTH ADVISORY | OUTSOURCING | AUDIT, TAX, AND CONSULTING To change the icon on this slide: Go to View / Slide Master Right click on the icon, select

WEALTH ADVISORY | OUTSOURCING | AUDIT, TAX, AND CONSULTING

Investment advisory services are offered through CliftonLarsonAllen Wealth Advisors, LLC, an SEC-registered investment advisor. | ©2015 CliftonLarsonAllen LLP

501(r)’s Strategic DecisionsKurt Bennion, CPA

HFMA 2015 Fall ConferenceNovember 20, 2015

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WEALTH ADVISORY | OUTSOURCING | AUDIT, TAX, AND CONSULTING 2

Agenda

• Background• Financial Assistance Policy• Emergency Medical Care Policy• Limitation on Charges• Extraordinary Collection Actions• Community Health Needs Assessments

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Learning Objectives

At the end of this session, you will be able to:

• Understand the compliance requirements for section 501(r) and the related final regulations.

• Understand the areas in which a hospital has flexibility to operate within section 501(r)’s constraints.

• Understand the strategic decisions that should be made in becoming 501(r)-compliant and how they impact your hospital.

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501(r) Applicability

• 501(r) applies to all hospitals with 501(c)(3) status.– Governmental hospitals that also have 501(c)(3) status.

• If an organization operates multiple hospitals, then each hospital must individually comply with 501(r).

• A facility is a “hospital” if it has a state-issued hospital license.– Regardless of the number of buildings or their locations.

• The final regulations are effective for tax years beginning after December 29, 2015.

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501(r) – The Law

• A hospital is not exempt under 501(c)(3) unless it:– Meets the community health needs assessment

requirements;– Meets the financial assistance policy requirements;– Meets the limitation on charges requirements; and– Meets the billing and collection requirements.

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Penalties for Noncompliance

• Violation of any part of 501(r) can result in the hospital losing its tax-exempt status.

• Violation of the CHNA requirement also results in a $50,000 excise tax per year.

• If an organization owns/operates multiple hospitals:– The $50,000 tax is per hospital.– Rather than revoking the 501(c)(3) status of the entire

organization, the violating hospital becomes fully taxable. ◊ Report all income and expenses on Form 990-T.

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Safe Harbors

• Safe Harbor #1 – An omission or error is not a failure if:– It was minor;– It was either inadvertent or due to reasonable cause; and– The hospital corrects it as promptly as is reasonable.

• Safe Harbor #2 – an omission or error is excused if:– It was neither willful nor egregious;– The hospital corrects it as promptly as is reasonable; and– The hospital discloses it, either in the next Form 990 or on the

hospital’s website.

• Either safe harbor can be used to avoid loss of 501(c)(3) status.• Only safe harbor #1 can be used to avoid the $50,000 excise tax.

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Significant Decisions – Safe Harbors• Who is responsible for monitoring compliance and implementing

safeguards to avoid future problems?• Who will maintain records to report failures on Form 990?

– Describe the nature of the failure– The cause of the failure– The hospital where the failure occurred– The date(s) of the failure– The date of discovery– The number of occurrences– The method of correction– The date of correction– If applicable, how affected individuals were “restored”– The practices and procedures the hospital revised or newly established to

minimize the likelihood of recurrence

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Policies

• A policy is established when:– The written policy is adopted by the an authorized body;

and– The hospital consistently follows the policy in practice.

• An authorized body is:– The Board;– A committee of the Board; or– Another party authorized by the Board.

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The Law – Financial Assistance Policy

• The hospital must have a written FAP that includes:– Eligibility criteria for financial assistance, and whether such

assistance includes free or discounted care;– The basis for calculating amounts charged to patients;– The method of applying for financial assistance;– The actions the hospital may take in the event of non-

payment; and– Measures to widely publicize the policy within the

community.

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Significant DecisionsFinancial Assistance Policy• Will billing and collection information be included in your

FAP or a separate billing & collection policy?• How will you define “medically necessary care?”• How will you notify and inform the community about

financial assistance?• Should you modify your financial assistance eligibility

criteria or benefits?• Who will authorize various changes to the FAP?• Who is responsible for ensuring continuous compliance?• Who will you indicate is available to help complete

applications?

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The Law – Emergency Medical Care Policy

• The hospital must have a written emergency care policy that requires the hospital to provide care for emergency medical conditions without discrimination and regardless of the individual’s eligibility under the hospital’s FAP.

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Final Regulation – Emergency Medical Care Policy

• The hospital must establish a written policy that:– Requires the hospital to provide care for emergency

medical conditions without discrimination and regardless of whether the individual is FAP-eligible.

– Prohibits the hospital from engaging in actions that discourage individuals from seeking emergency medical care.

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Significant DecisionsEmergency Medical Care Policy• Will you include the necessary emergency medical

care language in the FAP or in a separate policy?• Do you take any actions that could be interpreted as

discouraging people from seeking emergency medical care?

• Who is responsible for ensuring continuous compliance?

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The Law – Limitation on Charges

• The hospital must:– Limit the amount charged for medically necessary care

provided to FAP-eligible individuals to no more than the amounts generally billed to individuals who have insurance covering such care; and

– Prohibit the use of gross charges.◊ The IRS determined that “use” means “charge”.

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Final Regulation – Limitation on Charges

• For emergency and other medically necessary care, the hospital cannot charge FAP-eligible individuals more than amounts generally billed (“AGB”) for such care.

• For other medical care covered by the FAP, the hospital cannot charge the gross charge (“chargemaster”) amount to FAP-eligible individuals.

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• AGB can be calculated using either the look-back method or the prospective method.– A hospital can only use one method at a time.– A hospital can change methods as often as it wants.

◊ The FAP and procedures must be updated for the change.– The IRS includes language allowing them to add more

methods in the future as payment models evolve.

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• Look-Back Method:– Calculate the following ratio for the prior 12-month period.

– “Health Insurers” means any one of the following:◊ Medicare fee-for-service only◊ Medicaid only◊ Medicaid and Medicare fee-for-service◊ Medicare fee-for-service and all private health insurers◊ Medicaid, Medicare fee-for-service and all private health insurers

AGB = All Claims Allowed by Health Insurers Gross Charges for Those Claims

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• The numerator should include:– All claims allowed during the 12-month period.

◊ “Allowed” = approved by third-party payer– All payments owed by the individual, including co-pays, co-

insurance and deductibles, regardless of whether they have been paid.

• The calculation can include:– Only medically necessary care; or– All medical care.

AGB = All Claims Allowed by Health Insurers Gross Charges for Those Claims

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• Look-Back Method:– AGB must be calculated at least annually.

◊ Can be calculated more often, but always includes a full 12 months in the calculation.

– The hospital must use the new AGB within 120 days of the 12-month period.

– A hospital cannot use a sample of claims.– A hospital can calculate one overall AGB % or multiple AGB

%’s for separate categories of care.◊ Inpatient vs. outpatient◊ By department◊ By item / service

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• Prospective Method:– Use the billing and coding process the hospital would use if

the individual were covered by Medicaid or Medicare fee-for-service.

– Limit the charges to the amount Medicare or Medicaid would allow for the care.

◊ Including any co-pays, co-insurance and deductibles due by the individual.

• The hospital can choose whether to use Medicare, Medicaid or both.– If both, the FAP must explain when each method is used.

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Significant Decisions – Limitation on Charges

• Will you use the Look-Back Method or the Prospective Method to calculate AGB?

• If the Prospective Method is chosen, will you use Medicare, Medicaid or both?– If both, in which situation(s) will you use each?

• If the Look-Back Method is chosen, which of the following will you use?– Medicare fee-for-service only– Medicaid only– Medicare fee-for-service and Medicaid– Medicare fee-for-service and all private health insurers– Medicare fee-for-service, Medicaid, and all private health insurers

• Who is responsible for continuous compliance?

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The Law – Billing and Collection

• The hospital must not engage in extraordinary collection actions before making reasonable efforts to determine whether an individual is FAP-eligible.

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Final Regulation – Billing and Collection

• Extraordinary collection actions include:– Selling a debt;– Reporting adverse information to a consumer credit

reporting agency or credit bureau;– Deferring or denying medically necessary care because the

individual hasn’t paid a previous liability;– Requiring payment before providing medically necessary

care because the individual hasn’t paid a previous liability; and

– Any action that requires a legal or judicial process.◊ Examples: liens, lawsuits, garnishments, foreclosures, attachments,

seizure and arrests

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• Extraordinary collection actions do not include:– A lien asserted on the proceeds of a judgment, settlement or

compromise owed to an individual as a result of a personal injury for which the hospital provided care;

– Filing a bankruptcy claim;– Selling a debt if, prior to the sale, the hospital enters a legally binding

agreement with the buyer in which:◊ The buyer is prohibited from taking any ECAs to obtain payment;◊ The buyer is prohibited from charging interest on the debt in excess of the rate

in effect under §6621(a)(2) at the time the debt is sold;◊ The debt is returnable or callable if the hospital determines that the individual is

FAP-eligible; and◊ If the individual is determined to be FAP-eligible and the debt is not returned to

the hospital, the buyer is required to adhere to conditions in the agreement to ensure the individual is not required to pay more than AGB.

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• Reasonable Effort Method #1:– Use a prior FAP application or 3rd-party information to

presumptively determine an individual is FAP-eligible.– If determination is that the person qualifies for discounted care:

◊ Inform the individual of the determination;◊ Explain how the determination was made;◊ Explain that better financial assistance may be available if they complete a

FAP application;◊ Explain how to apply for financial assistance; and◊ Accept a FAP application submitted within the 240-day window.

– This method cannot be used to presumptively determine an individual is not eligible for financial assistance.

◊ It can be used to make a determination of the likely outcome.◊ A signed waiver is not sufficient.

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• Reasonable Effort Method #2:– Notify the individual about financial assistance before

initiating any ECAs;– Refrain from initiating any ECAs for at least 120 days after

sending the first post-discharge billing statement;– If a person submits an incomplete FAP application, notify

them of what is missing and give them time to submit it; and

– If a person submits a complete FAP application, determine whether they are FAP-eligible.

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Significant Decisions – Billing and Collection

• What extraordinary collection actions will you allow or prohibit?

• Will you initiate any extraordinary collection actions before the 240-day window has closed?

• Will you allow any third parties to take an extraordinary collection action on your behalf?– If so, how will you ensure those actions are taken at the

appropriate time?• Will you use any 3rd-party information to presumptively

determine an individual’s FAP-eligibility?• Who is responsible for continuous compliance?

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The Law - CHNAs

• The community health needs assessment (“CHNA”) requirements: – Every three years, the hospital must:

◊ Conduct a CHNA; and◊ Adopt an implementation strategy to meet the identified

community health needs.

– The CHNA must:◊ Take into account input from persons who represent the broad

interest of the community, including those with special health knowledge or expertise in public health; and

◊ Be made widely available to the public.

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Final Regulation - CHNAs

• The CHNA process: every three years, a hospital must:– Define the hospital’s community;– Assess the health needs of the community;

◊ Take into account input from persons who represent the broad interests of the community, including those with special knowledge or expertise in public health

– Document the CHNA process in a CHNA Report that was adopted by an authorized body;

– Make the CHNA Report widely available to the public; and– Develop an Implementation Strategy that responds to the

identified community health needs and that was adopted by an authorized body.

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501(r): Significant Decisions - CHNA

• At what meeting will the CHNA Report be presented to the Board of Directors for approval?

• At what meeting will the Implementation Strategy be presented to the Board of Directors for approval?

• Based on that deadline, when should the CHNA process begin?

• Should you make any significant changes from the process used to conduct the last CHNA?– Joint CHNAs with any other entities (as long as same

communities)?

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WEALTH ADVISORY | OUTSOURCING | AUDIT, TAX, AND CONSULTING

Kurt Bennion, CPA(612) 397-3072

[email protected]

Questions & Answers

Documents

WEALTH ADVISORY | OUTSOURCING | AUDIT, TAX, AND CONSULTING To change the icon on this slide: Go to View / Slide Master Right click on the icon, select