Review of Intermediate Sanctions

1
Review of Intermediate Sanctions

• ABA Meeting
• September 17, 2003

2
Intermediate Sanctions Overview

• Legislation passed in 1996 via Taxpayers Bill of
  Rights 2
  
• Prohibits excess benefit transactions for
  disqualified persons and organization managers
  
• Penalty excise taxes imposed upon
• Disqualified Persons (25 excise tax )
• Organization Managers (10 excise tax up to
  10,000)
  
• Public Disclosure of incidents reported on Form
  990
  
• Safe Harbor via Rebuttable Presumption of
  Reasonableness
  
• Fair Market Value comparability data
• Adequately Documented
• Approved by Board of Trustees (or committee
  authorized by Board)
  

3
Intermediate Sanctions

• What are Intermediate Sanctions?
• Penalty excise taxes imposed upon individuals
  related to or involved with
  
• Any transaction in which the economic benefit
  provided by a tax-exempt organization to a
  disqualified person exceeds the value of the
  consideration or services received
• Certain revenue-sharing arrangements with
  disqualified persons
  

4
Disqualified Persons

• Any person who is in a position to exercise
  substantial influence over the affairs of an
  organization.
  
• The IRS will consider the persons influence
  during the five-year period preceding the
  transaction.
  

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Penns Potential Disqualified Persons

• Trustees
• Overseers
• Donors
• Officers
• Senior Executives in the Health System

• Deans Vice Deans
• Department Chairs
• Basic Science Chairs
• Physicians
• Faculty
• Others ?

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Organization Manager

• Defined as any individual having powers or
  responsibilities similar to those of officers,
  directors, or trustees of the organization.
  
• 10 Excise Tax on the excess benefit
  transaction.
  
• The maximum tax collectible from organization
  managers for any excess benefit transaction is
  10,000.
  

7
IRIS Program

• Phase I Educate Penns Organization Managers
  and Disqualified Persons on Intermediate
  Sanctions risks and identify areas of potential
  concern
• Phase II Detailed Review of policies and
  procedures in six areas identified in Phase I
  
• Conflicts of Interest
• Non-employee Physician Compensation
• Executive Compensation
• Faculty Compensation
• Technology Transfer
• Clinical Practice Plan Administration
• Phase III Process improvement and policy
  development sessions were held with the intent of
  making recommendations for improvement in the
  first three areas listed above
• Phase IV consists of education and awareness

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Goals and Objectives ofFacilitated Sessions

• Validate and clarify facts
• Identify workable solutions to improve controls
• Help ensure compliance with Intermediate
  Sanctions
  
• Benefit whenever possible from Rebuttable
  Presumption
  
• Develop procedures that result in adequate and
  timely documentation
  
• Assign responsibilities and set deadlines for
  improvements
  
• Prioritize solutions for greatest impact at
  reasonable cost
  
• Plan for solutions requiring more significant
  investment
  
• Keep improvement process moving forward

9
Non-Employee Physician CompensationShort-term
Recommendations

• Provide education sessions to physicians on the
  personal risk from Intermediate Sanctions and the
  steps necessary to protect themselves from
  unnecessary exposure.
• Draft consistent policies for compensation
  arrangements for all Penn non-employee
  physicians.
  

10
Non-Employee Physician CompensationMid-term
Recommendations

• Develop standard contracts for use in all
  non-employee physician arrangements that utilized
  standardized job descriptions.
  
• Develop Penn system-wide rates for non-employee
  physician compensation with distinction between
  professional and administrative assignments.
  
• Create contract review sheet requiring approval
  of contract at appropriate level.
  
• Develop payment system for non-employee physician
  arrangements that highlights physician efficiency
  and skill in job performance.
  
• Establishment of measurable goals and objectives
  for the physician to follow.
  
• Create a streamlined physician activity
  monitoring system that minimizes physician
  paperwork while still providing adequate
  documentation.

11
Non-Employee Physician CompensationLong-term
Recommendations

• Utilize specific individuals in the Office of
  General Counsel and the health system operating
  unit for contract oversight and monitoring to
  ensure adherence to contract terms.
• Periodic monitoring by Penns Office of Audit and
  Compliance.

12
Conflicts of InterestShort-term Recommendations

• Assign Responsibility for COI Processa
  department or individual needs to be held
  accountable for putting together a work plan and
  successfully managing the COI process going
  forward.
• EducationAdditional education on Intermediate
  Sanctions needs to be available to key Penn
  personnel and board members.
  
• Executive Briefing on Intermediate Sanctions to
  the Council of Deansthis important group needs
  additional education in this area and possibly an
  annual update.

13
Conflicts of InterestMid-term Recommendations

• Web SiteA web site needs to be designed as a
  single point of information on all Conflicts of
  Interest policies and other useful information
  such as campus contacts for help or information,
  copies of forms, definitions, education tools,
  etc.
• Event-driven Disclosureimplement a disclosure
  process for events occurring between the annual
  disclosure dates.
  
• Database of Substantial Donorsmaintain a list of
  these Disqualified Persons as an additional
  check of parties involved in any major Penn
  transaction.
• Disclosure Process for New Hiressuch a
  disclosure would allow for timely resolution of
  any potential issues.
  

14
Conflict of InterestLong-term Recommendations

• Conflicts of Interest Major Transaction Review
  Processsimilar to the database for major donors,
  maintain a database for all potential Penn
  Disqualified Persons as an extra check of
  parties to major transactions
• COI Disclosure Process for Major Vendorsvendors
  who exceed a certain dollar threshold of activity
  with Penn should be required to make an annual
  conflicts disclosure
• Penn Tips on Conflicts Brochurepocket sized
  reference guide with web site address,
  definitions, contacts, etc.
  

15
Conflicts of InterestLong-term Recommendations

• Standardization of Penn Conflict Policiesbegin
  to standardize certain sections of policy or
  combine policies where possible.
  
• Leverage Technology to Improve the Collection of
  Conflicts Statements and Simplify the Follow-up
  and Process Managementthis would help ensure a
  timely and automated collection of disclosure
  statements and simplification of the handling of
  disclosed conflicts. It would also allow for the
  electronic storage and retrieval of statements in
  a single location which would be extremely
  helpful in the event of an IRS audit.

16
Executive CompensationShort-term Recommendations

• Clarify Policy for Taking, Maintaining, and
  Approving Minutes for the Executive Compensation
  Committee and the Information that Must be
  Submitted to the Committee before an Employment
  Offer is Extendedthe Rebuttable Presumption
  requires proper and timely approved minutes and
  the offer before it is extended.
• Formalize Guidelines for the Involvement of the
  Offices of General Counsel and Human Resources in
  the Executive Compensation Processtimely
  involvement of these critical technical resources
  should be ensured for all executive compensation
  packages.

17
Executive CompensationMid-term Recommendations

• SOM Needs a Formal Policy for Review and Approval
  of Executive (administrative leadership)
  Compensationresponsibility needs to be assigned
  to either the Penn or Penn Medicine Executive
  Compensation Committee for proper review and
  approval.
• Form Policy on When the Rebuttable Presumption
  Should be Utilizedspecific steps and
  documentation should be required for a certain
  level of compensation to provide Penn with the
  additional protection of the provision.
• Implement Process for Compensation Review for
  Clinical Chairs (and former chairs)there does
  not currently appear to be a formalized process
  for proper review and approval.
• Capture and Aggregate Compensation from Multiple
  SourcesSome SOM employees currently receive Penn
  compensation from at least three different
  sources with no easy method for tracking to
  ensure overall reasonableness of compensation.

18
Executive CompensationLong-term Recommendations

• Implement Mid-Year Approval Process for Change in
  Benefits or Compensationcurrently any mid-year
  adjustments are not reviewed until the next
  annual period.
• Evaluate the Approval Process for Compensation
  for Vice-Deanstimely review, approval, and
  documentation of the compensation process are key
  elements to protect Penn in an IRS audit.