Understanding IRS

1
Understanding IRSs Proposed Regulations related
to 501(r), Schedule H, Part V Reporting and
Schedule S-10 Reporting

• Presented by

Scott Bezjak, CPAPartnerBKD, LLP
2
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

3
Overview of Section 501(r)(3) 501(r)(6)
4
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)

5
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

6
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

7
IRC Section 501(r)(4)

• 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

8
IRC Section 501(r)(5)

• 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

9
IRC Section 501(r)(6)

• 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

10
Overview of IRC Section 501(r)
Section Requirement Effective Date
501(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. Taxable years beginning after March 23, 2010  
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. Taxable years beginning after March 23, 2010  
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. Taxable years beginning after March 23, 2010  
11
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

12
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?

13
Proposed Regulations

• Sections 501(r)(4) 501(r)(6) Proposed
  Regulations

14
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

15
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

16
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

17
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

18
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 gt 10 of hospitals
  community)
• Public display measures
• Measures to inform and notify members of the
  hospitals community
• Measures to make the FAP, application form, and a
  plain language summary available on the website

19
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

20
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

21
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

22
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

23
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

24
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

25
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 individuals debt to another party

26
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

27
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

28
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

29
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

30
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

31
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

32
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

33
Section 501(r)(3) and IRS Notice
2011-52Anticipated Regulatory Provisions
34
IRS Notice 2011-52

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

35
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

36
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

37
IRS Notice 2011-52 Anticipated Regulatory
Provisions

• 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

38
IRS Notice 2011-52 Anticipated Regulatory
Provisions

• 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.

39
IRS Notice 2011-52 Anticipated Regulatory
Provisions

• 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

40
IRS Notice 2011-52 Anticipated Regulatory
Provisions

• 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

41
IRS Notice 2011-52 Anticipated Regulatory
Provisions

• 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 Summary of Initial Cycle for CHNA Summary of Initial Cycle for CHNA Summary of Initial Cycle for CHNA Summary of Initial Cycle for CHNA
Year End Beginning 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
42
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!

43
CHNA Planning ExecutionSample Time Line
44
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

45

• IRS Form 990, Schedule H

46
Reporting Requirements

• Affordable Care Act added two specific reporting
  requirements to 6033(b).
• 6033(b)(10)(D) - hospital organization required
  to report on Form 990 amount of excise tax
  imposed under 4959
• 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

47
Reporting Requirements

• 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.

48
Reporting Requirements

• 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.

49
Reporting Requirements

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

50
To-Do Item

• Evaluate whether your Hospitals 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!

51
Reporting Requirements

• 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

52
Reporting Requirements

• 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.

53
Schedule H, Part V Section B
54
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.

55
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.
• States department of health or similar state
  department responsible for licensing hospitals.

56
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

57
To-Do Item

• Make certain that your CHNA and Implementation
  Strategy will include the documentation required
  to complete Schedule H of the Hospitals Form 990
• Can you sit with your CHNA document and
  Implementation Strategy and check yes to the
  questions on Schedule H?

58

• Medicare Cost Report Worksheet S-10

59
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

60
S-10 Uncompensated Care

• 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

61
S-10 Uncompensated Care

• 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?

62
S-10 Uncompensated Care

• 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)

63
S-10 Uncompensated Care

• Charity care defined as
• Hospital demonstrates patient unable to pay
• Patient qualifies under hospitals 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

64
S-10 Uncompensated Care

• 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 hospitals charity care policy.
• Includes charges for days exceeding a length of
  stay requirement
• Must answer the question on Line 24 and complete
  Line 25

65
S-10 Uncompensated Care

• 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

66
S-10 Uncompensated Care

• 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)

67
Additional To-do List

• Read Assessing Addressing Community Health
  Needs from Catholic Health Association
• http//www.chausa.org/Assessing_and_Addressing_Com
  munity_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)!

68
Questions
69
Scott Bezjak, CPA
Senior Manager
sbezjak_at_bkd.com 513.562.5529 www.bkd.com