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The Affordable Care Act (ACA) adds various new requirements that hospitals must meet to qualify for § 501(c)(3) status. These requirements—which are found in new subsection 501(r)—also mandate that the Internal Revenue Service (IRS) review each exempt hospital’s community benefit activities at least once every three years. Furthermore, the Secretary of the Treasury, in consultation with the Secretary of Health and Human Services, must report to Congress annually on levels of charity care, bad debt, and unreimbursed costs in government programs and must submit no later than 2015 a report on trends in these figures (See ACA § 9007(a), (c), and (e)).
The IRS formed a special group in March 2011 to conduct these statutorily required “stealth audits,” so called because, according to the 2012 IRS Work Plan, “these reviews are not examinations and the group does not expect to contact hospitals while conducting the reviews.” Instead, the IRS will merely “use the information gathered from the reviews for research, reporting and compliance purposes, as well as to identify areas where additional guidance, education or Form 990 changes are needed.”In addition to complying with new tax-exempt requirements, hospital finance and compliance leaders need to stay on top of how IRS stealth activities and reports may affect future tax rules and laws in their states and at the federal level.
The Work Plan promised that the IRS would work with the Treasury Department to develop guidance on the new requirements, and indeed proposed regulations were published in June of last year (77 Fed. Reg. 38148, Jun. 26, 2012). According to Kurt J. Bennion of the accounting firm CliftonLarsonAllen, an IRS official provided some details about the regulations at an American Health Lawyers Association conference in October 2012. Based on that presentation and his own analysis, Bennion summarizes the requirements that a hospital must meet as follows:
Bennion says hospitals must be vigilant to document their compliance with all existing community benefit standards. Policies and procedures should be reviewed, and tax advisors should ensure that IRS Form 990 and Schedule H are properly completed. Access related checklist: Checklist for Community Benefit Activities
For nearly two years, the IRS has been using Form 990 and its Schedule H, other IRS returns, and public records to gather information on not-for-profit hospitals’ community benefit activities. The new reviews required by the ACA will provide additional information, and they will be conducted at IRS facilities, rather than at hospitals. A hospital will be notified if the IRS determines that further examination is warranted. As the old adage goes, “no news is good news.” Bennion believes the term “stealth audits” is especially apt, and we are not likely to hear much about the topic for the next couple of years. This is because section 501(r) did not change the fundamental requirements for exempt status, it only added some new administrative burdens in the form of paperwork and documentation. As a result, “the audits will be a quiet data-gathering effort by the government, at a time when hospitals have other pressing issues to deal with,” such as ICD-10 and meaningful use compliance. Although other issues might be of more immediate concern, those relating to § 501(r) remain important and ought not to be overlooked. For example, consider these questions:
“As we review the literature and the results of needs assessments that have already been completed, we don’t see great variations across the country,” Bennion says. “Every community, however you define it, has essentially the same issues: access to care, poverty, obesity, smoking, diabetes, substance abuse, mental health, and so forth.” Although the relative incidence may vary little from place to place, the process of assessing the community’s health needs can be valuable for many hospitals. Given the costs involved, Bennion recommends considering a joint study with other organizations such as metropolitan or state hospital associations.
The greatest significance in these developments may be in how the information from the stealth audits may be used, says Bennion. The results might serve as a foundation for a change in the section 501(c)(3) exemption rules and state tax laws. A clear definition of the word “charity” has always been elusive, especially as it applies to health care. The tax exemption of hospital corporations has been under attack for more than a quarter century—at least since the famous case of Utah County v. Intermountain Health Care, Inc. (709 P. 2d 265,Utah. 1985). Bennion says another reexamination of tax exemption may be in the offing given the amount of potential revenue at stake. He estimates that the elimination of hospitals’ federal tax exemption would produce around $140 billion in revenue annually, and if state exemptions were eliminated the total would be much higher. “When the government’s summary of hospital information is released to the public, state governments could use it to modify their laws on exemption from income tax, property tax, and sales and use tax.” But Bennion is quick to add, “I’m not saying this would be good policy or would be politically popular, but the justification for hospitals’ exempt status is an issue that won’t go away.” The Treasury/HHS report to Congress is scheduled for 2015, the year before the next national election. Given that such volatile issues tend to be addressed only in a President’s second term, it seems unlikely that § 501(c)(3) will be substantially amended until at least 2021, if at all. “But in the meantime, Bennion says, “the states will certainly be looking at property tax exemptions and other sources of revenue.”
J. Stuart Showalter, JD, MFS, is a contributing editor to HFMA’s Legal & Regulatory Forum.Interviewed for this article: Kurt J. Bennion, CPA, CliftonLarsonAllen, Minneapolis, Minn., and a member of HFMA’s Minnesota Chapter (Kurt.Bennion@cliftonlarsonallen.com).
Forum members: Please share your insights, questions, and comments about this article. You can use the "inshare" button at the top of this web page or visit the Legal & Regulatory Forum’s LinkedIn discussion board.
Publication Date: Thursday, March 21, 2013
A leader from McKesson discusses how healthcare reform is forcing hospitals and health systems to take a different approach to capacity management and patient flow.
Patient financial engagement is more challenging than ever – and more critical. With patient responsibility as a percentage of revenue on the rise, providers have seen their billing-related costs and accounts receivable levels increase. If increasing collection yield and reducing costs are a priority for your organization, the metrics outlined in this presentation will provide the framework you need to understand what’s working and what’s not, in order to guide your overall patient financial engagement initiatives and optimize results.
Emad Rizk, MD, president and CEO of Accretive Health, discusses the uncertainty facing hospitals and the transitions affecting revenue cycle management.
No two patients are the same. Each has a very personal healthcare experience, and each has distinct financial needs and preferences that have an impact on how, when and if they chose to pay their healthcare bill. It’s no longer effective to apply static billing techniques to solve the complex challenge of collecting balances from patients. The need to tailor financial conversations and payment options to individual needs and preferences is critical. This presentation provides 10 recommendations that will not only help you improve payment performance through a more tailored approach, but take control of rising collection costs.
Jim Bohnsack, vice president, solution & corporate development for Conifer Health Solutions, explains how the company helps healthcare providers leverage data to deliver better outcomes while optimizing reimbursement for all payment arrangements.
This white paper, written by Apex Vice President of Solutions and Services, Carrie Romandine, discusses the importance of patient segmentation and messaging specifically related to the patient revenue cycle. Applying strategic messaging that is tailored to each patient type will not only better educate consumers on payment options specific to their billing needs, but it will maximize the amount collected before sending to collections. Further, targeted messaging should be applied across all points of patient interaction (i.e. point of service, customer service, patient statements) and analyzed regularly for maximized results.
Steve Scibetta, senior director of channel sales for Ontario Systems' healthcare product line, shares insights into effectively managing receivables.
This white paper, written by Apex President Patrick Maurer, discusses methods to increase patient adoption of online payments. Providers are now seeking ways to incrementally collect more payments due from patients as well as speeding up the rate of collections. This white paper shows why patient-centric approaches to online payment portals are important complements to traditional provider-centric approaches.
Elena White, vice president of risk, quality, and network solutions for Optum, discusses how healthcare providers can leverage data and technology as they enable risk in their organization.
Increased electronic engagement between healthcare providers and patients provides significant opportunities for improving revenue cycle metrics and encouraging patients to access EHRs. This article, written by Apex Founder and CEO Brian Kueppers, explores a number of strategies to create synergy between patient billing, online payment portals and electronic health record (EHR) software to realize a high ROI in speed to payment, patient satisfaction and portal adoption for meaningful use.
Somnia President and CEO Marc Koch, MD, MBA, explains how hospitals can drive transformative change in the perioperative experience for outstanding clinical and financial outcomes.
Faced with a rising tide of bad debt, a large Southeastern healthcare system was seeing a sharp decline in net patient revenues. The need to improve collections was dire. By integrating critical tools and processes, the health system was able to increase online payments and improve its financial position. Taking a holistic approach increased overall collection yield by 10% while costs came down because the number of statements sent to patients fell by 10%, which equated to a $1.3M annualized improvement in patient cash over a six-month period. This case study explains how.
PMMC President Roger L. Shaul discusses the effects of healthcare reform on revenue cycle management and how PMMC's products help clients adapt to a changing financial environment.
With the ICD10 deadline quickly approaching and daily responsibilities not slowing down, final preparations for October 1 require strategic prioritization and laser focus.
Greg Burgess, Founder and Chief Product Officer at Burgess Group shares insights and opportunities for payment integrity in the rapidly changing healthcare IT landscape.
Read how Gwinnett Medical Center provides clear connections to financial information, offers multiple payment options for patients, and gives onsite staff the ability to collect payments at multiple points throughout the care process.
Read how Orlando Health was able to perform deeper dives into claims data to help the health system see claim rejections more quickly–even on the front end–and reduce A/R days.
To maintain fiscal fitness and boost patient satisfaction and loyalty, healthcare providers need visibility into when and how much they will be paid–by whom–and the ability to better navigate obstacles to payment. They need payment clarity. This whitepaper illuminates this concept that is winning fans at forward-thinking hospitals.
Financial services staff are always looking for ways to improve the verification, billing and collections processes, and Munson Healthcare is no different. Read about how they streamlined the billing process to produce cleaner bills on the front end and helped financial services staff collect more than $1 million in additional upfront annual revenue in one year.
Effective revenue cycle management can be a challenge for any hospital, but for smaller providers it is even tougher. Read how Wallace Thomson identified unreimbursed procedures, streamlined claims management, and improved its ability to determine charity eligibility.
Before launching an energy-efficiency initiative, it’s important to build a solid business case and understand the funding options and potential incentives that are available. Healthcare leaders should consider taking the steps outlined in the whitepaper to ease the process of gaining approval, piloting, implementing, and supporting sustainability projects. You will find that investing in sustainability and energy efficiency helps hospitals add cash to their bottom line. Discover how hospitals and health systems have various options for funding energy-efficient and renewable-energy initiatives, depending on their current financial structure and strategy.
Health care is a dynamic mergers and acquisitions market with numerous hospitals and health systems contemplating or pursuing formal arrangements with other entities. These relationships often pose a strategic benefit, such as enhancing competencies across the continuum, facilitating economies of scale, or giving the participants a competitive advantage in a crowded market. Underpinning any profitable acquisition is a robust capital planning strategy that ensures an organization reserves sufficient funds and efficiently onboards partners that advance the enterprise mission and values.
The success of healthcare mergers, acquisitions, and other affiliations is predicated in part on available capital, and the need for and sources of funding are considerations present throughout the partnering process, from choosing a partner to evaluating an arrangement’s capital needs to selecting an integration model to finding the right money source to finance the deal. This whitepaper offers several strategies that health system leaders have used to assess and manage capital needs for their growing networks.
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