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TAX UPDATE PowerPoint Presentation

TAX UPDATE

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TAX UPDATE

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  1. TAX UPDATE TAHFA April 18, 2014

  2. AGENDA • 501(r) Update • Camp Tax Reform Legislation • 2013 Form 990 Update • Unrelated Business Income issues for health care organizations • Foreign reporting issues for health care organizations

  3. Section 501(r)(4)-(6) Update

  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 Regulations on requirements described in 501(r)(4) – (r)(6) (June 22, 2012)

  5. Background • Proposed Regulations on requirements described in 501(r)(3) (April 5, 2013) • Notice 2014-2 – IRS confirms that tax-exempt hospital organizations can rely on proposed regulations contained in notices of proposed rulemaking published June 26, 2012 and April 5, 2013 (December 30, 2013) • Notice 2014-3 – IRS addressed procedures for hospital organizations to disclose and fix failures (December 30, 2013)

  6. Hospital Facilities • Licensed, registered or similarly recognized by state as hospital • May treat multiple buildings operated under single state license as 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 (several comments regarding applicability in public hearing)

  7. IRC Section 501(r)(4) • Financial Assistance Policy (FAP) • Eligibility criteria • Basis for calculating amounts charged • Method for applying • If no separate billing & collection policy exists, actions organization may take in event of nonpayment • Measures to widely publicize policy • Policy relating to emergency medical care

  8. IRC Section 501(r)(4) • Financial Assistance Policy (FAP) • May publicize summary of FAP as certain information may change regularly (such as federal poverty references) • No mandate for particular eligibility criteria • Must state amounts, such as gross charges, to which any discount percentages will be applied

  9. Schedule H, Part V-Financial Assistance Policy

  10. Schedule H, Part V-Emergency Medical Care

  11. Eligibility Criteria & Basis Calculating Amounts Charged • Must state that FAP eligible patient will not be charged more than amounts generally billed (AGB) for emergency or other medically necessary care • Must state which of IRS permitted methods will be used to determine AGB • Must either state % of gross charges hospital facility applies to determine AGB & how these AGB percentages were calculated or how members of public may readily obtain this information in writing free of charge

  12. Method for Applying & Actions Taken for Nonpayment • Financial assistance may not be denied based on omission of information not specifically required by FAP or FAP application form • Must describe actions that may be taken in event of nonpayment if no separate billing &collections policy exists • Must describe process & time frames hospital will use in taking these actions, including reasonable efforts to determine if individual is FAP eligible • Must describe who has final authority for determining hospital has made reasonable efforts

  13. Widely Publicizing • Four types of measures required • Measures taken to make paper copies of FAP, FAP application & plain language summary available (in English & language of minority populations comprising > 10% of hospital’s community) • One commenter suggested a 5% or 500 patient threshold • Public display measures • Measures to inform & notify members of hospital’s community • Measures to make FAP, application form & plain language summary available on website

  14. Establishing FAP • Authorized body must adopt policy & hospital must implement the policy • Authorized body includes • Governing body • Committee of governing body permitted under state law to act on behalf of governing body • Other parties authorized by governing body of hospital to act on its behalf

  15. 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 FAP to not more than amounts generally billed to individuals having insurance covering such care • Prohibits use of gross charges

  16. Schedule H, Part V-Limitations on Charges

  17. Gross Charges • May use gross charges as starting point to which discounts are applied • Safe harbor provided for situations where individual does not complete FAP application before time of charges

  18. Limitations on Charges • Must limit charges to FAP-eligible patients to not more than AGB to individuals with insurance covering that care & charges must be less than gross charges • Two methods for computing AGB • Look-back method • Prospective method • A hospital facility may use only one of the methods to determine AGB • After choosing a particular method, a hospital facility must continue to use that method • Claims paid under Medicare Advantage are treated as claims paid by private insurance

  19. Look-Back Method • Based on actual claims paid (in full) to hospital by either Medicare fee-for-service only or Medicare fee-for-service together with all private health insurers paying claims • Must calculate AGB percentages no less than annually by dividing sum of certain claims paid by sum of associated gross charges • Calculated by multiplying gross charges by one or more AGB percentages

  20. Look-Back Method • Must begin applying AGB percentages by 45th day after end of 12-month period used in calculation (one commenter suggested a 75 – 90 day window to more closely coincide with revenue cycle) • May calculate one average AGB percentage for all emergency and medically necessary care or multiple AGB percentages for separate categories of care as long as the hospital facility calculates an AGB percentages for all emergency and other medically necessary care

  21. Prospective Method • Determine AGB by using same billing & coding process hospital would use if individual were Medicare fee-for-service beneficiary

  22. Limitation on Charges • Example • On September 20 of year 1, X, a hospital facility, generates data on all claims paid to it in full for emergency or other medically necessary care by Medicare fee-for-service as the primary payer over the 12 months ending on August 31 of year 1. X determines that, of these claims for inpatient services, it received a total of $80 million from Medicare and another $20 million from Medicare beneficiaries in the form of co-insurance or deductibles. X’s gross charges for these inpatient claims totaled $250 million. Of the claims for outpatient services, X received a total of $100 million from Medicare and another $25 million from Medicare beneficiaries. X’s gross charges for these outpatient claims totaled $200 million. X calculates that its AGB percentage for inpatient services is 40 percent of gross charges ($100 million/$250 million) and its AGB percentage for outpatient services is 62.5 percent of gross charges ($125 million/$200 million). Between October 15 of year 1 (45 days after the end of the 12-month claim period ) and October 14 of year 2, X determines AGB for any emergency or other medically necessary inpatient care it provides to the FAP-eligible individual by multiplying the gross charges for the inpatient care it provides to the individual by 40% and AGB for any emergency or other medically necessary outpatient care it provides to a FAP-eligible individual by multiplying the gross charges for the outpatient care it provides to the individual by 62.5%.

  23. IRC Section 501(r)(6) • 501(r)(6) – Billing &Collection Requirement • May not engage in extraordinary collection actions before organization has made reasonable efforts to determine whether individual is eligible for assistance

  24. Schedule H, Part V-Billing and Collections

  25. Schedule H, Part V -Billing and Collections

  26. Billing & 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

  27. Reasonable Efforts • Notify individual about FAP • If individual provides incomplete application, provide them with information relevant to complete application • Make & document determination as to whether individual is FAP-eligible

  28. Notification Period • Period in which hospital must notify individual about FAP • Begins on date care is provided & ends on 120th day after hospital provides first billing statement

  29. Application Period • Must accept & process FAP applications during longer period that ends on 240th day after hospital provides individual with first billing statement • Many comments suggest this is too long

  30. Notification About FAP • Must distribute plain language summary of FAP & offer an application before discharge • Must distribute plain language summary of FAP with all (& at least 3) billing statements during notification period • Must inform individual of FAP in all oral communications during notification period • Must provide at least one written notice about ECAs hospital may initiate if individual does not submit FAP application or pay amount due by last day of notification period

  31. Plain Language Summary • Brief description of eligibility requirements & assistance offered • Direct website address & physical location copies may be obtained • Instructions on how to obtain 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

  32. Incomplete FAP Applications • If received during application period, 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 individual does not complete by deadline that is no earlier than later of 30 days from written notice or last day of application period

  33. Complete FAP Applications • If received during application period, hospital must • Provide billing statement indicating amount owed • Refund any excess payments made by individual • Take all reasonably available measures to reverse any ECA

  34. Billing and Collection • Example • Individual A receives care from hospital facility T on February 1 and February 2. When A is discharged from T on February 2, T gives A its FAP application form and a plain language summary of its FAP. On March 1, April 15, and May 30, T sends A billing statements that include a one-page insert that provides a plain language summary of the FAP. With the May 30 billing statement, T also includes a letter that informs A that if she does not pay the amount owed or submit a FAP application form by June 29 (120 days after the first billing statement was provided on March 1), T may report A’s delinquency to credit reporting agencies, seek to obtain a judgment against A, and, if such a judgment is obtained, seek to attach and seize A’s bank account or other personal property, which are the only ECAs that T (or any party to which T refers A’s debt) may take in accordance with T’s billing and collections policy. T does not have any other written or oral communications with A about her bill before June 29. T keeps electronic records showing that it provided a plain language summary and FAP application to A on discharge and included the letter regarding ECAs and the plain language summaries with the billing statements sent to A. A does not submit a FAP application form by June 29. T has made reasonable efforts to determine whether A is FAP-eligible, and thus may engage in ECAs against A, as of June 30.

  35. Billing and Collection • Example • Assume the same facts in previous example but A submits an incomplete FAP application to T on October 13, two weeks before the last day of the application period on October 27 (240 days after the first billing statement was provided on March 1). Eligibility for assistance under T’s FAP is based solely on an individual’s family income and the instructions to T’s FAP application form require applicants to attach certain documentation verifying family income to their application form. The FAP application form that A submits to T on October 14 includes all of the required income information, but A fails to attach the required documentation verifying her family income. After receiving A’s incomplete FAP application on October 13, T does not initiate any new ECAs against A and does not take any further action on the ECAs T previously initiated against A. On October 15, a member of T’s staff calls A to inform her that she failed to attach any of the required documentation of her family income and explain what kind of documentation A needs to submit and how she can submit it. On October 16, T sends a letter to A explaining the kind of documentation of family income that A must provide to T to complete her application and informing A about the ECAs that T (or any other authorized party) may initiate or resume against A if A does not submit the missing documentation or pay the amount due by November 15 (30 days after October 16). T includes a plain language summary of the FAP with the letter.

  36. Issues • Guidance before release of Proposed Regulations was vague • Requirements have been in place since March 23, 2010 • May rely on, but not required to comply with the Proposed Regulations • No word on anticipated release date for Final Regulations

  37. Section 501(r) CHNA Update

  38. ACA Requirements –> CHNA–> Notice 2011-52 –>Proposed Regulations Affordable Care Act • Creates Section 501(r) • Creates Section 4959 • CHNA Required Once Every Three Years • Community Input Required • $50,000 Excise Tax for Non-Compliance Section 501(r) • Provides initial guidance • May rely upon for reports widely available before 10/5/2013 IRS Notice 2011-52 Notice 2011-52 Proposed Regulations • Provides more detailed guidance • May rely upon currently • Some transitional relief

  39. Timing • 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

  40. Timing/Transitional Relief • Implementation Strategy • Required document addressing the needs identified in the CHNA • Must be adopted by the governing board (or body authorized by the governing board) before the end of the year in which the CHNA is adopted • Must be attached to Form 990 filed for the same year • Proposed Regulations • Allows organizations to delay adoption of the Implementation Strategy to the ORIGINAL due date of the organization’s Form 990 • Applies only to the first year of the CHNA cycle/Does not apply to future CHNA years • Allows for organizations to provide the URL of the web page on which the Implementation Strategy was widely available in lieu of attaching the Implementation Strategy to Form 990 (form instructions does not address this)

  41. Definition of community • Consistent with Notice 2011-52 • Provide flexibility to take into account all of the relevant facts and circumstances in defining the community served, including the geographic area served, target populations served, and principal functions • May include areas outside of those in which the organization’s patient populations reside • May NOT define the organization’s community in a way that excludes medically underserved, low-income, or minority populations who are part of the organization’s patient population, live in geographic areas in which the patient population resides, or otherwise should be included based on the method used to determine the organization’s community

  42. IDENTIFICATION and prioritization of identified needs • Regulations clarify that CHNAs: • Need only to identify significant health needs • Need only to prioritize, and otherwise assess, those significant needs identified • Needs are significant based on facts and circumstances present in the community served by the hospital • No particular method prescribed to prioritize needs, but IRS suggests: • Burden, scope, severity or urgency of the health need • Estimated feasibility and effectiveness of possible interventions • Health disparities associated with the need • Importance the community places on addressing the need

  43. Broad interest of the community input • Regulations specifically require hospitals take into account input (at a minimum) from: • At least one state, local, tribal or regional governmental public health department with knowledge or expertise relevant to the health needs of the community • Members of medically underserved, low-income, and minority populations in the community or individuals or organizations serving or representing the interests of such populations • Written comments received on the hospital facility’s most recently conducted CHNA and most recently adopted implementation strategy (no requirement to post a draft CHNA for public comment) • Notice 2011-52 • Includes an addition requirement to include input from persons with special knowledge or expertise in public health

  44. DOCUMENTATION • CHNA must be documented in a report, adopted by an authorized body of the governing body, and must include: • Definition of the community served by the hospital and a description of how the community was determined • Description of the processes and methods used to conduct the CHNA • Description of how the hospital took into account input from persons who represent the broad interest of the community it serves • Prioritized listing of significant health needs of the community and a description of the process and criteria used in identifying certain needs as significant and prioritizing such significant needs • Description of potential measures and resources identified through the CHNA process to address the significant health needs

  45. Description of process and methods • Requirements are met if the CHNA report: • Describes the data and other information used in the assessment, as well as the methods of collecting and analyzing this data and information • Identifies any parties with whom the hospital facility collaborated with, or with whom it contracted for assistance, in conducting the CHNA

  46. Description of community input • Proposed regulations clarify: • Report may summarize how and over what time community input was gathered • Report may include a general summary of input received • Report does not need to name or otherwise individually identify any individuals participating in community forums, focus groups, survey samples or similar groups

  47. collaboration • Every hospital facility must document its CNHA in a separate CHNA report • If collaborating with other facilities or organizations in conducting its CHNA or basing its CHNA, in part, on a CHNA for all or part of its community conducted by another organization, portions of the hospital’s CHNA report may be substantially identical to the report of a collaborating facility or organization, if appropriate under the facts and circumstances • Collaborating hospital facilities may produce a joint CHNA report as long as all of the facilities define their community to be the same and conduct a joint CHNA process. The joint report must clearly identify each hospital facility to which it applies and an authorized body of each collaborating hospital facility must adopt the joint CHNA as its own

  48. Making the chna widely available • To be made widely available the CHNA must be posted on the hospital facility’s website (or the hospital organization’s website) if the facility does not have a separate website • Must be accessible for viewing and printing without the need for special software (software not generally available to the public without payment of any fee) • Individuals asking how to access the CHNA online must be provided with the direct website address or URL of the webpage where the CHNA is posted • Regulations add: • Complete copy of the CHNA must be conspicuously posted on the website • CHNA must remain on the website until two subsequent CHNA reports have been posted • Individuals must not be required to create an account to access the CHNA • Paper copy must be available without charge until the two subsequent CHNA copies are available

  49. Implementation strategy • Health needs covered in the implementation strategy are limited to the significant health needs identified in the CHNA • Regulations do not require a hospital to address every significant health need identified • With respect to each significant health need identified, the implementation strategy must either: • Describe how the hospital facility plans to address the health need, or • Identify the health need as one the hospital does not intend to address and explain why the hospital does not intend to address the need • Implementation strategy must identify programs and resources the hospital facility plans to commit to address the health needs • Implementation strategy must describe any planned collaboration between the hospital facility and other facilities addressing the health need

  50. IMPLEMENTATION STRATEGY • Implementation Strategy must also describe the anticipated impact of the actions the hospital plans to take and the hospital’s plan to evaluate such impact • Hospital facilities must establish an ongoing feedback mechanism that requires a hospital facility to take into account written comments received on its most recently adopted implementation strategy when conducting a CHNA • Implementation strategies may be developed in collaboration with other facilities and organizations. However, the hospital facility must document its Implementation Strategy in a separate written plan that is tailored to the hospital facility