slide1 l.
Download
Skip this Video
Loading SlideShow in 5 Seconds..
Healthcare Industry Audit and Accounting Risk Alert PowerPoint Presentation
Download Presentation
Healthcare Industry Audit and Accounting Risk Alert

Loading in 2 Seconds...

play fullscreen
1 / 50

Healthcare Industry Audit and Accounting Risk Alert - PowerPoint PPT Presentation


  • 137 Views
  • Uploaded on

Healthcare Industry Audit and Accounting Risk Alert. Art Nemiroff, CPA - Assurance Partner & Steven Shill, CPA - Assurance Partner BDO Seidman, LLP. About BDO Seidman, LLP .

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about 'Healthcare Industry Audit and Accounting Risk Alert' - berke


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
healthcare industry audit and accounting risk alert

Healthcare Industry Audit and Accounting Risk Alert

Art Nemiroff, CPA -Assurance Partner

&

Steven Shill, CPA - Assurance Partner

BDO Seidman, LLP

about bdo seidman llp
About BDO Seidman, LLP

BDO Seidman, LLP is a national professional services firm providing assurance, tax, financial advisory and consulting services to a wide range of publicly traded and privately held companies. Guided by core values including competence, honesty and integrity, professionalism, dedication, responsibility and accountability, for almost 100 years we have provided quality service and leadership through the active involvement of our experienced and committed professionals.

about bdo seidman llp cont d
About BDO Seidman, LLP (Cont’d)

BDO Seidman serves clients through 35 offices and more than 300 independent alliance firm locations nationwide. As a Member Firm of BDO International, BDO Seidman, LLP serves multi-national clients by leveraging a global network of resources comprised of 621 Member Firm offices in 107 countries. BDO International is the 5th largest worldwide network of public accounting firms serving international clients. Each BDO Member Firm is an independent legal entity in its own country.

bdo provides services in the following areas
BDO provides services in the following areas:
  • Hospitals and Acute Care Facilities
  • Long-term Care and Skilled Nursing Facilities
  • Home Care and Hospice
  • Integrated Delivery Systems
  • Physician Practices
  • Ancillary Service Providers
  • Health Maintenance Organizations (HMOs)
  • Preferred Provider Organizations (PPOs)
scope and agenda
Scope and Agenda
  • Scope of program
    • Emphasis on Hospital’s, Nursing Homes, SNFs, LTACs and to a lesser degree physician groups
    • Limited emphasis on pervasive SEC and PCAOB issues.
    • Excludes payers (i.e. HMO’s, Insurers)
    • Excludes GASB, A-133 and Single Audit issues
  • Healthcare Industry Developments
  • Key audit and accounting areas affecting healthcare providers
  • Accounting and Audit Literature – Issue and Developments
  • Resources
healthcare industry developments
Healthcare Industry Developments
  • SOX in healthcare and not for profit world
  • OIG and HHS
  • I.R.S.
  • Compliance programs
  • Technology
  • Access to Capital and complex financings
  • Other “Hot” Issues including Charity Care
sox for not for profit healthcare organizations
SOX for Not-for-Profit Healthcare Organizations
  • Not “required” in not-for-profit world – YET
  • Some states have proposed and/or passed modified SOX type legislation – California has “modified SOX” for non-profits except hospitals
  • Bill has been pending in Congress for some time regarding compliance for organizations that receive Medicare/Caid Funding, probably will be “SOX – Lite”
  • All three major rating services have said they will evaluate credit ratings based upon best practices which includes adoption of SOX
    • Standard and Poors
    • Moodys
    • Fitch
sox for not for profit healthcare organizations cont d
SOX for Not-for-Profit Healthcare Organizations(Cont’d)
  • Following Associations support applicability of SOX concepts to tax exempt organizations
    • Department of Health and Human Services – OIG
    • American Health Lawyers Association
    • National Association of Insurance Commissioners (NAIC)
      • model Audit Rule would impose requirements similar to SOX
  • Cover article in August 2007 of HFM Magazine
oig hhs
OIG – HHS

OIG – Legal arm of HHS

  • Investigates and monitors the compliance with Medicare and Medicaid programs
  • Work plan to investigate
    • Hospitals
    • Home Health
    • Nursing Homes (SNF)
    • Managed Care Organizations (HMO’s)
    • Physicians and other health professionals
  • See website at www.oig.hhs.gov

Health and Human Services

Health and Human Services

CMS

CMS

-

-

Centers for

Centers for

OIG

OIG

-

-

Office of the

Office of the

Medicare and

Medicare and

Inspector General

Inspector General

Medicaid Services

Medicaid Services

i r s
I.R.S.
  • I.R.S. is scrutinizing the not-for-profit hospital sector
    • Broader policy mandate for compliance with tax exemption – Rules and Regulations
    • Executive Compensation – “Rebuttable Presumption of Reasonableness”
    • Intermediate Sanctions Excise Tax provisions of Code Sec 4958
    • Implementation of the Pension Protection Act of 2006
    • Tax exempt status of Community Foundations
    • Reporting problems on Form 990
compliance programs
Compliance Programs
  • OIG first issued Compliance Program Guidelines in 1998 for hospitals
  • January 31, 2005 OIG issued Supplemental Compliance Program Guidance for Hospitals
    • Fraud and Abuse Risk Areas:
      • Submission of accurate claims and information
      • The Physician Self – Referral Law (the Stark Laws) and the Federal Anti-kickback statute.
      • Payment to reduce or limit services (Gain Sharing Arrangements)
      • Substandard Care
compliance programs cont d
Compliance Programs (Cont’d)
  • EMTALA – Emergency Medical Treatment and Labor ACT
  • Relationships with Federal Healthcare Beneficiaries
  • HIPAA Privacy and Security Rules
    • Business Associate Agreements
    • Billing Medicare or Medicaid substantially in excess of usual charges
    • “Outliers”
  • Areas of general interest
    • Discounts to uninsured patients
    • Preventative care services
    • Professional courtesy
  • Consider auditing of effectiveness of your Compliance Plan
technology
Technology
  • Rapid advances in all aspects
    • Surgery (particularly in cardiac and ortho)
    • Treatment protocols
    • Radiology
    • Cardiology
    • EHR – Electronic Health Records, also know as EMR – Electronic Medical Records
    • Information Systems
  • Impact on internal control – audit trail
    • Ability to obtain sufficient competent evidential matter
  • High dollar off balance sheet financing
    • Operating leases
      • FASB 13
      • EITF 01-8
    • Costs of computer software developed or obtained for internal use
      • SOP 98-1
complex financing structures and access to capital
Complex Financing Structures and Access to Capital
  • Use of swaps and/or derivatives (make sure to have a complete understanding of accounting requirements)
    • See AICPA audit guide “Auditing Derivative Instruments, Hedging Activities, and Investment in Securities”
    • FASB 155 (an amendment of FASB 133 and 140)
  • Leases for Build to Suit EITF 97-10 FASB 98
  • More complex financial covenants included in bond documents
  • Obtain rating agency industry reports to obtain an understanding of current client operations and to access areas such as going concern and debt covenants.
other hot issues
Other “HOT” Issues
  • Growth of the Uninsured or Underinsured
    • Legal
    • Illegal
    • Charity
    • Bad Debt
    • “Combo”
  • Legal
    • High cost of healthcare has caused employers to cut benefits which often causes higher deductibles
      • Results in more provider risk of slow-pay and/or bad debt
  • Illegal
    • Still covered and must be treated under EMTALA – Emergency Medical Treatment and Labor Act
      • Often results in bad debt
      • Must watch demographics of your client
other hot issues cont d
Other “HOT” Issues (Cont’d)
  • Charity Care
    • Not-for-profits coming under more scrutiny to justify their status by IRS
      • Must be fully compliant with new rules regarding disclosures on Form 990
    • Determination of charity policies and procedures must be established and enforced
      • Deduction from gross revenue
      • Not a bad debt
      • Disclosure in financials must state the method of accounting and determining charity care, and the amount
  • “Combo”
    • Where provider accepts payment at a discount from charges, such as Medicaid, is the difference charity? Much diversity in practice and AcSEC is currently discussing directive.
key audit and accounting areas
Key Audit and Accounting Areas
  • Charity and Uncompensated Care
  • Complex Financing and Derivative issues
  • Malpractice and other Insurance Reserves
  • The Revenue Cycle
  • New Audit Risk Standards
charity and uncompensated care
Charity and Uncompensated Care
  • Charity Care

“Charity care is a type of uncompensated care that results from a provider’s policy to provide health care services free of charge to individuals who meet certain financial criteria”

charity and uncompensated care cont d
Charity and Uncompensated Care (Cont’d)
  • Relates primarily to non-profit healthcare providers, usually hospitals, and subacute providers
  • Charity Care does not qualify as recognition as receivables or revenue.
  • Issues
    • Issue 1: Distinguishing charity care from bad debt
    • Issue 2: Disclosure in the financial statements
    • Issue 3: 501c(3) status
charity and uncompensated care cont d21
Charity and Uncompensated Care (Cont’d)
  • “Charity care represents health care services that are provided but are never expected to result in cash flows.”
    • Pervasive evidence for the arrangement exists – true
    • Services have been rendered – true
    • The price is fixed and determinable – true
    • Collectibility is reasonably assured - false
charity and uncompensated care cont d22
Charity and Uncompensated Care (Cont’d)
  • Bad debt versus Charity Care – presentation
  • Considerations:
    • What is the organization’s policy for charity care?
    • How is the policy enforced?
    • What determines if a patient is not able to pay?
    • How is the charity amount determined? Discounted rates or full charges?
    • What if the patient can make a partial payment?
    • When is charity care determined to take place, before substantial collection efforts, or after sent to collection?
    • Does charity care exclude services provided where payment is accepted under a third party payment arrangement that is less than full rates?
  • Exercise judgment
charity and uncompensated care cont d23
Charity and Uncompensated Care (Cont’d)
  • Most recent discussion at AcSEC
  • Following recommendations were made and agreed upon:
    • Disclosures-policy and level
    • Where amounts of payment accepted is less than providers rate schedule, the differential is not charity care
    • Determination as to whether an individual meets charity care criteria needs to be done as soon as practical before collection efforts have started
    • Consider two types of charity care i.e. required by law e.g. EMTALA or charity care the provider elects to provide - problematic
    • Disclosure at a minimum should be the provider’s costs of providing charity – Problematic
    • Recommended health care providers disclose information individually and in aggregate of the broader metric of uncompensated care other than bad debts - Problematic
charity and uncompensated care cont d24
Charity and Uncompensated Care (Cont’d)
  • Disclosures:
    • Diverse
      • At the providers rate schedule
      • At a discount to the rate schedule
      • At cost
    • Costs are very tough to estimate due to complexity
charity and uncompensated care cont d25
Charity and Uncompensated Care (Cont’d)
  • 501 c (3) Status
    • Qualifying as a tax – exempt health care provider
      • Demonstrate – “ The promotion of health services for the benefit of the community”
      • Must meet the Community Benefit Standard Rev. Rul. 69-545
complex financing and derivative issues
Complex Financing and Derivative Issues
  • Healthcare industry particularly hospitals have and will continue to suffer significant losses and deteriorating operating results
  • Many non-profit hospitals depend on public debt for financing as the industry is capital intensive
  • Issues
    • Bond financings often have complex terms and covenants
      • Non-compliance could have significant financial penalties, remediation efforts or the debt being callable
    • Financial statements are often submitted to state financing and or rating agencies
      • Increased audit risk
    • Bond offering memorandums often include independent auditors financial statements, be aware of this
      • Auditors usually require consents
    • Many healthcare organizations have entered into complex derivative transactions including swaps and hedges
      • Audit and accounting implications -complex
    • Recent SEC enforcement action against fraudulent reporting in a public bond offering memorandum
complex financing and derivative issues cont d
Complex Financing and Derivative Issues (Cont’d)
  • Proliferation of alternative financing structures
    • E.g. Patient receivable financing structures
    • Factoring
    • Revolvers
  • Complex FASB 140 recognition criteria
    • “Sale” or “Financing” criteria
    • “Securitizations” and implications
    • Use of fair value and relative fair value concepts
    • Consider FASB 140 Interpretations
    • Medicare Reassignment Rules
malpractice and insurance reserves
Malpractice and Insurance Reserves
  • Significant area of estimation and risk, why:
    • Malpractice insurance costs have increased
    • Legislation has been enacted allowing caps on malpractice award
    • Medical and technological breakthroughs that have resulted in more complex and riskier procedures
    • Healthcare organizations have opted to increasing deductibles or increasing SIRs
    • Organizations have changed assumptions in determining the computation of potential liabilities or even changed actuaries
    • Move to establish captive insurance entities
malpractice and insurance reserves cont d
Malpractice and Insurance Reserves (Cont’d)
  • Key areas to understand:
    • The underlying insurance coverage…whether there has been sufficient transfer of risk or the extent of risk transfer
    • The underlying costs of the claims – “caps” including legal costs to settle the claims
    • The alternative legal options that providers face, i.e. malpractice where there may be cap versus wrongful death or assault
    • The impact of unasserted claims and the ability to estimate incurred but not reported amounts (IBNR) – use of specialist usually actuaries
    • Claims made insurance coverage or occurrence basis and tail coverage
malpractice and insurance reserves cont d30
Malpractice and Insurance Reserves (Cont’d)
  • Consider:
    • FASB No. 5 in the recognition of IBNR
    • Use of a specialist AU 336
    • Accruals for losses should not be net of funding amounts
    • EITF 03-8 Accounting for Claims-Made Insurance and Retroactive Insurance contracts by the insured Entity
    • Consider whether policies are retrospectively rated based on the organizations experience or group experience
    • Consider accounting for an investment in captive insurers depending on majority or minority ownership FIN 46 R for profit becomes applicable
    • Other insurance reserves such as workers compensation costs may be significant
    • FASB 109 impact of insurance reserves for entities that pay tax. Neither Malpractice nor Workers Compensation reserves are deductible for tax purposes – deferred tax implications can be significant
patient revenues and receivables
Patient Revenues and Receivables
  • Greatest areas of estimation and complexity on health care provider’s financials statements, why?
    • Differential between providers rates and what is contractually payable
    • Complex third party payment arrangements
    • Differentiation between bad debt and charity care
    • Regulatory billing and collection requirements
    • Estimation and settlement of cost reports
patient revenues and receivables cont d
Patient Revenues and Receivables (Cont’d)
  • Factors that auditors will consider:
    • Understand the flow of the revenue cycle
      • Admitting
      • How charges are captured
      • How medical records are transcribed into billing records
      • When patients are discharged
      • When bills are cut and submitted to payers
      • In-house patients versus discharged not final billed patients and cut off issues
    • Changes in billing and collection policies
    • Changes in charity care practices
    • Levels of uninsured patients
    • Changes in contractual arrangements with third party payers
patient revenues and receivables cont d33
Patient Revenues and Receivables (Cont’d)
  • Are the estimates of patient receivables collectible?
    • AU 342 Auditing Accounting Estimates – obtaining sufficient competent evidential matter to support significant accounting estimates in the financial statements
      • Reviewing aging
      • Testing reliability of aging
      • Past due account balances
      • Subsequent cash collections
      • Understanding how the allowance were developed
      • Developing an understanding of the third party payer contracts
      • Client billing and collection policies
      • Past history with certain payers and patient types
patient revenues and receivables cont d34
Patient Revenues and Receivables (Cont’d)
  • Considering retrospective payment provisions and interim payments
  • The review of cost reports and settlements thereof and correspondence with the payers
  • Analytical procedures, i.e. making a study of plausible relationships among both financial and non-financial data, payment trends for certain payers and knowledge of contract and regulations related to payment periods
  • Pay close attention to mix of patient base, e.g. layoffs, large deductibles, health savings accounts and consumer directed health care
  • Lastly, understanding the dynamic of the third party payer contracts, consolidation of payers, changes in payment rates, program eliminations and patient eligibility requirements
accounting and audit literature
Accounting and Audit Literature
  • New Accounting Literature
  • Timeless Accounting Literature
  • New Auditing Literature
  • Pipeline
fasb statement no 154
FASB Statement No. 154
  • Addresses Accounting Changes and Error Corrections
  • SAB 108 – FASB to evaluate and probably adopt same approach as SEC
  • Effective for accounting changes made in fiscal years beginning after December 15, 2005
  • Generally, retrospective application to prior period financial statements is required.
other recent fasb pronouncements
Other Recent FASB pronouncements
  • FASB Statement No.155 Accounting for Certain Hybrid Financial Instruments—an amendment of FASB Statements No. 133 and 140
  • FASB Statement No.156 Accounting for Servicing of Financial Assets—an amendment of FASB Statement No. 140
  • FASB Statement No. 157 Fair Value Measurements
  • FASB Statement No. 158 Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106, and 132(R)
  • FASB Statement No. 159 Fair Value Election for Financial Assets and Liabilities
fasb statement no 157
FASB Statement No. 157
  • This FASB Statement defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements because the FASB previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this FASB Statement does not require any new fair value measurements. However, for some organizations, the application of this FASB Statement will change current practice.
fasb statement no 158
FASB Statement No. 158
  • This FASB Statement improves financial reporting by requiring an employer to recognize the over-funded or under-funded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income of a business entity or changes in unrestricted net assets of a not-for-profit organization. This FASB Statement also improves financial reporting by requiring an employer to measure the funded status of a plan as of the date of its year-end statement of financial position, with limited exceptions.An organization with publicly traded equity securities shall initially apply the requirement to recognize the funded status of a benefit plan (paragraph 4 ) and the disclosure requirements (paragraph 7) as of the end of the FY ending after December 15, 2006. An employer without publicly traded equity securities shall initially apply the requirement to recognize the funded status of a benefit plan (paragraphs 4 and 8) and the disclosure requirements (paragraphs 7 and 10) as of the end of the FY ending after June 15, 2007.
fin 48 uncertain tax positions
FIN 48 Uncertain Tax Positions
  • This FASB Statement clarifies and expands the accounting and financial reporting for uncertainties related to income taxes. This FASB interpretation is applicable to all business enterprises whether they are taxable businesses or tax-exempt organizations.

Tax positions taken by any organization that may represent potential future obligations to a taxing authority (IRS or state revenue department) may have to be recorded under this interpretation.

For not-for-profit organizations, examples of tax positions that are subject to FASB Interpretation No. 48 include (1) a decision not to file a Form 990-T, or state income tax return; (2) a decision not to characterize an activity as an unrelated business; (3) using an allocation method for expenses between related and unrelated activities; and (4) classifying an entity or a transaction as tax exempt.

FASB Interpretation No. 48 also applies to tax-exempt organizations with net operating loss or a net operating loss carryover for unrelated business income tax purposes and tax positions taken in allocating expenses through joint venture and other business relationships with taxable entities.

timeless accounting topics
Timeless Accounting Topics
  • Accounting and disclosure requirements for employers – Medicare prescription Drug, Improvements and Modernization Act of 2003 – FSP FAS 106-1
    • If you are a sponsor of a postretirement health care plan that provides prescription drug benefits, you should consider the guidance – could impact your obligation liability and periodic postretirement costs
  • Balance sheet classifications EITF 95-22
    • Recent PCAOB inspection reports
    • Classification of borrowings under lock box arrangements
    • Consider this as healthcare organizations often have complex treasury and cash management systems
other new topics
Other New Topics
  • FSP EITF 00-19 -2 Accounting for Registration Payment Arrangements
  • FAS 126-1 Applicability of Certain Disclosure and Interim Reporting Requirements for Obligors of Conduit Debt Securities
    • A conduit debt security is an offering by a governmental entity that is not for its own use but for the use of a private party (conduit bond obligor)
    • APB Opinion No. 28, Interim Financial Reporting, is applicable to a party that is a conduit bond obligor where interim reporting is required
    • Effective for periods beginning after December 15, 2006
timeless accounting topics cont d
Timeless Accounting Topics (cont’d)
  • FIN 47 Addresses Accounting for Conditional Asset Retirement Obligations. Requires recognition of the fair value of a conditional asset retirement obligation before the event that requires or waives performance occurs. Asbestos contamination is the most common obligation for healthcare providers.
  • FIN 45-3 Addresses Minimum Revenue Guarantees Granted to a Business or its Owners. Most common application for healthcare organizations is a not-for-profit healthcare provider guaranteeing payments to a physician recruited to a geographical area if his gross revenues do not equal or exceed a certain dollar amount.
aicpa healthcare guide
AICPA Healthcare Guide
  • Auditing – AICPA- Audit and Accounting Guides
  • Assists with auditing and reporting on healthcare organizations
  • Covers most healthcare organizations but not voluntary health and welfare organizations
  • Addresses unique accounting and auditing issues as well as provides background on industry issues
sop 00 1
SOP 00-1
  • Auditing and Accounting Healthcare Third-Party Revenues and Related Receivables
  • Provides guidance regarding uncertainties in third-party revenue recognition
  • Provides guidance regarding the sufficiency of evidential matter and reporting on financial statements of health care entities exposed to material uncertainties
sop 02 2
SOP 02-2
  • Accounting for Derivative Instruments and Hedging Activities by Not-for-Profit Healthcare Organizations and Clarification of the Performance Indicator
  • Provides guidance on how not-for-profit healthcare organizations should report gains or losses on hedging and nonhedging derivative instruments under Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended
  • Clarifies that the performance indictor for not-for-profit healthcare providers is analogous to income from continuing operations
new auditing literature
New Auditing Literature
  • SAS Nos. 104 to 111
  • Effective for audits of financial statements for periods beginning on or after December 15, 2006
  • SAS Nos. 109 and 110 require that the auditor understand the healthcare entity and its environment and ensure that the audit procedures include a response to assessed risks
  • SAS No. 112
sas no 112
SAS No. 112
  • SAS No. 112 requires the auditor to evaluate identified control deficiencies and determine if they, individually or when combined, are significant deficiencies or material weaknesses. These terms are defined consistent with PCAOB Auditing Standard No. 2, An Audit of Internal Control Over Financial Reporting Performed in Conjunction With an Audit of Financial Statements (AICPA, PCAOB Standards and Related Rules, AU sec. 320). The term reportable condition is no longer used. The SAS also requires that these communications now be in writing. Common control deficiencies may include:
    • Segregation of duties issues (especially common among smaller companies)
    • Potential for management override
    • Inadequate process and controls over revenue recognition
    • Lack of controls over the process by which estimates are determined and recorded
    • Lack of a process and controls to properly identify, consolidate, and disclose variable interest entities
  • The AICPA has published an Audit Risk Alert titled Understanding SAS No. 112 and Evaluating Control Deficiencies
pipeline
Pipeline
  • FASB No. 141 (R) - Business Combinations and accounting for Non-controlling interests
  • FSP FAS 154 –a Impact of prior year misstatements in determining the quantification of misstatements in the current year. (SAB 108)
  • GAAP Hierarchy
  • AS-5
resources
Resources
  • Accounting Research Manager
    • CCH Publication
  • A.I.C.P.A.
    • Healthcare Industry Developments 2006/2007
    • Audit Risk Alert can be ordered from the A.I.C.P.A. at (888) 777-7077 or online at http://www.cpa2biz.com