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Panel Discussion The Proposed IRS Section 501(r). Presents…. Moderator: Gail Burke – The Manchester Group Panel Members: Jerry “Rusty” Ingalls – NFV Healthcare Group Deborah Kelly – FCS Services Mandy Hall – BCA financial services

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panel discussion the proposed irs section 501 r

Panel Discussion The Proposed IRS Section 501(r)

Presents….

Moderator:

Gail Burke – The Manchester Group

Panel Members:

Jerry “Rusty” Ingalls – NFV Healthcare Group

Deborah Kelly – FCS Services

Mandy Hall – BCA financial services

Amy manning – munroe regional medical center

Plantation on Crystal River

August 10, 2012

slide2

Today’s Objectives

  • Panel Member Introductions
  • Opening Comments
  • Slide Presentation
  • Panel Discussion
  • Questions from the Attendees

Panel Discussion - Proposed IRS Section 501 (r)

irs section 501 r
IRS Section 501(r)
  • Today’s Objectives:
    • Introduce PPACA and Section IRS 501(r)
      • Additional slides are included that will not be covered
        • Additional background and resources
    • Precautions
    • Outline areas requiring process and/or policy change
    • Hospital Impact
    • How to stay informed
    • Managing change
    • Group discussion of concerns, questions, next steps

Panel Discussion - Proposed IRS Section 501 (r)

irs section 501 r opening comments
IRS Section 501(r) – Opening Comments
  • Opening Comments
    • The Rule is proposed and remains open for comment.
    • Comments and requests for public hearing remain open until September 24, 2012.
    • Comments must be submitted to:

CC:PA:LPD:PR (REG-130266-11)

Room 5203

Internal Revenue Service

PO BOX 7604

Ben Franklin Station, Washington DC 20044

or electronically via the Federal eRulemaking Portal:

http://www.regulations.gov

IRS REG-130266-11

    • Host of new acronyms!!

Panel Discussion - Proposed IRS Section 501 (r)

the new era background
The New Era – Background
  • The Patient Protection and Affordable Care Act of 2010 (PPACA) marks the beginning of a new era in the provision of health care services.
  • Widespread impact
    • Based on the AHA 2010 Hospital survey:
      • 4,985 are Community Hospitals,
        • 2,904 Nongovernment nonprofit Community Hospitals
        • 1013 Investor-Owned (For Profit) Community Hospitals
        • 1,068 State or Local Government Community Hospitals
        • Hospitals with dual status as government hospitals that are also tax exempt under Section 501(c)(3) will be required to comply
  • Nonprofit hospitals are subject to new reporting obligations that, if not fulfilled in a timely manner, can lead to loss of its tax exempt status.

Panel Discussion - Proposed IRS Section 501 (r)

the new era legislative context
The New Era – Legislative Context
  • Legislative Context
    • Senator Grassley – long-standing concern that charitable hospitals do not act charitably: “They were suing indigent patients to ensure they did not return for care…”
    • Senate Finance Committee (since 2005) has worked to determine the “best way to hold charitable hospitals accountable for the enormous subsidies they receive through the tax code – from tax exemption to the ability to raise capital from tax-exempt bonds and tax-deductible contributions”

-- June 27. 2012 letter from Senator Grassley to Richard Umbdenstock, CEO AMA

    • IRC §501 (r) “takes only baby steps to hold charitable hospitals accountable for their tax-exempt status”

-- July 9, 2012 letter to Treasury Secretary Geithner from Senator Grassley

Panel Discussion - Proposed IRS Section 501 (r)

the new era legislative context1
The New Era – Legislative Context
  • Legislative Context
    • “The reforms are intended to establish meaningful measurements for charity care and community benefit to make clear what’s expected from those with tax-exempt status as a matter of accountability . . . . For decades, neither the law nor the IRS gave . . . Much direction . . . . Sometimes that’s resulted in providing little charitable patient care or other community benefits.?

--July 10, 2012 Grassley Press Release

Panel Discussion - Proposed IRS Section 501 (r)

irs section 501 r ppaca
IRS Section 501(r) - PPACA
  • The Patient Protection and Affordable Care Act of 2010 (PPACA)
    • Section § 9007
    • The rule is also referred to as ACA
      • Enacted March 23, 2010
      • Pub L No 111-148
    • New Section to the Internal Revenue Service Code, IRS 501(r), imposing additional requirements on hospital organizations to be exempt under IRS 501(c) (3)
      • Financial Assistance Policy – IRC § 501 (r)(4)
      • Emergency Medical Care Policy – IRC § 501 (r)(4)
      • Limitations on Charges - IRC § 501 (r)(5)
      • Billing and Collection Restrictions - IRC § 501 (r)(6)

Panel Discussion - Proposed IRS Section 501 (r)

irs section 501 r proposed requirements
IRS Section 501(r) – Proposed Requirements
  • Charitable Hospitals must
    • Conduct a Community Needs Assessment (CNHA)
      • Needs will be assessed every three years
      • Implement a strategy to address the identified needs
    • Limiting charges to those eligible (indigent patients)
    • Maintain Financial Assistance Policy
      • Implement and widely publicize a written financial assistance policy containing specific elements
      • Emergency Care Policy
    • Comply with specified billing and collection policies
      • Requirement to use reasonable efforts to determine eligibility for financial assistance before engaging in extraordinary collection actions

Panel Discussion - Proposed IRS Section 501 (r)

irs section 501 r driving force
IRS Section 501(r) – Driving Force
  • Federal Register, Volume 77, No. 123
    • 26 CFR Part 1 – Additional Requirements of Charitable Hospitals
      • Proposed Rule
    • June 26, 2012
    • Part II
    • Pages 38148 - 38169

IRC §§ 501(r) (4), (5) and (6) – imposed by IRC § 501(r) (1)

(4) Financial Assistance and Emergency Care Policies

(5) Limitation on Charges

(6) Billing and Collection Restrictions

Panel Discussion - Proposed IRS Section 501 (r)

irc 501 r 1 and 2

IRC § 501(r)(1) and (2)

Additional Requirements

Panel Discussion - Proposed IRS Section 501 (r)

irs section 501 r 1 purpose and background
IRS Section 501(r) (1) – Purpose and Background
  • IRS Section 501(r) (1) imposes four additional requirements described in sections 2, 3, 4, and 5
  • IRS Section 501(r) (2) provides that the additional requirements apply to:
    • An organization that operates a facility required by a State to be licensed, registered or similarly recognized as a hospital; and
    • Any other organization that the Secretary determines has the provision of hospital care as its principal function or purpose constituting the basis for its exemption under Section IRC 501(c) (3).
    • Applies to hospital organizations on a facility-by-facility basis
    • If a hospital operates more than one hospital facility, the organization is required to meet the additional requirements of Section 501 (r) with respect to each facility.

Panel Discussion - Proposed IRS Section 501 (r)

irc 501 r 3

IRC § 501(r)(3)

Community Health Needs Assessment

Panel Discussion - Proposed IRS Section 501 (r)

irs section 501 r 3 chna
IRS Section 501(r) (3) - CHNA
  • Section 501(r) (3) requires a hospital organization to:
    • Conduct a Community Health Needs Assessment (CHNA) every three years,
    • Adopt an implementation strategy to meet the community health needs identified through such assessment.
    • The CHNA must
      • Take into account input from persons who represent broad interests of the community the hospital facility serves including those with special knowledge of/or expertise in public health, and
      • Be made widely available to the public – Section 501(r)(3)(b)

Panel Discussion - Proposed IRS Section 501 (r)

irs section 501 r 3 taxation
IRS Section 501(r) (3) - Taxation
  • Joint Committee on Taxation technical explanation of the Revenue Provisions of the Reconciliation Act of 2010 as amended in combination with PPACA March 21, 2010.

“May be based on current information collected by a public health agency or non-profit organizations and may be conducted together with one or more organizations, including related organizations”

  • Section 6033(b)(15)(a) requires hospital organizations to include in their annual information return (Form 990) a description of how the organization is addressing the needs identified in each CHNA conducted under Section 501(r)(3) and a description of any needs that are not being addressed, along with the reasons why the needs are not being addressed.
  • Section 4959 imposes a $50,000 excise tax on a hospital organization that fails to meet the CHNA requirements under this section.

Panel Discussion - Proposed IRS Section 501 (r)

irc 501 r 4

IRC § 501(r)(4)

Policies

Financial Assistance

Emergency Care

Panel Discussion - Proposed IRS Section 501 (r)

irs section 501 r 4 financial policies
IRS Section 501(r) (4) – Financial Policies
  • Financial Assistance Policy (FAP)
    • The proposed regulations interpret the FAP statutory requirements in detail
    • Hospital policy will need revised to include the statutory requirements
      • Some of the expectations may be included in current policy
    • IRC 501(r)(4)(A) requires a written FAP that includes:
      • Financial Assistance eligibility criteria (free or discounted care)
      • The method used to calculate the amount charged to patients
      • Financial Assistance application method
      • Expected hospital action in the event of non-compliance (non-payment)
        • This may be addressed in a separate policy
      • Measures used to widely publicize the FAP throughout the community the hospital serves

Panel Discussion - Proposed IRS Section 501 (r)

irs section 501 r 4 financial assistance policies
IRS Section 501(r)(4) – Financial Assistance Policies
  • Section 501(r)(4)(B) requires a hospital organization to have a written policy requiring the organization to provide, without discrimination, care for emergency medical conditions (within the meaning of Section 1867 of the Social Security Act (42 USC 1395dd)) to individuals regardless of their eligibility under the FAP.
  • EMTALA
  • Discharge Collection programs and/or processes should be reviewed for compliance.

Panel Discussion - Proposed IRS Section 501 (r)

irc 501 r 5

IRC § 501(r)(5)

Limitation on charges

Panel Discussion - Proposed IRS Section 501 (r)

irs section 501 r 5 limitation on charges
IRS Section 501(r)(5) – Limitation on Charges
  • IRS Section 501(r)(5) limits amounts charged for emergency or other medically necessary care that is provided to individuals eligible for assistance under the organizations FAP to not more than amounts generally billed (AGB) to individuals who have insurance covering such care.
  • This section prohibits the use of gross charges.
  • Proposed Regulations require hospitals to use one of two calculation methods in determining the AGB:
    • Simple: Prospective Medicare
    • Complex: Look Back Method

Panel Discussion - Proposed IRS Section 501 (r)

irs section 501 r 5 limitation on charges1
IRS Section 501(r)(5) – Limitation on Charges
  • Switching between the two calculation methods is prohibited once a method is adopted by the hospital.
  • Private health insurance data may not be used in hospital calculation methods

“It is intended that amounts billed to those who qualify for financial assistance may be based on either the best, or an average of the three best, negotiated commercial rates, or Medicare rates.”

Panel Discussion - Proposed IRS Section 501 (r)

irs section 501 r 5 limitation on charges2
IRS Section 501(r)(5) – Limitation on Charges
  • Prospective Medicare Method
    • This calculation is the simpler AGB calculation method for emergency or other medically necessary care to the FAP eligible patient.
    • This would allow the FAP-eligible patient to be treated as if he or she were a Medicare Fee For Service (FFS) beneficiary
    • Using typical hospital billing and coding procedures, Medicare medical necessity software, and other hospital specific tools, the facility could identify the financial responsibility amount the FAP eligible patient would be expected to pay for services (the AGB)

Panel Discussion - Proposed IRS Section 501 (r)

irs section 501 r 5 limitation on charges3
IRS Section 501(r)(5) – Limitation on Charges
  • Look-Back Method
    • Allows hospitals to multiply the gross charges for a particular service by the AGB percentage.
    • The hospital can include FFS Medicare paid claims and private insured paid claims to calculate the AGB percentage.
      • Medicare Advantage claims are treated as paid by private insurer claims in this calculation.
    • The AGB percentage is reached by:
      • Dividing the gross charges for claims considered to have received payment in full submitted to certain payers classified as emergency and other medically necessary services over the prior 12 months by the amount the hospital received for the same claims (including copayments, coinsurance, and deductibles).

Panel Discussion - Proposed IRS Section 501 (r)

irs section 501 r 5 limitation on charges4
IRS Section 501(r)(5) – Limitation on Charges
  • Look-Back Method
    • AGB percentages can be calculated for different categories and services, or
    • Separate AGB percentages can be calculated for individual items and services as long as an AGB percentage exists for each emergent and medically necessary service.
    • AGB percentages must be calculated annually.
    • AGB percentages calculated using the Look-Back method must be applied by the 45th day after the conclusion of the 12 month period used in the calculation.

Panel Discussion - Proposed IRS Section 501 (r)

irs section 501 r 5 limitation on charges5
IRS Section 501(r)(5) – Limitation on Charges
  • Look-Back Method
    • Under the proposed regulations, the hospital may charge FAP-eligible patients more than the AGB amount for non-emergent care or not medically necessary care;
    • In all cases, the charge for non-emergent/not medically necessary care to the FAP-eligible patient must be less than the hospital’s gross charges.

Panel Discussion - Proposed IRS Section 501 (r)

irs section 501 r 5 limitation on charges6
IRS Section 501(r)(5) – Limitation on Charges
  • Safe Harbor for Certain Charges in Excess of AGB
    • FAP-eligibility is determined without regard to whether the patient has applied for assistance under the FAP.
    • A hospital will not violate the charge limitations if it charges more than permitted to a FAP-eligible that has not submitted a complete application. A safe harbor is imposed.
    • For protection under Safe Harbor, the hospital must have made, and continue to make “reasonable efforts” to determine whether the patient is FAP-eligible (within the definitions of 501(r)(6)) including correcting the account balance if the individual subsequently is found to be FAP-eligible.

Panel Discussion - Proposed IRS Section 501 (r)

irc 501 r 6

IRC § 501(r)(6)

Billing and collection

Panel Discussion - Proposed IRS Section 501 (r)

irs section 501 r 6 billing and collections
IRS Section 501(r)(6) – Billing and Collections
  • IRS Section 501(r)(6) Restrictions:
    • Hospital is required to make “reasonable efforts” to determine FPA-eligible's before engaging in “extraordinary collection action” (ECA)
    • The proposed regulations provide detailed descriptions of:
      • The actions defined and/or considered ECA
      • What constitutes “reasonable efforts”
      • Notification requirements, and
      • Special considerations/requirements that apply to incomplete FAP applications

Panel Discussion - Proposed IRS Section 501 (r)

irs section 501 r 6 billing and collections1
IRS Section 501(r)(6) – Billing and Collections
  • ECA
    • Any action taken by a hospital (or its agent) related to FAP-eligible covered care collections requiring legal or judicial intervention without limitation to:
      • Property Lien
      • Foreclosure on real property
      • Attaching or seizing personal property or a bank account
      • Civil action
      • Arrest of the individual for failure to pay
      • Causing an individual to be subject to a writ of body attachment, and
      • Wage garnishment

Panel Discussion - Proposed IRS Section 501 (r)

irs section 501 r 6 billing and collections2
IRS Section 501(r)(6) – Billing and Collections
  • ECA includes:
    • Reporting adverse information to consumer credit agencies, and
    • Sale of the debt.
  • ECA does not include:
    • Referral of debt without sale,
    • Deferring (or denying) care based on a pattern of non-payment,
    • Requiring deposits before providing care, or
    • Charging interest.

Caution – EMTALA restrictions

Panel Discussion - Proposed IRS Section 501 (r)

irs section 501 r 6 billing and collections3
IRS Section 501(r)(6) – Billing and Collections
  • Reasonable Efforts
    • Two relevant time periods:
      • Notification Period begins on the date of care and ends on the 120th day after the hospital provides the individual with the first bill for the care.
        • The hospital must notify the FAP-eligible of the hospital FAP during this period.
      • Application Period ends on the 240th day after the hospital provides the individual with the first bill for the care.
        • The hospital must accept and process FAP-eligible applications during this period.

Panel Discussion - Proposed IRS Section 501 (r)

irs section 501 r 6 billing and collections4
IRS Section 501(r)(6) – Billing and Collections
  • Notification/Reasonable Efforts
    • A hospital can satisfy “reasonable efforts” notification during the notification period by:
      • Providing a plain language FAP summary, and offer an FAP application, prior to discharge,
      • Providing a plain language FAP summary with all (and at least three) bills/statements.
      • Discussing the FAP in oral communications about the charges, and
      • Provide at least one written notice of the ECA action the hospital may exercise and the deadline after which the ECA may begin.
        • The deadline may not be earlier than 30 days from the date of notice

Panel Discussion - Proposed IRS Section 501 (r)

irs section 501 r 6 billing and collections5
IRS Section 501(r)(6) – Billing and Collections
  • Notification/Reasonable Efforts
    • Upon submission of an FAP Application, the hospital is no longer required to undertake the notification efforts
      • Similar requirements apply in the event of an incomplete assistance application
    • Waiver of rights for FAP Application does NOT constitute hospital “permission” to satisfy the notification requirement,
    • ECA may begin 120 days after the initial bill (but not earlier than 30 days after notice that specifies the ECA’s) if no application is submitted after the hospital has met and documented all notification requirements.

Panel Discussion - Proposed IRS Section 501 (r)

irs section 501 r 6 billing and collections6
IRS Section 501(r)(6) – Billing and Collections
  • Application Period
    • The hospital must accept and process FAP applications submitted prior to the end of the application period (240 days after the initial bill)
      • Even if ECA’s have been engaged
    • ECA’s must be suspended when an FAP application is received during the 240 day period.
      • ECA’s are suspended pending the hospital’s determination of FAP eligibility.
    • If/when the individual is determined as FAP eligible, the hospital must reverse any/all ECA’s initiated, even if the actions were compliant when taken.

Panel Discussion - Proposed IRS Section 501 (r)

irs section 501 r 6 billing and collections7
IRS Section 501(r)(6) – Billing and Collections
  • Reasonable Efforts – Complete FAP Applications:
    • ECA’s are immediately suspended
    • The hospital is expected to make eligibility decisions in a timely manner.
    • The hospital will provide written notification to the individual of the determination that includes the basis for the determination.
    • Once a patient is defined as FAP eligible, the hospital must:
      • Provide a bill that indicates the amount owed and shows or describes how the individual can obtain information regarding the AGB calculation and how the hospital determined the amount owed,
      • Refund of any excess payments made, and
      • Take all reasonably available efforts to reverse any ECA (with the exception of a sale of debt) such as, removal of adverse credit reporting, removal of liens or levies.

Panel Discussion - Proposed IRS Section 501 (r)

irs section 501 r 6 billing and collections8
IRS Section 501(r)(6) – Billing and Collections
  • Reasonable Efforts - Incomplete Applications
    • Hospitals must manage processing of an incomplete application during the application period by:
      • Suspension of any ECA’s
      • Provide the applicant written notice describing the deficiency (ies) and any/all information required to complete the application/
        • The notice must include a plain language FAP, and
      • Provide at least one written ECA notice the hospital may initiate or resume if the individual fails to complete the application or pay the amount due by a deadline that is no earlier than the later of:
        • 30 days from the notice date or
        • the last day of the application period.

Panel Discussion - Proposed IRS Section 501 (r)

irs section 501 r 6 billing and collections9
IRS Section 501(r)(6) – Billing and Collections
  • FAP - Plain Language Summary
    • Defined as a clear, concise, easy to understand written statement that providing notification that the hospital offers financial assistance FAP:
      • Brief description of eligibility requirements and assistance offered under the FAP,
      • Direct website address and physical location(s) where the individual can obtain copies of the FAP and application forms,
      • Instructions to obtain a free copy of the FAP and FAP application by mail,
      • Hospital specific contacts for responses to FAP information, FAP application process, as well as nonprofit organizations or government agencies capable of assisting,
      • Available translations,
      • A statement indicating that the FAP-eligible will not be charged more for emergency or other medically necessary care than the AGB.

Panel Discussion - Proposed IRS Section 501 (r)

irs section 501 r 6 billing and collections10
IRS Section 501(r)(6) – Billing and Collections
  • Referring or Sale of Debt

If/when a hospital refers or sells the debt to another party during the application period, the hospital will have made “reasonable efforts” only if it first obtains (and enforces) legally binding written agreement with the other party that adheres to certain requirements.

      • Refrain during the notification period from engaging in ECA’s until the hospital has made reasonable efforts to determine FAP eligibility.
      • Upon receipt of an application, suspend ECA’s until the hospital has completed reasonable efforts to determine FAP eligibility.

Panel Discussion - Proposed IRS Section 501 (r)

irs section 501 r 6 billing and collections11
IRS Section 501(r)(6) – Billing and Collections
  • Referring or Sale of Debt
    • If the individual submits an FAP application during the application period and the hospital determines the individual is FAP-eligible,:
      • The party must adhere to procedures specified in the agreement between the parties that ensure the individual does not pay the party and hospital together more than he or she is required to pay as a FAP-eligible individual, and
      • Except for the sale of debt, if the party, other than the hospital, has the authority to do so, the party must also take all reasonably available measures to reverse any ECA.
    • If the party refers or sells the debt to yet another party (agent) during the application period, the party must obtain a written agreement from the other party to abide by the requirements

Panel Discussion - Proposed IRS Section 501 (r)

irs section 501 r1
IRS Section 501(r)
  • Your Moderator:

Gail Burke The Manchester Group

gailburke@themanchestergroup.org

  • Panel Members

Rusty Ingalls NFV Healthcare Group

ringalls@NFVGroup.com

Deborah Kelly FCS Services

dkelly@FCSservices.com

Mandy Hall BCA Financial Services

mhall@bcafs.com

Amy Manning Munroe Regional Medical Center

AmyManning@mrhs.org

Panel Discussion - Proposed IRS Section 501 (r)