Download Panel Discussion The Proposed IRS Section 501(r)

Presents….
Panel Discussion
The Proposed IRS Section 501(r)
Plantation on Crystal River
August 10, 2012
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
2
 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)
3
 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
4
 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
5


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
6

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 taxexempt 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 Context
7

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 taxexempt 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
8
 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
9

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
10
 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)
11
ADDITIONAL REQUIREMENTS
Panel Discussion - Proposed IRS Section 501 (r)
IRS Section 501(r) (1) – Purpose and Background
12
 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)
13
C O M M U N I T Y H E A LT H N E E D S
ASSESSMENT
Panel Discussion - Proposed IRS Section 501 (r)
IRS Section 501(r) (3) - CHNA
14
 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
15
 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)
16
POLICIES
F I N A N C I A L A S S I S TA N C E
EMERGENCY CARE
Panel Discussion - Proposed IRS Section 501 (r)
IRS Section 501(r) (4) – Financial Policies
17
 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
18
 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)
19
L I M I TAT I O N O N C H A R G E S
Panel Discussion - Proposed IRS Section 501 (r)
IRS Section 501(r)(5) – Limitation on Charges
20
 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:
Complex:
Prospective Medicare
Look Back Method
Panel Discussion - Proposed IRS Section 501 (r)
IRS Section 501(r)(5) – Limitation on Charges
21
 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 Charges
22
 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 Charges
23
 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 Charges
24
 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 Charges
25
 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 Charges
26

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)
27
BILLING AND COLLECTION
Panel Discussion - Proposed IRS Section 501 (r)
IRS Section 501(r)(6) – Billing and Collections
28
 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 Collections
29
 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 Collections
30
 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 Collections
31
 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 Collections
32
 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 Collections
33
 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 Collections
34
 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)


ECA’s must be suspended when an FAP application is received during the
240 day period.


Even if ECA’s have been engaged
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 Collections
35
 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 Collections
36
 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 Collections
37
 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 Collections
38
 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 Collections
39
 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(r)
40
 Your Moderator:
Gail Burke
The Manchester Group
[email protected]
 Panel Members
Rusty Ingalls
Deborah Kelly
Mandy Hall
Amy Manning
NFV Healthcare Group
[email protected]
FCS Services
[email protected]
BCA Financial Services
[email protected]
Munroe Regional Medical Center
[email protected]
Panel Discussion - Proposed IRS Section 501 (r)