What if you were responsible for loss of tax exempt status at your hospital?

Facilitator: John Osen, System Director of CBO, Aspirus

IRS Regulation 501(r)

• Fairly complex – Impact on policies and collection activities

• IRC §501(r) was introduced as part of the Patient Protection and Affordable Care Act (PPACA) and creates new requirements with which tax-exempt hospitals are required to comply.

• IRC §501(r)(3) requires all tax-exempt hospital organizations to conduct a community health needs assessment, on a hospital facility by facility basis, once every three years for all tax years beginning after March 23, 2012.

• IRC §501(r)(4) requires all tax-exempt hospital organizations to establish a written financial assistance policy (FAP) and widely publicize the FAP within the community the organization serves.

• IRC §501(r)(5) requires all tax-exempt hospital organizations to limit the amount charged for any emergency or other medically necessary care it provides to a FAP-eligible individual to not more than the amounts generally billed to individuals with insurance covering that care.

• IRC §501(r)(6) requires that all tax-exempt hospital organizations may not engage in extraordinary collection actions against an individual before making reasonable efforts to determine whether the individual is FAP-eligible.

Scary Thought

• Risk of non-compliance is being considered a taxable entity by the IRS.

• Senator Charles Grassley is leading the charge to have more oversight of non-profit hospitals. He has been a strong proponent of ensuring tax-exempt hospitals provide enough care to low-income and uninsured patients to merit the tax breaks the hospitals get.

• Tax exempt status of Illinois hospital is revoked at Catholic hospital Provena Covenant Medical Center in 2002. Charity care as percentage of gross revenue was 0.7%. Provena provided free or discounted care to only 302 patients out of 110,000 admissions.

• Above case and cases like it are one of the reasons we now have IRS Regulation 501(r).

• Questions we asked ourselves after looking at the proposed and final regulations? • Are we actively trying to collect from the poor? • How are the poor defined? • Are we providing enough charity care?

Impact of PPACA on billing office. What does 501(r) change for collections?

• Thousands of patients with new Medicaid coverage. Many have outstanding self pay balances and amounts at outside collection.

• Definition of Medicaid. Health care program for families and individuals with low income and limited resources.

• Were we trying to collect on patients with low income and limited resourses? Yes• Set a goal for Aspirus system. Be able to answer the above question “No”.• Current strategies.

• Collection staff reviewing reports of patients with outside collection accounts and with current Medicaid coverage. Requesting cancel and return of accounts from outside collection agency. Thousands of patients accounts being cancelled. Review showed limited collections on these accounts.

• Amounts cancelled are final written off to charity care.

Outcomes

• Patient satisfaction for those cancelled from collections.• Scrubbing agency inventories for Medicaid patients should leave

accounts with higher level of collectability. • Adjusting outstanding self pay balances for patients now with

Medicaid will cut down on statement and letter costs, along with staff costs to work accounts.• Higher ratio of charity care to bad debt on financial statements.

Lessons Learned

• Did not realize the number of Medicaid patients in collections. • Active Medicaid eligibility and sign up program has helped to identify

qualified patients to cancel from collection. It also helped drive our self pay payer mix to 1.35% for our seven hospitals.• Even thought offering financial assistance to all patients does not

mean qualified patients are signing up.

Financial Assistance Policy

• Updating policy for final regulations effective for tax years starting January 1, 2016.• Financial Assistance to cover medically necessary care and not just emergent care. • Get Board delegation for addendums since some items may be updated frequently or

have timeframes to implement.• Amount generally billed (AGB) calculation needs to be implemented within 120 days of

calculation time period.• Addendums for those participating and not participating in the Financial Assistance Policy.• Addendum for sliding scale changes necessary as a result of AGB calculation.

Collection Policy

• Verify when Extraordinary Collection Activities (ECA) occur and that all pre-requisites are met prior to implementing. Main ECA was credit bureau reporting.

• Pre-requisites include:• Oral offer for financial assistance• Statements and letters have reference to financial assistance• Plain language summary sent

Questions?