Health Care Board Presentation template

Download Report

Transcript Health Care Board Presentation template

plantemoran.com

2013 HFMA Tax Update

Topics



Today’s Agenda

 Hospital Exemption and Provisions of §501(r)  Current Tax Developments  IRS Enforcement

plantemoran.com

plantemoran.com

Hospital Exemption and Provisions of §501(r)

Hospital Exemption and Provisions of §501(r) Tax-Exempt Status for Hospitals



No “per se” exemption for hospitals



Promotion of health is charitable purpose



Rev. Rul. 56-185: Financial Ability Standard



Rev. Rul. 69-545: Community Benefit Standard

plantemoran.com

Hospital Exemption and Provisions of §501(r)

Community Benefit Standard: 1969 – Present

 Rev. Rul. 69-545 issued by IRS in 1969  Requirements:  Accept and treat Medicare and Medicaid patients  Open ER to all people, regardless of ability to pay  Maintain open medical staff  Operate under a community board’s control  Use surplus to improve care, expand hospital facilities, & advance medical training, education and research programs

plantemoran.com

Hospital Exemption and Provisions of §501(r)

Key provisions of Patient Protection and Affordable Care Act (PPACA) impact tax-exempt hospitals

 2 new sections to the Internal Revenue Code:  Sec. 501(r) provides specific requirements for tax exemption for hospitals  Sec 4959 imposes penalty tax who fail a provision of 501(r)  Sec. 501(r) applies to hospital organizations on a facility-by-facility basis

plantemoran.com

Hospital Exemption and Provisions of §501(r)

PPACA requirements for §501(c)(3) hospital facilities:

 Community Health Needs Assessment (CHNA) conducted at least once every 3 years  Establishment of both a written financial assistance policy and emergency medical care policy  Limitation on charges  Billing and collection requirements  Mandatory review of community benefit activities at least once every 3 years  Report to Congress not later than 5 years from PPACA enactment

plantemoran.com

Hospital Exemption and Provisions of §501(r)

Community Health Needs Assessment (CHNA)

 New provision under PPACA applicable to tax-exempt

hospital

 Perform CHNA every three years  Required to meet standards for EACH FACILITY in system  Failure to meet CHNA requirements  Subject to $50,000 fine per facility  Failure to meet CHNA and other requirements under new §501(r)  Loss of §501(c)(3) exempt status

plantemoran.com

Hospital Exemption and Provisions of §501(r)

IRC §501(r)(3) – CHNA requirements

Requirement is effective for tax years beginning after March 23, 2012  Generally the fiscal year ending in 2013  Examples of timing:  Calendar year  by 12/31/2013  Y/E 3/31  by 3/31/2013  Y/E 6/30  by 6/30/2013

plantemoran.com

Hospital Exemption and Provisions of §501(r)

IRS Notice 2011 – Anticipated regulatory provisions re: CHNA

 Guidance may be relied upon until 6 months after regulations are issued  The CHNA and board-adopted implementation strategy must be done by the designated year end for EACH hospital facility.

 The CHNA must take into account, at a minimum, input from:  Persons with special knowledge of or expertise in public health  Federal, Tribal, regional, state, or local health or other depts. or agencies, with current data or other information relevant to the health needs of the community served by the facility  Leaders, representatives, or members of medically underserved, low income, and minority populations with chronic disease needs, I the community served by the hospital facility.

plantemoran.com

Hospital Exemption and Provisions of §501(r)

IRS Notice 2011 – Anticipated regulatory provisions re: CHNA

 The CHNA and the implementation strategy are 2 separate reports and must BOTH be done in the same tax year  CHNA is considered conducted in the tax year the written report of its findings is made widely available to the public  CHNA report must be posted to the hospital facility’s website  The implementation strategy plan must be attached to Form 990  DO NOT post the CHNA report to the website in the year before the implementation strategy plan will be adopted.

 The CHNA report must include a prioritized description of all of the community health needs identified through the CHNA  The implementation strategy must address each of the community health needs identified

plantemoran.com

Hospital Exemption and Provisions of §501(r)

Proposed regulations issued this summer

 Relate to the non-CHNA provisions of §501(r)  IRC §§501(r)(4), (5) and (6) are effective NOW  Proposed regs not effective until the year beginning AFTER the regulations are issued as final or temporary regs.

 Proposed regs. show what the final regs are expected to look like  Allow a hospital facility to review its policies and practices to determine steps to take to prepare for final rules

plantemoran.com

Hospital Exemption and Provisions of §501(r)

Financial Assistance Policy (FAP) and Emergency Medical Care Policy (EMCP) must be adopted by authorized body  Eligibility criteria (no specific criteria mandated)  Basis for calculating amounts charged  Method of applying for FAP  List actions facility may take in event of nonpayment (unless separate collections policy)  Measures to widely publicize the FAP within the community EMCP must specifically prohibit debt collection activity in ER or similar venues

plantemoran.com

Hospital Exemption and Provisions of §501(r)

Limitation on charges  Limits amount charged for emergency or other medically necessary care provided to FAP-eligible individuals to not more than amounts generally billed (AGB) to individuals who have insurance  Two methods to determine AGB – look-back and prospective  Look-back method based on actual past claims paid to facility either by: 1.

Medicare fee-for-service only; or 2.

Medicare fee-for-service together with all private health insurers paying claims to the facility (including portions paid by Medicare beneficiaries or insured individuals  Prospective method based on facility’s estimate of amount it would be paid by Medicare and Medicare beneficiary if the FAP-eligible individual were a Medicare fee-for-service beneficiary

plantemoran.com

Hospital Exemption and Provisions of §501(r)

Limitation on charges  Prohibits use of gross charges  Gross charge = chargemaster rate  Full, established price for medical care that hospital consistently and uniformly charges all patients before applying contractual allowances, discounts or deductions  Permissible as starting point to which discounts are applied as long as gross charges are not amount FAP-eligible individual is expected to pay

plantemoran.com

Hospital Exemption and Provisions of §501(r)

Billing and Collections  Hospitals are required to make reasonable efforts to determine whether individual is FAP-eligible before engaging in extraordinary collection actions  Reasonable efforts 1.

Notification requirements 2.

Follow up on incomplete FAP application submitted 3.

Document determination of eligibility under FAP  Extraordinary collection actions  Any actions that require a legal or judicial process  Reporting individual to credit agencies  Sale of debt (excludes referring debt without selling it)

plantemoran.com

Hospital Exemption and Provisions of §501(r)

Billing and Collections  Prop regs provide both a “notification period” and an “application period”  Notification period – period during which the facility must notify and individual about the FAP  Begins on date care is provided and ends on the 120 th facility provides the 1 st day after the billing statement to the individual  At the end of notification period, facility may engage ECA’s if no FAP application is submitted  Application period – period during which facility must accept and process submitted FAP applications  Period ends on the 240 th day after the facility provides the first billing statement to the individual

plantemoran.com

Hospital Exemption and Provisions of §501(r)

Billing and Collections  Upon receipt of complete FAP application, hospital facility must:  Make and document determination of eligibility in timely manner  Notify the individual in writing of determination and basis for determination  If determine that individual is FAP-eligible:  Provide billing statement indicating amount owed as FAP-eligible individual  Refund any excess payments made by the individual  Take all reasonable available measures to reverse any ECA’s taken against the individual  Simply obtaining signed waiver from individual is NOT reasonable effort to determine FAP eligibility

plantemoran.com

Hospital Exemption and Provisions of §501(r)

Definition of Hospital Facility  Facilities that are required to be licensed, registered, or similarly recognized as a hospital  Any other facility that the Treasury Secretary determines has the provision of hospital care as its principal function or purpose constituting it basis for §501(c)(3) tax exemption (none yet)  Only hospitals licensed within 50 states and Wash. D.C.

 Includes any organization that operates a hospital facility through a disregarded entity  Includes government hospitals that are exempt under §501(c)(3)  May treat multiple buildings operated under a single state license as a single hospital facility

plantemoran.com

Hospital Exemption and Provisions of §501(r)

Review of hospital community benefits at least once every three years  Behind-the-scenes review process by the IRS  Review Schedule H and the rest of the Form 990  IRS: Reviews not intended to lead to an audit of a hospital, but not ruling out that findings could trigger audit of a specific hospital organization  Reviews will be used to submit annual report and 5-year trend study

plantemoran.com

plantemoran.com

Current Tax Developments

Severance Payments

The Federal District Court for the Western District of Michigan and the U.S. Court of Appeals for the Sixth Circuit have both found in the case of United States v. Quality Stores, Inc. that certain severance payments should not be considered wages for FICA taxation purposes. These decisions have opened the door for employers who made covered severance payments, and paid the associated FICA taxes, to file a claim for refund.

Even though the case is not final and the appeals process may continue for some time, if you paid FICA tax on severance payments, you should consider whether filing a protective claim for refund to preserve your claim is worthwhile.

Because of the statute of limitations, claims for refund of FICA taxes on severance benefits paid in 2009 must generally be filed on or before April 15, 2013. Claims for FICA tax refunds related to severance payments made before 2009 are generally closed under the statute of limitations.

plantemoran.com

Current Tax Developments

Severance Payments ( Continued)

The decision in Quality Stores does not provide a wholesale exemption from FICA for all severance benefits; rather, it addresses “supplemental unemployment compensation benefits” (“SUB payments”). In general, to be considered SUB payments, benefits must at a minimum be:  Paid to an employee pursuant to a “plan” sponsored by the employer;  Paid because of the employee’s involuntary separation from employment (whether temporary or permanent); and  Be paid as a direct result of a reduction in force, the discontinuance of a plant or operation, or other similar conditions.

Unless payments meet the above criteria, it is unlikely that an employer will prevail in a claim for refund. For example, even the Quality Stores decision would not extend the FICA exemption to severance benefits paid to an individual based solely on that individual’s termination (i.e., not as part of an overall reduction in force) or to payments not made under a “plan.”

plantemoran.com

Current Tax Developments

Tangible Personal Property Regulations

Notice 2012-73 delays the mandatory effective date of the tangible property regulations to tax years beginning on or after January 1, 2014. Recognizing that taxpayers are expending resources to comply with the temporary regulations, the IRS also indicated that certain sections of the temporary regulations may be revised and in certain cases simplified when the regulations are issued in final form. The below areas were specifically noted.  De Minimis Rule;  Rules related to the disposition of assets; and  Safe Harbor for Routine Maintenance Taxpayers that choose to apply the temporary regulations to the 2012 tax year may continue to obtain automatic consent to change their methods of accounting under previous guidance.

plantemoran.com

Current Tax Developments

Tangible Personal Property Regulations (continued)

The material and supply regulations (Temp. Reg. §1.162-3T):  Define materials and supplies;  Provide rules regarding the tax year for deducting materials and supplies;  Provide an election to treat certain materials and supplies as deductible expenses in the year paid or incurred under a de minimis rule;  Allow a taxpayer to elect to capitalize certain materials and supplies.

plantemoran.com

Current Tax Developments

Tangible Personal Property Regulations (continued)

The de minimis rule applies if:  The taxpayer has an applicable financial statement;  The taxpayer has at the beginning of the tax year written accounting procedures treating as an expense for nontax purposes the amounts paid or incurred for property costing less than a certain dollar amount;  The taxpayer treats the amounts paid or incurred during the tax year as an expense on its applicable financial statement in accordance with its written accounting procedures; and  The total aggregate of amounts paid or incurred and not capitalized under the de minimis rule (including materials and supplies for which an election is made to apply the de minimis rule) are less than or equal to the greater of—  (a) 0.1 percent of the taxpayer’s gross receipts for the tax year as determined for Federal income tax purposes; or  (b) 2 percent of the taxpayer’s total depreciation and amortization expense for the tax year as determined in its applicable financial statement.

plantemoran.com

Current Tax Developments

Medical Device Excise Tax

The IRS has issued final regulations that provide guidance on the medical device excise tax imposed by Code Sec. 4191. Under the new tax, starting in 2013, any manufacturer, producer or importer of certain medical devices is subject to the tax, which is equal to 2.3 percent of the price for which the medical device is sold.

Hospitals or medical institutions that produce kits for their own use are known as self-kitters. Self-kitters are exempt from the FDA’s registration and listing requirements. Therefore, under the definition of a taxable medical device in the final regulations, a kit produced by a hospital or medical institution for its own use would not be a "taxable medical device."

plantemoran.com

Current Tax Developments

Medical Device Excise Tax (continued)

Convenience kits. Under the interim guidance, a convenience kit is defined as "a set of two or more devices within the meaning of section 201(h) of the FFDCA that is enclosed in a single package, such as a bag, tray, or box, for the convenience of a health care professional or the end user." In addition, under the interim rules no tax will be imposed upon the sale of a domestically produced convenience kit that is a "taxable medical device" under Code Sec. 4191 and Reg. §48.4191-2(b). Rather, the sale of a taxable medical device that goes into a domestically produced convenience kit will be subject to tax when sold by the manufacturer or importer. The sale of the convenience kit by the kit producer, however, will not be subject to tax.

plantemoran.com

Current Tax Developments

Medical Device Excise Tax (continued)

Sale to Hospital or Doctor's Office Treated as Sale at Retail

The regulations define “sale at retail” as the sale of an article to a purchaser who intends to use the article, or to lease it to another person, rather than resell it. And defines “retailer” as a person engaged in the business of selling articles at retail. Therefore, a sale to a retailer is a sale of an article to a person engaged in the business of selling articles at retail. Medical institutions and offices, such as hospitals and doctor's offices, purchase taxable articles that are used to treat patients. Sometimes an article is completely consumed on the premises of a medical institution or office and other times the articles leave the medical institution or office with the patient. Under the definitions described above, it is unclear whether a sale of an article to a medical institution or office is a sale at retail or a sale to a retailer.

plantemoran.com

Current Tax Developments

Medical Device Excise Tax (continued)

The regulations include examples that apply the facts and circumstances test to several types of medical devices. Based on the totality of the circumstances presented in the examples, the examples conclude that non sterile absorbent tipped applicators, adhesive bandages, snake bite suction kits, denture adhesives, mechanical and powered wheelchairs, portable oxygen concentrators, and therapeutic AC powered adjustable home use beds are devices that fall within the retail exemption. Based on the totality of the circumstances presented in the examples, the examples also conclude that mobile x-ray systems, nonabsorbable silk sutures, and nuclear magnetic resonance imaging systems are not devices that fall within the retail exemption.

plantemoran.com

plantemoran.com

IRS Enforcement

Group Exemptions

The IRS recently announced it is in the process of mailing letters to over 2,000 central organizations with group rulings, requesting that the organizations complete an on line compliance check questionnaire. According to the IRS, the purpose of the questionnaire is to help the IRS better understand the relationship between central organizations and their subordinates, and how they satisfy their exemption and filing requirements

plantemoran.com

IRS Enforcement

Revocations

IRS continues to revoke exemptions due to failure to file returns for 3 years in a row. An organization can request reinstatement and have the exemption applied retroactively. It is important to note that the IRS will not remove the name of the organizations who have had their exemption revoked regardless of the reinstatement.

plantemoran.com

IRS Enforcement

The IRS 2012-2013 Priority Guidance Plan

 The IRS 2012-2013 Priority Guidance Plan identifies guidance projects that are priorities for allocation of IRS resources for the year from July 2012 through June 2013.

 The Plan lists 317 guidance projects that impact a number of tax areas, including corporations and shareholders, partnerships, employee benefits, international issues, and tax-exempt bonds.

plantemoran.com