Presented by:

1. Understanding IRS’s Proposed Regulations related to 501(r), Schedule H, Part V Reporting and Schedule S-10 Reporting Presented by: Scott Bezjak, CPAPartnerBKD, LLP

2. AGENDA • Overview of Section 501(r) • Sections 501(r)(4) – 501(r)(6) & Proposed Regulations • Section 501(r)(3) and IRS Notice 2011-52-Anticipated Regulatory Provisions • IRS Form 990, Schedule H • Medicare Cost Report Worksheet S-10

3. Overview of Section 501(r)(3) – 501(r)(6)

4. Background • 501(r) enacted March 23, 2010 • Notice 2010-39 – IRS requested comments regarding new 501(r) requirements (May 27, 2010) • Notice 2011-52 – IRS addressed CHNA requirement (July 8, 2011) • Proposed Regulation on requirements described in 501(r)(4) – (r)(6) (June 22, 2012)

5. Overview of IRC Section 501(r) • Enacted by Patient Protection and Affordable Care Act of 2010 (PPACA) • Four new requirements for nonprofit hospitals to obtain and maintain 501(c)(3) tax-exempt status: • Community Health Needs Assessment (CHNA) • Financial Assistance Policy • Limitation on Charges • Billing and Collection Practices

6. IRC Section 501(r)(3) • Community Health Needs Assessment (CHNA) • Must be conducted once every three years for community served by each hospital • Include community input and public health expertise • Be made “widely available” to public • Hospital must adopt implementation strategy to meet identified needs • $50,000 excise tax applies for failure to meet assessment rules (IRC sec. 4959) • Tax potentially applicable annually

7. IRC Section 501(r)(4) • Financial Assistance Policy (FAP) • Eligibility criteria • Basis for calculating amounts charged • Method for applying • If no separate billing and collection policy exists, the actions the organization may take in the event of non-payment • Measures to widely publicize the policy • Policy relating to emergency medical care

8. IRC Section 501(r)(5) • 501(r)(5) – Limitation on Charges • Limits amounts charged for emergency or other medically necessary care provided to individuals eligible for assistance under the FAP to not more than the amounts generally billed to individuals having insurance covering such care • Prohibits the use of gross charges

9. IRC Section 501(r)(6) • 501(r)(6) – Billing and Collection Requirement • May not engage in extraordinary collection actions before the organization has made reasonable efforts to determine whether the individual is eligible for assistance

10. Overview of IRC Section 501(r)

11. Issues • Guidance before release of Proposed Regulations and Advanced Regulatory Provisions was vague • Requirements have been in place since March 23, 2010 • May rely on, but not required to comply with, Proposed Regulations or Anticipated Regulatory Provisions

12. Issues • Does your FAP explain the basis for amounts charged (i.e. discount applied against gross charges)? • Does your FAP document measures that you take to publicize your FAP? • Do you provide discounts for FAP eligible patients that are less than those negotiated with insurance companies?

13. Sections 501(r)(4) – 501(r)(6) & Proposed Regulations Proposed Regulations

14. Hospital Facilities • Licensed, registered, or similarly recognized by a state as a hospital • May treat multiple buildings operated under a single state license as a single hospital facility • Facilities outside U.S. are not required to comply • Disregarded entities operating hospitals must comply • Governmental hospitals with 501(c)(3) status must comply

15. Financial Assistance Policy • Previous requirements still apply • May publicize a summary of FAP as certain information may change regularly (such as federal poverty references) • No mandate for a particular eligibility criteria • Must state the amounts, such as gross charges, to which any discount percentages will be applied

16. Eligibility Criteria and Basis Calculating Amounts Charged • Must state that a FAP eligible patient will not be charged more than amounts generally billed (AGB) for emergency or other medically necessary care • Must state which of the IRS permitted methods used to determine AGB will be used • Must either state the % of gross charges the hospital facility applies to determine AGB and how these AGB %’s were calculated or how members of the public may readily obtain this information in writing free of charge

17. Method for Applying and Actions Taken for Nonpayment • Financial assistance may not be denied based on the omission of information not specifically required by the FAP or FAP application form • Must describe actions that may be taken in the event of nonpayment if no separate billing and collections policy exists • Must describe the process and time frames the hospital will use in taking these actions, including reasonable efforts to determine if the individual is FAP eligible • Must describe who has final authority for determining that the hospital has made reasonable efforts

18. Widely Publicizing • Four types of measures required • Measures taken to make paper copies of the FAP, the FAP application, and a plain language summary available (in English and language of minority populations comprising > 10% of hospital’s community) • Public display measures • Measures to inform and notify members of the hospital’s community • Measures to make the FAP, application form, and a plain language summary available on the website

19. Establishing the FAP • Authorized body must adopt the policy and the hospital must implement in the policy • Authorized body includes • Governing body, • A committee of the governing body permitted under state law to act on behalf of the governing body, • Other parties authorized by the governing body of the hospital to act on its behalf

20. Limitations on Charges • Must limit the charges to FAP-eligible patients to not more than AGB to individuals with insurance covering that care and charges must be less than gross charges • Two methods for computing AGB • Look-back method • Prospective method • Two methods are mutually exclusive • Claims paid under Medicare Advantage are treated as claims paid by private insurance

21. Look-Back Method • Based on actual claims paid to the hospital by either Medicare fee-for-service only or Medicare fee-for-service together with all private health insurers paying claims • Calculated by multiplying gross charges by one or more AGB percentages • Must calculate AGB percentages no less than annually by dividing the sum of certain claims paid by the sum of associated gross charges

22. Look-Back Method • Must begin applying AGB percentages by the 45th day after the end of the 12-month period used in calculation • May calculate one average AGB percentage for all emergency and medically necessary care or multiple AGB percentages for separate categories of care

23. Prospective Method • Determine AGB by using the same billing and coding process the hospital would use if the individual were a Medicare fee-for-service beneficiary

24. Gross Charges • May use gross charges as starting point to which discounts are applied • Safe harbor provided for situations where an individual does not complete FAP application before the time of charges

25. Billing and Collection • Must engage in reasonable efforts to determine FAP eligibility before engaging in extraordinary collections actions (ECA) • ECAs include • Any action that requires legal or judicial process • Reporting to credit agencies • Sale of individual’s debt to another party

26. Reasonable Efforts • Notify the individual about the FAP • If an individual provides an incomplete application, provide them with information relevant to complete the application • Make and document determination as to whether an individual is FAP-eligible

27. Notification Period • Period in which hospital must notify an individual about the FAP • Begins on the date care is provided and ends on the 120th day after the hospital provides the first billing statement

28. Application Period • Must accept and process FAP applications during a longer period that ends on the 240th day after the hospital provides the individual with the first billing statement

29. Notification About the FAP • Must distribute a plain language summary of the FAP and offer an application before discharge • Must distribute a plain language summary of the FAP with all (and at least 3) billing statements during the notification period • Must inform the individual of the FAP in all oral communications during the notification period • Must provide at least one written notice about the ECAs the hospital may take if the individual does not submit an FAP application or pay the amount due by the last day of the notification period

30. Plain Language Summary • Brief description of eligibility requirements and assistance offered • Direct website address and physical location copies may be obtained • Instructions on how to obtain a free copy by mail • Contact information • Statement of availability of translations if applicable • Statement that no FAP-eligible patient will be charged more than AGB

31. Incomplete FAP Applications • If received during application period, the hospital must • Suspend ECAs when received • Provide written notice that describes additional information needed • Provide at least one written notice describing ECAs that may be initiated or resumed if the individual does not complete by a deadline that is no earlier than the later of 30 days from the written notice or the last day of the application period

32. Complete FAP Applications • If received during the application period, the hospital must • Provide a billing statement indicating the amount owed • Refund any excess payments made by the individual • Take all reasonably available measures to reverse any ECA

33. Section 501(r)(3) and IRS Notice 2011-52Anticipated Regulatory Provisions

34. IRS Notice 2011-52 IRS Notice 2011-52: Notice and Request for Comments Regarding the Community Health Needs Assessment Requirements for Tax Exempt Hospitals

35. IRS Notice 2011-52 Key Guidance • 12 Parts within section 3 of the Notice • Provides Key Guidance on the following: • Which Hospitals are required to conduct CHNA • Required Documentation for CHNA • Level and Type of Input Required for CHNA • Implementation Strategy • Timing

36. IRS Notice 2011-52 Anticipated Regulatory Provisions • Organization that operates a facility which is required by state to be licensed, registered or similarly recognized as a hospital • Includes disregarded entities, joint ventures, partnerships • Excludes hospital facilities located outside the United States • Hospital must meet requirements for each facility it operates

37. IRS Notice 2011-52 Anticipated Regulatory Provisions • Treasury and IRS intend to require a hospital organization to document a CHNA for a hospital facility in a written report that includes descriptions of the following information: • Community • Process and methods • Community input • Community needs • Existing health care facilities

38. IRS Notice 2011-52 Anticipated Regulatory Provisions • CHNA must involve Persons Representing the Broad Interests of the Community with special knowledge of or expertise in public health: • Health departments or other agencies, with current data or other information relevant to the health needs of the community served by the hospital. • Leaders, representatives or members of medically underserved, low-income and minority populations and populations with chronic disease needs.

39. IRS Notice 2011-52 Anticipated Regulatory Provisions • When is a CHNA Considered Conducted? • Taxable year the written report is made widely available to the public • CHNA Must be made widely available to the Public • Post CHNA and findings on hospital website • CHNA report must be made “widely available” to the public until the date it makes a subsequent CHNA report “widely available”

40. IRS Notice 2011-52 Anticipated Regulatory Provisions • Implementation Strategy: • Written Plan that is attached to Form 990 • A separate plan for each hospital facility • Adopted the date it is approved by an authorized governing body of the hospital organization • Must be adopted by the end of the SAME tax year in which it conducts that CHNA

41. IRS Notice 2011-52 Anticipated Regulatory Provisions • CHNA must be conducted once every three years for community served by each hospital – first must be completed by end of tax year beginning after March 23, 2012

42. To-Do Item Assess if Your Hospital is Required to Conduct a CHNA and Determine the Due Date of Your Initial CHNA Hospital needs to “Conduct” the CHNA and “Adopt” an Implementation Strategy by the Due Date!

43. CHNA Planning & ExecutionSample Time Line

44. CHNA - Common Missing ElementsObservations from the Field • Implementation Strategy • Documentation of Processes • Proper Identification of Hospital “Community” • County may not be the service area • Community Input • Persons with specialized knowledge or public health expertise • Representatives or members of medically underserved populations/minority populations • List and Description of Existing Health Resources • Listing/Prioritization of Identified Health Needs • Document Process

45. IRS Form 990, Schedule H

46. Reporting Requirements • Affordable Care Act added two specific reporting requirements to §6033(b). • §6033(b)(10)(D) - hospital organization required to report on Form 990 amount of excise tax imposed under §4959 • §6033(b)(15)(A) - hospital organization required to report on Form 990 a description of how it is addressing the needs identified in each CHNA and a description of any needs not being addressed with the reasons why needs are not being addressed

47. Reporting Requirements • Questions added to Form 990, Schedule H to reflect the new reporting requirements under §6033(b)(15)(A) • Questions reflecting the new reporting requirements under §6033(b)(10)(D) will be added to the Form 990 in the future. • Responses to Schedule H, Part V, Section B questions are optional for taxable years beginning on or before March 23, 2012.

48. Reporting Requirements • §501(r)(3)(A)(ii) requires a hospital organization to adopt an implementation strategy for each of its hospital facilities. • Hospital required to attach to its Form 990 its most recently adopted implementation strategy for each of its hospital facilities. • If only one CHNA and one implementation strategy in a 3-year period, hospital may attach the same implementation strategy for that hospital facility to the Form 990 for each of those three years.

49. Reporting Requirements • 2012 Form 990 – organizations with tax years beginning after March 23, 2012 will be required to attached implementation strategy to Form 990

50. To-Do Item Evaluate whether your Hospital’s CHNA and Implementation Strategy will adhere to the guidance provided by Notice 2011-52 Most Hospitals have not contemplated their “Implementation Strategy” and associated timing constraints of the Due Date!