©2015 Hancock, Daniel, Johnson & Nagle, PC hdjn.com The Changing Face of Charity Care Presenters: Kathy Abshire, VP of Finance, Children’s Hospital of.

The Changing Face of Charity Care

Presenters:Kathy Abshire, VP of Finance, Children’s Hospital of the King’s DaughtersEmily Towey, Hancock, Daniel, Johnson & Nagle, PCMike Newby, Hancock, Daniel, Johnson & Nagle, PC

September 23, 2015

1. Healthcare Reform – What’s New?

2. Taming “Bad Debt” Escalation

3. Re-Defining “Charity Care”

4. Hospital-Sponsored Subsidies

5. Tax Exempt Status and 501(r)

Program Overview

Disclaimer: This presentation is offered for discussion purposes only and does not constitute legal advice.

• The 2010 Affordable Care Act (ACA) was designed to extend coverage to many nonelderly uninsured people nationwide.

– Medicaid Coverage Expansion

– Marketplace Coverage

Healthcare ReformWhat’s New?

ACA Medicaid Coverage ExpansionCurrent Status of State Medicaid Expansion Decisions

Source: “Status of State Action on the Medicaid Expansion Decision,” KFF State Health Facts, updated September 1, 2015.

ESI Public Exchanges

$1,135

$2,500

$6,250

Marketplace CoverageSelection of “Ultra”-High Deductible Plans

Annual Deductibles of Individual Plans Offered For ESI1 and Public Exchanges

MeanMedian

• Employer-Sponsored Insurance.• Silver plans, medical deductible only.

Annual Deductibles of Individual Plans Selected on eHealth

$6,000+

$3,000-$5,999

$2,000-$2,999

$1,000-$1,999

$500-$999< $500

October 2013 – March 2014

Source: Breakaway Policy Strategies, “Eight Million and Counting: A Deeper Look at Premiums, Cost Sharing and Benefit Design in the New Health Insurance Marketplaces,” May 2014; eHealth, “Health Insurance Price Index Report for Open Enrollment and Q1 2014,” May 2014; Health Care Advisory Board interviews and analysis.

• Most patients covered through Medicaid-expansion were previously uninsured, so new Medicaid enrollees will likely reduce both charity care and bad debt.

• Marketplace coverage will likely reduce charity care, but increase bad debt due to increase in HDHP coverage.

• The shift from traditional employer-sponsored insurance to HDHPs will significantly increase bad debt and reduce overall net patient revenue due to exchange-based health plans’ less generous rates (e.g., 15% less than employer-sponsored plan rates).

• As employers/plans shift healthcare costs to patients, patients’ price sensitivity increases and they will shop the market for the best deal in healthcare or will forgo the service.

In Summary……Where applicable,

So Now What?

Taming “Bad Debt” Escalation• “Bad Debt”

• Any bill submitted for payment by a third-party payer or patient which is not paid in full, and unlikely to be paid for various reasons

Redefining “Charity Care”• “Charity care” or “Financial

Assistance” (IRS)

• “Free or discounted health services provided to a person who meets the organization’s criteria for financial assistance, and are unable to pay for all or a portion of the services.”

• Financial assistance does NOT include bad debt or uncollectable charges

Program Overview

• Patient Registration “The Basics”:

– Verify insurance eligibility/benefits for patients

– Identify patients qualifying for charity care and/or Medicaid benefits

– Automate authorization retrieval and tracking

– Accurately estimate patient obligations at or prior to service

NOTE: EMTALA rules for emergency services

Taming “Bad Debt” EscalationPatient Collections- Old Strategies

• Where do we focus our efforts?

Taming “Bad Debt” EscalationPatient Collections – New Strategies

HighLow

Level of Bad Debt by Service Line

OutpatientImaging

OutpatientSurgery

InpatientMedical

InpatientSurgical Obstetrics ED

• Identify the “tipping point” and try to stay under it

– Bills exceeding 5% of patient income unlikely to be paid

• Point of Service Collections

• Pre-payment Collections

• Financial Counseling and Alternative Options for Patients

• Optimizing Front Office Performance

• Patient Obligation Estimation Technology

Taming “Bad Debt” EscalationPatient Collections – New Strategies

• Interest Free Loans

– Hospital alleviates patients’ financial concerns through interest-free, low monthly payment programs.

– Loans are non-punitive – no penalties for delinquency (no interest, late fees or costs).

– Hospital pays a servicing fee

– Hospital realizes savings due to reduced or eliminated collection costs

Taming “Bad Debt” EscalationFinancial Counseling/Alternative Options for Patients

Taming “Bad Debt” Escalation

• Pre-service deposits, Post-service payment plan with auto-deduction for patient’s credit card/bank account

• Targeted Price Discounts for Patients

– MedStar’s StarPass urgent care service discount program

Taming “Bad Debt” EscalationFinancial Counseling/Alternative Options for Patients

Caring for Virginia’s Children

Comprehensive Pediatric Health System

206-Bed Freestanding Children’s Hospital

17 Primary Care Pediatric Practices

Five Surgical Subspecialty Practices

30+ Pediatric Subspecialty Clinics

Almost 3,000 employees

36 Locations

From Williamsburg to Elizabeth City, NC

CHKD - Bad Debt

• Bad debt as a percentage of total charges averages 1%

• Bad debt write offs are comprised of 46% uninsured and 54% underinsured and this mix has been consistent the past 3 years; however….

• Patient responsibility (including uninsured) as a percentage of total A/R is:

– 8.4% FY15

– 6.5% FY14

– 6.1% FY13

CHKD - Managing Bad Debt

• Manage Medicaid enrollments – Optimize hospital presumptive eligibility (HPE)

– Screening during charity care application process

– Onsite application assistance

– Mail letters

• Attempt to get charity care in place prior to incurring collection/legal fees

• Increase co-pay/deductible collections on front end– Ripple effect for deductible - more refunds required when other provider

claims are adjudicated before hospital

• Considering implementing a patient estimator software tool (all vendors who read this – contact Amy McClanan not me)

• We do not allow premium assistance payments

Program Overview

• Definition of “Financial Assistance” (IRS)

– “free or discounted health services provided to a person who meets the organization’s criteria for financial assistance, and are unable to pay for all or a portion of the services.”

– Financial assistance does NOT include bad debt, uncollectable charges, self-pay / prompt pay discounts and contractual allowances.

• VIRGINIA CERTIFICATE OF PUBLIC NEED DEFINITION

– “Charity Care means health care services delivered for which it was determined at the time of service provision that no payment was expected.”

Redefining “Charity Care”

• Should charity care or discounted care be made available to uninsured/non-Medicaid-eligible patients who could have obtained coverage through the federal insurance exchange?

• Possible Charity Care Policy Requirements:

– Impose a charity care “fine” for these patients, reducing their charity-care discount by some amount

– Require uninsured patients requesting care during open enrollment period who qualify for a federal premium subsidy to buy insurance before the hospital waives charges

– Postpone elective procedures for uninsured patients eligible for subsidized coverage under federal exchange plan until they are able to obtain such coverage

Redefining “Charity Care”

• Insurers impose contractual duty on Participating Providers to make a reasonable effort to bill and collect the applicable copay and coinsurance amounts.

• Routine waiver of patient obligation may result in a breach of contract law suit.

• Negotiate language to allow accommodation of patients with documented financial limitations (consistent with hospital’s charity care policy).

Redefining “Charity Care”Discounting Care as a Participating Provider

• Typically offered to patients without insurance coverage, but what about patients with high deductibles?

Redefining “Charity Care”Time-of-Service Cash Payment Discounts

• Expand policy to include patients with HDHPs and underinsured status

Caution: Special Rules on Waiver of Copays

Redefining “Charity Care”Solution

• Federal Civil Monetary Penalties Law and Anti-Kickback Statute

– Prohibit offering Medicare/Medicaid beneficiaries remuneration to induce the beneficiary to order or receive services covered by Medicare/Medicaid

– Remuneration includes waiver of copay and deductibles

• Financial Hardship Exception

Redefining “Charity Care”Waiver of Copays for Medicare/Medicaid Beneficiaries

• Cigna Health and Life Insurance Company vs. Health Diagnostic Laboratory Inc.

– $84M lawsuit

– HDL is an out-of-network lab

– HDL accused of “ongoing, fraudulent fee-forgiving scheme”

– HDL accused of luring Cigna beneficiaries in by telling them they do not have to pay their share of the cost (aka, “Insurance Only Billing)

Redefining “Charity Care”Discounting Care as a Non-Par Provider

CHKD - Charity Care

• The national average of charity care charges to total gross charges is 15%

• Our charity care charges average $6M/year or approximately 1% of gross charges

– most non-insured patients meet Medicaid income criteria

– low birth weight, 30 day minimum stay

– emergent IP stays for undocumented patients

• More recently we have seen a rise in charity requests for:

– young adults who have aged out of Medicaid

– undocumented

– international

CHKD - Third Party Payer Changes

• Payers are under pressure to reduce costs

• Cost shifting to higher patient responsibility

– FY15 - 3.2%; FY 14 and FY13 – 2.8%

– Represents a 14% increase

• Other third party pressures

– Steerage to lower cost facilities

• Infusion/drugs, radiology, some surgical

Program Overview

• Some providers propose paying for insurance for their own patients

• Sebelius letter – private exchange products are not “federal health programs”

• CMS FAQ - will seriously scrutinize provider insurance purchases

• Insurers object

Hospital-Sponsored Subsidies

• Monongahela Valley Hospital (Pennsylvania) partners with Patient Advocacy Foundation and Leukemia and Lymphoma Society

• Average grant provided to qualified cancer patient is $5,000

Hospital-Sponsored SubsidiesChemotherapy Copay Assistance

Program Overview

• Charity care or financial assistance at cost

• Unreimbursed Medicaid

• Unreimbursed other means- tested government programs

• Community health improvement services

• Health professional education

• Subsidized health services

• Research

• Cash In-kind contributions

Maintaining Tax-ExemptStatusTax-Exempt Status Qualification requires the provision of “community benefit”:

• Growth in Unreimbursed Medicaid may mitigate fear that a provider’s tax-exempt status is in jeopardy

• Hospitals are also focusing more on “community health improvement” through population and preventative health initiatives

• Support existing public health initiatives

Maintaining Tax-Exempt Status

• Part of Affordable Care Act – first specific requirements imposed on 501(c)(3) hospitals.

• Applies to each hospital facility operated by a 501(c)(3) entity.

• Requires a community health needs assessment to be developed and made widely available every three years.

• Requires each hospital facility to develop a “response” to the CHNA through an implementation strategy.

• Each must be adopted by the Board and made transparent to the public.

501(r) Overview

• Rules regarding exemption requirements for nonprofit hospitals

• Requires each hospital facility to maintain a financial assistance policy, but does not mandate minimum charity care.

• Regulations specify what needs to be explained in the FAP and how they are made available.

• Limitations on charges to FAP-eligible patients for emergency and medically necessary care.

• Limitations on extraordinary collection activities.

• Final regulations released in December 2014

501(r)Overview

• 501(r)(1)—Definitions; what it means to be a charitable hospital organization

• 501(r)(2)—Consequences of noncompliance with 501(r) requirements

• 501(r)(3)—Community Health Needs Assessment (not covered in this presentation)

• 501(r)(4)—Financial Assistance Policy (FAP) and Emergency Medical Care Policy

• 501(r)(5)—Limitations on Charges

• 501(r)(6)—Billing and Collections

501(r)Components

• Could jeopardize 501(c)(3) exemption of the hospital

• Excise taxes

• Subjection income of facility to corporate income tax

• Tax-exempt bonds

– Revenues from hospital would not be considered unrelated business income for tax-exempt bonds

• 403(b) plans

• Sales and use tax exemptions

• Property tax exemptions

• Public relations

501(r)(2)Consequences of Failing to Comply

• Minor Omissions/Errors

– Not “failure” if minor omission/error or due to reasonable cause

– Hospital must quickly correct the omission/error and reviews/revises procedures to facilitate compliance

• If not a minor error/omission, the failure to comply will be “excused” if

– The error/omission is not willful or egregious

– Corrected

– Properly disclosed per Revenue Procedure

• Willful or egregious: gross negligence, reckless disregard, or willful neglect

501(r)(2)Failure to Comply

• Documentation of 501(r) compliance is crucial

– Excellent documentation of practices and procedures

– Good faith attempt to implement and comply

– Monitor ongoing compliance

– Procedures to identify and correct failures

• Correction/disclosure procedures in Rev. Proc. 2015-21

• Disclosure made on Form 990 Schedule H for year failure discovered

501(r)(2)Compliance

• Identifying a complete list of providers

• Identifying charity care up front

• Provision requiring patients to enroll in subsidy coverage for which they are eligible for before we grant charity care

• Consider presumptive or catastrophic eligibility:

– Estimated income and/or assets

– State-funded prescription programs

– WIC participants; food stamp eligibility; subsidized school lunch participants

– Medicaid spend down eligibility

– Low income/subsidized housing residents

CHKD – 501(r) Challenges

• Requires a hospital facility to have a written policy

• FAP must include:

– Eligibility criteria for free or discounted care

– Application method

– Actions that may be taken if nonpayment (can be in separate billing and collection policy)

– Specific Emergency Medical Care Policy

501(r)(4)Financial Assistance Policies (FAP)

• FAP must:

– Cover the hospital and all providers other than the hospital that may deliver medically necessary or emergency care

– Specify which providers not covered by FAP

• For “medically necessary care,” provider may use Medicare definition, state law definition, or generally accepted standards of care in community

• Eligibility criteria for financial assistance and whether assistance includes discounted or free care– Can determine eligibility based on information provided by others

– Prior FAP eligibility determination

– Written or oral forms of information

• Need to describe all discounts under FAP (not necessarily all discounts by the hospital)

• No mandated eligibility requirements• Must describe the basis for calculating amounts charged to

patients– Needs to specifically state that FAP-eligible patients will not be charged

more for emergency or other medically necessary care generally billed to individuals who have insurance covering such care

• Publicizing FAP Documents (FAP, FAP application, and Plain Language Summary)

– Online

– Paper: Made available on request; in public locations in hospital (emergency room and admission areas); by mail

– In Person

– In the Community: reach those most likely to need financial assistance

501(r)(4)FAP Publication

• Hospital must provide at intake or discharge

• Include notice of availability of financial assistance, office contact information, and online information

• Translating FAP Documents

– Translation for those with “limited English proficiency” (LEP)

– Final rule: Hospital must translate FAP documents if community has 5% or 1,000 LEP population (proposed rule had set threshold at 10%)

501(r)(4)FAP Publication

CHKD - Financial Assistance Policy

• We use a sliding scale discount income as a percentage of FPL:

– 175% or less allows free care

– Sliding scale up to 400% of FPL

• Limited to residents in the region who have a valid legal presence in the United States

• We use the lowest negotiated commercial insurance rates when calculating the maximum amounts that will be collected

• CHKD has not adjusted its charity care income thresholds to encourage patients to go to the exchange

• Amounts generally billed (AGB)

• Final regulations allow two methods for calculating AGB

– Look-back method

– Prospective method

• A hospital can changes its AGB method, but must update FAP to reflect change before it takes effect

• Final regulations updated look-back calculation for AGB

501(r)(5)Limitations on Charges

• Hospital must make “reasonable efforts” to determine patient’s eligibility under FAP before taking extraordinary collection actions (ECAs)

• Timeline

– Notification Period (120 days after first bill post-discharge)

– Application Period (240 days after first bill post-discharge)

– ECA Notification Period (30 day notice period required before initiating ECA—potentially day 210 of Application Period)

– If more than one episode of care, timeline starts with most recent episode of care

501(r)(6)Billing and Collections

• ECA must include notice of:

– Financial assistance may be available

– What specific type of collection action the hospital is taking

– Deadline (at least thirty days)

– Plain language summary of FAP

• If hospital receives FAP application

– That is complete, hospital must notify applicant in writing of determination

– That is incomplete, hospital give reasonable period of time for applicant to correct/respond

• Not an ECA: liens by hospital for personal injury judgments, settlements, compromises, bankruptcy claims, certain sales of debt

• New type of ECA:

– If Hospital defers or denies care or requires advance payment for prior care

– before providing medically necessary care

– because of patient’s previous nonpayment for bills covered by FAP

• Good Governance.

• Intermediate Sanctions.

• Private benefit / private inurement.

• Unrelated business income tax.

• State tax exemption (e.g., property, license, sales).

• File your Form 990s!

Maintaining Tax Exempt StatusOther Thoughts

• Address Issues Up Front

• 501(r) Training / Compliance Training

• Manage Self-pays

• Manage Bad Debt

Final Thoughts

www.hdjn.com | (866) 967-9604

Kathryn.abshire@chkd.org

Questions

Emily Towey

etowey@hdjn.com

Mike Newby

mnewby@hdjn.com

Kathy Abshire

©2015 Hancock, Daniel, Johnson & Nagle, PC hdjn.com The Changing Face of Charity Care Presenters: Kathy Abshire, VP of Finance, Children’s Hospital of.

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