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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
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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.
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• 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?
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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.
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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
2014
MeanMedian
Max
• Employer-Sponsored Insurance.• Silver plans, medical deductible only.
Annual Deductibles of Individual Plans Selected on eHealth
13%
3%
11%
5%
30%
39%
$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.
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• 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,
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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
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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
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• 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
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• 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
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• 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
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• 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
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Taming “Bad Debt” Escalation
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• 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
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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
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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
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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
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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
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• 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”
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• 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”
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• 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
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• Typically offered to patients without insurance coverage, but what about patients with high deductibles?
Redefining “Charity Care”Time-of-Service Cash Payment Discounts
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• Expand policy to include patients with HDHPs and underinsured status
Caution: Special Rules on Waiver of Copays
Redefining “Charity Care”Solution
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• 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
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• 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
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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
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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
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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
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• 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
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• 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
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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
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• 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”:
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• 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
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• 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
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• 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
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• 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
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• 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
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• 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
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• 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
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• 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
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• 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)
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• 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
501(r)(4)Financial Assistance Policies (FAP)
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• 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
501(r)(4)Financial Assistance Policies (FAP)
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• 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
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• 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
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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
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• 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
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• 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
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• 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
501(r)(6)Billing and Collections
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• 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
501(r)(6)Billing and Collections
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• 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
501(r)(6)Billing and Collections
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• 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
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• Address Issues Up Front
• 501(r) Training / Compliance Training
• Manage Self-pays
• Manage Bad Debt
Final Thoughts
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Questions
Emily Towey
[email protected]
Mike Newby
[email protected]
Kathy Abshire
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