990 Schedule H

990 Schedule HRod Hardy, MemberArnett Foster Toothman, PLLCWV HFMA Fall Conference Oglebay / Wheeling, WVOctober 11, 2013

501(r) – History of Legislation• Affordable Care Act – Enacted on March 23, 2010.

Established the following reporting requirements for hospitals in order for the hospitals to maintain their tax exempt status, 501(c)(3).– 501(r)(3) –CHNA (Comm. Health Needs Assessment)– 501(r)(4) – Establish a (FAP) Finc. Assistance Policy and a non-

discrimination policy for providing Emergency Care– 501(r)(5) – Limitation on charges to those who qualify for FAP– 501(r)(6) – Determine patients eligibility for FAP before

“extraordinary collection efforts” are made• IRS Notice 2010-39 – Issued in May, 2010– Solicited comments relating to the additional requirements imposed by

501(r).– 125 comments received

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501(r) – History of Legislation• IRS Notice 2011-52 – Issued in July 2011.– This notice addressed only the CHNA requirements in 501(r)(3). – Over 80 comments received

• Proposed Legislation Issued June 26, 2012 (77 FR 38148) – Compliance questions added to the 990, Sched. H for 2011– Guidance on new IRS Sections 501(r)(4),(5) &(6)– Definition of Hospital & Hospital organization– FAP (Finc. Asst Policy) and maximum charges to a patient that

qualifies under the hospitals’ FAP– Reasonable collection efforts & Extraordinary collection efforts

for FAP-eligible patients– Emergency medical care policy 3

501(r) – History of Legislation• Proposed Legislation – April 5, 2013• This is the LATEST LEGISLATION AVAILABLE• This proposed legislation considers the comments that

were received from IRS Notices 2010-39 and 2011-52• Comments were due to the IRS by July 5, 2013

• To date, there is NO FINAL LEGISLATION on the various 501(r) requirements

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501(r) – History of Legislation• So, what legislation do hospitals rely on when completing

CHNA’s and Sched. H of the 990?– For CHNA’s, the IRS says that..”hospital organizations

may continue to rely on the interim guidance described in 2011-52 for any CHNA, made widely available to the public, and any implementation strategy adopted, on or before Oct. 5, 2013 (6 months after April , 2013 proposed rules issued. – Implies that Proposed rules issued April 5, 2013 apply

to any CHNA’s not issued as of Oct. 5, 2013.

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501(r) – History of Legislation• 990, Sched. H filings – Guidance• NOT MUCH!• June 26, 2012, 77 FR 38148 • Proposed regulations on 501(r)(4) thru (6)• See ref. to June 26, 2012 date on Slide #3

• Instructions to Form 990

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Sched. H - Purpose

• Section 9007 of the Patient Protection and Affordable Care Act enacted March 23, 2010 created a new Section of the Internal Revenue Code, Section 501 (r), that established additional requirements for tax-exempt hospital organizations.• To track compliance with 501 (r) the IRS added Section B

to Pt. V of the Schedule H of the Form 990 for tax year 2010.

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Sched. H Changes – Tax Year 2011• Pt. V, Section B, L. #’s 10 & 11 – Eligibility for Free or

Discounted Care• Give explanation in section VI if Federal poverty guidelines

are NOT used to determine eligibility• Pt. V, Section B, L. #’s 20 & 22 – Relate to

determining the amount to be charged to patients who qualify under the hospitals Financial Assistance Policy and whether any of these patients were charged full rates• Questions previously did not reference FAP-eligible

patients.

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Sched. H Changes – Tax Year 2011• Part V, Section B, L. #’s 16 & 17 – Extraordinary

Collection Efforts (Liens, Lawsuits, Credit agency)• L. 16 – Relates to the hospital’s policies• L. 17 – Relates to the hospital’s actions• The phrase: “…before making reasonable efforts to

determine the patients eligibility under the facilitiy’s FAP” has been added to the questions on lines 16 & 17

• Hospital can make phone calls, send invoices, etc. once the patient has been informed of the FAP process.

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Sched. H Changes – Tax Year 2011• A copy of the hospitals audited financial statements must

be attached to the 990 for tax years 2011 and 2012.

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Sched. H – Tax Years Beginning After 3/23/12

• Hospitals are required to complete Part V, Section B, question #’s 1 thru 8 c.• Questions relate to the Community Health Needs

Assessment (CHNA)• These questions are optional for tax years beginning before

3/23/12• First CHNA must be completed by the last day of the

first tax year beginning after 3/23/12• 7/1/12 – 6/30/13 – June 30, 2013• 10/1/12 – 9/30/13 – Sept. 30, 2013• 1/1/13 – 12/31/13 – Dec. 31, 2013

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Sched. H – Tax Years Beginning After 3/23/12

• Excise Tax of $50,000 per hospital imposed if CHNA requirements are not met by the end of the third year (CHNA conducted once every three years). All of these following criteria must be met to avoid the tax:• Conduct a CHNA that is adopted by a hospital’s governing body• Make CHNA widely available to the public• Implementation strategy adopted by the hospital’s governing body

• Tax is applied per hospital facility not per hospital organization• Ex: A three hospital system with one non-compliant hospital will be

taxed $50,00012

Sched. H – Tax Years Beginning After 3/23/12• Transition Rules for Implementation Strategy – April 5, 2013

Proposed Rules• General Rule: Implementation strategy must be adopted

the last day of the taxable year in which the CHNA is conducted• Exception (April 5, 2013 Proposed Rule): Hospitals who

conducted a CHNA in any taxable year after March 23, 2010, 2011 or 2012 have until the 15th day of the Fifth month following the close of their first taxable year beginning after March 23, 2013.

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Sched. H, Section V, Pt. B – CHNA Questions

• Implementation Strategy & 990 Reporting – per April 5, 2013 Proposed Rules:• The most recently adopted CHNA implementation

strategy can be attached to the 990, or:• The URL of the website where the implementation

strategy is posted on the web can be provided on the 990

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Sched. H, Section V, Pt. B – CHNA Questions

• Question 1. a. – Definition of Community Served• Community can be defined based on (April 5, 2013

Proposed rule)• Geography – Metro. Statistical area, zip code data, etc• Target population – Aged, women, children, etc.• Principal function – Specialty area or targeted disease

• Question 1. g. – prioritizing identified health needs• Per the April 5, 2013 proposed rule, only the significant

health needs must be identified and addressed in the CHNA. Earlier guidance suggested that all identified health needs had to be addressed.

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Sched. H, Section V, Pt. B – CHNA Questions• Question 1. h. – process for consulting persons

representing the communities interests• Must take into account, at a minimum:• At least one State, local, tribal or regional governmental health

department (or equivalent dept) with knowledge, information or expertise relevant to the health needs of the community

• Members of the medically underserved, minority and low-income community or organizations representing these individuals

• Any written comments received on most recently published CHNA and implementation strategy

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Sched. H, Section V, Pt. B – CHNA Questions• Questions 5 a. & b. – Was the CHNA made widely

available to the public?• 5.a. relates to including the CHNA on the hospitals

website• 5.b. relates to making a copy available to the public, at

the hospital, free of charge• Note: CHNA needs to stay available until the next two

subsequent CHNA’s are made available to the public. (April 5, 2013 Proposed Rule)

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Sched. H, Part I, L. #7 – Community Benefits at Cost

• Line 7. b. – Medicaid at Cost• IRS allows Medicaid charges to be multiplied by an overall

hospital cost/charge ratio to estimate the cost of charity• Make sure the Medicaid charges include all units of

the hospital such as acute, skilled nursing, psychiatric unit, home health, Hospital-based RHC’s, etc. • Don’t forget physician charges

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• Line 7. a. – Financial Asst. at Cost (Charity)• IRS allows charity charges to be multiplied by an overall

hospital cost/charge ratio to estimate the cost of charity• Make sure the charity charges include all units of the

hospital such as acute, skilled nursing, psychiatric unit, home health, Hospital-based RHC’s, etc. • Don’t forget physician charges that were written off to

charity

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Sched. H, Part I, L. #7 – Community Benefits at Cost• L. 7. g. - “Medicaid at Cost” and “Finc. Asst. at Cost” / Provider tax

handling• Provider taxes PAID are added to cost• WV DSH RECEIPTS are a reduction to cost

• Do not subtract 100% of the DSH receipts because a portion of the receipts are based on self pay revenues (bad debt) and these self pay revenues do not relate to Medicaid or Charity (FAP) patients.

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• L. 7. g. – Addition of Provider Taxes • An argument could probably be made for adding all, or

most, of the provider taxes paid to the Medicaid or Finc. Asst. at cost calculation since the taxes are based on gross hospital receipts LESS bad debts.

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Sched. H, Part I, L. #7 – Community Benefits at Cost• Line 7. e. – Community Health Improvement

Services and Community Benefit Operations / what’s the difference?• Community Health Improvement Services – Line

7. e.• Activities or programs, subsidized by the health care

organization, for the express purpose of improving community health. • These services do not generate an inpt. Or outpt. bill• Might be a nominal fee for these services• Ex: Well-baby clinics, smoking cessation, flu shots

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• Community Benefit Operations – Line 7. e.• Activities associated with the CHNA• Fundraising or grant-writing for community benefit

programs• To be reported, community need for the activity or

program must be established• Ex: improving access to health services (transportation

services), advancing health knowledge (class offerings & research)

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• Line 7. g. / Subsidized Health Services – What services should you consider?• Defined – clinical services provided despite a

financial loss to the organization• Service must meet an identified community need

defined as: if the organization no longer offered the service:• Service would be unavailable in the community• Community’s capacity to provide the service would be below the

community need• Service would become the responsibility of the government or some

other tax-exempt organization

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• Examples of departments that generally meet the “subsidized services” (L. 7. g.) definition:• Inpt. Neonatal Intensive Care• Inpt. Psychiatric units• ER & Trauma services• Skilled Nursing services• Home Health Services

• Note: Exclude the cost & payments related to ancillary support services such as lab, radiology , anesthesia, etc.

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Questions?

Contact Information:

Rod Hardy, MemberArnett Foster Toothman, [email protected](304) 346-0441

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990 Schedule H

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