Proposed 501r Rules and theUse of Charity Screening

TX AAHAM

June 5, 2014

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Today’s Speakers

Debra Stall is a Managing Partner at PARO Teamworks, LLC. PARO Teamworks provides healthcare consulting including revenue cycle redesign, policy and procedure design and restructuring, interim management and financial assistance process redesign.

Neil Smithson, Managing Member and Founder, PARO Decision Support, LLC.  PARO provides charity screening and revenue cycle scoring solutions to hundreds of hospitals nationwide. PARO has help millions of consumers receive free or discounted care since its inception in 2006.

Debra Stalldstall@paroteamworks.com(615) 633-4663www.paroteamworks.com

Neil Smithsonnsmithson@paroscore.com (954) 530-2442www.paroscore.com

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Agenda

• Section 501 r Review• Industry Response to New Environment• Presumptive Eligibility Safeguards• Financial Assistance & Community Needs• Opportunities for Improving Processes, Reducing Bad

Debt and Bad PR • Recommendations for Implementation

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Internal Revenue Code Section 501 r (based on Notice of Proposed Rulemaking issued in June 2012)

Establishes the following requirements:

• Financial assistance policy• Limitation on charges • Billing and collection practices• Community health needs

assessment

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Financial Assistance Requirements

• Written financial assistance policy • Criteria for eligibility – income, assets, insurance status• Type of assistance provide (i.e. free care, discounted care,

medical indigent or hardship)• Clearly inform patients of how and where to apply• Explain documentation requirements• Assistance may not be denied based on omission of

documentation not specified in the policy• Applicants must be notified in writing of eligibility determination• Policy must be approved by the Board or Trustees or another

governing body of the tax-exempt hospital• Considered implemented when the policy is consistently carried

out by the facility

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Limitation on Charges

Fees charged to patients eligible for financial assistance must to limited to amounts generally billed those with insurance.

Regulations cite specific examples for calculating AGB

AGB is applied to all ER care and medically necessary care

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Billing and Collection Policy

• May stand as a separate policy or be

incorporated into the overall financial

assistance policy • Describe permissible collection actions that may be taken in

event of nonpayment and time frame for taking action• Applies to both internal hospital collection efforts and efforts

undertaken by authorized third parties• If a patient is determined to be FAP qualified later in the

revenue cycle, the extraordinary collection actions must be reversed

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Extraordinary Collection Actions

Extraordinary Collection Actions (ECA)are defined as actions taken by the hospital, or a third party acting on behalf of the hospital, that require legal or judicial process. Hospitals must refrain from taking ECAs throughout the notification period and prior to reasonable efforts to determine eligibility for FAP.

They include, but are not limited to the following:• Reporting adverse information to credit bureaus• Sale of debt to another party• Initiating civil litigation• Liens on property• Foreclosure on real estate• Attaching or seizing bank account• Causing and Individuals arrest• Body attachments• Garnishment of wages

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Reasonable Efforts

120 day notification period which begins after issuing the first bill to the patient

Hospitals are prohibited from engaging in extraordinary collection actions while making reasonable efforts to determine whether an individual is eligible for assistance under their financial assistance policy.

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Application Period

120 application period, a patient may submit an application.

With an incomplete application, the hospital must refrain from collection actions and provide information on what is needed to complete application.

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Efforts to Inform Patients

Distribute plain language summary of policy and offer application prior to discharge

Include summary in at least three billing statements and other written communication during notification period

Inform patient of policy in all oral communication regarding amount of bill due during notification period

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Notice on Collection Action

Provide with at least on written notice, a minimum of 30 days prior to deadline specified within notice, informing patient about collection actions that may be taken if patient does not submit application for assistance or pay the outstanding balance

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Presumptive Eligibility Safeguard

• Presumptive eligibility screening provides hospitals with an important safeguard regarding collection actions and demonstrates effort made to qualify patients for assistance

• Presumptive eligibility must be extended for the most generous level of financial assistance

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Industry Response in New Environment

HFMA/ACA Medical Debt Task Force• In January of this year, HFMA and ACA

released best practice guidelines for fair resolution of the patient portion of medical bills.

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Summary of Collection Actions

• Policies related to extraordinary collections activity (ECAs) (as defined by the IRS— i.e. liens, credit reporting, lawsuits, wage garnishments, or sale of debt) are board approved, and communicated to and practiced by collection agencies.

• Ongoing provider efforts to educate patients about the account resolution process including informing patients of the ECAs that are board sanctioned.

• If account is delinquent, communicate to the patient that the potential exists for all board-approved ECAs (including reporting to credit bureaus) prior to initial placement.

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Tracking Patient Billing/Collection Complaints

• All business affiliates involved in account resolution activities are required to report patient complaints.

• Review by management teams to monitor billing/registration and other revenue cycle issues that result in inappropriate accounts sent to collections

• Call audits and other quality assurance activities to ensure that policies are followed and provide process improvement

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Access to Financial Assistance Policy

All collection efforts (either internal or external) should adhere to internal written/formal provider collection policies, which include but are not limited to screening individuals for and applying charity care/financial assistance policies to those who are eligible and permissible account resolution tactics.

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Where to Deploy Scoring

• Presumptive Charity filter prior to bad debt assignment and to reclassify accounts already in bad debt

– “Charity of last resort”– Applied after all other funding and eligibility sources

have been exhausted– Applied consistently to all patient balances– Extended to historical visits and not applied to future

transactions

• As a prioritization tool for self-pay post-treatment– At Final Bill in business office or after treatment for

inpatient patients– Used to segment work flow of counselors and Rev

Cycle follow up– Integrated into IS host

• As a point-of-service triage tool– Used to segment work flow of counselors and follow up– Integrated into IS host– Detailed access training required

Accounts failing to document in

financial counseling

Accounts completingActive A/R

unpaid

PAROScore

Bad-Debt Collection

DeclarePresumptive

Charity

Bad-Debt Assignment

© 2014 PARO Decision Support, LLC

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Policies: Charity Types• Traditional Charity Care

- Patient Engaged and completes process- Usually contains documentation from the patient and is most

accepted by auditors and for reimbursement purposes

• Medically Indigent - Out of pocket expense exceed a specified amount or ratio to

household income or assets

• Presumptive Charity - Provider able to document specific indicative conditions

• Patient already qualifies for means-tested public program• Deceased with no estate or known family• Transient, homeless persons• Persons estranged from family with no support group• Persons with unknown identity• Validated 3rd party score establishing charity-qualified conditions

- Patients unresponsive or incapable of completing traditional process

- May not be accepted for reimbursement or disproportionate share

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Presumptive Charity and Audit• Presumptive scoring does not replace traditional FAP application processes; it is

used to supplement these efforts• Scoring/electronic screening results are used in the absence of additional

information from the patient• FAP requires updates to include language that:

• States that the Hospital recognizes that some patients will be unable or otherwise unresponsive to traditional FAP processes; and

• In an effort to remove barriers for these patients and improve community benefits, the hospital will utilize an electronic screening process prior to bad debt assignment after all other funding sources have been exhausted; and

• That the information returned via this electronic screening will constitute adequate documentation under the Hospital’s policy; and

• The patients eligible through this process will not be assigned to bad debt• Consider language that emphasizes consistency of process

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Issues Unique to Consumers Living in Poverty

Basic charity application and documentation processes barriers for many, often poorest, consumers

“Financial Shadows” are roughly 26 million consisting largely of minorities, low income and the young

The Federal Reserve

“Financial Shadows” are roughly 26 million consisting largely of minorities, low income and the young

The Federal Reserve

1 in 12 Families do not have household transaction accounts – 8.7% of US Population

The Federal Reserve

1 in 12 Families do not have household transaction accounts – 8.7% of US Population

The Federal Reserve

33% of the uninsured are high school dropouts compared to only 7% for insured patients

Employment Policy Institute

33% of the uninsured are high school dropouts compared to only 7% for insured patients

Employment Policy Institute

1 in 5 consumers are functionally illiterate and cannot complete an application process

US Department of Education

1 in 5 consumers are functionally illiterate and cannot complete an application process

US Department of Education

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Technology: Picking A Charity AnalyticElements to consider in selecting a charity model• What kind of calibration occurs?

– Is it calibrated to your market and your FAP?• How does it handle non-traditional financial profiles?

– What percent are not able to be evaluated?– When not evaluated, what does the service do?

• How much and which patient data is required?– SSN, name, address, other

• What 3rd party data is utilized?– Credit files, public records, etc.– How current are these records?– Patient permission requirements

• Does it utilize multiple “checks” on the recommendation?– Adequate measures for income, liquidity and asset testing

• Acceptance by the IRS, your Auditor and other groups?– What audit support is available? – What reporting and Community Benefit and analysis reports are

available?

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Sample Hospital Calibration and Validation

• Recommended Strategy:

• PARO less than 735 with FPL less than 367% and Absence of Homeownership status

• Deceased are included if they meet the PARO criteria

Historical Charity Unknowns(Self Pay)

Sample Size 1274 1275 for $2.367 mil

PARO Maximum 735 749

PARO Median 688 701

FPL Ratio Range 367% to 459% 367% to 462%

# Accounts $ Balance

Presumptive Charity based on these rules 424 $0.744 mil

% of file which meets presumptive guidelines 33.25% 31.43%

© 2014 PARO Decision Support, LLC 23

Segmentation Results – POS Conversion

The ability to segment the patient to the correct revenue cycle path yields results.

• Accounts are scored for Cash Collection and FAP need (discharge or POS)

• Ranking are created that indicates the correct Revenue Cycle Path

• Indicator 6 accounts paid at 12 time the rate of Indicator 1 accounts

• Indicator 1 accounts converted to Medicaid at 19 times the rate of Indicator 6 accounts

6 5 4 3 2 10.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

45.00%

Paid

Converted to Medicaid

Less Eligibility Predicted More Eligibility Predicted

Revenue Cycle Path Indicator

© 2014 PARO Decision Support, LLC

Community Needs Index

(Income, Culture/language, Education, Insurance, Housing Elements)

CNI was developed by Dignity Health © 201425

Distribution by Community Need

Strong correlation between PARO Presumptive Charity approvals and CNI illustrating the ability for PARO to help provide proof of benefits under Community Needs Assessment planning

© 2014 PARO Decision Support, LLC 26

Leverage your Historical Data – Density Mapping

27© 2014 PARO Decision Support, LLC

Compliance and Timing – What to Do Now

• Take this opportunity to reaffirm that the hospital organization currently satisfies all of the express requirements of Section 501(r) of the Tax Code (which are currently in effect).

• Begin compliance efforts now by reviewing existing financial assistance policies, charge methodologies, and billing and collection policies and procedures.– The tax community anticipates that the final regulations will generally track the

overall framework of the proposed regulations.– The tax community does not anticipate lengthy transition relief once final

regulations are announced.– Hospitals should be mindful of their responses to the questions on Form 990,

Schedule H, that address their financial assistance policy, billing and collection policy, and emergency medical care policy, and regarding how a hospital charges individuals eligible for financial assistance.

• Develop implementation process and train staff.• Inform governing Board of new requirements and secure Board

approval for new policies• Involve professional advisors to help ensure that all regulatory

issues are addressed.

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Financial Assistance Policy (FAP) – Fundamental Elements

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PFS Interaction– What to Do Now

• Perform a Readiness Assessment NOW• Review and Revise your new FAP (considering using an

outside expert – avoid a search and replace approach)• Publish your new FAP• Train your Staff (including applicable vendors) with

initial training and periodic updates• Monitor Performance and seek “lessons learned”• Start telling your Story – FAP is valuable to your tax

status and your community – share the results in terms of patients served

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Question and Answer

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Additional Resources and Contact Information

Special Thanks to Mark Rukavina.

Mark is the Principal at Community Health Advisors, LLC and has served on a number of HFMA task forces including the Bad Debt and Collection Task Force. His firm provides services related to design and develop for Financial Assistance Policies, Community Health Needs Assessments, and other outreach program. He can be reached at mark@communityhealthadvisors.com or www.communityhealthadvisors.com or (617) 833-9829

Debra Stalldstall@paroteamworks.com(615) 633-4663www.paroteamworks.com

Neil Smithsonnsmithson@paroscore.com (954) 530-2442www.paroscore.com

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