Health Care


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THOUGHTWARE ®

Health Care

AGENDA › Strategy Topics › Changes for Tax Exempt Healthcare Organizations

› Hot Topics in Reimbursement › Accounting Changes: No Real Impact…Think Again

Strategy Topics K E V I N M O R E Y, C PA

Environment Facts › The rate of change in health care is occurring at exponential levels & is not going to slow down anytime soon › Mergers, mergers, mergers › Competition in the market is fierce

› Disruptors are in the air › Regulatory bodies are alive & well › Alternative payment models: more to come

Challenges or Opportunities? Current Challenges Facing Health Care Providers

Health Care Spending & Regulatory Compliance

Politics & Payment Reform

Competition & Consumerism

Patient Care & Innovation

Regulatory Changes | Revenue Recognition | Information Technology Costs | Opioid Crisis Physician and Allied Health Recruiting | 340b Drug Program | Mergers & Acquisitions Cyber Risks/Ransomware | Protected Health Information | Payment Changes New Competitors In Marketplace | Population Health | Advanced Payment Models

Federal Spending Medicare Benefits

Current Industry Trends & Market Activity 2017 Health Care Services Deal Volume

Physician Medical Long-Term Care Groups 30% 18% 1,035 Health Managed Care Care Other 2% Services 21% Deals Rehabilitation Behavioral Health 5% 5% Laboratory, MRI, Dialysis 5% Home Health & Hospitals Hospice 8% 6%

2018 Health Care Services Deal Volume

Long-Term Care Physician Medical 35% Groups 1,219 21% Managed Care 2% Rehabilitation 4% Laboratory, MRI, Dialysis 4% Hospitals 6%

Health Care Services Deals

Other 15% Behavioral Health 7%

Home Health & Hospice 6%

Mergers & Acquisitions › Hospital & health systems consolidation • Strong with strong? Moderate? Weak? • Moderate with moderate? • Weak with? › Insurers with • Insurers • Providers › Physicians with • Physicians • Health system • Insurers › Commercial business with • Insurers • Providers

Alternative Payment Models › Launched over 30 new payment models in 6 years › Estimated 18 million patients impacted/received care through new payment models › More than 30% of FFS payments tied to value in 2016. On track for 50% by 2018 › $34 billion spending reduction per CBO

Consumerism › Consumerism & innovation are here to stay • Could be a disruptor to traditional care • Amazon, Berkshire Hathaway, JP Morgan

› Patients are paying attention to cost & quality › Patients want convenience & timely service • Mobile device care

Innovation › Innovation may be used to solve problems › Innovative partners – choose strategically › Big & small innovations

› Let the millennials loose

Eight Price and Cost Pressures Squeezing Margins

Big Changes for Tax Exempt Healthcare Organizations G R E G S U L L I VA N , C PA

Our Goal Develop an awareness of the recent law changes that affect tax exempt health care organizations

Unrelated Business Income for Corps Corporate Tax Rates Taxable Income

Income Tax

All Income

21%

Unrelated Business Income

https://www.nps.gov/nr/feature/places/16000707.htm; http://andrewalexanderprice.com/blog20151203.php#.XMe0y-hKjIU

Four-Step Process

FOUR-STEP PROCESS Process to identify unrelated business income from transportation fringe benefits

1 Step 1: Identify parking spots specifically reserved for use by employees

2 Step 2: Determine the primary purpose of remaining parking spots

3 Step 3: Calculate the allowance for reserved nonemployee parking spots

4 Step 4: Determine the remaining use and allocable expenses

Parking Expenses

Identifying Parking Expenses Repairs and Maintenance

Snow, Ice, Leaf & Trash Removal

Utilities

Insurance

Depreciation

Taxes

Rent or Lease Payments (or Portion of Payment)

Examples

Example 1 Lot C

Lot B

75 Parking Spots for Employees & Visitors

175 Parking Spots for Employees & Visitors

Building

Facts: Parking lots have 275 spaces available for employees and visitors.

50 employees utilize the parking lot on a normal day. Organization incurs $10,000 of expenses related to the parking lot.

Lot A 25 Parking Spots for Employees & Visitors

Example 1 Lot C

Lot B

75 Parking Spots for Employees & Visitors

175 Parking Spots for Employees & Visitors

Building

Step 1: Identify reserved employee parking spots.

Analysis: Not applicable. No reserved employee parking.

Lot A 25 Parking Spots for Employees & Visitors

Example 1 Lot C

Lot B

75 Parking Spots for Employees & Visitors

175 Parking Spots for Employees & Visitors

Building

Step 2: Determine the primary use of remaining parking.

Analysis: The primary purpose of the remaining spots is determined to be for visitors use. 82% utilized by visitors. 18% utilized by employees. 275 [total parking spots] – 0 [reserved employees spots] = 275 [remaining spots available for remaining employees and visitors]

Lot A 25 Parking Spots for Employees & Visitors

50 [employees utilizing remaining spots] ÷ 275 [remaining spots] = 18%

Example 1 Lot C

Lot B

75 Parking Spots for Employees & Visitors

175 Parking Spots for Employees & Visitors

Building

Step 3: Identify reserved nonemployee parking spots.

Analysis: Not applicable. No reserved nonemployee parking.

Lot A 25 Parking Spots for Employees & Visitors

Example 1 Lot C

Lot B

75 Parking Spots for Employees & Visitors

175 Parking Spots for Employees & Visitors

Building

Step 4: Determine remaining use and allocable expenses.

Analysis: Primary use of parking (82%) is for visitors. No parking related expenses treated as unrelated business income.

Lot A 25 Parking Spots for Employees & Visitors

Example 2 Lot C

Lot B

75 Parking Spots for Employees & Visitors

175 Parking Spots for Employees & Visitors

Building

Facts: Parking lots have 275 spots available for employees and visitors.

175 employees utilize the parking lot on a normal day. 25 in reserved spots. 150 in unreserved spots. Organization incurs $10,000 of expenses related to the parking lot.

Lot A 25 Parking Spots Reserved for Employees

Example 2 Lot C

Lot B

75 Parking Spots for Employees & Visitors

175 Parking Spots for Employees & Visitors

Building

Step 1: Identify reserved employee parking spots.

Analysis: Lot A contains 25 spots reserved for employees. 25 ÷ 275 = 9%. Nine percent of available parking is reserved for employees. $10,000 [total parking related expenses] x 9% [reserved employee parking] = $900. Nine hundred dollars must be included as unrelated business income. Lot A 25 Parking Spots Reserved for Employees

Example 2 Lot C

Lot B

75 Parking Spots for Employees & Visitors

175 Parking Spots for Employees & Visitors

Building

Step 2: Determine the primary use of remaining parking.

Analysis: The primary purpose of the remaining spots is determined to be for employee use. 60% utilized by employees. 40% utilized by visitors. 275 [total parking spots] – 25 [reserved employees spots] = 250 remaining spots available for remaining employees and visitors.

Lot A 25 Parking Spots Reserved for Employees

150 [employees utilizing unreserved spots] ÷ 250 [remaining spots] = 60%

Example 2 Lot C

Lot B

75 Parking Spots for Employees & Visitors

175 Parking Spots for Employees & Visitors

Building

Step 3: Identify reserved nonemployee parking spots.

Analysis: Not applicable. No reserved nonemployee parking.

Lot A 25 Parking Spots Reserved for Employees

Example 2 Lot C 75 Parking Spots for Employees & Visitors

Step 4:

Lot B 175 Parking Spots for Employees & Visitors

Determine remaining use and allocable expenses.

Building

Analysis: Primary use of parking (60%) is for employees. $6,360 of parking related expenses treated as unrelated business income.

• 275 [total parking spots] – 25 [reserved employee spots] = 250 [remaining parking denominator] • 150 [employees utilizing unreserved spots] ÷ 250 [remaining parking denominator] = 60% [employee use % of unreserved spots] • $10,000 [total parking related expenses] - $900 [reserved employee related expenses from Step 1] = $9,100 [remaining expenses for UBI allocation]

• $9,100 [remaining expenses for UBI allocation] x 60% [employee use % of unreserved spots] = $5,460 [expenses included as UBI for employee use of unreserved spots] Lot A

• $900 [UBI fromSpots Step 1] + $5,460 [UBI from above] = $6,360 [Total Parking Related Expenses Included as 25 Parking Reserved for Employees UBI]

Other Provisions

!

Another scenario of this provision could occur if there’s a cafeteria-type program for employees where a portion of the employee’s paycheck is reduced on a pre-tax basis for their transportation needs. The UBI is cost, not fair value.

Prior-Year Net Operating Losses According to the revised Form 990-T, any net operating loss incurred in pre-2018 tax years can be used to offset the UBI from the cost of this fringe.

6

Gray Areas

What if employee pays to park What is the “same geographic area”

?

Who is the “general public” when determining primary use in a multitenant facility Determining parking expenses for leased facilities when not separately stated When to determine the primary use Other

UNRELATED BUSINESS INCOME

https://en.wikipedia.org/wiki/Low-floor_bus; http://store.kcata.org/; https://nypost.com/2018/02/24/nypd-let-lunatic-beat-up-subway-worker-on-train-suit/

UNRELATED BUSINESS INCOME

http://esheninger.blogspot.com/2016/12/the-silo-effect.html

NOL deduction 80% taxable income (generated after 12/31/2017)

Section 179 expensing – $1M

No entertainment deductions

UNRELATED BUSINESS INCOME

Business provisions that might impact your organization

Corporate alternative minimum tax repealed Bonus depreciation – 100% through 2022, then scaled back through 2026 Net interest expense limitation

UNRELATED BUSINESS INCOME

Business provisions that might impact your organization

CHARITABLE CONTRIBUTIONS

https://www.efile.com/tax-deduction/income-deduction/charitable-contributions

/

Decline in Charitable Giving? Itemized Deductions: Sales Tax Real Estate Taxes Home Mortgage Interest Charity Increased Standard Deduction Total Itemized Deductions

2017

2018

2018

$ 2,000.00 $ 15,000.00 $ $ 7,000.00 $ $ 24,000.00

$ $ 10,000.00 $ $ 7,000.00 $ 7,000.00 $ 24,000.00

$ $ 10,000.00 $ $ $ 14,000.00 $ 24,000.00

HOW WILL THIS IMPACT MY ORGANIZATION?

Donor Strategies? › Bunching of itemized deductions › Donor-advised funds › Qualified charitable distributions (QCD)

Bunching Illustration

Donor-Advised Fund Illustration

EXCISE TAX ON EXECUTIVE COMPENSATION

https://www.leftovercurrency.com/one-million-dollar-bill/

EXCISE TAX ON EXECUTIVE COMPENSATION

https://compensationadvisors.com/blog/280g-and-compensation-strategies

/

In this illustration, income is reduced by $12,000 with no change to deductions RMD Income Itemized Deductions: State income tax Real Estate Taxes Home Mortgage Interest Charity Increased Standard Deduction Total Itemized Deductions

W/O QCD 12,000 10,000 0 0 12,000 2,000 24,000

W/ QCD 0 10,000 0 0 0 14,000 24,000

QCD ILLUSTRATION

Tax-Exempt Bonds

Repeals the exclusion from gross income for interest on advance refunding bonds

COMPENSATION & EMPLOYEE BENEFITS

https://www.yourmechanic.com/article/how-to-drive-a-moving-truck-when-moving-cross-country-by-jason-unrau

Keep up with What’s Next BKD Tax Reform Resource Center • bkd.com/taxreform Simply Tax Podcast • bkd.com/simplytax BKD Year-End Advisor • bkd.com/advisor

Hot Topics in Reimbursement K E E L E Y R O A C H , C PA

Rural Health Clinics

RHC (Rural Health Clinic) › RHC can be freestanding or provider-based › Freestanding RHC could be owned by a physician group or by a hospital › Separate provider number › Freestanding have a separate cost report

› RHC is a Medicare and Medicaid designation

RHC Conditions of Participation › Located in an eligible area › Midlevel ½ the time the clinic is open to see patients › Annual program evaluation

RHC Reimbursement › Billed on a UB to Part B program › Reimbursed on cost for rural hospitals under 50 beds (CAH will qualify) › Limited based on Productivity standards

RHC Reimbursement › Visit is defined as a face-to-face encounter with a physician or a midlevel › Must be a RHC defined service › Must comply with the PB attestation rules if provider-based › Coinsurance is paid by beneficiary as 20% of charges & reimbursed on cost report as 20% of costs › Influenza & pneumonia vaccines are logged & reimbursed through the Medicare cost report › Increased use of Prevnar – high cost vaccine

RHC Staffing Requirements › Must employ at least one nurse practitioner (NP) or physicians assistant (PA) › Employed midlevel must be on-site 50% of open hours › Other staff may work under contract

› “Under medical direction” by physician › Can be employed or contract › No requirement for direct patient contact › Records review may be conducted electronically

RHC Productivity Standards › Productivity Standards (Schedule M-2) › 4,200 visits for a physician FTE › 2,100 visits for a midlevel FTE › Calculated in Aggregate, related to productive time

› Productive FTEs exclude › CPE, PTO, Holiday, etc. › Administrative time › Hospital rounding time

RHC Productivity Standards › Productivity Exceptions › File with Medicare Administrative Contractor (MAC) for permission prior to filing › If extenuating circumstances, may be exempt from productivity standards › New location challenges › EHR system challenges › Provider turnover

eFiling and Cost Report Documentation

Submitting a Cost Report › MCReF Cost Report Filing Application within EIDM › Access to PS&R/STAR application (MCReF Role) › Security Official › Recommend backup security official

› Usage is optional – can still mail or hand-deliver › MCReF is a secure portal for PHI

MCRef

Medicare Cost Reporting Changes to Supporting Documentation Requirements (periods beginning on/after 10/1/18) › Removing reference to Reimbursement Questionnaire › Detail reports with required columns of patient data will have to be included with the initial cost report submission or it will be rejected › Charity Care & Uninsured Discounts for S-10 › Bad debts (Exhibit 2) › DSH: Can still file amended cost reports within 12 months to add additional days, but new detail must be submitted again

› No longer going to be adopted in Final Rule: IRIS data will be required to contain the same total counts of IME/GME FTEs as what is on the cost report › Change from proposed: All cost reports that claim home office costs must have a Home Office (HO) Cost Statement on file with the MAC, but now the responsibility to submit it to the MAC lies with the HO › There just has to be something on file that covers a portion of the provider’s cost report, if the HO has a different fiscal year end

Section IX of FFY 2019 IPPS Rules

MAC Review › Initial settlement › Typically pay 100% of as-filed amount › Exception: error rate issue

› Modification of payment rates based on as-filed cost report

› Desk review › Focused review › Field audit › › › ›

Sample size Extrapolation Self disallowance Repeat adjustments

› Notice of Program Reimbursement

Audit Issues › MAC › What issues are you seeing? › What other issues are we seeing?

Reopenings & Appeals › Requests due to MAC within 180 days of NPR › Threshold $10,000

› New procedures appeals pending or filed on or after 8/21/08 › Threshold › Still $10,000 individual provider › Still $50,000 group › Commonly owned or controlled with common issue $50,000

› Home office is not a provider so it can’t file an appeal › Date of filing with the Board is the date the Board receives it › Date of final determined is presumed to be 5 days after the date of issuance › CMS has model forms

Accounting Changes: No Real Impact … Think Again K E V I N M O R E Y, C PA

FASB › › › ›

Revenue Recognition Contributions Leases Not-for-Profit (NFP) Reporting Model › Cash Flow – Restricted Cash

GASB › › › › ›

Revenue Recognition Contributions Leases Not-for-Profit Reporting Model Cash Flow – Restricted Cash

Revenue Recognition– ASC Topic 606 Effective Date › Public Business Entities (PBEs) - years beginning after December 15, 2017 › All other entities after December 15, 2018

Recognition – Lessons Learned › › › › ›

Determination of what is scoped in & out of the standard Accumulation of historical data for portfolios Self-Pay – transaction price Time & resources required to implement – DON’T UNDER-ESTIMATE New information technology systems? – WHO CARES

Contributions & Grants – ASU 2018-08 Effective Date › PBE’s & conduit debt obligors - years beginning after June 15, 2018 › All other entities after December 15, 2018

Contributions & Grants – ASU 2018-08 Step 1

Clarifications on Exchange vs. Nonexchange

Step 2

Conditional vs. Unconditional Contributions

Step 3

Conditions vs. Restrictions

NFP Revenue Recognition Decision Process

*Includes third-party payments on behalf of identified customers. Does not create new revenue

Leases – ASC Topic 842 Effective Date › PBEs - years beginning after December 15, 2018 › All other entities after December 15, 2019

Leases – It’s Finally HERE, Now What? › › › › › › ›

Accumulation of lease inventory Determination of elections of practical expedients Lease components Discount rate Impact on existing & future debt covenants Financial ratio impact Health care specific agreements to consider › › › ›

Automated medication dispensers Related party agreements Usage-based agreements Physician offices & clinics

Presentation of Financial Statements of NFP Entities – Topic 958 Effective Date Effective Date › Years beginning after December 15, 2017 for ALL entities

Key Takeaways Key Takeaways › › › ›

Presentation changes Functional expenses Liquidity disclosures Endowment disclosures

Restricted Cash – Topic 230 Effective Date Effective Date › PBEs – years beginning after December 15, 2017 › All other entities years beginning after December 15, 2018

Key Takeaways Key Takeaways › Cash is cash › Cash in other line items on balance sheet shown within statement of cash flows

GASB 84 – Fiduciary Activities Effective Date Effective Date › Years beginning after December 15, 2018

Key Takeaways Key Takeaways › Consider benefit plans & other post employment benefit & arrangements

GASB 87 – Leases Effective Date Effective Date › Years beginning after December 15, 2019

Key Takeaways Key Takeaways › Accumulation of leases › Not the same as FASB

GASB 89 – Accounting for Interest Costs during Construction Effective Date › Years beginning after December 15, 2019

Key Takeaways › Budget implications going forward

Questions?

Thank You! Kevin Morey – Partner, [email protected]

Keeley Roach– Senior Managing Consultant, [email protected] Greg Sullivan – Senior Manager, [email protected]

THOUGHTWARE ®

Health Care