How Do Your Hospital s Tax Stats Stack Up?

Transcription

1 How Do Your Hospital s Tax Stats Stack Up? JANUARY 15, 2019 TO RECEIVE CPE CREDIT Individuals Participate in entire webinar Answer polls when they are provided Groups Group leader is the person who registered & logged on to the webinar Answer polls when they are provided Complete group attendance form Group leader sign bottom of form Submit group attendance form to training@bkd.com within 24 hours of webinar If all eligibility requirements are met, each participant will be ed their CPE certificate within 15 business days of webinar 1

2 PRESENTERS Brian Todd, CPA Partner Mike Engle, CPA Partner Benchmarking Overview All information obtained from Cause IQ from most recently filed Form 990 Total number of 990s included was 2,296 Professional judgment was used to eliminate outliers in some slides so some will include slightly fewer than the total Averages are simple averages, no weighting was applied Begin with a screenshot of applicable Form 990 Schedule Incorporate best practices, red flags & tax reform discussion 2

3 Benchmarking Overview Compare results with benchmarking analysis conducted 2+ years ago, conducted using 2013 tax forms Most of the data is from 2016 tax forms, which includes year-ends of 12/31/16 11/30/17 Due to potential for multiple facility reporting & changes to questions on Part V of Schedule H, benchmarking some questions can be a little more challenging Benchmarking Overview Hospital Organizations Included by Program Service Revenue > $1B 172 $300M $1B 472 $100M $300M 557 < $100M Number of Hospitals 3

4 Form 990, Part I Independent Voting Board Members Group returns skew results when measuring number of board members Calculated percentage for each hospital (not actually reported on the 990) Average percent independent: 78% Average was similar in all four revenue categories (76% 80%) No IRS required percentage Best practice 4

5 TOTAL UNRELATED BUSINESS INCOME NET UNRELATED BUSINESS INCOME 5

6 Unrelated Business Income Expect significant changes in the previous slides in years to come due to tax reform IRC Section 512(a)(6) Unrelated business income (UBI) tracked separately for each trade or business IRS Notice provides interim guidance UBI will no longer produce overall losses Changes to net operating loss rules Unrelated Business Income IRC Section 512(a)(7) Qualified transportation fringe benefits & qualified parking IRS Notice provides interim guidance Fair market value not a reasonable method for determining UBI inclusion amount, must use expenses incurred Four-step process outlined in notice Corporate tax rate flat 21% 6

7 2018 Form 990-T 2018 FORM 990-T 7

8 2018 Form 990-T Schedule H, Part I 8

9 Schedule H, Part I Line 1a did the organization have a financial assistance policy during the year? Only four organizations answered no Line 2 answer applied uniformly to all hospital facilities if only one facility Schedule H, Part I, Line 3a Number of Hospitals What level of federal poverty guidelines used to determine eligibility for free care? % 150% 200% Other Did not use FPG 9

10 Schedule H, Part I, Line 3b Number of Hospitals What level of federal poverty guidelines used to determine eligibility for discounted care? % 250% 300% 350% 400% Other Did not use FPG Schedule H, Part I, Lines 3a & 3b Section 501(r) does not dictate what levels of FPG hospitals must use in determining eligibility Many hospitals have eliminated sliding scales & some have eliminated partial discounts & moved to a free care only policy Simplifies compliance with amounts generally billed requirement Compared to previous benchmarking analysis, more hospitals answered other for level used for free care Many of those hospitals used a more generous level than the choices provided 10

11 Schedule H, Part I Schedule H, Part I, Line 4 Percentage Offering Discounts to Medically Indigent 5% 95% Yes No 11

12 Medically Indigent & 501(r) If your FAP includes discounted care for the medically indigent, the discount must comply with AGB requirements If not part of FAP, the discount will not count as charity care Percent answering yes has slightly increased from prior benchmarking analysis Schedule H, Part I, Line 7 12

13 Schedule H, Part I, Line 7a Financial Assistance % Average Financial Assistance % of Total Expense > $1B 1.73% 2.38% $300M $1B 1.68% 2.49% $100M $300M 1.87% 2.48% < $100M 1.78% 2.24% 0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% Current Analysis Prior Analysis Schedule H, Part I, Line 7b Medicaid Shortfall % Average Medicaid Shortfall % of Total Expense 4.30% 4.20% 4.10% 4.00% 4.20% 4.14% 4.06% 4.17% 4.19% 4.25% 3.98% 3.90% 3.80% 3.70% 3.60% 3.62% 3.50% 3.40% 3.30% < $100M $100M - $300M $300M - $1B > $1B Prior Analysis Current Analysis 13

14 Schedule H, Part I, Line 7b Medicaid Shortfall % Five largest % by state Arizona: 11.35% Vermont: 9.40% Hawaii: 7.09% Connecticut: 7.06% Ohio: 6.98% Five smallest % by state Maryland: 0.49% North Dakota: 0.66% Mississippi: 1.12% South Dakota: 1.46% Delaware: 1.78% Schedule H, Part I, Line 7e Community Health Improvement Services % Average Community Health Improvement Services % of Total Expense > $1B 0.34% 0.39% $300M $1B 0.37% 0.40% $100M $300M 0.44% 0.50% < $100M 0.41% 0.60% 0.00% 0.10% 0.20% 0.30% 0.40% 0.50% 0.60% 0.70% Current Analysis Prior Analysis 14

15 Schedule H, Part I, Line 7f Health Professions Education % Average Health Professions Education % of Total Expense 2.50% 2.26% 2.20% 2.00% 1.50% 1.31% 1.21% 1.00% 0.50% 0.50% 0.20% 0.71% 0.51% 0.00% < $100M $100M $300M $300M $1B > $1B Prior Analysis Current Analysis Schedule H, Part I, Line 7g Subsidized Health Services % Average Subsidized Health Services % of Total Expense > $1B 0.70% 0.84% $300M $1B 1.12% 1.49% $100M $300M 1.21% 1.77% < $100M 1.99% 3.73% 0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% 3.50% 4.00% Current Analysis Prior Analysis 15

16 Schedule H, Part I, Line 7f Research % 1.20% 1.00% Average Research % of Total Expense 1.08% 0.80% 0.60% 0.58% 0.40% 0.32% 0.39% 0.20% 0.00% 0.15% 0.11% 0.12% 0.03% < $100M $100M - $300M $300M - $1B > $1B Prior Analysis Current Analysis Schedule H, Part I, Line 7i Cash & In-Kind Contributions % Average Cash & In-Kind Contributions % of Total Expense > $1B 0.28% 0.32% $300M $1B 0.30% 0.36% $100M $300M 0.22% 0.32% < $100M 0.16% 0.34% 0.00% 0.05% 0.10% 0.15% 0.20% 0.25% 0.30% 0.35% 0.40% Current Analysis Prior Analysis 16

17 Schedule H, Part I, Line 7i Cash & In-Kind Contributions % Is your reporting of cash contributions on Schedule H consistent with your reporting on Schedule I, Grants & Other Assistance to Organizations, Governments & Individuals in the United States? How about Form 990-T? Are you deducting charitable contributions made to other not-for-profits? Have you obtained charitable acknowledgment letters as required? Schedule H, Part I, Line 7k Total Community Benefit % Average Community Benefit % of Total Expense 12.00% 10.00% 8.52% 8.90% 8.96% 8.62% 9.87% 9.19% 10.49% 9.97% 8.00% 6.00% 4.00% 2.00% 0.00% < $100M $100M $300M $300M $1B > $1B Prior Analysis Current Analysis 17

18 Schedule H, Part II Schedule H, Part I, Line 7k Total Community Building Activities % 0.30% 0.25% 0.20% 0.26% Average Total Community Building % of Total Expense 0.28% 0.26% 0.21% 0.15% 0.10% 0.13% 0.12% 0.11% 0.07% 0.05% 0.00% < $100M $100M $300M $300M $1B > $1B Prior Analysis Current Analysis 18

19 Schedule H, Part III Schedule H, Part III, Line 1 HFMA Statement 15 33% 67% Yes No 19

20 Schedule H, Part III, Line 2 Use the most accurate system & methodology available to report bad debt expense Does not require reporting at cost like Part I, Line 7 Narrative required in Part VI to describe methodology Schedule H, Part III, Line 3 Use any reasonable methodology to estimate the amount of bad debt reasonably attributable to patients who would likely qualify for financial assistance under the hospital s FAP if sufficient information could be obtained to determine eligibility Record reviews Assessment of financial assistance applications that were denied due to incomplete documentation Analysis of demographics Describe in Part VI the methodology 1,218 hospitals answered 0 on this line in our analysis For those that responded, the average of line 3 divided by line 2 was 26.9% 20

21 Schedule H, Part III Schedule H, Part III, Section B Surplus or Shortfall 26% Total Medicare shortfall reported on Schedule H by 2,296 hospitals was $21,627,266,544 74% Surplus Shortfall 21

22 Schedule H, Part III, Line 7 Medicare Shortfall 25.00% Medicare Shortfall as a % of Total Medicare Revenue 20.00% 15.00% 10.00% 10.34% 19.89% 16.54% 15.13% 14.70% 13.75% 14.17% 8.60% 5.00% 0.00% < $100M $100M $300M $300M $1B > $1B Prior Analysis Current Analysis Schedule H, Part III, Lines 9a & 9b Written debt collection policy Question was on the Schedule H prior to 501(r) Instructions reference written billing & collections policy Make sure answers are consistent with Schedule H, Part V, Line organizations answered no to line 9a (79 answered no when we analyzed 2+ years ago) 166 organizations answered no to line 9b 22

23 Schedule H, Part IV Schedule H, Part IV Reporting required if the hospital is a partner or shareholder & any of the following persons own more than 10% of the share of profits Persons who were officers, directors, trustees or key employees, Physicians who were employed or had staff privileges & These persons either Provided management services to the organization, or Provided medical care, or owned or provided property used by the organization to provide medical care 23

24 Schedule H, Part V, Section B Schedule H, Part V, Section B, Line 3 Line 3 28 organizations answered no Recommend incorporating items listed in 3a i in your CHNA so that all boxes are checked Majority of these items are required by 501(r) 24

25 Schedule H, Part V, Section B Schedule H, Part V, Section B Line 4 tax year generally corresponds with the year of the tax return (9/30/17 return filed on a 2016 tax form) Line 5 required by 501(r) Line 6a 1,155 organizations indicated conducting the CHNA with one or more other hospital organizations Line 6b 958 organizations indicated conducting the CHNA with one or more organizations that were not hospitals 25

26 Schedule H, Part V, Section B Line 7 501(r) requires the CHNA to be made publicly available Line 7a consider using a direct URL rather than the hospital landing page If the IRS can t easily find the CHNA at the URL reported, it may result in an exam Line 8 implementation strategy required by 501(r) Must be adopted by the governing body by the fifteenth day of the fifth month after the end of the taxable year in which the CHNA is completed If a copy is not on the hospital s website, it must be attached to the return Schedule H, Part V, Section B 26

27 Schedule H, Part V, Section B Line 12a seven organizations answered yes indicating they incurred the 4959 excise tax Line 12b five of the seven also answered yes to line 12b indicating they filed Form 4720 to pay the 4959 excise tax Line 12c the total excise tax reported by those five was $350,000 With the number of 501(r) exams the IRS has conducted, we would expect these figures to be higher on 2017 & 2018 returns Form 4720 Also used to pay new excise tax on Section 4960 excise tax $1,000,000 compensation Excess parachute payments Notice provides interim guidance Reported on Schedule N of Form 4720 & also a new question on 2018 Form 990 Draft available on IRS website Due at the same time as Form 990, 4.5 months after year-end Estimates not required, pay tax when filing 27

28 Schedule H, Part V, Section B Schedule H, Part V, Section B Line hospitals answered no Explaining eligibility criteria required under 501(r) Line 13a should be consistent with Part I, Line 3a & 3b We noticed that some hospitals listed the same percentage for free & discounted care; this should probably be revisited 28

29 Schedule H, Part V, Section B Schedule H, Part V, Section B 29

30 Schedule H, Part V, Section B, Line 16 FAP required to be widely publicized On 16a c, we recommend using a direct URL rather than hospital landing page This question is a common trigger of 501(r) exams if boxes are not checked or documents can t be found at URL listed Items h & i seem to be the most challenging for hospitals & are questioned during a 501(r) exam Schedule H, Part V, Section B 30

31 Schedule H, Part V, Section B Line 17 required by 501(r) Line hospitals answered no Line 18 a check box in any of the boxes could be considered a red flag Line hospitals selected a box other than none of these actions or other similar actions were permitted Schedule H, Part V, Section B 31

32 Schedule H, Part V, Section B Schedule H, Part V, Section B 32

33 Schedule H, Part V, Section B, Line 22 AGB Method 15% 21% 14% 50% Look-back Medicare Look-back Medicare + private insurance Look-back Medicaid, alone or in combination Prospective What methods used to determine amounts generally billed? Questions? 33

34 CONTINUING PROFESSIONAL EDUCATION (CPE) CREDIT BKD, LLP is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of accountancy have final authority on the acceptance of individual courses for CPE credit. Complaints regarding registered sponsors may be submitted to the National Registry of CPE Sponsors through its website: The information contained in these slides is presented by professionals for your information only & is not to be considered as legal advice. Applying specific information to your situation requires careful consideration of facts & circumstances. Consult your BKD advisor or legal counsel before acting on any matters covered. CPE CREDIT CPE credit may be awarded upon verification of participant attendance For questions, concerns or comments regarding CPE credit, please the BKD Learning & Development Department at training@bkd.com 34

35 Thank You! Brian Todd, Partner Mike Engle, Partner