Community Benefit 101 Accounting for Community Benefit

Transcription

1 Community Benefit Community Benefit 101 Accounting for Community Benefit October 4, :00 am/st. Louis Keith Hearle Verité Healthcare Consulting, LLC Outline Importance of accurate accounting Accounting principles Accounting methods Process Worksheets/formulas Some complications Common issues and opportunities 2 1

2 IRS Form 990, Schedule H Community Benefit Table 3 Why is accurate accounting important? Accurate accounting: Is required by the IRS on Schedule H Helps assure consistency through time and across organizations Allows multi-entity organizations to consolidate amounts reliably Enhances credibility of reported information Promotes transparency Assures organizations receive full credit for their community benefit work 4 2

3 Accounting Principles: What Counts and Accounting Go Together Programs and Activities Meeting What Counts Criteria Community Benefit Reporting Accurate Revenue and Cost Accounting 5 Accounting Principles: Formula Applied to Each Category Total: Community Benefit Expense Direct Indirect (overhead) Minus: Direct Offsetting Revenue Patient revenue generated by the program Other associated program fees Restricted grants used to support the program Equals: Net Community Benefit Expense Key Value: Net Community Benefit Expense / Total Operating Expense 6 3

4 Accounting Principles: Guidelines/Instructions Only report expense actually borne by the hospital organization Report actual expense not opportunity costs : Charity care charges What community group would pay for hotel meeting space Use most accurate cost accounting methods Avoid double-counting For revenues and expenses, apply the matching principle 7 Accounting Principles: Guidelines/Instructions (continued) If in doubt, follow generally accepted accounting principles and align with financial statements (GAAP) Include indirect (overhead) costs for every category Maintain an audit trail both regarding why a program counts and for expenses reported Disclose accounting methods Monitor and assure compliance with any changes to instructions and guidelines 8 4

5 Accounting Principles: Most Accurate Cost Accounting Methods Options: Ratio of Patient Care Cost to Charges Medicare Cost Report Cost Accounting System Special Studies by Finance and/or Community Benefit Staff Not: Opportunity Costs 9 Accounting Principles: Direct and Indirect (Overhead Costs) "Direct costs" means salaries and benefits, supplies, and other expenses directly related to the actual conduct of each activity or program. Indirect costs means costs that are shared by multiple activities or programs, such as facilities and administrative costs related to the organization's infrastructure (space, utilities, custodial services, security, information systems, administration, materials management, and others). 10 5

6 Accounting Principles: Avoiding Double-Counting Example Calculations ($millions) Unadjusted Adjusted Total Expenses $ $ Double-Counting Adjustment $ - $ (10.0) Adjusted Expenses $ $ 90.0 Gross Charges $ $ Ratio of Cost to Charges Financial Assistance Charges $ 3.0 $ 3.0 Adjustment Financial Assistance Costs $ 1.0 $ 0.9 Other Community Benefit Expenses $ 10.0 $ 10.0 Total Community Benefits $ 11.0 $ Process First, calculate total and net expenses for community benefits not valued based on the ratio of patient care cost to charges Community health improvement services Community benefit operations Health professions education Research Cash and in-kind contributions for community benefit [Subsidized health services] Then, adjust the ratio and estimate total and net expenses for Financial Assistance, Medicaid, 12 6

7 Finance and CB Staff Roles Primarily Finance Financial Assistance Medicaid, Other Government Subsidized Health Services Health Professions Education System office allocations Indirect cost factors Hourly staff costs Value of in-kind contributions Primarily Program Staff Direct costs for community health improvement services (and community building) Research Contributions for community benefit Program documentation 13 Medicare Cost Report and Indirect Cost Factor $120 $100 $80 $60 $40 $20 Worksheet B-1 ($millions) $25 $75 Factor = $100 / $75, or 1.33 $0 General Service Cost Centers Patient Care Cost Centers 14 7

8 Community Health Improvement Services Example Community Health Improvement Program A Staff hours while on payroll: 6,000 B Average hourly salary: $ C = AxB Salary expense: $ 180,000 D = Cx20% Employee benefits at 20 %: $ 36,000 Expenses E Supplies, other direct costs: $ 25,000 F Contributions to community agency: $ 5,000 G = C+D+E Subtotal (direct costs): $ 241,000 H Indirect cost factor: I = GxH Total community benefit expense $ 321,333 J Program fees $ 15,000 Revenues K Grant funds used $ 100,000 L = J+K Total direct offsetting revenue $ 115,000 Net Expense M = I-L Net community benefit expense $ 206, Health Professions Education Health Professions Education Total Expense Total community benefit expense Medical students $ 100,000 Interns and residents $ 6,000,000 Nursing students $ 250,000 Other health professionals $ 350,000 Total Expense $ 6,700,000 Direct offsetting revenue Medicare GME $ 1,800,000 Medicare IME $ 500,000 Medicaid GME $ 600,000 Tuition $ 50,000 Other revenue $ 15,000 Total $ 2,465,000 Focus on incremental cost to precept nursing (and other) trainees: Classroom time Differences in operations with and without trainees present Faculty/school payments Net Community Benefit Expense $ 4,235,

9 Subsidized Health Services Subsidized Heallth Total Program Subtract Net Program Service Finances Bad Debt Charity Care Medicaid Finances Gross charges $ 10,000,000 $ 200,000 $ 250,000 $ 1,500,000 $ 8,050,000 Net patient revenue $ 2,400,000 $ (200,000) $ 300,000 $ 2,300,000 Other revenue $ 50,000 $ 50,000 Direct offsetting revenue $ 2,450,000 $ (200,000) $ - $ 300,000 $ 2,350,000 Total community benefit expense $ 3,000,000 $ - $ 75,000 $ 450,000 $ 2,475,000 Net community benefit expense $ 550,000 $ 200,000 $ 75,000 $ 150,000 $ 125,000 If net expense is negative, don t report 17 Research and Contributions Research Calculate direct and indirect expenses (see NIH formula) for research studies that qualify to be reported as community benefit Direct offsetting revenue = research grants + license fees/ royalties on research reported as community benefit Contributions Cash contributions = dollar value of qualifying (restricted) contributions for community benefit In-kind contributions = reasonable valuations of staff-time, supplies, equipment book value, and other non-cash resources contributed for community benefit 18 9

10 Ratio of Patient Care Cost to Charges 19 Financial Assistance, Medicaid, and OMTGP Financial Other Means- Example Accounting Medicaid Assistance Tested Programs Charges $ 6,000,000 $ 45,000,000 $ 15,000,000 Direct offsetting revenue Reimbursement $ - $ 11,250,000 $ 3,750,000 DSH/UPL Funds $ 300,000 $ 550,000 $ - Other $ 50,000 $ - $ - Total $ 350,000 $ 11,800,000 $ 3,750,000 Expenses Ratio of patient care costs to charges Patient care $ 1,800,000 $ 13,500,000 $ 5,000,000 Provider tax $ - $ 5,000,000 $ - Total $ 1,800,000 $ 18,500,000 $ 5,000,000 Net community benefit expense $ 1,450,000 $ 6,700,000 $ 1,250,

11 Summary: Community Benefit Table 21 Some Cross-Cutting Issues Reporting negative net community benefit expense (gains) Accounting for multi-year restricted grants for community benefits Accounting for capital expenditures (buildings, equipment) Including proportionate shares of community benefit (and total expenses) for joint ventures 22 11

12 Reporting by EIN (Example 1) Hospital Foundation 20% Joint Venture What if: Foundation makes contribution to community group? Foundation makes restricted grant to hospital for CB? JV provides charity care? 23 Reporting by EIN (Example 2) Hospital Foundation 20% Joint Venture What if: Foundation makes contribution to community group? Foundation makes restricted grant to hospital for CB? JV provides charity care? 24 12

13 Reporting by EIN (Example 3) Hospital Medical Group What if: Hospital is providing financial support to the medical group, which is providing community benefits? 25 Frequent Issues: Instructions Changes Since 2008 All contributions for community benefit reported in Part I, Line 7i Payments in lieu of taxes (and other amounts with quid pro quo) don t count Restricted grants received for community benefit to be included in direct offsetting revenue Only report a physician clinic if the entire service qualifies as a subsidized health service Do not report negative numbers 26 13

14 Frequent Issues: Other Assuring interim data = year-end results Adjusting ratio of patient care cost to charges (and cost accounting-based expenses) to avoid double-counting Over-reporting costs associated with precepting nursing and other students Assuring physician clinic costs are reported appropriately Placing restrictions on cash contributions 27 Frequent Opportunities Optimizing amount of reportable financial assistance Including Medicaid provider taxes as Medicaid expense Reporting all community health improvement services and community benefit operations expenses (e.g., Medicaid-eligibility work and system-office costs) Including indirect costs Omitting health professions education costs for allied health professions programs Not reporting any (or all) subsidized health services Full accounting of qualifying research studies Assuring hospital organization makes contributions, rather than non-hospital affiliates 28 14