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Providers and Agencies Prepare for 501(r)

This year will likely see the final release of Internal Revenue Service’s regulations for hospitals to maintain their tax-exempt status. In the meantime, the IRS has advised professionals in the health care and collection industries to follow the proposed guidelines to determine if they are in compliance.

During a Jan. 21 online seminar for the Healthcare Financial Management Association, Michael Engle, a partner with BKD CPAs and Advisors in Kansas City, Mo., discussed preparation for the regulations.  Requirements for a hospital to maintain its nonprofit status, set by the IRS and mandated by the Affordable Care Act, include:

• Establishing written financial assistance and emergency medical care policies. 

• Limiting amounts charged for emergency or other medically necessary care to individuals eligible for assistance to not more than amounts billed to people with insurance for the care.

• Determining if an individual is eligible for financial assistance before using extraordinary collection practices.

• Conducting a community health needs assessment and adopt an implementation strategy at least once every three years.  

Engle said hospitals are also required to make their financial assistance policies widely available to the public, and a plan needs to be in place to aid with that process.  “Very few (hospitals with) financial policies today have ideas how they are going to make it widely available,” he said.

Because the regulations specify that hospitals are responsible for actions of their agencies, it is essential that hospitals and collection agencies work closely.  “If the agency breaks the law, the hospital is considered as having broken the law as well,” Engle said.  At this time, if a hospital is trying to comply with the regulations and makes a mistake, it is not grounds for the IRS to remove its tax-exempt status, according to Engle. 

Instead, the proposed regulations are in place to allow hospitals to correct any mistakes.  Hospitals should rely on following the proposed regulations until the IRS publishes a final rule, said Roberta Schultz, director of operations at Minnesota-based revenue cycle management company ProSource.  Schultz is quite familiar with the proposed regulations, as they are similar to requirements that have been in place in Minnesota for several years.

“The regulations revolve around ensuring accounts are billed properly to all third-party payers, self-pay amounts are validated as correct and truly owed and patients are aware of financial assistance,” Schultz said. “Patients must be given the opportunity to apply for charity care, and uninsured patients should be given the same discount as the facilities ‘most favored payer.’” 

Schultz said it is important that patients know what their financial options are and for hospitals and collection agencies to document communication.  “You need to have a very compliant agency that understands and has technology and (an) electronic process in place to ensure that accounts are handled appropriately,” she said.  Schultz advises hospitals to use consistent “patient due diligence” to comply with the IRS regulations.  Patient account records should include details about dates when bills are sent, dates of patient contact and, most importantly, Schultz said, if they were informed about the hospital’s financial assistance policy and given an application.

Hospitals could verbally notify patients about the financial assistance policies through a recording on their phone line or through providing copies at their location and online.  As Engle mentioned, collaboration between collection agencies and hospitals is important in following the regulations.  Schultz said technology can help ensure an agency has access to hospitals’ systems to answer and record actions, and to allow providers to view that information.

“There is a technology answer to just about all of the requirements of the regulations, but it takes a lot of investment, time and complete understanding before the technology is effective,” she said. (IRS regulations)

News & Notes

Medical Identity Theft is on the Rise

Medical-related identity theft reported in 2013 surpassed crime rates related to stolen banking, finance, government, military or education information, according to Kaiser Health News. In 2013, more than 7 million patient health care records were breached and 43 percent of identity theft cases were related to medical information.

Affordable Care Act Mandates for Businesses Delayed Again

Revised Affordable Care Act regulations will allow some mid-size businesses more than a year to provide insurance coverage. Companies employing 50 or more people will need to start reporting insurance plan information in 2015. Fines for not following the regulations will also be delayed.

Congress Continues Medicare Sequester to 2024

In February, Congress approvedlegislation to continue the 2percent cut to Medicare providersand insurers. The bill would helprestore $6 billion in cuts to militaryretirement benefits, according to theHealthcare Financial ManagementAssociation. The practice of usingMedicare to pay for non-Medicarerelated programs drew opposition tothe bill.

For more health care collection news, visit ACA’s Health Care Collections page at


Two-Midnight Rule Delay Doesn’t Address Provider Concerns

  • March 26, 2014
  • Published in Billing

In October, the Centers for Medicare and Medicaid Services will begin enforcement of its new Medicare hospital admissions policy, known as the two-midnight rule.  CMS has delayed enforcement of the rule several times since last year.  Its most recent delay, in response to opposition from health care providers and trade groups does little to address the concerns of providers about the rule itself, however.

The new rule requires a physician to determine that a Medicare patient will need to stay in the hospital for two nights in order to receive reimbursement under Medicare Part A. Care for a patient who stays in the hospital for less than two nights will be identified as outpatient treatment and reimbursed under lower Medicare Part B rates.

Speaking for the Association of American Medical Colleges, which represents teaching hospitals and medical schools, senior director and regulatory counsel Ivy Baer told Modern Healthcare,

“It does not make any sense. The decision should really be based on patient need, not how many midnights they were in the hospital.”

Some Medicare patient admissions under the new rule could be subject to random audits during the moratorium, according to CMS. Contractors with Medicare will continue to select claims for review dated between March 31, 2014 and Sept. 30, 2014. 

Paid claims dated Oct. 1, 2013 through Oct. 1, 2014 will not be reviewed. However claims without payment dated after Oct. 1, 2013 but before Sept. 30, 2014 are subject to a review.

More information:




ICD 10 Cost Estimates Higher Than Expected

Physicians implementing required updates to their medical coding system by Oct. 1, 2014, will likely pay more than the previously estimated costs, according to new research conducted for the American Medical Association.  The system, ICD-10, is replacing ICD-9 for reporting medical diagnoses and inpatient procedures. All entities covered by the Health Insurance Portability and Accountability Act must implement the new system by the Oct. 1 deadline.

In 2008 research by Nachimson Advisors and Physicians EHR for the AMA concluded that it would cost $83,290 for a small medical practice to implement ICD-10, compared to about $2.7 million for a large practice.  New research shows the ICD-10 process requires physicians to upgrade their electronic health records and practice management systems software, which produces the billing information to submit to a health plan for payment.

In addition to software changes, costs to physicians include training, assessment, vendor upgrades, remediation and productivity losses.  Expenses for a small practice to use ICD-10 could range from $56,639 to $226,105, according to the new research. A large practice could pay between $2 million and $8 million.

The ICD-10 transition could also affect medical practices’ finances due to a possible disruption in the payment reimbursement process. While it will be difficult to determine the extent of the impact until after Oct. 1, 2014, researchers predict there could be denial of claims for reimbursement due to inaccuracies in the policies updated for ICD-10.

“A poorly executed ICD-10 implementation effort will increase those risks and expose practices to large costs in 2014 and beyond,” AMA’s new report states. “Planning must take place now so those risks can be mitigated and practices can continue to operate effectively.”

 More information:


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