501(r) — Are You Ready for This?
By Jonathan Wiik
Last time I checked, hospitals have a lot on their plates. Remember October? ICD-10 ring any bells?
In case you haven’t heard, another new set of regulations — under section 501(r) of the Affordable Care Act — is set to take effect in 2016 for all 501(c)(3) non-profit hospitals. The implications: comply or lose your tax-exempt status.
It’s a hard truth, but the healthcare industry is facing more regulations than nuclear power—look it up. These new regulations are far from straightforward. Compliance with 501(r) can be incredibly complex. The entire process can take anywhere from several months to a year, depending on how smart your people are.
Not to mention expensive. Staff, signage, documentation, training, etc. are all crucial elements of effective 501(r) compliance. What’s more, you may need to hire a new employee or two just to manage the task.
In a nutshell, 501(r) requires that you satisfy new regulations around CHNA, FAP, ECTP, AGB, and EAC. (Go ahead and look up those up after you read up on nuclear power—or just read on.)
Here’s what you need to know about 501(r):
- Congress passed the Patient Protection and Affordable Care Act (PPACA) in 2010.
- Prior to this, some non-profit hospitals had been engaging in aggressive billing and collections efforts that brought their “charitable” status into question.
- This led to the enactment of section 501(r), which requires non-profit hospitals to demonstrate the benefits they provide to their patients and community from a financial standpoint.
As part of 501(r), non-profit hospitals must now meet four specific requirements in order to maintain their tax-exempt status:
- Conduct a periodic community health needs assessment (CHNA).
- Provide written financial assistance and emergency care policies (FAP, ECTP).
- Establish limitations on charges for emergency or medically necessary care (amounts generally billed or AGB).
- Set policies and procedures related to billing and collection activities (extra ordinary collection or EAC).
There are three basic approaches you can take when it comes to compliance:
- Ignore it, do nothing, and assume that you’ll handle it when something happens.
- Check with the experts in your organization to see where you stand.
- Take a proactive approach, put a team together, perform an assessment, and establish an action plan. (Hint: choose option 3 if you want to bolster your charity status, prevent poor patient experiences, ensure your tax-exempt status, and maybe even reduce future expenditure.)
Here’s how to get 501(r) right:
- Measure the pros and cons, risks and rewards of tax-exempt status against the costs of 501(r) compliance. I the juice worth the squeeze? Personally, I think it is for a variety of reasons, but it’s still helpful to understand what you’re in for.
- Document, document, document. Proper documentation is a crucial requirement of 501(r), but it can also be used to show that you’re making a good-faith effort to comply with the rest of the requirements.
- CHNA. This may actually help support your strategic plan. Are the programs offered by your hospital meeting most of the needs of your community? Are all your resources in sync with the community? Have community wellness and health in general become better, worse, or stayed the same?
- Reputation insulation. Compliance can actually help you avoid negative patient experiences and minimize bad press. Along with the “worth” of your non-profit status in the community, in hard and soft costs, the fines can pile up quickly.
- Use third-party data to presumptively determine eligibility for FAP. 501(r) clearly permits the use of presumptive eligibility, which enables you to assess a patient’s financial health early in the revenue cycle. By streamlining this process with third-party data, you can realize increased or accelerated cash flow as well as save time and money by converting manual workflows into automated processes.
- Documented standard work. The use of third-party data can help facilitate a consistent (unbiased) and efficient method for identifying which patients are eligible for financial assistance, effectively taking the guesswork out of the equation. Additionally, 501(r) requires that you thoroughly screen patients for eligibility before sending them to collections or initiating extraordinary collections actions. Again, by using third-party data, you can identify which self-pay accounts can be pursued for collections and which accounts can be presumptively qualified for charity care. This allows for an accelerated segmentation of aged self-pay accounts into payment, charity, and bad debt buckets.
At the end of the day, it’s important to evaluate your patient mix and adjust policies to fit any changes, as well as track and measure your results. Be sure to establish measureable goals to ensure that your FAP-reporting processes are meeting 501(r) standards as well as your patient population mix. Setting a specific number of goals will help keep the focus on the high-priority tasks, ensuring that your processes can be measured more effectively. Are you ready for this?
Jonathan Wiik is principal, revenue cycle management, with TransUnion of Chicago, IL.