Proposed 501r Rules and the
Use of Charity Screening
TX AAHAM
June 5, 2014
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Today’s Speakers
Debra Stall
dstall@paroteamworks.com
(615) 633-4663
www.paroteamworks.com
Debra Stall is a Managing Partner at PARO Teamworks, LLC. PARO Teamworks provides
healthcare consulting including revenue cycle redesign, policy and procedure design and
restructuring, interim management and financial assistance process redesign.
Neil Smithson
nsmithson@paroscore.com
(954) 530-2442
www.paroscore.com
Neil Smithson, Managing Member and Founder, PARO Decision Support, LLC. PARO provides
charity screening and revenue cycle scoring solutions to hundreds of hospitals nationwide. PARO
has help millions of consumers receive free or discounted care since its inception in 2006.
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Agenda
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Section 501 r Review
Industry Response to New Environment
Presumptive Eligibility Safeguards
Financial Assistance & Community Needs
Opportunities for Improving Processes, Reducing Bad
Debt and Bad PR
• Recommendations for Implementation
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Internal Revenue Code
Section 501 r
(based on Notice of Proposed Rulemaking
issued in June 2012)
Establishes the following requirements:
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Financial assistance policy
Limitation on charges
Billing and collection practices
Community health needs
assessment
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Financial Assistance Requirements
• Written financial assistance policy
• Criteria for eligibility – income, assets, insurance status
• Type of assistance provide (i.e. free care, discounted care,
medical indigent or hardship)
• Clearly inform patients of how and where to apply
• Explain documentation requirements
• Assistance may not be denied based on omission of
documentation not specified in the policy
• Applicants must be notified in writing of eligibility determination
• Policy must be approved by the Board or Trustees or another
governing body of the tax-exempt hospital
• Considered implemented when the policy is consistently carried
out by the facility
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Limitation on Charges
Fees charged to patients eligible for financial assistance must to
limited to amounts generally billed those with insurance.
Regulations cite specific examples for calculating AGB
AGB is applied to all ER care and medically necessary care
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Billing and Collection Policy
• May stand as a separate policy or be
incorporated into the overall financial
assistance policy
• Describe permissible collection actions that may be taken in
event of nonpayment and time frame for taking action
• Applies to both internal hospital collection efforts and efforts
undertaken by authorized third parties
• If a patient is determined to be FAP qualified later in the
revenue cycle, the extraordinary collection actions must be
reversed
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Extraordinary Collection Actions
Extraordinary Collection Actions (ECA)are defined as actions taken
by the hospital, or a third party acting on behalf of the hospital, that
require legal or judicial process. Hospitals must refrain from taking
ECAs throughout the notification period and prior to reasonable
efforts to determine eligibility for FAP.
They include, but are not limited to the following:
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Reporting adverse information to credit bureaus
Sale of debt to another party
Initiating civil litigation
Liens on property
Foreclosure on real estate
Attaching or seizing bank account
Causing and Individuals arrest
Body attachments
Garnishment of wages
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Reasonable Efforts
 120 day notification period which begins after
issuing the first bill to the patient
Hospitals are prohibited from engaging in
extraordinary collection actions while making
reasonable efforts to determine whether an
individual is eligible for assistance under their
financial assistance policy.
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Application Period
 120 application period, a patient may submit
an application.
With an incomplete application, the hospital must
refrain from collection actions and provide
information on what is needed to complete
application.
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Efforts to Inform Patients
 Distribute plain language summary of policy
and offer application prior to discharge
 Include summary in at least three billing
statements and other written communication
during notification period
 Inform patient of policy in all oral
communication regarding amount of bill due
during notification period
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Notice on Collection Action
Provide with at least on written notice, a
minimum of 30 days prior to deadline specified
within notice, informing patient about collection
actions that may be taken if patient does not
submit application for assistance or pay the
outstanding balance
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Presumptive Eligibility Safeguard
• Presumptive eligibility screening provides hospitals
with an important safeguard regarding collection
actions and demonstrates effort made to qualify
patients for assistance
• Presumptive eligibility must be extended for the
most generous level of financial assistance
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Industry Response in New Environment
HFMA/ACA Medical Debt Task Force
• In January of this year, HFMA and ACA
released best practice guidelines for fair
resolution of the patient portion of medical bills.
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Summary of Collection Actions
• Policies related to extraordinary collections activity (ECAs)
(as defined by the IRS— i.e. liens, credit reporting, lawsuits,
wage garnishments, or sale of debt) are board approved,
and communicated to and practiced by collection agencies.
• Ongoing provider efforts to educate patients about the
account resolution process including informing patients of the
ECAs that are board sanctioned.
• If account is delinquent, communicate to the patient that the
potential exists for all board-approved ECAs (including
reporting to credit bureaus) prior to initial placement.
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Tracking Patient Billing/
Collection Complaints
• All business affiliates involved in account resolution
activities are required to report patient complaints.
• Review by management teams to monitor
billing/registration and other revenue cycle issues that
result in inappropriate accounts sent to collections
• Call audits and other quality assurance activities to ensure
that policies are followed and provide process
improvement
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Access to Financial Assistance Policy
All collection efforts (either internal or external) should
adhere to internal written/formal provider collection
policies, which include but are not limited to screening
individuals for and applying charity care/financial
assistance policies to those who are eligible and
permissible account resolution tactics.
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Where to Deploy Scoring
• Presumptive Charity filter prior to bad debt
assignment and to reclassify accounts already in
bad debt
– “Charity of last resort”
– Applied after all other funding and eligibility sources
have been exhausted
– Applied consistently to all patient balances
– Extended to historical visits and not applied to future
transactions
• As a prioritization tool for self-pay post-treatment
– At Final Bill in business office or after treatment for
inpatient patients
– Used to segment work flow of counselors and Rev
Cycle follow up
– Integrated into IS host
• As a point-of-service triage tool
– Used to segment work flow of counselors and follow up
– Integrated into IS host
– Detailed access training required
Accounts failing
to document in
financial
counseling
Accounts
completing
Active A/R
unpaid
PARO
Score
Declare
Presumptive
Charity
Bad-Debt
Assignment
Bad-Debt
Collection
© 2014 PARO Decision Support, LLC
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Policies: Charity Types
• Traditional Charity Care

Patient Engaged and completes process
 Usually contains documentation from the patient and is most
accepted by auditors and for reimbursement purposes
• Medically Indigent

Out of pocket expense exceed a specified amount or ratio to
household income or assets
• Presumptive Charity
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Provider able to document specific indicative conditions
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Patient already qualifies for means-tested public program
Deceased with no estate or known family
Transient, homeless persons
Persons estranged from family with no support group
Persons with unknown identity
Validated 3rd party score establishing charity-qualified conditions
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Patients unresponsive or incapable of completing traditional
process
 May not be accepted for reimbursement or disproportionate share
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Presumptive Charity and Audit
• Presumptive scoring does not replace traditional FAP application processes; it is
used to supplement these efforts
• Scoring/electronic screening results are used in the absence of additional
information from the patient
• FAP requires updates to include language that:
• States that the Hospital recognizes that some patients will be unable or
otherwise unresponsive to traditional FAP processes; and
• In an effort to remove barriers for these patients and improve community
benefits, the hospital will utilize an electronic screening process prior to bad
debt assignment after all other funding sources have been exhausted; and
• That the information returned via this electronic screening will constitute
adequate documentation under the Hospital’s policy; and
• The patients eligible through this process will not be assigned to bad debt
• Consider language that emphasizes consistency of process
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Issues Unique to Consumers
Living in Poverty
Basic charity application and documentation processes barriers
for many, often poorest, consumers
1 in 5 consumers are functionally
illiterate and cannot complete an
application process
US Department of Education
33% of the uninsured are high school
dropouts compared to only 7% for
insured patients
1 in 12 Families do not have
household transaction
accounts – 8.7% of US
Population
The Federal Reserve
Employment Policy Institute
“Financial Shadows” are
roughly 26 million consisting
largely of minorities, low income
and the young
The Federal Reserve
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Technology: Picking A Charity Analytic
Elements to consider in selecting a charity model
• What kind of calibration occurs?
– Is it calibrated to your market and your FAP?
• How does it handle non-traditional financial profiles?
– What percent are not able to be evaluated?
– When not evaluated, what does the service do?
• How much and which patient data is required?
– SSN, name, address, other
• What 3rd party data is utilized?
– Credit files, public records, etc.
– How current are these records?
– Patient permission requirements
• Does it utilize multiple “checks” on the recommendation?
– Adequate measures for income, liquidity and asset testing
• Acceptance by the IRS, your Auditor and other groups?
– What audit support is available?
– What reporting and Community Benefit and analysis reports are
available?
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Sample Hospital Calibration
and Validation
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Recommended Strategy:
• PARO less than 735 with FPL less than 367% and Absence of Homeownership status
• Deceased are included if they meet the PARO criteria
Historical Charity
Unknowns
(Self Pay)
Sample Size
1274
1275 for $2.367 mil
PARO Maximum
735
749
PARO Median
688
701
367% to 459%
367% to 462%
FPL Ratio Range
Presumptive Charity
based on these rules
% of file which meets
presumptive guidelines
# Accounts
$ Balance
424
$0.744 mil
33.25%
31.43%
© 2014 PARO Decision Support, LLC
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Segmentation Results – POS Conversion
The ability to segment the patient to the correct revenue cycle path yields results.
• Accounts are scored for Cash
Collection and FAP need
(discharge or POS)
• Ranking are created that
indicates the correct Revenue
Cycle Path
• Indicator 6 accounts paid at 12
time the rate of Indicator 1
accounts
• Indicator 1 accounts converted
to Medicaid at 19 times the
rate of Indicator 6 accounts
45.00%
40.00%
Paid
35.00%
Converted to
Medicaid
30.00%
25.00%
20.00%
15.00%
10.00%
5.00%
0.00%
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Less Eligibility Predicted
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2
1
More Eligibility Predicted
Revenue Cycle Path Indicator
© 2014 PARO Decision Support, LLC
Community Needs Index
(Income, Culture/language, Education, Insurance, Housing Elements)
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CNI was developed by Dignity Health © 2014
Distribution by Community Need
Strong correlation between PARO Presumptive Charity approvals
and CNI illustrating the ability for PARO to help provide proof of
benefits under Community Needs Assessment planning
© 2014 PARO Decision Support, LLC
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Leverage your Historical Data – Density Mapping
© 2014 PARO Decision Support, LLC
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Compliance and Timing –
What to Do Now
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Take this opportunity to reaffirm that the hospital organization
currently satisfies all of the express requirements of Section 501(r)
of the Tax Code (which are currently in effect).
Begin compliance efforts now by reviewing existing financial
assistance policies, charge methodologies, and billing and
collection policies and procedures.
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The tax community anticipates that the final regulations will generally track the
overall framework of the proposed regulations.
The tax community does not anticipate lengthy transition relief once final
regulations are announced.
Hospitals should be mindful of their responses to the questions on Form 990,
Schedule H, that address their financial assistance policy, billing and collection
policy, and emergency medical care policy, and regarding how a hospital charges
individuals eligible for financial assistance.
Develop implementation process and train staff.
Inform governing Board of new requirements and secure Board
approval for new policies
Involve professional advisors to help ensure that all regulatory
issues are addressed.
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Financial Assistance Policy (FAP) – Fundamental
Elements
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PFS Interaction–
What to Do Now
• Perform a Readiness Assessment NOW
• Review and Revise your new FAP (considering using an
outside expert – avoid a search and replace approach)
• Publish your new FAP
• Train your Staff (including applicable vendors) with
initial training and periodic updates
• Monitor Performance and seek “lessons learned”
• Start telling your Story – FAP is valuable to your tax
status and your community – share the results in
terms of patients served
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Question and Answer
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Additional Resources and Contact Information
Special Thanks to Mark Rukavina.
Mark is the Principal at Community Health Advisors, LLC and has served on a
number of HFMA task forces including the Bad Debt and Collection Task Force.
His firm provides services related to design and develop for Financial Assistance
Policies, Community Health Needs Assessments, and other outreach program.
He can be reached at mark@communityhealthadvisors.com or
www.communityhealthadvisors.com or (617) 833-9829
Debra Stall
dstall@paroteamworks.com
(615) 633-4663
www.paroteamworks.com
Neil Smithson
nsmithson@paroscore.com
(954) 530-2442
www.paroscore.com
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