Nonprofit Hospitals: At the Intersection of Compliance Efforts Lies Revenue Opportunity

Compliance is a fact of life for hospitals and health systems, and it’s only getting more complex. But what if I told you that by coordinating the time and effort spent on accounting, tax and reimbursement rules, you could leverage that effort to maximize reimbursements and minimize audit exposure?

CFOs and administrators in nonprofit hospitals could find opportunity at the intersection of three compliance requirements:

• Section 501(r) of the Internal Revenue Code, which requires nonprofit hospitals and health systems to establish a written Financial Assistance Policy (FAP).
• Uncompensated care reporting on CMS worksheet S-10.
• New FASB standards that fundamentally change how and when revenue is recognized.

Typically, compliance with these requirements is handled by different silos within the hospital. By coordinating and aligning those efforts, you could be driving bottom-line benefits. Here’s how it works:

1. Determine which patients aren’t paying. As part of implementing the new revenue recognition standard, your accounting team should be analyzing historical collection data — at least two to three years’ worth — to determine the amount of consideration the hospital can reasonably expect from each class of payers and over what period you should expect to receive those payments. The results of this in-depth analysis should give you the golden nugget of knowledge to be able to drive better data toward the Form S-10 for reimbursement as opposed to just taking a shot in the dark.
2. Use those parameters to tailor your Financial Assistance Policy. Using the criteria, you identified and defined above for these historically uncollected accounts, write your FAP to specifically encompass those criteria. An intelligent policy that reflects real knowledge of payment history is less likely to leave money on the table in the form of accounts that linger in A/R for 60, 90 or even 120 days and ultimately go uncollected. It will also minimize your exposure in the event of a CMS audit because you will be reporting uncompensated care accounts on your worksheet S-10 that are supported by your FAP. In uncompensated care audits, CMS is looking at patient-level detail to verify that the write-offs are supported by the hospital’s stated policies, and it is disallowing claims that do not comply. Even if you decide not to dive into that deeper analysis, make sure you have a written FAP, including a plain-language summary that is available on your website. The IRS is watching and initiating audits of nonprofit hospitals that don’t have them.
3. Modify your systems to capture the right data. Now that you understand the nature of payers that do and do not pay, you need processes and systems that collect and track the patient and payer information you will need to determine whether the FAP applies and report accurate, supportable numbers on your S-10. Remember that this is not a one-and-done exercise. The goal is to have systems in place that continually monitor collection patterns and then to update your policies as appropriate.

Maintaining siloed approaches to compliance efforts can be costly in the long run. Going forward, you could be exposed to large amounts of uncompensated care that, in addition to being noncollectable, the recoverable portion will be disallowed by CMS auditors.

Strategic CFOs and administrators understand that compliance is not an end unto itself. Those who integrate these three compliance requirements stand to reap system-wide financial benefits.

If you would like to discuss how your hospital or health system can leverage your revenue recognition compliance efforts to maximize uncompensated care reporting, contact the HORNE Healthcare team.