von Briesen Health Law Blog

May 31, 2011

Executive Compensation is Biggest Area of Noncompliance for Exempt Organizations, Says IRS

Filed under: Compensation and Benefits — Alyssa Dowse @ 8:02 am

The area of establishing and overseeing executive compensation is the biggest area of noncompliance—and IRS audit concentration—for tax-exempt organizations, according to the Internal Revenue Service (“IRS”) director of exempt organizations. Generally, a tax-exempt organization’s net profits may not inure to the benefit of any private shareholder or individual. However, an individual who provides services for an exempt organization may receive compensation for his or her efforts as long as the compensation is both reasonable and not excessive. Problems with excessive compensation commonly arise in the area of executive compensation. If an executive receives excessive compensation, the IRS may assess intermediate sanctions against the exempt organization, the executive and the board members who improperly set the executive’s compensation. Board members could face personal liability, jointly and severally, up to $10,000 for each excess compensation transaction.

Executive Compensation

Whether an executive’s compensation is reasonable depends on the particular employment situation, including the executive’s duties, training, and position. The exempt organization’s board of directors is responsible for setting an executive’s compensation and ensuring that he or she does not receive excess compensation. If the board of directors creates a committee to set and review executive compensation, the committee should present compensation packages to the board for review and the board should analyze the compensation package carefully. An IRS representative has noted that if a board of directors makes an uninformed decision regarding executive compensation and the executive compensation is unreasonable, such board members may also face adverse tax consequences.

Fringe Benefits

In calculating whether executive compensation is reasonable, the board of directors must take into account all compensation, including fringe benefits. Peter Lorenzetti, the IRS tax-exempt manager for the Northeast, recently stated that fringe benefits are the most common area in which exempt organizations receive intermediate sanctions because such organizations often fail to include fringe benefits in the calculation of the executive’s total compensation. According to Lorenzetti, if an exempt organization fails to treat fringe benefits as compensation to an executive, such failure will be considered an automatic excess benefit, which triggers an automatic imposition of taxes.

In addition, the IRS is currently engaged in the National Research Program, a comprehensive audit of 6,000 U.S. companies, including tax-exempt organizations, that focuses on uncollected employment taxes. Such audits are specifically focused on fringe benefits, according to the chief of employment tax operations at the IRS. The IRS Fringe Benefits Audit Techniques Guide lists the following as a few of the most common fringe benefits provided to executives:

Qualified Employee Discounts
Spousal/Dependent Life Insurance
Transportation (including Chauffeurs, Employer-paid Parking and Non-commercial Air Travel)
Relocation Expenses
Wealth Management (including Qualified Retirement Planning)
Payment of the Employee’s Share of Employment Taxes
Athletic Skyboxes/Cultural Entertainment Suites

To ensure compliance with executive compensation rules, the board of directors of an exempt organization should regularly review executive compensation packages. The board should also maintain active involvement in and oversight of all executive compensation.

May 30, 2011

HHS Releases Proposed Rule on Accounting of Disclosures

Filed under: Records and Technology — von Briesen @ 9:45 pm

The Office for Civil Rights (OCR) released a proposed rule that would broaden an individual’s rights to an accounting of disclosures of protected health information. The rule, which modifies the HIPAA privacy rule to implement changes required under the 2009 HITECH Act, can be accessed here.

Under the proposed rule, covered entities must account for disclosures of PHI made for purposes of treatment, payment, and healthcare operations (TPO) if they maintain the information in electronic format. Disclosures for TPO were previously exempt under HIPAA.

In addition to the right to an accounting of disclosures, individuals would also have the right to a report on access, which would apply when any person accesses a designated record set maintained in the covered entity’s electronic system. According to OCR, this proposed change was intended to “ensure that individuals are receiving information that is of most interest.”

Covered entities would be required to comply with the new rule 180 days after the effective date of the final rule. The rule will become effective 60 days following its publication.

May 26, 2011

CMS Releases Proposed Rule for the Electronic Prescribing Incentive Program

Filed under: Records and Technology — Meghan O'Connor @ 3:23 pm

The Centers for Medicare & Medicaid Services issued today a proposed rule with changes to the Medicare Electronic Prescribing (eRx) Incentive Program. The Medicare Improvements for Patients and Providers Act of 2008 (MIPPA) authorized the Secretary of Health and Human Services to establish a program to encourage the adoption and use of eRx technology. The program, implemented in 2009, offers financial incentives and payment adjustments to eligible professionals.

Under the eRx Incentive Program, eligible professionals who are electronic prescribers can receive a 1% incentive payment for program years 2011 and 2012 and a .5% incentive payment for 2013. Beginning in 2012, a Medicare Physician Fee Schedule (PFS) payment adjustment is required for those eligible professionals who are not successful electronic prescribers. The PFS adjustment amount will be 1% less in 2012 than the PFS amount that would otherwise apply, 1.5% less in 2012, and 2% less in 2014.

The proposed rule makes the following changes to the program:

Modifies the 2011 eRx quality measures (available for download here);
Provides additional significant hardship exemption categories that eligible professionals and group practices may request for the 2012 eRx payment adjustment; and
Extends the deadline for requesting consideration of hardship exemptions. The new deadline applies to the two categories of hardship exemptions finalized in the 2011 Medicare PFS final rule and the proposed additional categories. Significant hardship exemption requests must be postmarked or submitted via a web-based tool proposed in the rule by October 1, 2011. However, the web-based tool submission is conditioned upon the development of such a tool prior to publication of the final rule.

The proposed rule is scheduled to be published in the Federal Register on June 1, and the comment period closes on July 25.

To view the proposed rule, visit the following link (file code CMS-3248-P). For more information regarding which professionals are “eligible professionals” for purposes of the eRx Incentive Program, please visit the following link.

May 19, 2011

HHS Issues Final Rule on Review of Insurance Premium Increases

Filed under: Legislation Watch — Meghan O'Connor @ 12:22 pm

Today the U.S. Department of Health and Human Services (HHS) issued a final rule requiring thorough review of health insurance premium increases. The rule establishes a rate review program to ensure that all rate increases that meet or exceed a specified threshold are reviewed by a state or the Centers for Medicare and Medicaid Services (CMS) to determine whether they are “unreasonable.” The rule also requires that insurance companies make certain rate information public.

As of September 1, 2011, rate increases of 10% or more must be reviewed by state or federal officials. CMS will adopt state determinations if the state: (1) has an effective rate review program in a given market, as determined by CMS; and (2) provides CMS with a timely final determination that includes an explanation for the state analysis. In all other situations, CMS will review rate increases. Starting September 2012, the 10% threshold will be replaced by state-specific thresholds reflecting trends in each state.

The rule sets forth three criteria for determining whether a rate increase is excessive, unjustified, or unfairly discriminatory, and therefore, unreasonable:

A rate increase is excessive if it causes the premium to be unreasonably high in relation to benefits. In making this determination, CMS will consider whether the projected medical loss ratio would fall below the applicable federal standard.
A rate increase is unjustified if the issuer provides data or documentation that is incomplete, inadequate, or otherwise does not provide a basis to determine whether the increase is reasonable.
A rate increase is unfairly discriminatory if it results in premium differences between insureds with similar risks that are not permitted under state law, or, if there is no applicable state law, does not reasonably correspond to expected differences in costs.

The rule also requires insurance companies that implement unreasonable rate increases to submit to CMS a final justification responding to CMS’ or the state’s determination. The insurance company must also provide this justification, in an easily understood form, on its company website and the Affordable Care Act website for a minimum of three years.

The HHS press release is available at the following link. The final rule is available at the following link.

May 18, 2011

The OIG Has Provided Compliance Training Materials Online

Filed under: Fraud and Abuse, Hospital and Physician Relationships, Medicare/Medicaid Compliance — Scott Thill @ 8:59 am

The Office of Inspector General has provided compliance training materials online at: http://compliance.oig.hhs.gov/webcast.html. The OIG intends to post a video of a webcast relating to the compliance training online by the end of the month.

May 3, 2011

CMS Finalizes Changes to Telemedicine Requirements

Filed under: Medical Staff, Medicare/Medicaid Compliance — Michelle Frazier @ 7:38 am

On April 29, 2011, CMS issued its Final Rule on Changes Affecting Hospital and Critical Access Hospital Conditions of Participation: Credentialing and Privileging of Telemedicine Physicians and Practitioners. As promised in its proposed rule, CMS revised 42 C.F.R. sections 482.12(a)(2), 482.22(a)(2) and 485.616(b) to allow hospitals or critical access hospitals that provide telemedicine services to patients via an agreement with a distant hospital or telemedicine entity to rely on information from that distant hospital or telemedicine entity in making credentialing and privileging decisions. This revision not only brings Medicare regulations in line with The Joint Commission’s approved “privileging by proxy” process, but also relieves providers from a duplicative and burdensome process. To review this new rule, click here. For further comment on this rule, see our February 18, 2011 post. The new rule takes effect in 60 days.