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Tax Talk in Healthcare

Be Prepared in Case of CMS Audits
January 3, 2013 2:55 PM by MIKE MANOLOFF

Maintaining good documentation in your files is essential because CMS audits are not going away and most likely will occur more often in 2013. What types of audits could a company expect from CMS?

  • Diagnostic coding
  • Utilization review
  • Prospective audit
  • Retrospective Audit

While none of the audits is less important, the pre-payment review associated with a prospective audit is likely to be of most concern. In simple terms, this means that documentation must be provided as services are rendered, and until the exam is completed, no payments are issued for services. There is no timeline as to how quickly the auditor must complete the exam. You might not get paid for several months, but your costs will not be deferred during this time.

In comparison, retrospective audits occur after services have been rendered and typically after payment has been received.  A retrospective exam may be linked to a company's history of problems with coding, over payments, poor documentation, or the like; however, there will be instances when none of these issues has occurred. We should start seeing more random types of exams in the future, although they should not be the norm.

Most audits are conducted with the intent of taking back revenues that you have already been paid. A company can buffer itself from audits by doing a few things strategically:

  • Maintain a good bank relationship.
  • Maintain cash reserves to cover expenses for at least three months.
  • Establish a line of credit.
  • Maintain a good credit score, since many loans require a personal guarantee.
  • Keep financials current in case a loan is required, discussing these with  a lender on a regular basis.
  • Involve your CPA firm with reviewing/participating in the financials, not just the annual tax return filings.
  • Diversify sources of revenue that are not from Medicare, although this might not be practical.

An important factor of any type of audit is to have attorney involvement. The reason for this is to make sure that you have attorney-client privilege that extends to all those who might have to provide documentation - be it the biller or coder, CPA firm, officers of the company, or any other person involved. All the documents requested should be copied, and all copies should be routed through the attorney and not given directly to CMS or a RAC auditor. This will ensure a process of how documents will be handled. Two copies of all requested files or documents should be made at a minimum - one for the attorney and one for the auditor.

Tax Measures to Know in the Affordable Care Act
September 10, 2012 12:11 PM by MIKE MANOLOFF

The Supreme Court recently upheld the Affordable Care Act, and all the tax measures were kept in place. What are some of the highlights as a result of this ruling?

Starting in 2014, almost all Americans must maintain a minimum amount of health insurance coverage. Failure to do so will result in at tax that will be reported on your 1040 tax return. The calculations are complex and will not be identical in the years 2015 and 2016.

There is also a premium assistance tax credit for eligible lower income individuals who obtain coverage under a qualified health plan through an insurance exchange. These rules are also will require some rather unusual calculations.

The medical deduction threshold will increase starting after 2012. The current unreimbursed medical deduction allowance is 7.50 percent of adjusted gross income. That figure will increase to 10percent, with some exceptions for those over age 65, until the year 2016.

There will be an additional medicare tax imposed starting after 2012. This will be .9 percent on wages and self employment income to those with income more than $200,000 or married couples in excess of $250,000 per year  ($125,000 if couples file separate returns).

There also will be a medicare tax on investment income of 3.80 percent on income  more than $200,000 or $250,000 for married couples.  Investment income includes for example, interest income, dividends, annuities, royalties and rents (unless such income is derived in the ordinary course of a trade or business). The regulations on this have yet to be issued the IRS.

An interesting note, if you sell your home, you could trigger this additional 3.8 percent tax as well.

After 2012, there will be a medical device excise tax on sales that will be 2.3 percent of the sales price. This will require a separate tax filing to the IRS to report these transactions. There will be a retail exemption. A bill that would repeal the 2.3 percent tax has been proposed, but  it has yet been voted on by the Senate.

Other changes starting in 2013 (assuming no changes by congress) include a capital gains tax rate  increase to 23.8 percent, up from the current 15 percent. And dividends tax will go from 15 percent to 43.4 percent.

And one very puzzling rule is the "economic substance doctrine," which  permits the IRS to disallow completely legal tax deductions and other tax minimizing plans just because the IRS deems that it lacks substance and is merely intended to reduce taxes owed.