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778
Editors Note: In March, the Internal Revenue
Service issued a report strongly suggesting it
would take closer looks at the reporting of
community benets for hospitals, and likely
tighten up the regulations for such reporting.
How might this affect non-prot hospitals
moving forward?
Moderator:
How would you say hospitals have changed
their reporting of the community benet over
the decades, if
at all? Now that
the IRS is taking
a much closer
look, how might
it change?
Pam Knecht:
Hospitals have
had to
signicantly
increase the
detailed
information they
are providing
regarding how
they are
beneting their communities.
Milton Cerny: Beginning with Rev. Rul.
69-545 (implemented in 1969), when
hospitals began reporting on community
benet, the IRS has required that they show
how they were providing community benet
either through an emergency room, serving
indigents and special health needs. Bad debt
write offs were not acceptable.
Bob Atlas:
Things have been fairly steady since about
1990. (The Catholic Health Association) sort
of set the standard for community benet
reporting. Provena Healths loss of tax
exemption a few years ago (in Illinois) got
everyone more focused on this topic. Plus,
Sen. Charles Grassley's (R-IA) scrutiny has
captured a lot of attention. We can assume
hospitals will be pretty careful not to become
too creative going forward.
Moderator:
BobWhen you say "too creative," what do
you specically mean?
Bob Atlas:
I mean stretching the denition. Especially in
an age when - if health reform's promise
comes true - the percentage of uninsured
patients declines markedly.
Moderator:
BobCan you
elaborate a little
bit on Provena
losing its tax
exemption? Was
it for this type of
creativity, or
another issue?
Bob Atlas:
To the best of my
recollection,
Provena had too
low a level of
charity care. It
wasn't about
creativity.
Pam Knecht:
Yes, Provena was accused of unfair billing
practices, and they lost their property tax
exemption, not the entire tax exemption.
Moderator:
Next question: What might you consider to be
red ags to the IRS in terms of the
community benet provided and
compensation paid? Or is that an ever-shifting
risk that has to be juggled?
Bob Atlas:
Red ags might be around services generally
thought to be elective, declared as charity
care.
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!
E-Mail
info@payersandproviders.com with
the details of your event, or call
(877) 248-2360, ext. 3. It will be
published in the Calendar section,
space permitting.
National Edition
A Tax Exempt Hospital Roundtable
How Will The IRS Proceed With Increased Scrutiny?
Continued on Next Page
Participants
Milton Cerny, Counsel, McGuire Woods, Washington, D.C.
Pamela Knecht, President, Accord Ltd., Chicago
Bob Atlas, Chief Operating Officer, Avalere Health,
Washington, D.C.
Date of Roundtable: July 18, 2011
Moderator: Ron Shinkman, Publisher, Payers & Providers
Technical Oversight: David Bronstein, MCOL
!!!"#$$!%&!'(&)*+!,!'*-./0)*+!'1%2/+3/456!778
Payers & Providers Page 2
Top Placement...
Bottomless Potential
Advertise Here
(877) 248-2360, ext. 2
In Brief
Anthem, Blue Shield
Reach Deal With
DMHC On Autism
Treatments
Anthem Blue Cross of California and
Blue Shield of California have come
to terms with the California
Department of Managed Health Care
to provide specic treatments to its
enrollees who suffer from autism.
The deal with Anthem,
announced on Tuesday, will cover up
to 4,000 children who suffer from
autism. Anthem has agreed to pay for
a therapeutic treatment known as
applied behavioral analysis. The
treatment, which focuses on behavior
modications, is intended to help
autistic kids better adapt to their
environment.
Although studies have been
made about the efcacy of ABA,
insurers such as Anthem and Blue
Shield had resisted covering the
treatment, claiming it was
experimental or not medical in
nature, or have not included licensed
therapists within its provider
networks.
In the settlements, Anthem and
Blue Shield still insisted that ABA can
be provided by unlicensed personnel,
but agreed to cover treatments
anyway. Neither plan admitted any
wrongdoing.
Rather than just dealing a
onetime blow to health plans through
an enforcement action, this is another
positive step towards mending the
broken system for California families
dealing with this issue, said Edward
Heidig, the DMHCs interim director.
Blue Shields settlement with the
DMHC, announced last week, came
at nearly the same time that the
Department of Insurance ordered Blue
Continued on Page 3
NEWS
Roundtable (Continued from Page One)
Moderator:
When you say elective, can you cite some
examples?
Bob Atlas:
Joint replacements, bariatric procedures,
anything cosmetic. Not to say there isn't
ample justication for many procedures in
these categories.
Milton Cerny:
Red ags and hot botton issues for the IRS are
the items identied in the (Patient Protection
and Affordable Care Act) where hospitals did
not have publicly disclosed policies or the
level of their community service to the poor
was low. Excess compensation paid to hospital
managers is an area that is closely looked at.
As we know, Sen. Grassley is still very
involved in reviewing the charitable activities
of hospitals and as IRS reviews the CHNA and
reports to Congress we will see more Grassley
Interest.
Pam Knecht:
The IRS' (and Senator Grassely's) issue
regarding compensation is a larger one than
community benet. The concern is how
assets that belong to the public trust are being
utilized. Excessive compensation and benets
are red ags.
Moderator:
There are many hospital CEOs and even
COOs at non-prots who are commanding
seven-gure compensation. Although they are
usually at larger hospitals and systems, the
argument is that you have to pay such salaries
in order to attract the best talent. Is this a self-
fullling prophecy perpetuated in part by
hospital boards, or can there be a way to
recruit without lavish pay packages?
Bob Atlas:
One justication for the pay levels is that the
expectations for performance are high. Failure
is judged quickly and decisively. To sum up,
there's an element of risk. Kind of like with
college football coaches.
Milton Cerny:
Section 4958 of the Code and the IRS
implemention using a presumption of
reasonableness based on data from non-prot
and for-prot hospitals may be Encouraging
this rise in salaries
Moderator:
BobYou make an excellent point, as I recall
the average tenure for a hospital CEO is about
three years these days. Do you have any
specic examples of CEOs or COOs getting
the boot for not showing quick results?
Bob Atlas:
No good examples that I can speak of.
Average tenure speaks for itself.
Milton Cerny:
To Bob's point, the IRS has announced that it
is reviewing both salary and fringe benets
and the presumption will not be applied
unless all income is reported. Thus, care must
be taken in establishing compensation
packages.
Pam Knecht:
I was (about to say) the exact same thing as
Milton regarding the rebuttable presumption
in the IRS Code 4958, and the possibility that
it is causing the compensation rms to
unintentionally increase the comparables.
Moderator:
PamCan you explain further how this might
cause an unintentional increase in comparable
pay?
Pam Knecht:
I should start by saying I have no evidence of
this actually happening, but it seems there is a
possibility that when executive compensation
rms are hired by Boards and/or CEOs to
provide multiple examples of comparable
compensation, the rms may report out the
higher end of the comparables.
Moderator:
PamThat's a very interesting supposition. Do
you think these rms believe they will only
retain business if they report on the high end?
Pam Knecht:
I do not want to suggest that the rms are
doing that.
Moderator:
Uncompensated care is often the largest
component of the community benet, but
some believe its inated due to the use of full
rather than discounted charges to determine
its value. Do you believe hospitals will have to
make adjustments to its uncompensated care
benets down the line, and perhaps invest in
other community benets? If so, where? Do
you see smaller hospitals possibly engaging in
more research?
Pam Knecht:
I think that all sizes of hospital boards should
become more familiar with the denitions and
measures for community benet. One way to
do that is to create a community benet
committee of the Board for this education,
research, and standard-setting purpose.
Bob Atlas:
Last part rst: Its not likely smaller hospitals
will do research. Probably all hospitals need
!!!"#$$!%&!'(&)*+!,!'*-./0)*+!'1%2/+3/456!778
Page 3
Payers & Providers
Longer ALOS!*
Advertise Here
(877) 248-2360, ext. 2
*For our ads, not your hospital
NEWS
In Brief
Shield to cease and desist in refusing
to cover ABA.

Illinois Reduces Rolls
of Low-Income Seniors
Getting PrescriptionAid
In a further sign of the scal pressures
that state ofcials are working under,
Illinois is reducing the income
eligibility requirements for low-
income seniors and people with
disabilities who receive nancial
assistance to buy prescription drugs.
About 43,000 people will lose
their state aid because lawmakers
reduced funding for the program, to
$53.7 million from $107 million in
prior years. About 211,000 people are
now signed up for the Illinois Cares Rx
Program.
To stretch the available funds, the
Department of Healthcare and
Human Services raised copays and
lowered income requirements. A
single individual now must earn less
than $21,780 to qualify, down from
$27,610. A family of three must make
less than $37,060, compared to
$45,657 earlier.

UnitedHealthcare Sues
U.S. Over Awarding
of Tricare Contract
UnitedHealthcare has led a lawsuit
over the disputed contract to provide
medical services to military families in
the Southeastern United States, after
the Government Accountability
Ofce decided to deny Uniteds
protest of the contract award to
Humana Military Healthcare Inc.
The Tricare South Region
contract is worth billions of dollars
in billings to the successful bidder.
In July 2009, the Defense
Department awarded the contract
to United, but Humana, the
incumbent vendor, protested the
award. In February 2011, the
department reversed its selection of
United and gave the contract back
to Humana.
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prot executives statewide. There is no better venue for marketing
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OR VISIT WWW.PAYERSANDPROVIDERS.COM
Roundtable (Continued from Page Two)
an external standard-setter to dene unit value
applied to charitable activities and community
investments. More likely we'll see hospitals
generally making community investments that
ultimately will bounce back, such as things
having a "public health" avor. Or outreach,
such as to help people sign up for new
coverage pursuant to ACA.
Moderator:
BobDo you think that helping people enroll
will become a signicant community benet,
or just a relatively minor trend?
Bob Atlas:
It'll be market specic. In some states, the
exchanges will be weak and unhelpful, forcing
hospitals and clinics to work harder.
Elsewhere the opposite.
Milton Cerny:
(IRS) Form 990 Schedule H provides for other
nancial assistance at cost and activities that
include physical improvents and housing,
economic devlopment and other community
support. I (do) think that hospitals will be
more active in help prevention and
maintenance.
Moderator:
How will the composition of the hospital
board have to change in order to deal with
presumed tougher IRS scrutiny? Will there
have to be more nancial or professional
people serving on hospital boards? Or is that
already changing?
Bob Atlas:
It's already changing. Board positions are less
about social standing, more about helping
ensure the nancial viability of the institution.
Pam Knecht:
Hospital boards will need to ensure they have
the competencies required to assess
community benet, oversee audit, etc. The
SEC is already requiring certain competencies
on boards, and the tax-exempt sector may
follow.
Milton Cerny:
Hospital boards will have to be reponsible for
and attentive to the needs of the community
and regulations that are being issued by the
IRS (and other relevant agencies).
Moderator:
The (University of Pittsburgh Medical Center)
recently removed nearly half of its board. Do
you think that was in response to what the IRS
might do in the future?
Bob Atlas:
They had more than 50 board members, so it
may have been more about getting things
under control.
Milton Cerny:
I am not familiar with UPMC situation but I
think we are begining to see a trend in that
direction.
Moderator:
Do any of you see the IRS stripping any
hospitals of their not-for-prot tax exemption
in the near future? Would it be under similar
circumstances like Provena, or something
different? What might a likely target look like?
What kind of recourse would they have to try
and reverse it?
Milton Cerny:
The IRS has a series of arrows given them by
Congress; only one is revocation. The others
are tiered excise taxes. For example, there is
an excise tax built into the failure to comply
with the application of the community needs
health assessment. That tax is $50,000.
Pam Knecht:
Stripping a hospital of its entire tax exempt
status would be quite severe. It seems that the
IRS is trying to convince the industry to self-
regulate (e.g., changing the Form 990).
Milton Cerny:
I agree with Pam, revocation of exemption is a
last resort. The IRS would attempt other means
rst.
!!!"#$$!%&!'(&)*+!,!'*-./0)*+!'1%2/+3/456!778
Payers & Providers Page 4
VITALS
DATA S NAPS HOTS
from MCOL


B By y t th he e N Nu um mb b3 3r rs s
excerpt from MCOLWeekend's Tidbits
Obesity by State Fattens Up Further
The Trust for America's Health, under a grant from the Robert
Wood Johnson Foundation issued a 124 page report: "F as in
Fat: How Obesity Threatens America's Future 2011" which
examines the growth of the obesity epidemic during the past
two decades, and delves into data and issues at the state
level. Data for their analysis was obtained from the
Behavioral Risk Factor Surveillance System (BRFSS)
dataset.
Here are data highlights from the report:
12 states now have obesity rates above
30%. 4 years ago, only 1 state was above
30%.
3 30 0% %
Colorado has the lowest obesity rate and is
the only state with a rate under 20%.
2 20 0% %
Twenty years ago, no state had an obesity
rate above 15%.
1 15 5% %
Today, more than two out of three states,
38 total, have obesity rates over 25%.
2 25 5% %
Since 1995, obesity rates have increased
by at least 90% in 10 States.
9 90 0% %
43 states have diabetes rates over 7%.
7 7% %
32 states have diabetes rates above 8%.
8 8% %
Twenty years ago, 37 states had
hypertension rates over 20%.
2 20 0% %
Now, every state has hypertension rates
over 20%.
2 20 0% %
Nine states have hypertension rates over
30%.
3 30 0% %
!
!"#$%&'(F as in Fat: How Obesity Threatens America's Future 2011
Trust for America's Health, July 2011
http://www.healthyamericans.org/assets/files/TFAH2011FasnFat10.pdf

F F
a ac ct to oi id d

Will Appear in an Upcoming MCOL DaiIy Factoid
Medical Technology Price ncreases Consistently Low
Medical device spending has gone from just 5.3% of
national health expenditures (NHE) in 1989 to 5.9% in 2009.
The percentage has remained virtually constant since 1992 at
about 6% of NHE
Data Source: Estimates of Medical Device Spending in the United States,
AdvaMed, July 14, 2011,
http://www.advamed.org/NR/rdonlyres/51EA9AD5-6E1B-4FBE-8700-
E3BBAFA811AB/0/2011_0622FNALGuyKingDraftPaperwithAppendix.pdf
LISTS from

The economic contribution of hospitaIs
!!"#!Hospitals employ over 5.4 million people
!!$#!Hospitals are the second largest source of
private sector jobs
!!%#!Hospitals spend about $342 billion on goods
and services from other businesses
!!&. Each hospital job supports about two more
jobs
!!'. Every dollar spent by a hospital supports
roughly $2.30 of additional business activity
Will Appear in an Upcoming HealthSprocket
!"#$%&'(("Economic Contribution of Hospitals Often Overlooked,"
American Association of Hospitals, June 2011,
http://www.aha.org/aha/content/2011/pdf/11econcontrib.pdf
Check out more healthsprocket lists at www.healthsprocket.com

(LOGBITS
Data snippets from recent MCOLBIogs:

The Oregon HeaIth Insurance Experiment:
Evidence from the First Year

n 2008 Oregon realized it had funds to expand their
Medicaid rolls. They knew demand would exceed the
number of slots available, so they set up a lottery that
allowed potentially eligible consumers to enter.
Researchers realized they finally had a classic study
design populations randomly selected into those who
got health insurance and those who remained
uninsured. The results from the first year indicate that
those with health insurance did appear to benefit. :

MCOLBlog: Health nsurance is Good For You (?):
Of those newly insured:
Saw doctors 35% more often
Went to the hospital 30% more often
Got mammograms 60% more often
More likely to say
their health was
good or excellent
25 percentage points

!"#$%&' The Oregon Health nsurance Experiment: Evidence from the First
Year
National Bureau of Economic Research
July 2011
http://www.nber.org/papers/w17190
!
!!!"#$$!%&!'(&)*+!,!'*-./0)*+!'1%2/+3/456!778
VITALS
Payers & Providers Page 5
!
DATA S NAPS HOTS
from MCOL

!
!! !" "# #$ $% %&' '( ( To appear in MCOL Paid Member Web Site, August 2011
Adverse Event Rate per 100,000 Procedures at Veterans HeaIth Administration MedicaI Centers,
2001 to 2009




Table:

Adverse Event Rate per 100,000 Procedures at Veterans Health Administration Medical Centers
Year Adverse Event Rate per 100,000 Procedures
2001 1.74
2002 2.29
2003 0.84
2004 1.08
2005 1.09
2006 1.65
2007 0.54
2008 0.53
2009 0.51

!"#$%&: ncorrect Surgical Procedures Within and Outside of the Operating Room, Archives of Surgery, July 18, 2011
http://archsurg.ama-assn.org/cgi/content/full/archsurg.2011.171
!!!"#$$!%&!'(&)*+!,!'*-./0)*+!'1%2/+3/456!778
Payers & Providers
OPINION
Page 6
For many years the care and cost conversation
has been a bifurcated discussion, with
providers managing medical care and billing
departments handling allowables with carriers
and employers. Now that a new paradigm has
emerged that shifts more of the nancial
responsibility for medical care to patients and
families, consumers are starting to wake up.
Consumer-directed health plans and other
high-deductible health plans are forcing
patients to weigh their costs, especially since
U.S. census data reports median gross
household income at $50,000 placing
absolute limits on what average families can
afford.
Although many doctors have taken note of
the high number of patients that
question the cost of a procedure,
test, or prescription, it still is an
ad hoc conversation. Just
yesterday I heard a story from a
neighbor. She took her son to the
dermatologist for acne. The
doctor wrote a script for Doryx;
no one discussed price. She
went to the pharmacy and left
the prescription with the
pharmacist; again, no price
discussion.
When she went to pick up
the 30-day supply, however,
the bill was $400. She was incredulous that no
one bothered to tell her beforehand. And it
never occurred to her that acne medicine
would be this expensive, so she didnt ask.
When she called the dermatologists ofce to
complain and ask for a different prescription,
she was told a generic equivalent doxycycline
was available, but that it would need to be
taken twice a day instead of once. The cost
was $20, certainly enough of a price
differential to accept the two-times-a-day
dosing schedule.
So who is responsible for initiating the cost
discussion the patient or the provider? With
bad debt rising for providers, it would seem to
be in their best interest to take this on as
routine, but it also presupposes that costs are
available to providers as theyre sorting out
treatment options. In addition, it requires
providers to look at medical services through
the lens of nancial burden and affordability,
which is not how our physicians are trained.
Asking patients to take full responsibility for
the cost discussion assumes that all patients
have the personal authority to ask a question
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that can feel like a challenge to an experts
credibility. Patients who are less educated and
feel less empowered are at an increasing
disadvantage when it comes to high
engagement with medical providers. Often,
they become passive, non-compliant patients.
However, since consumers are ultimately
responsible for their portion of the bill, its no
longer an option to avoid the cost conversation
and act on the physicians recommendation
without knowing the price tag attached.
One solution to better managing care and
costs is to increase consumer education
regarding patient choices, and how to make
decisions. This will require more than one
solution to account for age, ethnicity, language,
and educational differences. It will need
to show patients how to work with
their providers to identify the right
treatment choice for them one that
meets personal criteria for quality and
affordability.
Another solution is to bring pricing
out from behind everyones wall.
Insurance carriers regard allowables as
intellectual property, so they dont want
to share pricing information. And
most hospitals dont publish charges.
Also, when you call the hospital
billing department, they dont want
to give you the information. Only
Medicare publishes rates by DRG and has
created a consumer-friendly Medicare.gov
website to compare prices. If pricing
transparency is essential to lowering costs, then
those owning the data need to be willing to
share it more openly.
The care and cost conversation needs to be
owned by both patients and providers with
support from institutions that have pricing data.
Consumer engagement and purchasing savvy
will help to make patients better partners with
providers; considering affordability in all
treatment decisions will help providers become
better partners with patients.
Starting The Conversation On Cost
Providers Should Know What The Patient Has to Pay
Sarah Wilcox is president and CEO of
www.MyHealthandMoney.com, a web site for
consumers trying to navigate the healthcare
system.
Op-ed submissions of up to 600 words are
welcomed. Please e-mail proposals to
dmoore@payersandproviders.com,
By Sarah Wilcox
!!!"#$$!%&!'(&)*+!,!'*-./0)*+!'1%2/+3/456!778
Page 7 Payers & Providers
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Responsibilities include managing consulting engagements and teams; interfacing
with clients at senior management and board levels; and some business
development.! The companys client base consists of healthcare systems and
hospitals, physician groups, insurance/managed care organizations and other
healthcare service/product/technology companies.! The successful candidate will
have excellent analytical and communication skills with proven ability to interact
with C-level executives and boards.! Consulting experience with a national rm is
also preferred.!
Requirements: Masters Degree, 4 years of healthcare industry experience, hospital/
medical group nance, managed care operations, and/or experience with a
national healthcare consulting or national advisory rm.! Experience with managed
care contracting, predictive modeling, and clinical integration is highly desirable.
The rm provides a broad range of advisory services involving nancial acumen
including: strategic planning, nancial planning and modeling, managed care,
ACO development, bundled payments and clinical integration strategies, feasibility
studies, M & A transactions, valuations, fairness opinions, nancial advisory
services, debt capacity analysis, private equity and venture capital transaction
services.
Also must have the ability to work well with individuals at all levels of an
organization, and excellent analytical written, and oral communications skills.!
Comprehensive compensation packages offered. Los Angeles-based position.
Contact Information:
Mary Lasnier, The Camden Group
HR@TheCamdenGroup.com
www.TheCamdenGroup.com !
!!!"#$$!%&!'(&)*+!,!'*-./0)*+!'1%2/+3/456!778
MARKETPLACE/EMPLOYMENT
Payers & Providers
Page 8
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*New England Journal of Medicine, 2004.
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