District of Columbia, Jun 24, 2019 (Issuewire.com) - The Healthcare Industry is being Improperly Taxed by the IRS
The Healthcare Industry of our country has two types of businesses sectors, the private side, and the government side. The Tax law and the Social Security law, require that the accounting methodology used throughout the industry is the accrual method of accounting. For income tax purposes under this method whenever a bill is issued the amount is added to the providers' gross income. The problem in the healthcare industry is the providers do not collect what they bill; therefore, a method of adjusting the gross income to the legally adjusted taxable income had to be developed and applied.
The legally accepted Generally Accepted Accounting Procedures (GAAP) method developed and used in the industry is known as "Net Realizable Value" (NRV); this adjustment method is used for both tax purposes and financial reporting. This method allows for only recognizing the actual amounts collected for medical services provided to government programs. This method was initially adopted in 1965 with the introduction of the Medicare/Medicaid Programs. Under this method, an adjustment account, the "contract adjustment" account was created. In this account, the difference between what is billed and what is actually collected is posted.
Before 1982 this account contained only legally permitted write-offs of the Medicare/Medicaid Programs, but after the change to the reimbursement of the Medicare Program to the Prospective Payment System (PPS) was introduced, illegal write-offs from the private business side were added to this account. The PPS system was designed to be updated every year, utilizing the prices (the charges) the private-pay patients were obligated to pay. At the end of the fiscal year for income tax purposes and financial reporting, the amount accumulated in the contract adjustment account is deducted from the gross income to determine the adjusted income. The problem is this account contains both legal and illegal deductions, which the IRS failed to recognize.
The government programs of Medicare and Medicaid require by statute, the providers list the standard charges used on the private side of the business but not the actual amount Congress authorizes for reimbursement. The amount listed on the beneficiaries' bills is not the legal liability or debt owed by the government. To balance the amount billed to the actual amount collected, the NRV allows the difference to be charged to contra adjusting account called "contract adjustment. The reason the government wanted the standard charges listed on the beneficiaries' bills were this information is used to calculate the new reimbursement amounts paid by the government. These standard charges on the private side of the business are the actual prices charged to the patients and the actual liability or debt owed to the provider.
On the private side of the healthcare business, two distinct contracts stand alone and are evident; these contracts create separate financial transactions that determine taxable income. The first is the contract between the provider and the patient. The anti-trust statutes of both the State and Federal government require all patients be billed the same price, whether the private-pay patient is insured or uninsured.
The provider performs medical services and bills the patient, thereby creating recognized income for tax purposes. If the patient is insured, the total legal obligation or debt is transferred to the Insurance company. The second contract is between the provider and a health insurance company; the provider pays a kickback to the insurance company for referring patients. The "Kickback" is in a revenue form known as cancellation of debt. The difference of what the patient was billed and what the insurance company actually pays is the kickback. The payment is in the form of partial cancellation of debt that the insurance company must add to its gross income and pay taxes on it.
The problem is the IRS has treated these kickbacks as an adjustment to the debt owed by the patient that was transferred to the insurance company. Unlike government programs, no laws allow for a correction to the gross income for income taxes. There are federal laws which prohibit paying kickbacks in the healthcare industry because they add costs to medical services; there are tax laws that require the providers, even not for profit hospitals, and the insurance companies to pay taxes on the payments. The providers, instead of listing them as cancellation of debt, listed them as contract adjustments. The IRS made a mistake in allowing the private side of the healthcare business to utilize the "Net Realizable Value" (NVR) method of the government programs of Medicare/Medicaid.
The IRS made a horrendous error in assuming a private contract, for illegal purposes, could alter the tax laws. As time went on the industry went from zero percent being written off on the private side of the business to over eighty-five percent being written off. (See an attached chart showing growth of write-off.) Even with these tremendous write-off hospitals and doctors earn four times as much as their counterparts in other industrial nations. As for insurance companies in other industrial companies, they do not have massive private insurance companies, so no kickbacks are being paid. These write-offs have been hidden from the IRS for so long everyone thinks they're okay, even if they are illegal. Someone should educate the IRS and its auditors, and have them collect the proper taxes from the Healthcare Industry.
Media Contact
Saving the World
954-790-9407
14893 American Eagle Ct.
Source :Saving the World
