5/20/2019

1

Fastballs, Curveballs and

Spitballs: Yesterday’s Home

Runs Don’t Win Today’s Games

Thought Leadership for Changing

Times

Introductions

Eric M. Lopata

Director

Audit

Health Care

Kevin Morey

Partner

Audit

Health Care

Greg Sullivan

Senior Manager

Tax

Joseph M. (Joe) Watt

Partner

Audit

Health Care

Today’s Agenda

• Healthcare landscape changes and the

current environment

• Tax reform: What you need to know

• Accounting changes: No real impact…Think

Again

• Summary of do’s and dont’s

5/20/2019

2

FASTBALLS

• Environment Facts:

– The rate of change in health care is

occurring at exponential levels and is

not going to slow down anytime soon

– Mergers, mergers, mergers

– Competition in the market is fierce

– Disruptors are in the air

– Regulatory bodies are alive and well

– Alternative payment models: more to

come

5

CHALLENGES OR OPPORTUNITIES? Current Challenges Facing Health Care Providers

Health Care Spending & Regulatory Compliance

Politics & Payment Reform

Patient Care & Innovation

Competition & Consumerism

Regulatory Changes | Revenue Recognition | Information Technology Costs | Opioid Crisis

Physician and Allied Health Recruiting | 340b Drug Program | Mergers & Acquisitions

Cyber Risks/Ransomware | Protected Health Information | Payment Changes

New Competitors In Marketplace | Population Health | Advanced Payment Models

FASTBALLS

Federal Spending Medicare Benefits

5

FASTBALLS

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Long-Term Care35%

Physician Medical Groups

21%

Other15%

Behavioral Health7%

Home Health & Hospice

6%

Hospitals6%

Laboratory, MRI, Dialysis

4%

Rehabilitation4%

Managed Care2%

2018 Health Care Services Deal Volume

1,219 Health Care

Services Deals

Long-Term Care30%

Physician Medical Groups

18%

Other21%

Behavioral Health5%

Home Health & Hospice

6%

Hospitals8%

Laboratory, MRI, Dialysis

5%

Rehabilitation5%

Managed Care2%

2017 Health Care Services Deal Volume

1,035 Health Care

Services Deals

Current Industry Trends & Market Activity

7

FASTBALLS

• Hospital & health systems consolidation– Strong with strong? Moderate? Weak?

– Moderate with moderate?

– Weak with ?

• Insurers with– Insurers

– Providers

• Physicians with– Physicians

– Health system

– Insurers

• Commercial business with– Insurers

– Providers

Mergers & Acquisitions

CVS and Aetna Say Merger Will

Improve Your Health Care. Can They

Deliver?

FASTBALLS

Alternative Payment Models

• Launched over 30 new payment

models in 6 years

• Estimated 18 million patients

impacted/received care through

new payment models

• More than 30% of FFS payments

tied to value in 2016. On track for

50% by 2018

• $34 Billion spending reduction per

CBO

FASTBALLS

5/20/2019

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FASTBALLS

• Consumerism & innovation

are here to stay

– Could be a disruptor to

traditional care

– Amazon, Berkshire Hathaway,

JP Morgan

• Patients are paying attention

to cost & quality

• Patients want convenience &

timely service

– Mobile device care

FASTBALLS

• Innovation may be

used to solve problems

• Innovative partners –

choose strategically

• Big & small innovations

• Let the millennials

loose

EIGHT PRICE AND COST PRESSURES SQUEEZING MARGINS

Direct

reimbursement

pressure

Decline in commercial

coverage / rise of

HDHP

Deregulation

and the new era

of competition

Shifting

demographics and

payer mix evolution

1 2 3 4

Dow

nw

ard

Pri

cin

g P

ressure

Provider Margins

Rising

pharmaceutical

costs

Labor cost

growth

Increasing

reliance on IT /

rising IT costs

Growth in

purchased

services

5 6 7 8Upw

ard

Cost

Pre

ssure

FASTBALLS

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Curveballs

Tax Cuts & Jobs Act of 2017Big Changes for Tax Exempt Healthcare Organizations

Curveballs

Unrelated Business Income

Corporate Tax Rate -

21%

Curveballs

Unrelated Business Income

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Curveballs

Unrelated Business Income

Curveballs

Unrelated Business Income

Curveballs

Unrelated Business Income• NOL deduction 80% taxable income (generated

after 12/31/2017)

• Section 179 expensing – $1M

• No entertainment deductions

• Corporate alternative minimum tax repealed

• Bonus depreciation – 100% through 2022, then

scaled back through 2026

• Net interest expense limitation

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Curveballs

Charitable Contributions

Curveballs

Charitable Contributions

Decline in Charitable Giving?

2017 2018 2018

Itemized Deductions:

Sales Tax 2,000.00$ -$ -$

Real Estate Taxes 15,000.00$ 10,000.00$ 10,000.00$

Home Mortgage Interest -$ -$ -$

Charity 7,000.00$ 7,000.00$ -$

Increased Standard Deduction -$ 7,000.00$ 14,000.00$

Total Itemized Deductions 24,000.00$ 24,000.00$ 24,000.00$

Curveballs

Charitable Contributions

• Bunching of itemized deductions

• Donor-advised funds

• Qualified charitable distributions (QCD)

Change in Donor

Strategies?

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Curveballs

EXCISE TAX ON EXECUTIVE

COMPENSATION

Curveballs

EXCISE TAX ON EXECUTIVE

COMPENSATION

Curveballs

TAX-EXEMPT BONDS

Repeals the exclusion from gross

income for interest on advance

refunding bonds

5/20/2019

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Curveballs

COMPENSATION & EMPLOYEE

BENEFITS

Spitballs

Accounting Changes: No Real Impact … Think Again

Heavy Hitters

FASB

• Revenue Recognition

• Contributions

• Leases

• Not-for-Profit Reporting

Model

• Cash Flow – Restricted

Cash

GASB

• Fiduciary Activities

• Leases

• Accounting for Interest

Costs during

Construction

SPITBALLS

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Revenue Recognition – ASC Topic 606

Effective Date

• Public Business Entities

(PBE’s) - years

beginning after

December 15, 2017

• All other entities after

December 15, 2018

SPITBALLS

Revenue Recognition – Lessons Learned

• Determination of what is scoped

in and out of the standard

• Accumulation of historical data

for portfolios

• Self Pay – transaction price

• Time and resources required to

implement – DON’T UNDER-

ESTIMATE

• New information technology

systems? – WHO CARES

“Yogi” isms

SPITBALLS

Contributions and Grants – ASU 2018-08

Effective Date

• PBE’s & conduit debt

obligors - years

beginning after June 15,

2018

• All other entities after

December 15, 2018

SPITBALLS

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Contributions and Grants – ASU 2018-08

SPITBALLS

Clarifications on Exchange vs. Nonexchange

Conditional vs. Unconditional Contributions

Conditions vs. Restrictions

Step 1

Step 2

Step 3

NFP Revenue Recognition Decision Process

*Includes third-party

payments on behalf of

identified customers.

Does not create new

revenue

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SPITBALLS

Leases – ASC Topic 842

Effective Date

• PBE’s - years beginning

after December 15,

2018

• All other entities after

December 15, 2019

SPITBALLS

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Leases – It’s Finally HERE, Now What?

• Accumulation of lease inventory

• Determination of elections of practical expedients

• Lease components

• Discount rate

• Impact on existing and future debt covenants

• Financial ratio impact

• Healthcare specific agreements to consider

– Automated medication dispensers

– Related party agreements

– Usage-based agreements

– Physician offices and clinics

SPITBALLS

Presentation of Financials Statements

of NFP Entities – Topic 958

Effective Date

• Years beginning after

December 15, 2017 for

ALL entities

Key Takeaways

SPITBALLS

• Presentation changes

• Functional expenses

• Liquidity disclosures

• Endowment disclosures

Restricted Cash – Topic 230

Effective Date

• PBE’s – years beginning

after December 15,

2017

• All other entities years

beginning after

December 15, 2018

Key Takeaways

SPITBALLS

• Cash is cash

• Cash in other line items

on balance sheet shown

within statement of cash

flows

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GASB 84 – Fidiuciary Activities

Effective Date

• Years beginning after

December 15, 2018

SPITBALLS

Key Takeaways

• Consider benefit plans

and other post

employment benefit

arrangements

GASB 87 – Leases

Effective Date

• Years beginning after

December 15, 2019

SPITBALLS

Key Takeaways

• Accumulation of leases

• Not the same as FASB

GASB 89 – Accounting for Interest

Costs during ConstructionEffective Date

• Years beginning after

December 15, 2019

SPITBALLS

Key Takeaways

• Budget implications

going forward

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Bottom of the Ninth

Spikes, bats, balls, and gloves = Tools of the Trade for

Success – Key Takeaways

Bottom of the Ninth

• Industry change is in

the air!

• Disrupters are

abundant and

continue to challenge

traditional health care

providers

• Innovation will be the

new norm

Bottom of the Ninth

• Tax reform will create

new challenges

• Tax exempt

organization scrutiny

is on the uptick

• Accounting standards

changes requires

additional resources

for implementation

5/20/2019

15

Questions

Thank You!

Eric Lopata – Director, elopata@bkd.com

Kevin Morey – Partner, kmorey@bkd.com

Greg Sullivan – Senior Manager, gsullivan@bkd.com

Joe Watt – Partner, jwatt@bkd.com