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The trend toward increased corporate... ...continued from page 25 Form 990s would encourage organizations to conduct self-review of corporate governance activities in connection with more detailed Form 990s. For example, organizations should thoroughly review organizational documents (articles of incorporation, bylaws, compensation practices, policies, etc.) once every five years, and preferably more frequently. Formal audits of financial statements and operations. This proposal will likely be met with strong resistance due to the costs of a formal financial audit. Currently, organizations receiving federal funding of $500,000 or more must perform annual audits, but apart from this requirement, no audit requirement exists beyond any state requirements. The Sector Report urges that charitable organizations with $1 million or more in total annual revenues attach an audited financial statement to the Form 990s. Organizations with at least $250,000 and under $1 million in annual revenues would have their financial statements reviewed (but not audited) by a certified public accountant. If the nonprofit health care organization currently generates all financial statements internally, serious thought might be given to retaining independent auditors in the same manner as SOX requires for public companies. In the current environment, the benefits and relative security offered by a competent, independent audit may very well outweigh the costs of the audit. Adoption of a formal conflict of interest policy. This aspirational suggestion is likely to be proposed and the nonprofit health care organization should not wait for it to become law. As mentioned earlier, current IRS policies strongly suggest, but do not quite require, tax-exempt organizations to adopt a standard conflict of interest policy. These policies provide for such procedures as recusal of “interested” board members (such as when the board determines compensation or approval of contracts which indirectly benefit the board member). The Sector Report suggests making conflict of interest policies mandatory for all tax-exempt organizations. The cost of a conflict of interest policy is relatively minimal; the IRS has a standard conflict of interest policy that is easily adopted by the board and applicable among most health care organizations. 11 The presence of a conflict of interest policy is critical since the Sector Report highlights executive compensation within charitable organizations as an issue, motivated by media reports of high salaries and loans to executives. Within the health care industry, the adoption and documented observance of a conflict of interest policy, as well as documented reference to salary studies of comparable organizations, can help shift the burden of proof if the level of compensation is questioned. Increasing the use of audit committees. It is suggested that far too few nonprofits establish formal audit committees with required financial expertise. Often, those who serve on charitable boards are motivated by the mission of the organization and as such, financial expertise is often lacking. Particularly within the health care field, at least one board member well-versed in finance (preferably with the certified public accountant or similar designation) should serve on the committee. If necessary, a non-voting, advisory committee may be established. Unfortunately, no federal law addresses the role of audit committees within charitable organizations; to date, only California has required audit committees (for charitable corporations with revenues in excess of $2 million). The Sector Report proposes educating nonprofits on the importance of the audit function, but does not recommend an outright requirement at the federal level, acknowledging the costs involved. The organization should consider its board composition and ascertain whether a minimum level of financial expertise is present on the board, and if not, it should consider adding board members or advisors accordingly. Congress should pass legislation to define and regulate donor-advised funds. Donoradvised funds are sizeable funds maintained by a single public charity, and donors are able to direct where the donor-advised fund distributes their contributions. Health care organizations may frequently receive sizeable contributions from donor-advised funds. Unfortunately, there is little statutory guidance on how these funds operate and solicit contributions. The proposals urge a statutory definition of “donor-advised funds,” as well as more specific rules on how quickly funds must be distributed out to the eventual charitable recipient. The new rules may also specifically prohibit the donor from receiving any substantial benefit as a result of a particular grant recommendation. Incorporation of federal tax standards. Currently there is not enough overlap and too much inconsistency between tax-exempt rules as imposed by the IRS and state nonprofit rules. Texas, for example, has its own standards for determining exemption from state franchise, property, and sales tax that are not necessarily consistent with federal income tax exemptions. Texas also has its own hospital community benefits report, and such reports could arguably be coordinated with IRS authorities. The Sector Report calls for increased sharing of information between state and federal officials (typically, the state attor- Continued on page 33 January 2006 28 Health Care Compliance Association • 888-580-8373 • www.hcca-info.org
suffix that identifies package size (e.g., the number of pills in a bottle) and drug strength. Given the vast number of prescriptions that will be filled and processing fees that will be paid, it is vital that claims submissions and payments be electronic. In order to submit those claims electronically, retail pharmacies are required to use the full eleven-digit NDC number. By Edwin D. Rauzi Editor’s note: Edwin D. Rauzi is a partner ■ Under the Medicare Modernization Act, a in Davis Wright Tremaine LLP’s Seattle drug that is not on the formulary of the particular plan is “not a covered Part D drug” office. He focuses his practice on Health Care matters, designing and implementing corporate compliance plans; advising sentation that is made in reckless disre- ■ Under the False Claims Act, a false repre- corporate compliance officers. He may be gard of the truth and in support of a reached by telephone at 206/622-3150 claim for payment that includes federal dollars may be subject to a penalty of The Medicare Prescription Drug $10,000 per claim Benefit begins on January 1, 2006. ■ Under the Health Insurance Portability Just about everyone in the health care and Accountability Act of 1996, only delivery system will soon be asked to sign a contract (and probably several) based on the new sets” may be submitted electronically transactions that include approved “code benefit. The contracts are likely to be tendered with inadequate time for review and no meaningful opportunity to negotiate. Succumbing to amoxicillin, a generic and common antibiot- To illustrate, consider a prescription for the expedient approach, however, may put your ic. A drug is a generic because it does not organization in peril of violating the False matter who manufactures it or how many Claims Act—not once, but on a recurring basis. pills come in the bottle. From the clinical and pharmacy perspective, therefore, it does not There is a design flaw in the electronic claims matter whether the drug is manufactured by submission process that makes compliance Glaxo SmithKline (GSK) or Teva. Under the for many organizations virtually impossible. Medicare Modernization Act, however, a drug That design flaw is the use of eleven-digit that is not on the formulary of the particular National Drug Code (NDC) numbers to drug plan is not a covered Part D drug. describe generic drugs that are dispensed. That level of precision is nearly impossible to If you consult the Red Book, the pharmacy attain, and is at odds with the very nature of industry resource list of all NDC assigned numbers, you will see literally hundreds of NDC generic drugs and accepted clinical practices. numbers associated with that drug. Hundreds of Three propositions that originate in three numbers exist because, in addition to a different federal laws are central to understanding five-number NDC prefix for each manufacturer what may go wrong: or repackager of the drug, there is a six-digit For hospitals, the rule is not yet clear, but the trend is clearly toward using NDC numbers for one simple reason: there is no comprehensive alternative. When the code set was first introduced, hospitals were able to prevail upon regulators to allow them to continue to use the old HCPCS “J” codes. Those “J” codes, however, are limited to the small subset of drugs that were covered by Part B of Medicare. With the expansion of the Medicare benefit to cover virtually all prescription drugs, there simply is no “J” code that can be used. Providers will have to use the full eleven-digit code for all prescriptions filled, a time-consuming process fraught with potential for error. Hence, as proposed, the claims submission process anticipates perfection to the eleventhdigit on claims submissions. There are two exacerbating factors that render that expectation unrealistic: automated dispensing and the proliferation of plans (and formularies) the MMA promotes. Many pharmacies use Pyxis or similar machines to dispense drugs. Those machines use bins to hold large amounts of pills. Once pills from more than one manufacturer are mixed in the bins, it is impossible for the machine to tell when pills with one NDC number end, and another begins. Even more problematic is the idea that a prescription of 30 generic pills would be identified as 14 from one manufacturer and 16 from another. Continued on page 30 Health Care Compliance Association • 888-580-8373 • www.hcca-info.org January 2006 29
Page 1 and 2: Volume Eight Number One January 200
Page 3 and 4: ASK ON THE LEADERSHIP ONCALENDAR JO
Page 5 and 6: Join us for the following HCCA Audi
Page 7 and 8: in 2006 will assess hospital compli
Page 9 and 10: By Susan C. L. Theuns Editor’s no
Page 11 and 12: ■ ABNs were used for preventive c
Page 13 and 14: Figure 1: ABN Reference Guide Servi
Page 15 and 16: feature article Editor’s note: Th
Page 17 and 18: GJ: Yes. The Fraud, Waste, and Abus
Page 20: ■ There will be Compliance expert
Page 23 and 24: Here’s your chance to share your
Page 25: espective nonprofit law compliance
Page 31 and 32: By José A. Tabuena JOSÉ A. TABUEN
Page 33 and 34: AP: As far as the Auditing and Moni
Page 35 and 36: that would provide the intelligence
Page 37 and 38: Case study of Dana Farber Cancer In
Page 39 and 40: JOSEPH M. WATT ■ Solicit staff an
Page 41 and 42: including the three objectives set
Page 43: expect a measurable impact of compl
Page 46 and 47: New HCCA Members ...continued from
Page 48: C ORPORATE C OMPLIANCE & ETHICS: G

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