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Read this if you are a State Medicaid Director, State Medicaid Chief Information Officer, State Medicaid Project Manager, or State Procurement Officer—or if you work on a State Medicaid Enterprise System (MES) certification or modernization efforts.

Click on the title to listen to the companion podcast to this article, Medicaid Enterprise Systems certification: Outcomes and APD considerations

Over the last two years, the Centers for Medicare and Medicaid Services (CMS) has undertaken an effort to streamline MES certification. During this time, we have been fortunate enough to be a trusted partner in several states working to evolve the certification process. Through this collaboration with CMS and state partners, we have been in front of recent certification trends. The content we are covering is based on our experience supporting states with efforts related to CMS certification. We do not speak for CMS, nor do we have the authority to do so.

How does the focus on outcomes impact the way states think about funding for their Medicaid Enterprise Systems (MESs)?

Outcomes are becoming an integral part of states’ MES modernization efforts. We can see this on display in recent preliminary CMS guidance. CMS has advised states to begin incorporating outcome statements and metrics into APDs, Requests for Proposals (RFPs), and supporting vendor contracts. 

Outcomes and metrics allow states and federal partners to have more informed discussions about the business needs that states hope to achieve with their Medicaid IT systems. APDs will likely take on a renewed importance as states incorporate outcomes and metrics to demonstrate the benefits of their Medicaid IT systems.

What does this renewed importance mean for states as they prepare their APD submissions?

As we’ve seen with initial OBC pilots, enhanced operations funding depends upon the system’s ability to satisfy certification outcomes and Key Performance Indicators (KPIs). 

Notably, states should also prepare to incorporate outcomes into all APD submissions—including updates to previously approved active APDs that did not identify outcomes in the most recent submission. 
 
This will likely apply to all stages of a project’s lifecycle—from system planning and procurement through operations. Before seeking funding for new IT systems, states should be able to effectively explain how the project would lead to tangible benefits and outcomes for the Medicaid program.

How do outcome statements align with and complement what we are seeing with outcomes-based or streamlined modular certification efforts?

Outcomes are making their way into funding and contracting vehicles and this really captures the scaling we discussed in our last conversation. States need to start thinking about reprocurement and modernization projects in terms of business goals, organizational development, and business process improvement and redesign. What will a state get out of the new technology that they do not get today? States need to focus more on the business needs and less on the technical requirements.

Interestingly, what we are starting to see is the idea that the certification outcomes are not going to be sufficient to warrant enhanced funding matches from CMS. Practically, this means states should begin thinking critically about want they want out of their Medicaid IT procurements as they look to charter those efforts. 

We have even started to see CMS return funding and contracting vehicles to states with guidance that the outcomes aren’t really sufficiently conveying what tangible benefit the state hopes to achieve. Part of this challenge is understanding what an outcome actually is. States are used to describing those technical requirements, but those are really system outputs, not program outcomes.

What exactly is an outcome and what should states know when developing meaningful outcomes?

As states begin developing outcomes for their Medicaid IT projects, it will be important to distinguish between outcomes and outputs for the Medicaid program. If you think about programs, broadly speaking, they aim to achieve a desired outcome by taking inputs and resources, performing activities, and generating outputs.

As a practical example, we can think about the benefits associated with health and exercise programs. If a person wants to improve their overall health and wellbeing, they could enroll in a health and exercise program. By doing so, this person would likely need to acquire new resources, like healthy foods and exercise equipment. To put those resources to good use, this person would need to engage in physical exercise and other activities. These resources and activities will likely, over time, lead to improved outputs in that person’s heart rate, body weight, mood, sleeping patterns, etc.
 
In this example, the desired outcome is to improve the person’s overall health and wellbeing. This person could monitor their progress by measuring their heart rates over time, the amount of sleep they receive each night, or fluctuations in their body weight—among others. These outputs and metrics all support the desired outcome; however, none of the outputs alone improves this person’s health and wellbeing.

States should think of outcomes as the big-picture benefits they hope to achieve for the Medicaid program. Sample outcomes could include improved eligibility determination accuracy, increased data accessibility for beneficiaries, and timely management of fraud, waste, and abuse.
 
By contrast, outputs should be thought of as the immediate, direct result of the Medicaid program’s activities. One example of an output might be the amount of time required to enroll providers after their initial application. To develop meaningful outcomes for their Medicaid program, states will need to identify big-picture benefits, rather than immediate results. With this is mind, states can develop outcomes to demonstrate the value of their Medicaid IT systems and identify outputs that help achieve their desired outcomes.

What are some opportunities states have in developing outcomes for their MES modernizations?

The opportunities really begin with business process improvement. States can begin by taking a critical look at their current state business processes and understanding where their challenges are. Payment and enrollment error rates or program integrity-related challenges may be obvious starting points; however, drilling down further into the day-to-day can give an even more informed understanding of your business needs. Do your staff end users have manual and/or duplicative processes or even process workarounds (e.g., entering the same data multiple times, entering data into one system that already exists in another, using spreadsheets to track information because the MES can’t accommodate a new program, etc.)? Is there a high level of redundancy? Some of those types of questions start to get at the heart of meaningful improvement.

Additionally, states need to be aware of the people side of change. The shift toward an outcomes-based environment is likely going to place greater emphasis on organizational change management and development. In that way, states can look at how they prepare their workforce to optimize these new technologies.

The certification landscape is seemingly changing weekly as states wait eagerly for CMS’ next guidance issuances. Please continue to check back for in-depth analyses and OBC success stories. Additionally, if you are considering an OBC effort and have questions, please contact our Medicaid Consulting team

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Outcomes and APD considerations

Read this if you are a community bank.

The Federal Deposit Insurance Corporation (FDIC) recently issued its fourth quarter 2020 Quarterly Banking Profile. The report provides financial information based on call reports filed by 5,001 FDIC-insured commercial banks and savings institutions. The report also contains a section specific to community bank performance. In fourth quarter 2020, this includes the financial information of 4,559 FDIC-insured community banks. Here are our key takeaways from the community bank section of the report:

  • There was a $1.3 billion increase in quarterly net income from a year prior despite a 38.1% increase in provision expense and continued net interest margin (NIM) compression. This increase was mainly due to loan sales, which were up 159.2% from 2019. Year-over-year, net income is up 3.6%. However, the percentage of unprofitable community banks rose from 3.7% in 2019 to 4.4% in 2020.
  • Provision expense for the year increased $4.1 billion (a 141.6% increase) from 2019.
  • Year-over-year NIM declined 27 basis points to 3.39%. The average yield on earning assets fell 61 basis points to 4.00%.
  • Net operating revenue increased by $3.4 billion from fourth quarter 2019, a 14.5% increase. This increase is attributable to higher revenue from loan sales (increased $1.8 billion, or 159.2%) and an increase in net interest income.
  • Non-interest expenses increased 10.4% from fourth quarter 2019. This increase was mainly attributable to salary and benefit expenses, which saw an increase of $1.1 billion (12.6%). That being said, average assets per employee increased 16% from fourth quarter 2019.
  • Trends in loans and leases showed a moderate contraction from third quarter 2020, decreasing by 1.6%. This contraction was mainly seen in the C&I loan category, which was driven by a reduction in Paycheck Protection Program (PPP) loan balances. However, total loans and leases increased by 10.3% from fourth quarter 2019. Although all major loan categories expanded in 2020, the majority of growth was seen in C&I loans, which accounted for approximately two-thirds of the year-over-year increase in loans and leases. However, keep in mind, C&I loans include PPP loans that were originated in the first half of 2020.
  • Nearly all community banks reported an increase in deposit volume during the year. Growth in deposits above the insurance limit drove the annual increase while alternative funding sources, such as brokered deposits, declined.
  • Average funding costs fell 33 basis points to 61 basis points for 2020.
  • Noncurrent loans (loans 90 days or more past due or in nonaccrual status) increased $1.5 billion (12.8%) from fourth quarter 2019 as noncurrent balances in all major loan categories grew. However, the noncurrent rate remained relatively stable compared to fourth quarter 2019 at 77 basis points, partly due to strong year-over-year loan growth.
  • Net charge-offs decreased 4 basis points from fourth quarter 2019 to 15 basis points. The net charge-off rate for C&I loans declined most among major loan categories having decreased 24 basis points.
  • The average community bank leverage ratio (CBLR) for the 1,844 banks that elected to use the CBLR framework was 11.2%.
  • The number of community banks declined by 31 to 4,559 from third quarter 2020. This change includes two new community banks, four banks transitioning from non-community to community banks, three banks transitioning from community to non-community banks, 30 community bank mergers or consolidations, two community bank self-liquidations, and two community bank failures.

2020 was a strong year for community banks, as evidenced by the increase in year-over-year net income of 3.6%. However, tightening NIMs will force community banks to either find creative ways to increase their NIM, grow their earning asset bases, or find ways to continue to increase non-interest income to maintain current net income levels. Some community banks have already started dedicating more time to non-traditional income streams, as evidenced by the 40.1% year-over-year increase in non-interest income.

Furthermore, much uncertainty still exists. For instance, although significant charge-offs have not yet materialized, the financial picture for many borrowers remains uncertain. And payment deferrals have made some credit quality indicators, such as past due status, less reliable. The ability of community banks to maintain relationships with their borrowers and remain apprised of the results of their borrowers’ operations has never been more important.

As always, please don’t hesitate to reach out to BerryDunn’s Financial Services team if you have any questions. We're here to help.
 

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FDIC issues its fourth quarter 2020 Quarterly Banking Profile

Read this if you are an employee benefit plan fiduciary.

This article is the second in a series to help employee benefit plan fiduciaries better understand their responsibilities and manage the risks of non-compliance with Employee Retirement Income Security Act (ERISA) requirements. In our last article, we looked into the background of ERISA, which established important standards for the sound operation of employee benefit plans, as well as who is and isn’t a plan fiduciary, and what their responsibilities are. 

One important ERISA provision, found in Section 406(a), covers the types of transactions a plan fiduciary can and can’t engage in. ERISA terms the latter prohibited transactions, and they’re a lot like traffic lights—when it comes to avoiding conflicts of interest in business dealings, they’re your guide for when to stop and when to go. By knowing and abiding by these rules of the road, plan fiduciaries can steer clear of tickets, fines, and other damaging mishaps. 

Parties-in-interest—keep them out of the passenger seat 

Much like driver’s ed., fiduciary responsibility boils down to knowing the rules—plan fiduciaries need to have a strong working knowledge of what constitutes a prohibited transaction in order to ensure their compliance with ERISA. The full criteria are too detailed for this article, but one sure sign is the presence of a party-in-interest.

ERISA’s definition of a party-in-interest

The definition includes any plan fiduciary, the plan sponsor, its affiliates, employees, and paid and unpaid plan service providers, and 50%-or-more owners of stock in the plan sponsor. If you’d like to take a deeper dive into ERISA’s definition of parties-in-interest, see “ERISA's definition of parties-in-interest" at right.

Prohibited transactions—red lights on fiduciary road 

Now that we know who fiduciaries shouldn’t transact with, let’s look at what they shouldn’t transact on. ERISA’s definition of a prohibited transaction includes: 

  • Sale, exchange, and lease of property 
  • Lending money and extending credit 
  • Furnishing goods, services, and facilities 
  • Transferring plan assets 
  • Acquiring certain securities and real property using plan assets to benefit the plan fiduciary 
  • Transacting on behalf of any party whose interests are adverse to the plan’s or its participants’ 

Transacting in any of the above is akin to running a red light—serious penalties are unlikely, but there are other consequences you want to avoid. Offenders are subject to a 15% IRS-imposed excise tax that applies for as long as the prohibited transaction remains uncorrected. That tax applies regardless of the transaction’s intent and even if found to have benefited the plan. 

The IRS provides a 14-day period for plan fiduciaries to correct prohibited transactions and avoid associated penalties. 

Much like owning a car, regular preventative maintenance can help you avoid the need for costly repairs. Plan fiduciaries should periodically refresh their understanding of ERISA requirements and re-evaluate their current and future business activities on an ongoing basis. Need help navigating the fiduciary road? Reach out to the BerryDunn employee benefit consulting team today. 
 

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Prohibited transactions: Rules of the road for benefit plan fiduciaries

Read this if you are a residential living facility.

At the end of last year, Congress and the IRS brought about changes to the application of the business interest expense deduction limitation rules with regard to taxpayers that wish to make a real property trade or business (RPTOB) election. This change may benefit owners and operators of qualified residential living facilities. Here’s what we know.

Background

Section 163(j) generally limits the amount of a taxpayer’s business interest expense that can be deducted each year. The term “business interest” means any interest that is properly allocable to a “trade or business,” which could include an electing RPTOB. The term “trade or business” has not been separately defined for purposes of Section 163(j), however, it has been defined for purposes of the passive activity loss rules under Section 469(c)(7)(C) as any real property development, redevelopment, construction, reconstruction, acquisition, conversion, rental, operation, management, leasing or brokerage trade or business.

In general, a taxpayer engaged in a trade or business that manages or operates a “qualified residential living facility” may elect to be treated as an RPTOB solely for the purpose of applying the interest expense rules under Section 163(j). Taxpayers that make an RPTOB election to avoid being subject to the business interest deduction limitation under Section 163(j) must use the alternative depreciation system (ADS) to compute depreciation expense for property described in Section 168(g)(8), which includes residential rental property.

In Notice 2020-59, issued on July 28, 2020, the IRS and Treasury proposed a revenue procedure providing a safe harbor for purposes of determining whether a taxpayer meets the definition of a qualified residential living facility and is therefore eligible to make the RPTOB election. Following review of comments submitted in response to Notice 2020-59, the Treasury Department and IRS published Revenue Procedure 2021-9 (Rev. Proc. 2021-9) on December 29, 2020. Rev. Proc. 2021-9 modifies the proposed safe harbor under Notice 2020-59 to make it more broadly applicable and less administratively burdensome. 

Additionally, the emergency coronavirus relief package signed into law on December 27, 2020 contains a taxpayer-favorable provision that modifies the recovery period applicable to residential rental property (including retirement care facilities) placed in service before January 1, 2018 for taxpayers making the RPTOB election.

Modifications to the RPTOB safe harbor under Rev. Proc. 2021

Under Rev. Proc. 2021-9, a residential living facility will be eligible to make the RPTOB election providing the facility:

  1. Consists of multiple rental dwelling units within one or more buildings or structures that generally serve as primary residences on a permanent or semi-permanent basis to individual customers or patients;
  2. Provides supplemental assistive, nursing, or other routine medical services; and
  3. Has an average period of customer or patient use of individual rental dwelling units of 30 days or more.

Alternatively, if the residential living facility qualifies as residential rental property under Section 168(e)(2)(A), it will be treated as an RPTOB for purposes of the revenue procedure. Thus in response to comments submitted to the Treasury Department and the IRS, Rev. Proc. 2021-9 modified the proposed safe harbor published in Notice 2020-59 in several important ways, including the following:

  • The definition of a qualified residential living facility has been modified to reduce the required average period of customer or patient use from 90 to 30 days. Further, the average period of use may be determined by reference to either the number of days paid for by Medicare or Medicaid, or the number of days under a formal contract or other written agreement.

This modification is a welcome change from the proposed safe harbor contained in Notice 2020-59. Medicare and Medicaid frequently cover patient stays of less than 90 days. Consequently, reducing the required number of days of use and allowing for determination with reference to days paid by Medicare or Medicaid should allow a greater number of facilities to qualify under the safe harbor.

  • Rev. Proc. 2021-9 provides an alternative test for purposes of determining whether a taxpayer meets certain requirements of the definition of a qualified residential living facility. Under this alternative test, if a taxpayer operates or manages residential living facilities that qualify as residential rental property for depreciation purposes, then the facility will be considered a qualified residential living facility for purposes of Section 163(j).

The administrative burden on taxpayers should be significantly reduced by allowing reliance on separate determinations made for depreciation purposes. Taxpayers will not be required to consider two distinct tests.

  • Rev. Proc. 2021-9 clarifies that the determination of whether a facility meets the definition of a qualified residential living facility must be determined on an annual basis. 

Under general rules, once a taxpayer makes the RPTOB election, the election remains in effect for subsequent years. Taxpayers relying on this safe harbor cannot depart from these rules as there is a continuing requirement to evaluate qualification on an annual basis. To the extent a taxpayer fails to meet the safe harbor requirements, it may become subject to the business interest deduction limitations under Section 163(j). Unless otherwise provided in future guidance, this would not appear to constitute an accounting method change.

Important Considerations to apply the safe harbor under Rev. Proc. 2021-9

Qualifying taxpayers may rely on the safe harbor contained in Rev. Proc. 2021-9 for tax years beginning after December 31, 2017. Further, if a taxpayer relies on the safe harbor, the taxpayer must use the ADS of Section 168(g) to depreciate the property described in Section 168(g)(8), as discussed above.

The changes under Rev. Proc. 2021-9 could open the door for taxpayers who qualify in a previous year (i.e., 2018 and 2019) as a result of the new rules to amend prior returns (for example, taxpayers that now qualify for the RPTOB election using the 30-day threshold average use instead of the 90-day average).

For purposes of applying the safe harbor, for any taxable year subsequent to the taxable year in which a taxpayer relies on the safe harbor to make the RPTOB election in which a taxpayer does not satisfy the safe harbor requirements, the taxpayer is deemed to have ceased to engage in the electing RPTOB (i.e., the taxpayer will likely be subject to the business interest expense limitations of Section 163(j)). However, for any subsequent taxable year in which a taxpayer satisfies the safe harbor requirements after a deemed cessation of the electing trade or business, the taxpayer’s initial election will be automatically reinstated.

To rely on this safe harbor, a taxpayer must retain books and records to substantiate that all of the above requirements are met each year. Taxpayers are not eligible to rely on the safe harbor in this revenue procedure if a principal purpose of an arrangement or transaction is to avoid Section 163(j) and its regulations in its entirety, and in a manner that is contrary to the purpose of Rev. Proc. 2021-9.

If you have specific questions about your facility or tax situation, please contact Jason Favreau or Matthew Litz. We’re here to help.

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Taxpayer-friendly changes for qualified residential living facilities

Read this if you are a business owner. 

Now that the Democrats have control of the Presidency, House of Representatives, and Senate, many in Washington, DC and around the country are asking “What is going to happen with business taxes?” 

While candidate Biden expressed interest in raising taxes on corporations and wealthy individuals, it is best to think of that as a framework for where the new administration intends to go, rather than a set-in-stone inevitability. We know his administration is likely to favor a paring back of some of the tax cuts made by the 2017 Tax Cuts and Jobs Act (TCJA). Biden has indicated his administration may consider changes to the corporate tax rate, capital gains rate, individual income tax rates, and the estate and gift tax exemption amount.

Procedurally, it is unclear how tax legislation would be formulated under the Biden administration. A tax package could be included as part of another COVID-19 relief bill. The TCJA could be modified, repealed, or replaced. It is also unclear how any package would proceed through Congress. Under current Senate rules, the legislative filibuster can limit the Senate’s ability to pass standalone tax legislation, thus leaving any such legislation to the budget reconciliation process, as was the case in 2017. It also remains unclear if the two parties will come together to work on any bill. Finally, it will be important to note who fills key Treasury tax positions in the Biden administration, as these individuals will have a strategic role in the development of administration priorities and the negotiation with Congress of any tax bill. Here are three ways tax changes could take shape:

  1. Part of a COVID-19 relief package
    With the Biden administration eager to provide immediate relief to individuals and small- and medium-sized businesses affected by the coronavirus pandemic, some tax changes could be included as part of an additional relief bill on which the administration is likely to seek bipartisan support. Such changes could take the form of tax cuts for some businesses and individuals, tax credits, expanded retirement contributions, and/or other measures. If attached to a COVID-19 relief bill, these changes would likely go into effect immediately and would provide rapid relief to businesses and individuals that have been particularly hard hit during the pandemic and economic downturn.
  2. Repeal and replace TCJA
    Another possibility is for Biden to pursue a full rollback of the TCJA and replace it with his own tax bill. This would be a challenge since the Democrats only have a slim majority in the Senate, meaning that Republicans could filibuster the bill unless Senate Democrats take steps to repeal the filibuster.

    Given that the Biden administration’s immediate priorities will be delivering financial assistance to individuals and businesses, ensuring the rollout of COVID-19 vaccines, and flattening the curve of cases, a repeal and replacement of the TCJA might not be voted on until at least late 2021 and likely would not go into effect until 2022 at the earliest.
  3. Pare back or modify the TCJA
    An overall theme of Biden’s campaign was not sweeping, radical change but making incremental shifts that he views as improvements. This theme may come into play in Biden’s approach to tax legislation. He may choose not to repeal the TCJA completely (prompting a return to 2016 taxation levels), but instead pare back some of the tax changes enacted in 2017. In practice, this could mean raising the corporate tax rate by a few percentage points, which could garner bipartisan support. Again, this likely would not be a legislative priority until after the country has passed through the worst of the COVID-19 pandemic.

Factors that will influence potential tax changes

Senate legislative filibuster

Currently, the minority party in the Senate can delay a vote on an issue if fewer than 60 senators support bringing a measure to a vote. Thus, Republicans would be likely to filibuster any bill that contains more ambitious tax rate increases. The uptick in the use of the filibuster in recent decades is perhaps a symptom of congressional deadlock, and there are calls from many Democrats to eliminate the filibuster in order to pass more ambitious legislation without bipartisan support (in fact, in recent years, the filibuster has been removed for appointments and confirmations). While President Biden and Senate Majority Leader Chuck Schumer may be open to ending or further limiting the filibuster, every Democratic senator would have to agree. West Virginia Senator Joe Manchin has said repeatedly that he will not vote to end the legislative filibuster.

If the filibuster remains in place as it appears it will, tax legislation would likely be passed as part of the budget reconciliation process, which only requires a simple majority to pass. However, the tradeoff is that any changes generally would have to expire at the end of the budget window, which typically is 10 years. This is how both the 2001 Economic Growth and Tax Relief Reconciliation Act and the TCJA were passed.

Appetite for bipartisanship

President Biden has signaled that he wants to work for all Americans and seek to heal the partisan divides in the country. He may be looking to reach across the aisle on certain legislation and seek bipartisan support, even if such support is not necessary to pass a bill. Biden stated during his campaign that he wants to increase the corporate tax rate—not to the 2017 rate of 35%—but to 28%. Achieving this middle ground rate might be viewed as a compromise approach.

As the new government takes office, it remains to be seen how much bipartisanship is desired, or even possible.

What this may mean for your business

It is important to note that sweeping tax changes probably are not an immediate priority for the incoming Biden administration. The new administration’s immediate focus likely will be on addressing the current fragmented approach to COVID-19 vaccinations, accelerating the distribution of the vaccines, taking steps to bring the spread of COVID-19 under control, and providing much needed economic relief. As noted above, there could be some tax changes and impacts resulting from future COVID-19 relief bills.

Those will be the bills to watch for any early tax changes, including cuts or credits, that businesses may be able to take advantage of. Larger scale tax changes, particularly any tax increases, may not go into effect until 2022 at the earliest. Here are some of the current rules and how Biden is proposing to deal with them.

If you have questions about your particular situation, please contact our team. We’re here to help. 

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Biden's tax plan: Tax reform details remain unclear

Read this if you are a New Hampshire resident, or a business owner or manager with telecommuting employees (due to the COVID-19 pandemic).

In late January, the Supreme Court asked the Biden Administration for its views on a not-so-friendly neighborly dispute between the State of New Hampshire and the Commonwealth of Massachusetts. New Hampshire is famous amongst its neighboring states for its lack of sales tax and personal income tax. Because of the tax rules and other alluring features, thousands of employees commute daily from New Hampshire to Massachusetts. Overnight, like so many of us, those commuters were working at home and not crossing state boundaries.

As a result of the pandemic and stay-at-home orders, Massachusetts issued temporary and early guidance, directing employers to maintain the status quo. Keep withholding on your employees in the same manner that you were, even though they may not be physically coming into the state. New Hampshire was against this directive from day one, but the nail in the coffin was an extension of the guidance in October. Within days, New Hampshire filed suit in the Supreme Court.

New Hampshire’s position

In its brief, New Hampshire asserts that the Massachusetts regulations are unconstitutional—in violation of the both the Commerce and Due Process Clauses of the U.S. Constitution. Each clause has historically prohibited a state from taxing outside its borders and limits tax on non-residents. For Massachusetts employers to continue withholding on New Hampshire resident’s wage earnings, New Hampshire argues, Massachusetts is imposing a tax within New Hampshire, contrary to the Constitution. 

What makes the New Hampshire situation unique is that it does not impose an income tax on individuals, a “defining feature of its sovereignty”, the state argues. New Hampshire would say that its tax regime creates a competitive advantage in attracting new business and residents. Maine residents, subject to the same Massachusetts rules, would receive a corresponding tax credit on their Maine tax return, making them close to whole between the two states. Because there is no New Hampshire individual income tax, their residents are out of pocket for a tax that they wouldn’t be subject to, but for these regulations. 

Massachusetts’ position

Massachusetts' intention behind the temporary regulations was to maintain pre-pandemic status quo to avoid uncertainty for employees and additional compliance burden on employers. This would ensure employers would not be responsible for determining when an employee was working, for example, at their Lake Winnipesaukee camp for a few weeks, or their relative’s home in Rhode Island. 

Additionally, states like New York and Connecticut have long had “convenience of the employer” laws on the books which imposed New York tax on telecommuting non-residents. Additionally, Massachusetts provided that a parallel treatment will be given to resident employees with income tax liabilities in other states who have adopted similar sourcing rules, i.e., a Massachusetts resident working for a Maine employer.

Other voices

The U.S. Supreme Court has requested a brief from the Biden administration with no deadline given. It’s assumed, however, to be received in time for the court to makes its decision before the end of term in June. Since the original filing, the States of New Jersey, Connecticut, Hawaii, Iowa, and others have filed briefs, imploring the Court to hear the case due to similar circumstances in their states and the wide ranging precedent Massachusetts and others may be effectuating. Additionally, Pennsylvania and others have released their own status quo guidance, following Massachusetts.

What now?

Right now, it’s wait and see what the Supreme Court decides. For Massachusetts employers specifically, you should review current withholdings and ensure compliance with the temporary regulations. The regulations for non-resident wages and withholding are in effect until 90 days after the state of emergency has lifted. Given that that date keeps moving further away, the rules may still be in effect when the Supreme Court delivers their decision in June. For all employers, it’s important that you review the rules in each state of operation and confirm that the proper withholding is made. 

Unwinding from the pandemic is going to be a long road, regardless of what decision the Supreme Court makes. If New Hampshire prevails, it’ll be a long compliance burden for both employers and employees to unwind the withholding and receive refunds. If Massachusetts wins, employers that weren’t following the regulations will have a costly tax exposure to correct.  

If you have questions about your specific situation, please contact us. We’re here to help.

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New Hampshire v. Massachusetts: Sovereignty or status quo?

Read this if you work in senior living. 

We are all pressed for time these days, especially in senior living and long-term care facilities, where the pandemic has taken a toll on the health of our residents, the well-being of our employees, and the state of our finances. Across the nation, losses from patient care have increased significantly from 2016-2020. In the Northeast, losses from patient care increased 17% from 2016-2019, and in the western United States, they increased by 52% from 2016-2019.

With so many time and financial pressures, why is the development of a labor management program an important investment of your time? Because labor management is important to the financial success of your facility.

Labor management factors to consider:

  • Labor is the largest expense in a facility—between 2016 and 2019 labor-related costs, including contract labor and employee benefits, represented between 48%-53% of the expenses reported on the Medicare cost report 
  • With a growing trend of hiring outsourced therapy, housekeeping, laundry, dietary, and other functions, actual labor related costs could be significantly higher
  • Increased COVID-19 expense may not be fully covered by reimbursement rates
  • Facilities are experiencing increased agency use to fill nursing vacancies, resulting in higher direct labor cost per patient day

The senior living industry is already facing severe nursing shortages and, according to the Bureau of Labor Statistics, at least 2.5 million more workers will be needed by 2030 to care for the so-called “silver tsunami”. Argentum has projected that 1.2 million new workers—mostly Certified Nursing Assistants, aides and Registered Nurses—will be needed in senior living through 2025.

Workforce shortages are not only occurring in nursing departments, but throughout all of our departments, as senior living competes with the retail and hospitality industry to fill ancillary positions.

The benefits of creating a labor management program

The development of a well-executed labor management program may result in:

Clarity on optimal staffing and competency levels in all departments
Labor budgets and schedules adjusted for both census and patient needs can help facilities have the right people in the right place at the right time. Time invested in this initiative improves patient outcomes, staff morale, and your organization’s bottom line. 

Stronger community integration and leadership
Most senior living facility positions are filled by recruiting locally. Understanding local demographic trends and developing a forward-looking strategy for staff acquisition, retention, and development (both personal and professional) may help a facility become an employer of choice and minimize vacancies. 

Achieving community recognition
A labor management program may help your facility better understand your CMS star rating as it relates to staffing, and tailor a response to publicly available ratings. 

Improved regulatory compliance and response to changes in tax and other policy
Many recent laws have varying provisions for organizations based on size, which is measured by number of employees or full-time employee equivalents. Well-structured labor reports may help your organization respond to regulatory changes promptly.

Opportunities for reimbursement optimization
By understanding your labor structure and compensation arrangements, you may be able to increase reimbursement though more accurate cost reporting (such as utilization review reimbursement on the Medicare cost report). Medicaid reimbursement methodologies vary by state. In many cases, correct classification of labor into reimbursable and non-reimbursable departments, as well as allocations between units, may be key. 

Improved bottom line
Understanding and managing labor statistics may help facilities improve their bottom line, both short and long term, by aligning costs and revenue trends.

Labor management is a key tool to drive efficiency and increase quality across all departments in your facility. Building a high-performing workforce culture and implementing labor management tools will help you gain efficiencies, reduce costs, and produce quality outcomes. The stakes are high right now—facilities that can build a strong culture and workforce will be the facilities that are successful in the future.

If you need assistance or have questions about your specific situation, please contact our senior living consulting team. We’re here to help. 

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Six steps for a successful labor management program 

Read this if you’re considering (or in the middle of) an initiative that involves multiple Health and Human Services (HHS) programs or agencies.

During times of tight program budgets and rising need, the chance to collaborate with sister HHS agencies often presents a unique opportunity to do more with less. However, as you might find, these initiatives have their own challenges ranging from the minor (e.g., different program vocabulary) to major considerations (e.g., state and federal funding streams).

While interagency initiatives are worthwhile—usually aiming to reduce silos between HHS programs and better support citizens and staff—they can quickly grow complicated. Whether you’re just starting to think about your next interagency initiative or you’re halfway through, asking the right questions is half the battle. Answering those questions, of course, is the other—and more time-consuming—half!

In our team’s work with states on interagency initiatives, we have found it helpful to focus planning on the following four areas to minimize implementation timelines and maximize stakeholder support:

  • Policy: The sources, both internal and external, that govern who is covered by programs, what services are covered, how services are reimbursed, and how the program is administered
  • Funding: How a program is financed, including cost allocation methodologies, limitations on use of funds, and reporting mechanisms
  • Systems: The technical infrastructure that supports program operations
  • Operations: The staff and physical facilities that make every program possible, including staff resources such as training

Here are some questions you can ask to make the best use of available time, funding, and interagency relationships:

  • What is the goal? Do other departments or units have an aligning goal? Who do you know at those departments or units who could direct you to the best point of contact, the status of the other department or unit’s goal, and the current environment for change? Perhaps you can create a cross-unit team with the other unit(s), resulting in more resources to go around and stronger cross-unit relationships. If the other unit either isn’t ready or has already implemented its change, learning about the unit’s barriers or lessons learned will inform your efforts.
  • What does your governance model look like? Do you have one decision-maker or a consensus-builder leading a team? How does your governance model incorporate the right people from across all agencies so they have a voice? If the process is collaborative, can an oversight entity play a role in resolving disagreements or bottlenecks? Without a governance model, your team might be composed of subject matter experts (SMEs) who feel they do not have authority to make decisions, and the project could stall. On the other hand, if you only have leadership positions on the team without SME representation, the project plan might miss critical factors. Having the right people at the table—with defined lines of expertise, authority, and accountability—increases your chances of success.
  • Which federal partners are involved, who are the points of contact, and how open are they to this change? In addition to providing necessary approvals that could lead to funding, federal partners might offer lessons learned from other states, flexibilities for consideration, or even a pilot project to explore an initiative with you and your state partners. 
  • How will this initiative be funded? If more than one funding stream is available—for example, federal financial participation, grant dollars, state dollars—can (and should) all funding streams be utilized? What requirements, such as permissible use of funds and reporting, do you need to meet? Are these requirements truly required, or just how things have always been done? Some federal matches are higher than others, and some federal dollars can be combined while others must remain separate/mutually exclusive to be reimbursed. One approach for using multiple sources of funding is “braiding”—separate strands that, together, form a stronger strand—versus “blending,” which combines all sources into one pot of funding.
  • What systems are involved? After securing funding, system changes can be the largest barrier to a timely and effective interagency initiative. Many state agencies are already undertaking major system changes—and/or data quality and governance initiatives—which can be an advantage or disadvantage. To turn this into an advantage, consider how to proactively sync your initiative with the system or data initiative’s timing and scope.
     
    • When and how will you engage technical staff—state, vendor, or both—in the discussion?
    • Do these systems already exchange data? Are they modernized or legacy systems? 
    • Do you need to consult legal counsel regarding permissible data-sharing? 
    • Do your program(s)/agencies have a common data governance structure, or will that need to be built? 
    • What is the level of effort for system changes? Would your initiative conflict with other technical changes in the queue, and if so, how do you weigh priority with impacts to time and budget?
  • What policies and procedures will be impacted, both public-facing and internally? Are there differences in terminology that need to be resolved so everyone is speaking the same language? For example, the word “case” can mean something different for Medicaid business staff, child welfare staff, and technical staff.
  • Will this initiative result in fewer staff as roles are streamlined, or more staff if adding a new function or additional complexity? How will this be communicated and approved if necessary? While it’s critical to form a governance model and bring the right people to the table, it’s also imperative to consider long-term stakeholder structure, with an eye toward hiring new positions if needed and managing potential resistance in existing staff. For the project to have lasting impact, the project team must transition to a trained operations team and an ongoing governance model.

Ultimately, this checklist of considerations—goal-setting, decision-making, accountability, federal support, funding, systems, policies and procedures, and staffing—creates a blueprint for working across programs and funding streams to improve services, streamline processes, and better coordinate care.

For more information about interagency coordination, stay with us as we post more lessons learned on the following topics in the coming months: interagency policy, interagency funding, interagency systems, and interagency operations.
 

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Coordinating initiatives across state HHS: Questions to ask

Read this if you are a hospital or healthcare organization that has received Provider Relief Funds. 

The long-awaited Provider Relief Fund (PRF) Reporting Portal (the Portal) opened to providers on January 15, 2021. Unfortunately, the Portal is currently only open for the registration of providers. The home page for the Portal has information on what documentation is needed for registration as well as other frequently asked questions.

We recommend taking the time to review what is needed and register as soon as possible. Health Resources & Services Administration (HRSA) has suggested the registration process will take approximately 20 minutes and must be completed in one session. The good news is providers will not need to keep checking the Portal to see when additional data can be entered as the Portal home page states that registered providers will be notified when they should re-enter the portal to report on the use of PRF funds.

Access the portal

The Provider Relief Fund (PRF) Reporting Portal is only compatible with the most current stable version of Edge, Chrome and Mozilla Firefox.

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Provider Relief Fund (PRF) reporting portal