Fort Myers, Florida Apr 5, 2019 (Issuewire.com) - The taxes for the Healthcare Industry are different than any other industry in this country
The taxes for the Healthcare Industry are different than any other industry in this country; it is the only industry that has two unique accruable methods of accounting for income tax purposes, which are the government side of its business and the private side of its business. For both sides of its business, the providers charge the standard charges that list no discounts and accumulate these charges for determination of gross income. The government programs, such as Medicare/Medicaid, the beneficiary’s bills do not reflect the liability the government owes; the private patients’ bills to reflect the liability and debt owed, just like every business in this country.
In both methods, the providers accrue all the billed revenue into their gross income. To write off the difference of what the government pays and what was billed a correction account was created. in accounting terminology, a contra account, known as the "contract adjustment" account, where the differences are listed. This method then allows the providers to subtract the amounts in this account from the gross income and create an adjusted gross income, for tax purposes. The adjusted gross income then would reflect the actual government liability and the liabilities owed by the private-pay patients. When a private-pay patient is insured the full liability or debt is transferred to the insurance company. The tax evasion scheme came about because the IRS did not distinguish the two accounting methodologies and allowed the governments accounting methodology to be used on the private side of the business.
The IRS auditors are not trained in contract law. The IRS made the assumption that when there existed a contract between the insurance company and the provider listing lower approved amounts, these amounts were the legal obligation. Under the Uniform Commercial Code, the Parole Evidence Rule, prior writing does not supersede any new contract that is clear and stands alone or a bill with a stated amount, therefore the amount listed on the patient’s bills is the legal liability. The IRS auditors did not review the consideration or intent of the party’s contracts, which are done for an illegal purpose and not enforceable by law. The reason why these contracts are not reviewed is the healthcare industry claim they are trade secrets, so no one can review them.
The insurance companies have a great deal of authority of selecting which providers their insured members can go to, listing the approved providers as being on-network, and substantially increasing the co-payments of the insured member if it goes to an off-network provider. In order for the provider to be listed as on-network, the providers agreed to cancel part of the insured member's liability, creating a partial cancellation of debt and record the difference of the billed amount and the amount actually collected as a "contract adjustment." Any payment in cash or in kind is considered a kickback when it is made for steering a patient to a provider. In the healthcare industry kickbacks, in any form, are illegal for steering or referring a patient to a provider. Congress realized that kickbacks add to the costs of medical services, so it passed the anti-kickback laws, imposed fines in the form of tax penalties on both the giver and receiver, and made the IRS the enforcer of these taxes. The kickbacks, included in the patient’s bill is the largest revenue item, making up over eighty-five percent of the patient’s bill.
If the providers listed the amounts not collected as canceled debts, they must report them to the IRS on an information tax return, and the insurance company would have to include them in its gross income. If in reality, the canceled debts are kickbacks then the providers must also pay taxes on the same amounts. Under GAAP and the tax statutes, there are no write-offs listed for contract adjustments for the private side of the business, the tax code only lists bad debts and canceled debts. The industry used the "contract adjustment" account for kickbacks write-offs, paid to the insurance companies for steering patients to the providers. The contract adjustment account is an allowable account for financial reporting, it should only be used for explaining the settlement of government deductions from gross income. The problem is the IRS never questioned the use of the "contract adjustment" account on the private side of the business.
If anyone ever carefully looked at an Explanation of Benefits (EOB) form from their private insurance company, it shows the billed amount and the amount the insurance company approved but does not explain the difference. No one asks why isn't the third-party payer paying the full amount billed like all other third-party payers? The answer is it is a kickback for steering or referring the insured member to the provider. The biggest rip off is since the kickbacks are included in the standard charges listed on the providers’ bills it is covered by the insurance companies’ premiums. Both the private insurance companies and the government use the standard charges in their calculations for determining either premiums or reimbursements.
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