With assistance from the Patient Protection and Affordable Care Act (PPACA), millions more Americans will now have basic health coverage and will be seeking services possibly resulting in billions of dollars flowing into the US health care marketplace. The health care industry has begun reacting to this new legislation and expected inflow of insured Americans, by moving rapidly toward a “bigger is better” model, says Chris Pritchard, national health care practice leader at Moss Adams.
“A key concept that consumers of health care services will deploy and one to which the health care market is reacting to is the concept of consumerism. Consumerism embodies the process through which consumers consider at a minimum three basis purchases attributes when choosing which health care services to buy. The three attributes consumers will consider at a minimum are cost of the services being provided, the quality of the services being provided and access to the required services needed," says Pritchard.
To meet demands for better quality of care for less, Pritchard says health care providers have begun to merge and are creating affiliations to improve quality statistics, take advantage of cost synergies and provide for increased capacity to improve access to services being purchased by the public.
Whether it is the government, an employer or an individual, that entity is trying to get the highest quality in the quickest time for the least amount of money.
Smart Business spoke with Pritchard about how this transformative consolidation has positive and negative ramifications for employers and employees.
How is the concept of consumerism impacting health care?
Health care organizations know the importance of consumerism. States have departments that monitor quality, cost and access, while independent regulatory and watchdog agencies do the same. Health care providers themselves publish favorable quality of care, price lists and access time statistics on their websites for public consumption and consideration in their pursuit of services.
Consumerism will also be a factor with the state-based health insurance exchanges set to begin in 2014. Participating insurance companies will offer benefits in the exchanges, and employers and or employees will make their purchase decisions using cost, quality and access to purchase coverage. California has one of the largest groups of uninsured people, especially when considered on a per capita basis, so these exchanges will likely have a large effect. Employers have the choice of providing high-quality benefits to their employees as a retention and recruiting benefit, or they can choose to not provide benefits at all and have their employees participate in state exchanges to purchase health care coverage.
What are some examples of health care consolidation?
The health care marketplace is making substantial moves, as the number of transactions — health care affiliations, combinations or acquisitions — are up tremendously compared to previous years. Large private equity funds have put billions of dollars in play to reap the benefits of these mergers and acquisitions. In addition, on the quality side, community hospital providers that don’t have a higher quality score are looking for health systems or academic medical centers that do have high quality scores and available financial resources with which to affiliate or merge. That, in turn, helps attract additional patients. There is also the idea that the larger an organization gets, through economies of scale, the higher the probability of achieving cost synergies.
Physician groups have been an area of focused consolidation. They are primarily the gatekeepers of referrals, so organizations that can control physician groups can then control referrals into their organization and the associated revenue streams.
What are the possible negative implications of consolidation?
The potential problem is that health care organizations could get so large that eventually they have geographic leverage over the federal, state government payors as well as the local communities. Employers could potentially face higher costs because of the geographic control these organizations will have on the marketplace pricing of services.
In the early 1990s, a similar phenomenon transpired where mega health systems merged to a size where the Federal Trade Commission and or the Justice Department moved to break up these groups because they had too much control over the marketplace. There are investigations under way in California today to ensure that those grouping together won’t have the opportunity to raise prices and create a monopoly. So far, most of the mergers, affiliations and consolidations have gotten through the anti-trust laws, but at some point, the groupings are going to run into that.
Will this larger block of insured’s lessen the quality of care that employers and their employees can expect?
The quality of care won’t likely change because health care providers are or will be partly reimbursed based upon quality measures. The issue is likely going to be access — whether they can continue to provide access with a large base of users coming in. Organizations are strategically trying to make their waiting rooms larger or are looking at the concept of concierge service to make patients feel like they are being taken care of.
An employer and its employees will need to decide what is more important. If insureds can’t obtain access, they may decide on a plan with lower quality and better access, or they may be willing to pay more for both high quality and access.
Consolidation isn’t likely to stop any time soon, even if the political climate changes and PPACA is repealed or amended. The funding for certain aspects of health care reform may differ with changes in Congress or the presidency, but regardless of what happens, the industry will continue down this M&A path.
Chris Pritchard is the national health care practice leader at Moss Adams. Reach him at (415) 677-8262 or firstname.lastname@example.org.
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Employers have a sacred, fiduciary duty to treat benefit plans as if they were their own nest eggs. Therefore, such plans are heavily governed by the Department of Labor with numerous expectations, communication needs and filing rules.
“The dilemma today is that so many plans are underfunded,” says Bertha Minnihan, national leader, Employee Benefit Plan Services, at Moss Adams. “People have worked hard for their retirement, and if a sponsor should screw that up, they have nothing to fall back on.”
An aging population that needs its money to go further compounds the problem. When benefits aren’t administered properly, society struggles to care for the older generation, she says, and the younger generation suffers when older workers stay on the job longer.
Smart Business spoke with Minnihan about how to properly administer your benefit plan to help employees and how to avoid common regulation pitfalls.
What is the typical reporting structure for employee benefit plans?
There are several disclosures and reporting that are required to go to the participants, as they are the first consideration, and all entities are working to ensure that plans are administered properly for them. Additionally, plans must file a tax return annually to the DOL and the IRS, and those meeting additional requirements must be externally audited, as well. The Pension Benefit Guarantee Corp. also monitors benefit plans that have gone defunct or become underfunded by a certain percentage. The system is quite complex.
Who are the service providers in this space?
Internally, there may be the company sponsoring the plan and a committee delegated to oversee the day-to-day operations, as well as HR and payroll. Externally, benefit plans have investment custodians holding the funds and investing them at the participants’ direction and record keepers tracking plan activity. Record keepers can be a separate entity, or they can be an arm of the investment custodian. Other players include auditors, plan attorneys, actuaries for defined benefit plans, investment advisers and trustees.
What DOL hot button areas do sponsors need to consider when administering benefit plans?
One of the more common pitfalls is the timeliness of deposits into the trust. The DOL wants employee deferrals put into participant accounts quickly because employees deserve to start earning. It’s problematic when companies are careless or feel payroll taxes and other items are more important so they withhold withholdings and play cash flow games.
Compensation is another challenging area, especially when different types of bonuses are paid. The DOL’s hot button is whether the deferrals are being calculated on the correct costs and whether the right components are eligible. If you are missing income components and deferrals are understated, your company could be offering an understated match.
Then, if the employee is shorted, the employer has to make up the entire shortfall, which often surprises people. Some Fortune 500 and 1,000 companies in Silicon Valley have miscalculated compensation and now owe their plans millions of dollars from deferrals, earnings and unfunded matches.
The DOL is also very concerned with educating employees, whatever their demographic. As a business owner, you need to make an effort to get your employees to participate and to maximize their retirement savings.
What are some best practices for plan administrators?
Here are some best practices that could help mitigate risks, concerns and challenges.
- Appoint an oversight governing committee. If your board does not delegate, it is automatically the fiduciary, and the board is often not up to speed on the plan, HR, payroll and/or the Employee Retirement Income Securities Act (ERISA), the law governing benefit plans. Additionally, in private companies, a third-party trustee who is an internal officer is also at fiduciary risk, and a class-action suit could be brought against both the board and the trustee at a risk of personal liability.
- Have your oversight committee be timely with sending funds to the trust.
- Review your census data regularly and ensure databases are accurate. Changes, such as a termination date, reporting someone’s death or a wrong age need to be communicated to different departments.
- Ensure your personnel understand how the plan works. For example, if you hire a new payroll person, make sure that he or she has read and understood the summary plan description.
- Benchmark your fees and look at them regularly. With new federal disclosures, there is transparency by law, so pay attention and ask questions.
How should merger and acquisition groups approach benefit plans?
Whenever companies — small or large — fold or change ownership, a number of items can be missed, so keep this in the back of your mind as you go through the process. Have an ERISA expert advise you early on, as this is not just a matter of merging benefits. The acquired company could have a 401(k) plan that needs to be terminated, a defined benefit plan that is unfunded and frozen, or a deficient benefit plan that must be cleaned up before it can taint your plan on contact. M&A committees should have checklists to ensure employees do not lose their benefits and that the company is still protected and reporting in a timely manner.
How are governing entities dealing with work force globalization in this area?
Globalization is affecting benefits plans without businesses realizing they are possibly being sloppy. If you have U.S. employees working abroad or foreigners coming to your company to work, you need to consider how this will affect benefits. How is your plan written? Are employees still accruing benefits in a timely manner? What does your plan include or exclude, and is that what you intended to do? There is a lot of interest on the subject, and the IRS is working with other governments to ensure that documents are in order, that they understand what the U.S. is doing and that they know what to tell their citizens who come here.
Bertha Minnihan is the national leader, Employee Benefit Plan Services, at Moss Adams. Reach her at (408) 916-0585 or email@example.com.
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Good corporate governance is still looming large in the minds of investors as the government has increased regulations and scrutiny as the result of pressure from those who lost retirement savings or homes to predatory lenders and asset advisors. And customers are taking a harder look at businesses' financial information before signing contracts with them.
As a result, audit committees are no longer the committee of last resort but instead are now a significant presence that can strengthen your company's financial credibility and bring in new business.
"An audit committee’s objective is to ensure that there's integrity and reliable financial information based on good internal control systems." says Tullus Miller, Bay Area partner-in-charge at Moss Adams, who works with and serves on audit committees.
Smart Business spoke with Miller about how to create a successful audit committee that is an asset to your company.
What is the role of an audit committee and why should a company establish one?
An audit committee assists the board of directors with its fiduciary responsibilities by providing independent oversight through the integrity of the financial reporting process, which includes internal and external financial information.
For public organizations - whether publicly traded, publicly held or for the public good, such as with a governmental or not-for-profit - audit committees usually are mandated to help ensure the integrity and reliability of their financial information. Those mandates, which dictate the committee's composition and structure, can come from GAGAS standards, Sarbanes-Oxley or the exchange the company is listed on, such as NASDAQ, the New York Stock Exchange or Eurex.
For private organizations, audit committees are not required but can play an important role if a company has shareholders and stakeholders who aren’t involved with the day-to-day governance of the organization. These committees generally take best practices of public companies in a similar industry, adapting items such as creating a fully independent board.
What steps should an organization take when creating an audit committee?
The business risks and needs of the company will dictate the composition, structure and focus of the committee. Then, define the scope and objectives of the audit committee on the charter as mandated by the board of directors. Some decisions, such as hiring an auditor, can be delegated fully to the audit committee, while other boards may prefer that the committee recommend an auditor but retain the right to approve that person. The charter allows the audit committee to know what’s expected of it and how to define success, while also communicating to constituents.Finally, consider what qualities and skills members must have to ensure that a company’s needs and risks are addressed. Do they have experience with the organization’s industry? Are they familiar with financial information and how it is extricated? Do they have the time commitment necessary?
How has the role of audit committees changed with heightened regulations and scrutiny?
Over the past five to seven years, the amount of information available to audit committee members has increased. This is a positive in that it helps audit committee members stay abreast of increased regulation and scrutiny, but it also adds to the time commitment. Being on an audit committee is no longer a matter of just attending meetings. The time commitment could be as much as one day per month, for eight to 10 hours, or for a more complicated company, two to three days per month, excluding the meeting.
In addition, accounting rules have become so sophisticated, with more fair values, estimates and judgment, that committee members must take the time to understand how those items affect the financial statements and decision-making of the company. Risks are higher today, and boards have been sued, and this changes the behavior of committee members.
What are some common challenges of audit committees?
Committees should have succession, continuity and rotation planning. You need to ensure that leadership can step up and take over if an audit committee chair must step away or if a member becomes incapacitated.
Leave enough time to vet real issues, getting information out at least a week in advance of making a decision Also, limit the agenda. Less is better, especially when talking about significant decision-making and judgment in areas of increased risk.
It can present a challenge if the CEO is also chairman of the board. If an audit committee has concerns about estimates that are too aggressive, it can be difficult for a CEO who is also the chair to determine which hat to wear. The audit committee chair needs to understand that, and where necessary challenge, the risk-taking tolerance and tone at the top.
Additionally, define who manages enterprise risk management - the governance committee, audit committee or board of directors, etc. The audit committee is already responsible for managing risk on a financial reporting level, whether internal or external, so, in some cases,this may bog the audit committee down with items that aren't within its purview.
How should the relationship among the audit committee, board of directors and management be approached?
The key is communication on all sides in order to understand risks and decisions that are being recommended and approved, including with board members who are not financially oriented. Don't wait until a meeting to communicate what is happening. The decision-making processes should be transparent, with no surprises. If you encounter dissent, it should be noted and discussed thoroughly at approval time, whether it's from auditors or audit committee members.
Tullus Miller is the partner-in-charge of Bay Area at Moss Adams. Reach him at (415) 956-1500 or firstname.lastname@example.org.
Insights Accounting is brought to you by Moss Adams.