Businesses in certain industries frequently overlook the Interest-Charge Domestic International Sales Corporation (IC-DISC) provisions of the tax code, which encourage U.S. manufacturing and exporting. The incentive essentially reduces the top federal tax rate on income from certain qualified goods and services from 39.6 percent to 20 percent.
“Because it is thought of as only a manufacturer’s incentive, many companies in certain eligible industries have never heard of the IC-DISC, or have summarily dismissed the incentive,” says Amit Mathur, CPA, director at WTP Advisors.
Rob MacKinlay, president of Cohen & Company, says, “Distributors, as well as industries that produce certain products and services, repeatedly overlook the IC-DISC. We have helped many of these companies realize that they are indeed eligible for the significant and easy-to-implement savings from this federal incentive that does not disrupt business operations whatsoever.”
Smart Business spoke with Mathur and some of the top accounting firms in the region about the IC-DISC and some of the industries that frequently miss, or underutilize, the valuable incentive.
Can distributors, brokers use an IC-DISC?
Distributors of U.S.-made products are eligible for IC-DISC benefits on those goods that are exported. Since many distributors have been told that they do not qualify for the ‘Domestic Production Activities’ deduction, which does indeed require manufacture by the taxpayer claiming the deduction, they have assumed that they aren’t eligible to use an IC-DISC.
“While the exported goods must be finished in the U.S., both the final manufacturer as well as the distributor that does the actual exporting are eligible to use the IC-DISC. Unfortunately, both parties often miss out on the opportunity,” says Jim Bowen, tax partner at Bober Markey Fedorovich.
Are architects and engineers entitled to claim savings under this provision?
Architectural and engineering services furnished in connection with foreign construction projects and facility expansions can qualify for IC-DISC benefits.
“Regardless where the architectural and engineering services are performed, and even if the project never comes to fruition, such services are eligible,” says Pete Chudyk, senior tax shareholder at Maloney + Novotny.
Can software firms save with the IC-DISC?
Licenses and sales of software programs used abroad, as well as in Canada and Mexico, may be eligible for IC-DISC benefits.
Mike Luxeder, tax director at Libman Goldstine Kopperman & Wolf says, “Software companies should examine where their products are ultimately used. The IRS recently clarified its position that software sales, licenses and royalties can indeed qualify for the IC-DISC.”
How might recyclers use the IC-DISC?
Recycled products, as long as they undergo the requisite amount of U.S. manufacturing and are ultimately exported, can be eligible for the IC-DISC. The IC-DISC tax regulations consider any product to be manufactured in the U.S. if at least 20 percent of the costs to produce the product are related to U.S. labor and factory burden. This includes labor related to destroying, cleaning and treating scrap or waste materials such as metals.
How can food producers and growers get the benefits of this tax provision?
Products that are ‘manufactured, produced, grown or extracted’ in the U.S., and are ultimately exported, are eligible for the IC-DISC. Ohio’s chief agricultural exports, such as soy and corn, are often missed. Raw, processed and semi-processed foods, livestock, pelts, etc., are also eligible.
Many farmers and ranchers, particularly those selling through certain cooperatives, are just now starting to realize the opportunity to participate in the tax savings from the IC-DISC.
If you’ve passed over the IC-DISC before because you’ve bought into the notion that this incentive is only for manufacturers and exporters, you may be losing money. There are many industries that can draw a benefit. However, it’s advisable that you contact a specialist to help your business navigate the complex rules. ●
Insights Tax Incentives is brought to you by WTP Advisors
In ruling that the Defense of Marriage Act (DOMA) was unconstitutional, the U.S. Supreme Court also created challenges for HR personnel in managing benefits related to employees in same-sex marriages.
“It’s great that the decision ensures equality and there will no longer be a disparate impact on employees’ spouses,” says Stephanie Martinez, PHR, Director of HR Services at Benefitdecisions, Inc. “But it does present additional challenges for HR.”
Smart Business spoke with Martinez about the ruling and its implications in administering employee benefits.
What was the Supreme Court ruling?
It struck down the DOMA definition of marriage as being between a man and a woman. Couples in same-sex marriages now have equal protection under federal law. The case also dealt with estate taxes.
Which states recognize same-sex marriages, and does the ruling affect other states?
Same-sex marriages are recognized in 13 states: California, Connecticut, Delaware, Iowa, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, New York, Rhode Island, Vermont and Washington, as well as the District of Columbia.
While the ruling has little direct impact in states that do not recognize same-sex marriages, it does affect federal taxes, regardless of residence. The Treasury Department and IRS issued guidance that a ‘state of celebration’ approach will be used regarding treatment of same-sex couples for federal tax purposes, meaning the marriage will have federal tax recognition regardless of where a couple resides.
How are benefit plans changing?
The ruling is impacting benefits that are extended to spouses, ensuring same-sex couples are treated equally as compared to opposite-sex couples. If you don’t offer spousal benefits, there’s no requirement to do so as a result of the ruling.
You also don’t need to extend benefits to same-sex spouses if you have a self-insured wellness plan or are in a state that doesn’t recognize same-sex marriages. However, if you’re not extending that benefit to same-sex couples you could face legal challenges because it could be viewed as discriminatory.
If you offer a qualified retirement plan, it must treat the same-sex spouse as a spouse for purposes of satisfying federal tax laws. The plan must recognize valid same-sex marriages, even if the state they live in doesn’t recognize same-sex marriages.
Another change is that employees’ health plan contributions for same-sex spouses and children can now be done on a pre-tax basis. Also, they are eligible for COBRA continuation coverage.
In states that recognize same-sex marriage, the Family and Medical Leave Act (FMLA) extends to same-sex couples, giving them the right to take leave to care for their spouse.
Some questions that remain unanswered for HR representatives include whether same-sex spouses will be able to claim their benefits retroactively to the ruling’s effective date. There’s also a question as to whether past federal tax returns can be amended to claim refunds, and if same-sex couples will get their FICA taxes refunded.
What should employers be doing now in response to the DOMA ruling?
Private sector organizations in those 13 specific states should look at how benefit plans are communicated to employees. Make sure payroll taxes are handled correctly, that you’re collaborating with your health care insurance provider regarding COBRA coverage and that communications are modified to reflect necessary changes.
Pertinent policies for things like FMLA and COBRA will need to be updated in your employee handbook.
As an HR representative, it can be difficult from a legal standpoint to stay on top of all of the changes, and how those changes may impact your organization. One complication is that state definitions of terms like domestic partnerships are not clearly defined across the board. Civil unions and domestic partnerships are not normally affected by the DOMA ruling, but California law expanded the scope of domestic partnerships to include all the rights and responsibilities of a legal marriage.
Any effort to move forward with providing equal opportunity for all individuals is a step in the right direction. However, there are many things you need to pay attention to in order ensure everything is done lawfully. ●
Insights Employee Benefits is brought to you by Benefitdecisions, Inc.
Regulatory audits of retirement plans are on the rise — in number and scope — from both the Department of Labor (DOL) and the IRS.
“The DOL has hired hundreds of plan auditors and they are actively looking for violations. Trivial issues, or issues often overlooked in the past, are now being scrutinized during a regulatory audit,” says Mike Spickard, CEO and Chief Actuary at Tegrit Group. “The IRS or DOL will always find something during an audit; often, there are penalties, interest and some pain involved.”
Smart Business spoke with Spickard about avoiding regulatory audits, and what to do if that’s not possible.
Why has there been an uptick?
From the DOL’s perspective, the No. 1 trigger of a regulatory audit is a pattern of participant complaints. Additionally, the IRS and DOL have started to communicate with each other more frequently in the past four or five years. So, if the IRS tags you for an audit and auditors see problems within the DOL’s jurisdiction, you could be dealing with two audits.
How can plan sponsors avoid audits?
To prevent an audit, be an engaged plan sponsor. Know what’s going on with your plan and manage it as part of your corporate operations. Though a plan sponsor’s primary responsibility is running his or her business, it must be recognized that a retirement plan is both an asset and a liability, and needs to be managed as such.
Your plan must be amended if the law or your company changes. Everything needs to be up to date, and the plan administered pursuant to the terms of its document. At a minimum, have an annual review with all service providers, your recordkeeper, third-party administrator (TPA), financial advisors, etc., to ensure everyone is on the same page.
Further, it’s important to stay in tune with your employees. This enables you to deal with plan issues, real or perceived, before participants call the DOL.
What triggers a regulatory audit?
The IRS does not disclose how it selects plans for audits. Audits are partly random, but certain activities may raise flags, such as a late Form 5500 or negative publicity surrounding a troubled company. Certain Form 5500 responses also may trigger an audit. For example, one question on the form is: Did the plan have a fidelity bond in place throughout the plan year? A fidelity bond is required; a ‘no’ may indicate you don’t know what you’re doing, causing a response from the IRS.
What should you do if tapped for an audit?
When you get the initial audit notice, let all your service providers know. Often one service provider, usually the TPA, takes the lead. But it’s easier to respond if records are organized and information is readily available. Disorganization causes auditors to linger, which ultimately costs more.
The DOL or the IRS gives the sponsor, and its advisors, time to gather plan documents, amendments, payroll records, contribution reports, record-keeping reports, etc. Screen all necessary information, as well as any additional information that could be required later. Only give auditors what they ask for.
After the initial review, auditors decide if they want to do a deeper dive on specific issues, or expand the audit to additional years. If your service providers compare notes and plan, you can at least stay in step with the auditor, if not one step ahead.
Afterward, how can business owners thrive?
Pay attention to the audit findings, not only addressing problems throughout the audit, but also indications of future problems.
If you successfully defend an issue, the fact that an auditor challenged it is an opportunity to seek a better solution. For example, it was discovered during an audit that one small business mailed checks to its recordkeeper, delaying the deposit into participant accounts while the check was in transit. This delay isn’t necessarily a violation, but a better alternative would be an automated clearinghouse or wire transfer. Even in successful audits there are opportunities for improvement. ●
Mike Spickard is CEO, Chief Actuary at Tegrit Group. Reach him at (330) 644-2044 or email@example.com.
Insights Retirement Planning Services is brought to you by Tegrit Group
Your property manager offers not only convenience, but also cost stabilization and a link to finding creative ways to save money without sacrificing quality of service.
“A qualified property manager should be able to distinguish the needs of both the tenants and landlord to protect the asset — whether it’s office, industrial, retail or multi-family,” says Eliot Kijewski, SIOR, senior vice president at CRESCO.
Another benefit of having a professional property manager is that he or she serves as a singular point of contact for both the tenant and landlord, which allows the property owner to invest his or her time elsewhere.
“Our property management philosophy is to think like an owner to maximize asset value,” says Judy L. Simon, CPM, assistant vice president at Continental Realty.
Smart Business spoke with Kijewski and Simon about how to best utilize property management.
What services does a property manager typically provide?
Traditionally, a property manager’s duties fall under the categories of building operations, financial management and tenant relations. He or she helps keep costs consistent, using his or her contacts to shop out needed services, whether it’s snow removal, landscaping or cleaning services, to get the best price per square foot. The manager uses those same contacts to reach out to contractors and have them bid for tenant improvement work.
At the same time, the manager is a liaison between the tenant and landlord. Many tenants decide to move because poorly managed building issues interfere with their daily operations. An experienced property manager stops potential issues from becoming large problems, which helps with tenant retention. The property manager may be working for the landlord, but he or she must maintain a good relationship with the tenants.
Property owners should have at least 50,000 square feet of space for property management to be cost-effective. Then, you can tailor the services you want your property manager to deliver.
Beyond hiring contractors and dealing with tenants, how else can the property manager assist?
A quality property manager will help maximize how your dollars are spent by providing cost savings without losing quality. For example, a manager can help you decide where, or if, you should offer an extra service or two to make the property more attractive to tenants, such as move-in assistance or security. The manager also can find savings through energy management or sustainability programs, which benefit both the landlord and tenants.
He or she can help establish contracts with vendors, whether that’s purchasing carpet, salt, landscaping material, etc., as well as assist with capital budgeting. For instance, beyond getting three quotes for a roof repair, the manager can help you decide if you want a total replacement, patching, or to replace different sections each year, in which case you can allocate funds for each stage of the project rather than write one large check.
Does a property manager have a role in lease negotiations?
Not really, although property managers can assist with lease administration and reporting. However, it’s important to remember if a property is not managed well, it drives off prospective tenants. If they pull into a parking lot full of chuckholes that hasn’t recently been seal coated or stripped, they will assume their space is going to get the same poor attention.
The saying goes: The first impression is the only impression you get. Your property manager helps with that first impression. The manager may not have a direct impact on pricing and lease negotiations, but many times the property manager will hear about expansion/renewal needs during routine tenant visits. Their experience with and understanding of the building will also help you during negotiations. ●
CRESCO and Continental Realty have joined to offer full-service property management in the Cleveland market.
Insights Real Estate is brought to you by CRESCO
The bulk of the Affordable Care Act (ACA) will be implemented on Jan. 1, 2014. Even though large employers don’t necessarily need to go through the chess game of whether or not to offer insurance — pay or play — a number of new initiatives still come online.
The community rating rules, which limit how insurance carriers can classify small employer groups, the individual mandate and $8 billion insurer tax all will shape health care and premiums in the coming year.
“You’ve got to keep your eyes open, and continue to see what’s going on,” says Mark Haegele, director of sales and account management at HealthLink.
Smart Business spoke with Haegele about how to develop a year-end checklist of responsibilities related to health care reform.
What is the first thing an employer must do?
The ACA is not going away, so you must determine how the law applies to your business.
Let’s say you are contemplating offering in 2015 minimum essential coverage plans, ‘skinny plans,’ that just cover preventive care. Employers with 50 or more full-time equivalent employees may want to consider making this move in 2014, even though the employer-shared responsibility provision, or employer mandate, isn’t in effect. This prevents employees from getting subsidies and going through the new health care exchanges, or marketplaces, and then losing these funds in 2015 when you move over to a lower-level plan.
Consider any future health care changes, and how they will impact your employees for the next couple of years. You don’t want to aggravate staff and cause retention problems.
What’s important to know about your insurance?
Many people expect to see sharp spikes in health insurances costs and premiums after Jan. 1, 2014, which could be unsustainable. The $8 billion insurer tax, which likely will be passed onto employers in the form of premiums, is being calculated as a 4 to 6 percent increase. The community rating rules could drive premiums up by more than 60 percent if your insurance group is a young, healthy population. Out-of-pocket maximums have been limited to no higher than $6,350 for self-coverage and $12,700 for family coverage for most insurance.
The upcoming January 2014 health insurance renewals are the last to come into compliance before many large employers face fines. Consider where you are, and the steps it will take to come into compliance before your 2015 renewal.
Business executives need to analyze the costs and benefits of remaining with their current insurance plan or moving to self-funding, which has more freedom from regulations. Take the time to examine this regularly. No one is sure how the insurance market will react to ACA measures.
Beyond strategic decisions, what concrete actions need to be completed?
You need to make sure you sent out the notice to your employees about the new health care marketplaces, or exchanges, required as of Oct. 1, 2013. It’s a good idea to include this with your orientation materials to ensure all new employees are notified.
In addition, a Summary of Benefits and Coverage, an easy-to-understand summary of health care benefits, must be given to eligible participants at least 30 days before your plan year begins. Your insurer, health reimbursement arrangement provider or third-party administrator usually provides this.
Verify your employee-waiting period meets new requirements. A group health plan cannot make new employees wait more than 90 days for health insurance coverage as of Jan. 1, 2014.
Even though the employer mandate was delayed, large, fully insured employers should use 2014 as a trial year. Set up your tracking procedures for employee hours, especially those who work part time, so you can spot any problems. Because of the delay, the government will likely be less tolerant of any mistakes in 2015.
Health care compliance will continue to be a major concern for businesses. You need to make time to understand how the ACA will impact your company, even if it takes outside expertise to manage all your obligations. ●
Insights Health Care is brought to you by HealthLink
It’s wise to consider the tax implications of business and financial decisions as the year winds down. This year, many tax benefits from the American Taxpayer Relief Act of 2012 (ATRA), which was extended through 2013, and many Bush-era tax cuts will end. The tax law changes from ATRA extensions ending and the implementation of the Affordable Care Act (ACA) introduce layers of complexity.
“It’s difficult for anyone to keep track of everything that is expiring, let alone what’s new. There are more moving parts than I’ve seen in a long time,” says Cathy Goldsticker, CPA, partner, Tax Services at Brown Smith Wallace.
“You need to plan and do some projections so you don’t discover in April that you have unexpected taxes due or you didn’t take advantage of a departing tax write-off.”
Smart Business spoke with Goldsticker about strategies businesses and individuals can follow to reduce tax liabilities.
What effect does the ATRA have on 2013 taxes?
Many of the provisions enacted under President George W. Bush are set to expire. Although the tax brackets from the Bush tax cuts will remain in place and are now permanent, individuals with taxable incomes of $400,000 or more — $450,000 for married couples filing jointly — are subject to a top marginal tax rate of 39.6 percent instead of the 35 percent marginal rate. These individual tax rates also will affect the taxes of the owners of pass-through entities.
A business relief provision that is scheduled to expire is for the built-in gain tax that is created when converting your C corporation to an S corporation, but is imposed after a subsequent sale of corporate appreciated assets. The temporary rule has been that if you hold your S corporation and related assets for five years, built-in gain tax goes away. Starting next year, the waiting period is 10 years. For owners looking to sell assets or a company, that may expedite the impetus to sell before the end of 2013.
Also being eliminated are faster write-offs for depreciation. Under Section 179, companies were able to deduct $500,000 for equipment in year one assuming less than $2 million in assets was acquired during the year. That will revert to the previous limit of $25,000. Bonus depreciation, which allowed you to write-off half of qualified property, is being removed for common acquired depreciable items.
You should think about accelerating your planned purchases, but also consider what your future income levels might be. You could be taking away deductions from future years when it’s possible to get a bigger bang for your buck with higher tax rates.
On the personal side, this is the last year business owners will have a choice between deducting sales taxes or state income taxes because the sales tax option will be going away. This could be a lost state benefit for those paying Alternative Minimum Tax.
This also will be the final year that taxpayers ages 70½ and older can transfer up to $100,000 from an IRA to a charity and bypass having the IRA distribution included as income. That can be important if you’re trying to stay below the $400,000 level and avoid the 39.6 percent tax bracket.
How will taxes change as a result of the ACA?
There is a new 3.8 percent tax on investment income and 0.9 percent Medicare tax that applies to self employment income for high income earners. Careful planning could avoid the claws of this extra tax.
To avoid these taxes and receive more benefit from your writeoffs, you might want to bunch deductions that are subject to phase-outs based on income. Instead of paying expenses such as advisory fees, and tax planning and preparation fees in 2013 and 2014, you might see if you can pay them in the same year.
Do the expiring cuts mean it’s best to move up as many deductions as possible?
You can’t look at your taxes in a vacuum; you still need to consider the impact of all options to determine the best route. Among the many moving parts, we could still see extensions of some provisions.
You should take the facts as they currently stand and put together pro forma projections for the next several years. Do some tax calculations for these years to figure out what you’ll encounter from a cash-flow standpoint, as well as what you could do to reduce some of the current increases. ●
Request your free copy of our 2013 Year-End Tax Planning Guide.
Insights Accounting is brought to you by Brown Smith Wallace
The greatest impediment to the successful resolution of a commercial dispute is the failure of both clients and attorneys to understand and think adequately about the extent, nature and amount of damages at issue in the dispute, says Eric N. Macey, partner at Novack and Macey LLP.
“While clients will invest huge amounts of time and money to focus on the merits of a case to prove they are ‘right,’ they either ignore or fail to give the same consideration to damages issues,” he says.
Yet, in order to resolve the dispute, management needs to properly evaluate damages so they can engage in meaningful settlement discussions or understand what they can expect to get or lose if the case goes to trial.
“Simply put, commercial disputes are about risk, and you need to monetize that risk early in the case to intelligently develop a strategy for the suit,” he says.
Smart Business spoke with Macey about understanding and evaluating damages.
What are the steps in evaluating damages?
Begin your damages analysis very early in the case. Talk to counsel about the various theories of damages available to you or your adversary. Are lost profits an issue? Do you want damages for monies that you gave to your counterparty that you now want back, or do you want damages for the costs you incurred by reason of your opponent’s conduct?
Identify various methodologies to calculate damages. For example, if you or your opponent assert damages in the form of lost profits, you need to identify with great specificity how that figure will be calculated. As part of that analysis, you will need to decide if an expert is necessary and also understand the physical evidence you will need to support your arguments.
Read contracts or purchase orders front to back, including all the fine print. Contracts often contain provisions that limit damages.
You need to identify whether there is any statute that impacts your damages analysis. There are many statutes that limit or expand damages. For example, if you manufacture and/or market consumer goods, you may be subject to claims under consumer fraud statutes like the Illinois Consumer Fraud and Deceptive Business Practices Act. That statute expands damages because it provides that a successful plaintiff can recover both punitive damages and attorneys’ fees. Similarly, Title VII of the Civil Rights Act of 1964 limits certain remedies. If your business is sued for employment discrimination under Title VII, that statute imposes limits on the amount of compensatory or punitive damages that a person can recover, which varies based on the size of the employer. Consequently, you need to include any statutory expansion or limitation on damages in your risk analysis when you try to monetize your exposure from such a claim.
What other factors could affect a case?
Be sure to think through mitigation of damages. If you or your counterparty brings suit to recover damages for breach of contract, the party asserting the claim has a duty to mitigate damages. This is called the doctrine of avoidable consequences and simply means that the party asserting a claim must take all reasonable steps to keep its damages from getting larger and larger.
Let’s say you are in the business of selling a certain type of customized computer hardware, and through your efforts, your business enters into a $2 million contract with a manufacturer that needs your technology. You deliver some of the hardware and get paid $1 million on the contract amount, but for some reason the manufacturer tells you it will not honor the balance of the deal. So now you’re stuck with the equipment and out $1 million. You sue for the $1 million. However, you still have a duty to mitigate your damages, which means that you must use reasonable efforts to sell the equipment to another manufacturer. If you do nothing in this regard, the court or jury can take this into account and reduce your damages even if you win the case.
In sum, do not blindly pursue or defend claims solely on the merits without evaluating what you may recover in damages or risk paying. Remember, commercial litigation is just resolution of a business dispute in another, albeit unique, forum with special rules. This does not mean that you forego monetizing your risk. It is imperative to do so to manage your case successfully. ●
Insights Legal Affairs is brought to you by Novack and Macey LLP
Pushing the envelope by implementing new Voice over Internet Protocol (VoIP) services makes sense for forward-thinking companies. After all, streamlining data and communications allows you to become more efficient. And increased productivity translates to the bottom line.
However, it’s important not to jump on board with an inexperienced VoIP provider that hasn’t properly tested its technologies.
“Most people prefer something that is tried and true, regardless if it’s new or not,” says Alex Desberg, sales and marketing director at Ohio.net.
Smart Business spoke with Desberg about fully hosted and cloud-based telephone systems and what to look for in a VoIP provider.
What are some of the characteristics that make hosted and cloud-based telephone systems more attractive than traditional phone services?
Typically, with traditional premise-based private branch exchange (PBX), you buy a hardware solution and pay for the features that you want upfront. Until you need to renew the licensing or upgrade your system, you are pretty much set. However, adding services can be an arduous task because if you want to add lines or provide call queuing someone has to come out to manage the hardware and update the software at your location.
Hosted VoIP and virtual PBX are cloud-based, so when changes are needed it’s as simple as contacting your VoIP provider to remotely toggle a specific feature or service on or off.
How can companies feel secure about using cutting-edge technologies for their telecommunication needs?
New offerings are constantly coming out in the VoIP world, but the most important thing is that they are properly tested and correctly launched. You don’t want to take a gamble on a new VoIP technology that may or may not work for your business — you want to be sure that it will work.
Make sure you are working with a provider that has a history of telecommunications experience and focuses on staying ahead of the technology curve. It’s important to work with an experienced VoIP provider that can help you navigate through the new technology waters and figure out what will be best for your business.
What resources should a mid-market company evaluate when choosing telecommunication services?
The first resource that should be evaluated is technical talent: What kind of talent do you have available internally to assimilate VoIP technologies into your business model? Some companies prefer to handle their own problem-solving, and if they have capable IT personnel, this is a valid option. If you don’t have the technical expertise available internally, then you can use a VoIP provider that handles everything from setup to recommended upgrades.
Another resource to consider is capital investment versus a service model. If you want to buy a phone system with capabilities for popular services such as call recording, queuing, integration into customer relationship management software and fail-over services, there is going to be a significant upfront investment. However, if you want these services, but don’t want to pay for it all upfront, you can have a VoIP provider incorporate these services on a monthly basis.
How can a business save money by handling VoIP services internally?
If you have talent on-hand with time to spend on implementing VoIP services, then you can realize significant cost savings. Some VoIP providers make the learning curve very easy. For example, you can buy space on a virtually hosted cloud platform and have your personnel learn how to operate the system in a safe and secure environment, rather than trying to figure it out in a brick and mortar location. ●
Population health management is becoming an increasingly popular concept for health care organizations. Population health management — defined as an approach to health that aims to improve the health of an entire population — goes far beyond the concept of only treating patients in need of immediate care.
“Population health management helps health care delivery organizations better manage all aspects of health, from wellness to complex care,” says Dr. Marc Manley, vice president of Population Health Management for UPMC Health Plan. “Population health management has the ability to deliver better health outcomes at a lower cost.”
Smart Business spoke with Manley about population health management and how it will affect health care results and costs.
Why is population health management getting more attention now?
Population health management is gaining more attention because the fee-for-service model is going away. Hospitals, health care systems and physicians understand that they are living in a world that increasingly rewards those who meet quality objectives for their entire population, not just those who present themselves for care.
Population health management also shows the promise of delivering better health at a lower cost by creating an integrated system of care, rather than forcing consumers to figure out how to make their own way through the current health care system.
Aren’t many factors that influence the health of a population beyond the scope of any care organization?
There are many factors that influence the health of a region: environmental factors, economic factors, the social structure, etc. But many health care organizations are already involved in community efforts to improve health. In a lot of ways, population health management complements these organized efforts by addressing factors that impact an entire population. Population health management also puts added emphasis on reducing health care delivery inequities.
How does population health management impact providers?
Most clinicians already recognize the limitations of traditional care in keeping people healthy, and they’re looking for ways to be more effective. But preparing for population health management requires a significant change for providers.
Providers will no longer be rewarded for doing more, but rather for producing quality outcomes more efficiently. Providers need to assess the health of their entire population across the entire spectrum of health — that includes those who are well, and who can stay well by getting appropriate preventive services. Those who have health risks need help changing their health behaviors in order not to develop the diseases for which they are at risk. For those with chronic conditions, providers can prevent further complications by closing care gaps and working on health behaviors.
Technology will have a key role in population health management, as it can help to assess and stratify patients and target interventions to the right people.
What are the objectives of population health management?
Population health management strives to keep a patient population as healthy as possible, thereby minimizing the need for costly interventions such as emergency department visits, hospitalizations, imaging tests and procedures. In addition to being less costly, it redefines health care as being more than just reactive sick care. By considering the needs of an entire population, population health management systematically addresses the preventive and chronic care needs of every patient.
What is essential to make this work?
First of all, it will require those of us involved with health care to think in new ways and be willing to try new things. It will also require new financial arrangements in health care that reward positive health outcomes, not more services. And there must be a strong technology foundation, including Web-based tools for patients and providers, and data systems that support analytics across a wide spectrum of inpatient, outpatient, post-acute and community services. ●
Insights Health Care is brought to you by UPMC Health Plan
Challenging times present opportunities for organizations to perform detailed assessments of their operations. Performing operational assessments can help organizations identify, mitigate and take advantage of the risks that they face. These assessments focus on process design and execution risks.
“When properly performed, operational assessments identify areas where process design and execution risks are not aligned with an organization’s risk tolerance,” says James P. Martin, a managing director at Cendrowski Corporate Advisors LLC.
Smart Business spoke with Martin to learn more about operational assessments.
How can operational assessments help?
Organizations must achieve a diverse set of strategic objectives. This is accomplished by translating strategic objectives into what are often interdependent yet, disparate operational objectives.
Operational objectives include revenue growth, operational efficiency, compliance with laws and regulations, public perception, corporate responsibility and market leadership, as well as customer and employee satisfaction. Attainment of each requires the assumption of inherent risks.
Operational assessments focus on mitigating inherent process design and execution risks through the use of controls. Controls are employed to reduce an organization’s residual risk, or risk after control implementation, to a tolerable level.
What’s included in operational assessments?
Operational assessments examine whether an organization’s processes enable the achievement of strategic objectives. The first step is breaking down process design and execution elements into tasks performed by employees. This is often accomplished through employee interviews, as well as through observation in the workplace.
Once tasks have been identified, risks associated with the accomplishment of tasks are enumerated, as well as controls centered on mitigating risks. Risks are quantified by likelihood and impact. High-likelihood and/or high-impact risks are prioritized for mitigation in operational assessments, as they pose the greatest threat.
How can organizations decrease high-likelihood and/or high-impact risks?
High-likelihood risks can be decreased through preventive controls, while high-impact risks can be decreased by detective controls. For example, organizational training regarding fire hazards decreases the likelihood that a fire will occur. This is a form of preventative control. Proper placement of fire detectors throughout an organization’s premises decreases the potential impact should a fire occur. This is a form of detective control.
For risks that remain at a level too high for the organization to tolerate, new controls must be developed to bring residual risks in line with the organization’s risk tolerance. Otherwise, the organization should consider outsourcing the risk — for example, utilizing hedging strategies and insurance contracts that transfer risk to a third party.
What can be missed when performing operational assessments?
A key element that is sometimes missed by those performing operational assessments is the assignment of clear roles and responsibilities to team members who will oversee the creation and redesign of process controls. Without accountability, proper incentives are not present, and the operational assessment may struggle to achieve its intended results.
How do these assessments differ?
Risk assessments primarily assist organizations in preserving shareholder value, while operational assessments also help organizations grow shareholder value. More specifically, a risk assessment is really a deep dive into one component of an operational assessment. It involves the identification and analysis of potential risks that may impede an organization from achieving its strategic objectives.
By performing risk assessments across the organization, organizational managers can develop plans to mitigate the risks an organization may face, helping preserve its objective from potential threats and, hence, its shareholder value.
Actively identifying internal risks also can help organizational managers remove the opportunity for fraudulent activity. ●
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