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7. Processing Organizations and Source Organizations are less likely than Payers of Record to have the automated data processing capability which would be useful in accumulating and aggregating payment data and generating reports.

There is no wholly satisfactory solution to these problems. The ask force is of the opinion that the most practical approach would e to relate the reporting responsibility to the draft or check Itself; i.e., designate the Payer of Record as the party responsible for reporting. The Payer of Record can then arrange for the accumulation of data when its drafts or checks are prepared at locations other than its home office; i.e., by regional or field offices; by subsidiaries, by independent agents or by other third parties. This approach provides consistency, ease of determination, and the possibility of an audit trail between the provider's records, the claims records, and the payment records.

In addition, (1) the Payer of Record is often the Source Organization; (2) since the Payer of Record is the recipient of the "cleared draft" it always has sufficient information for the reporting of assigned payments; (3) the individual provider may only be aware of the Payer of Record and the fact that the payment is on behalf of a specific patient. Therefore, in order to promote

ease of reconciliation between the information returns and the

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records of the provider, it appears desirable to reflect the Payer of Record as the reporting entity on the Form 1099.

to

The task force recommends that these principles with respect the reporting responsibility be applied with flexibility during the first few years of information reporting so as to avoid upheavals in the accounting systems and work flows of the carriers. With this in view, the task force suggests that during this period the contracting parties (carriers, policyholders, and third party agents) be given wide latitude to fix by mutual agreement the responsibility for filing

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1. Direct Payments to Professional Medical Corporations

Under the present income tax regulations, payments made directly to corporations are not subject to reporting. Many state laws permit physicians and other individual professional medical practitioners to incorporate. Physicians are incorporating in increasing numbers, particularly since the recent change in IRS regulations which recognizes such arrangements for Federal income tax purposes. It appears illogical and inconsistent to require the reporting of payments made directly to an individual practitioner, but not to require reporting of payments made directly to a professional medical corporation for the same services.

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Accordingly, the task force recommends that the Income Tax egulations be amended to require the reporting of payments ade directly to professional medical corporations (physicians or ther practitioners of the healing arts). This recommendation is ictated not only by the above considerations, but also by the recognition that the reporting problems of carriers will be

simplified by the removal of this exemption since carriers often cannot distinguish between incorporated and unincorporated medical practitioners.

2.

Hospitals, Home Health Agencies, Extended Care Facilities, Etc. Under present regulations, payments to these types of organizations are reportable only if unincorporated. An approach might

be to include incorporated hospitals, home health agencies, etc. within the scope of information reporting. However, most hospitals, home health agencies, and some extended care facilities are exempt from Federal income taxation, either because they are an integral part of a state or local government or a university, or are incorporated under a state not-for-profit statute and are operated exclusively for charitable purposes. If incorporated hospitals, home health agencies, etc. were included within the information reporting provisions, logic would dictate that an exclusion be carved out for those which qualify as tax exempt organizations. This in turn would pose interpretative problems for carriers in distinguishing between categories of organizations subject to information reporting and those excluded.

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Several carriers have tried to distinguish between incorporated and unincorporated facilities and found considerable difficulty in ascertaining the facts. Published directories are incomplete, and attempts by carriers to make the determination by direct contact with hospitals, home health agencies, extended care facilities, etc., have been usually unsuccessful.

A related problem arises from Section 1.6041-3 of the Regulations which excludes from information reporting payments for merchandise, telephone services, and similar charges. Payments made by carriers to hospitals, home health agencies, extended care facilities, etc. may cover a combination of charges, including room and board, drugs, surgical dressings, injections, surgical supplies, and miscellaneous other charges. In order to accurately comply with information reporting requirements, the carrier would have to analyze each provider's bill to determine which charges are reportable and which are not.

The task force believes that the amount of work required to develop the reportable information would be excessive, in vièw of the fact that the payments in question would represent but a small portion of the gross receipts of these facilities.

Accordingly, it is recommended that payments to hospitals, extended care facilities, nursing homes, home health agencies, and other similar facilities be specifically excluded from information reporting.

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It is to be noted that there are instances when a hospital ill will include charges for surgical, radiological, and athological services in circumstances when the hospital merely icts as a billing and collecting agent on behalf of the physicians rendering the service. Although the payment to the hospital by

the carrier would not be reportable under the proposal, the

hospital would be required to file Forms 1099 or W-2 with respect

to such payments, depending on the relationship between the parties.

3.

Payments for Drugs, Eyeglasses, Dentures, Prosthetic Devices, and Other Medical Supplies

The

As previously indicated, Section 1.6041-3 of the Regulations excludes payments for merchandise from information reporting. task force views payments for drugs, eyeglasses, dentures, prosthetic devices and other medical supplies as being within the category of merchandise and therefore not reportable. However, an exception should be made with respect to merchandise which is included in an assigned payment to a medical practitioner.

Physicians and dentists often include in their bill charges for injections, drugs, dentures, and other items which could be defined as merchandise; however, the checks or drafts do not identify these items. Since the data for information returns would be derived from these checks or drafts, special procedures would be required to exclude such merchandise from information reporting. There are several practical reasons for not adopting

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