Reminder! Patient-Centered Outcomes Research Fee – Year #3

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This Tax Tip is being issued as our annual follow up to our originally issued June 19, 2013 Tax Tip entitled, “Initial Patient-Centered Outcomes Research Fee Due Date Quickly Approaching.

The Internal Revenue Service (“IRS”), in April 2015, released an updated Federal Form 720, Quarterly Federal Excise Tax Return, with instructions, which incorporate the provisions associated with the third year of the Patient-Centered Outcomes Research Fee (“Fee”). The Fee is imposed, under Internal Revenue Code §4375 and §4376 on issuers of specified health insurance policies and plan sponsors of applicable self-insured health plans for all policy or plan years ending on or after October 1, 2012 and before October 1, 2019.

Patient-Centered Outcomes Research Institute

The Patient-Centered Outcome Research Institute (“Institute”) was established by the Patient Protection Affordable Care Act (“ACA”) signed into law by President Obama on March 23, 2010. The Patient-Centered Outcomes Research Trust Fund (“Fund”) was set up to fund the Institute. The Fee outlined above will be contributed to the Fund. Final regulations with respect to the Fee were released by the IRS and published in the Federal Register on December 6, 2012. According to these final regulations, the Institute, through research, “will assist patients, clinicians, purchasers and policy makers in making informed health decisions by advancing the quality and relevance of evidence-based medicine through the synthesis and dissemination of comparative clinical effectiveness research findings.”

The Fee

The Fee is imposed on issuers of specified health insurance policies and plan sponsors of applicable self-insured health plans for all policy or plan years ending on or after October 1, 2012 and before October 1, 2019. The Fee has increased 4 percent, raising the cost from $2 to $2.08 per “covered life” for all policy and plan years ending on or after October 1, 2014 but before October 1, 2015. The Fee will be increased based on the average increase in the projected per capita amount of national health expenditures on an annual basis and will sunset for all policy and plan years ending on or after October 1, 2019. Note that the Fee for policy and plan years ending on or after October 1, 2013 but before October 1, 2014 remains the same at $2 per covered life.

Calculating and Reporting the Fee

This Fee is reportable on a second quarter Form 720, Quarterly Federal Excise Tax Return, and is due and payable by July 31, 2015. As outlined in the Form 720 instructions, there are a number of methods from which issuers of specified health insurance policies may choose when determining the average number of lives covered under a policy for the policy year. For this plan year, the fee of $2.08 will be multiplied by the average number of covered lives, as determined using one of the four methods noted below:

  • The actual count method;
  • The snapshot method;
  • The member months method; and
  • The state form method.

Additionally, the Form 720 instructions note that the following are the methods which sponsors of applicable self-insured health plans may use when calculating the average number of covered lives:

  • Actual count method;
  • Snapshot method; or
  • Form 5500 method.

Payment of the Fee

As noted above, taxpayers should report and pay the Fee on the second quarter Form 720 no later than July 31 of the calendar year immediately following the last day of the policy year or plan year to which the Fee applies. For those taxpayers whose only filing obligation with respect to Form 720 is to the report the Fee, the filing of a Form 720 for the first, third, or fourth quarters of the year is not required.

Per the Form 720 instructions, deposits are not required for this fee, so issuers and plan sponsors are not required to pay the fee using the Electronic Federal Tax Payment System (“EFTPS”). However, if the Fee is paid using EFTPS, the payment should be applied to the second quarter.

Funding Streams

In addition to the Fee, the Fund will receive an additional $150 million from the United States Treasury Department. The estimated average from the Treasury’s general fund and fee streams for the fiscal years 2014 to 2019 is $650 million, as reported on the Institute’s website. In order to research gaps in patient care, the funding is split between the Institute and the Department of Health and Human Services. The rate for policy years ending on or after October 1, 2015 will be adjusted in the future based upon increases in healthcare spending.

More Information

Updated Form 720

Updated form 720 Instructions

PCORI Authorization and Funding Details

Questions and Answers on Patient-Centered Outcomes Research Trust Fund Fee

Ask Our Experts

Please contact a member of Withum’s Healthcare Services Group at healthcare@withum.com for further questions or assistance.

The information contained herein is not necessarily all inclusive, does not constitute legal or any other advice, and should not be relied upon without first consulting with appropriate qualified professionals for your individual facts and circumstances.

Reminder! Patient-Centered Outcomes Research Fee – Year #3

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