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Read this if you sponsor an employee benefit plan. 

The Department of the Treasury and the Internal Revenue Service recently issued final regulations updating the required minimum distribution (RMD) rules.

Effective on September 17, 2024, the regulations adhere closely to the proposed regulations issued in 2022 (REG-105954-20). The IRS did say in a press release that the final regulations did take into account some comments. Two such instances:

• Applying the qualified annuity exception when an employee had died and, after the employee's death, the beneficiary made an irrevocable election as to the method and the amount of the annuity payments before Dec. 20, 2019. 
• The applicability date in the proposed regulations of distribution calendar years beginning on or after Jan. 1, 2022, has been changed to distribution calendar years beginning on or after Jan. 1, 2025.

Proposed regulations for additional RMD issues under the SECURE 2.0 Act

The IRS also issued proposed regulations (REG-103529-23) to address additional RMD issues under the SECURE 2.0 Act, including:

• Applicable age determinations for employees born in 1959
• Purchases of annuity contracts with a portion of an employee's individual account
• Distributions from designated Roth accounts
• Sec. 4974 excise tax waivers related to timely corrected RMD failures
• Spousal elections under Section 327 of the SECURE 2.0 Act related to the death of an employee before the employee’s required beginning date
• Divorce after the purchase of a qualifying longevity annuity contract
• Outright distributions to a trust beneficiary

The new proposed regulations include provisions for which Treasury and IRS are soliciting public comments, including provisions addressing other changes relating to RMDs made by the SECURE 2.0 Act. For details on how to submit comments, see the proposed regulations.

If you have questions regarding the final rule or the proposed regulations, please contact our Employee Benefits Team. We’re here to help.

Read this if you are interested to see how AI can help your organization.

Over the past few decades, technological advancements have revolutionized various industries, compelling businesses to integrate sophisticated tools and software into their operations. Initially, these innovations sparked apprehension, but with education and adaptation, their value became undeniable, embedding them into business workflows. The same will hold true for AI integration, but this time, the pace is unprecedented. Businesses that delay even a year or two risk being left behind, jeopardizing their competitive edge in the marketplace.

"AI won't replace you, but someone using AI will" is a prevalent notion, highlighting how AI tools are already automating repetitive tasks across industries. A 2024 report by Business Insider supported earlier findings, suggesting that many job roles, especially those involving routine tasks, are at significant risk of automation. Another recent IT study conducted by the CPA Firm Management Association revealed that 73% of organizations currently adopt a "wait and see" approach to AI/ChatGPT.

Businesses that leverage AI and automation will likely outpace those that do not. The quicker businesses recognize AI's current impact, the sooner they can adapt to maintain competitiveness. Here are four steps to effectively integrate AI into your organization.

1. Grasping AI and new technologies
   Understanding AI, automation, and various quickly changing technologies is vital. Many contemporary applications labeled as AI are built on algorithms designed to execute specific tasks, which we term "augmented intelligence." For instance, customer service chatbots that handle routine inquiries or document automation tools that organize data exemplify narrow AI, crafted for distinct purposes. Robotic Process Automation (RPA) mimics human actions related to data entry or transaction processing but requires human intervention if any process changes occur. Many vendors offer scripting between programs, widely used in various sectors, to facilitate tasks such as data integration from multiple sources to enhance cash receipts and disbursement transactions, banking, and payroll into enterprise resource planning systems.
2. Educating your team on Generative AI technologies
   The initial step to harnessing Generative AI (GenAI) is educating your team on its safe and effective use. GenAI tools like OpenAI's ChatGPT, Anthropic's Claude, and Microsoft's Copilot utilize large language models to generate human-like responses to text prompts. You can leverage GenAI to condense extensive data, draft communications, and assist with complex tasks like writing code or creating financial models. Users must understand that GenAI can produce inaccurate or biased information, known as "hallucinations." Training should emphasize not entering confidential data into GenAI systems and making sure that all AI-generated content is reviewed by knowledgeable personnel. Introductory training should cover the risks and benefits of GenAI, as well as best practices for generating accurate and useful responses.
3. Establishing a robust AI usage policy
   A comprehensive AI usage policy is essential for safe and effective AI integration. This policy should define acceptable AI use, including what can be done without permission, how to set up accounts, and outlining mandatory training before use. The policy should also stipulate that all AI-generated content must be verified by a knowledgeable individual who is accountable for the information and technically able to review and validate the AI-generated content. The policy should be clear on data privacy and security, particularly regarding the handling of sensitive information. Additionally, the policy should encourage ongoing education and adaptation as AI technologies evolve.
4. Appointing AI specialists
   Identifying AI specialists within your organization is crucial. These individuals should be involved in daily operations and interested in exploring AI's potential benefits. They should be given time and resources to investigate new AI solutions, attend relevant conferences, and participate in webinars. Pilot projects that address significant challenges or improve efficiency should be prioritized. For example, Microsoft 365's Copilot integrates AI capabilities into familiar tools like Excel and Word, making it a practical starting point for many businesses. Regular discussions and updates on AI advancements should be part of team meetings to ensure everyone stays informed and engaged.
5. Getting started
   Embarking on your AI journey begins with defining clear objectives—what do you want to achieve with AI, and how will it drive value for your business? Once your goals are set, allocate the necessary resources, including budget, talent, and time, to support this initiative. Next, assess your businesses’ readiness and specific needs, identifying any gaps in skills, infrastructure, or data. Preparing your data is crucial, as clean, relevant, and well-structured data forms the foundation of any successful AI project. Aligning on the right tools and technology is equally important, ensuring they fit your objectives and existing systems. Start by piloting AI tools in a controlled environment, monitoring results closely, and being ready to make adjustments based on what you learn. This iterative approach will help you fine-tune your strategy and maximize the impact of AI on your organization.

Whether businesses are ready or not, the evolution of AI solutions is rapid and unprecedented. Business solutions like Microsoft 365 Copilot and OpenAI ChatGPT are already making an impact across various industries. Organizations should have dedicated personnel to monitor and integrate these advancements, supported by robust internal policies and ongoing education to ensure secure and effective implementation.

Ready to transform your technology landscape? Have questions about your specific situation? Our team is here to guide you every step of the way. Please contact us. We're here to help. 

Read this if your organization is interested in creating successful well-being programs.

In today’s evolving business landscape, firms are more aware than ever of the need to attract, engage, and retain employees. Central to these efforts are employee well-being programs, which are rapidly becoming ubiquitous. In fact, nine out of 10 businesses now have some form of a well-being program. This newfound focus is also reflected in employee survey data, with 71% of workers reporting that they believe their employers are more concerned about employees’ mental health than in the past. Moreover, over 80% agree that how employers support mental health will be an important consideration for them when they look for future work.

Despite this profound cultural shift, perceived workforce well-being remains virtually unchanged since 2022, thus begging the question: what can your organization do to maximize its investments in human capital?

The Fitbit fallacy

Imagine your firm has just introduced a new well-being program. Employees are eagerly strapping on their new Fitbits, competing in step challenges, and sharing their progress on social media. Initially, the energy is palpable and infectious; however, after just a few short months, you begin to notice empty wrists among your colleagues. Participation plummets, and these shiny new Fitbits are relegated to gather dust in desk drawers.

So, what went wrong?

A key insight into the problem is that well-being is not only influenced by individual choices, but also by the organizational context. Many workplace factors, such as workload, autonomy, communication, and culture, can create conditions that undermine or support employee health. Simply offering individual-level interventions, such as Fitbits or yoga classes, is not enough to address the systemic issues that affect well-being. 

Gilding the lily

Historically, workplace well-being initiatives were designed around the individual, providing meditation apps, incentivizing exercise, and so on. However, recent research indicates that these initiatives—while laudable—are far less likely to have a sustainable impact on employee health than systemic solutions, including organizational-level interventions. As noted by Dr. William Fleming, Research Fellow at the University of Oxford’s Well-being Research Centre, “There’s growing consensus that organizations have to change the workplace and not just the worker.” It’s like planting a seed in rocky soil: without the right environment, it won’t thrive—even with the best of intentions.

Tilling the soil

Just as planting a seed in rocky soil requires tilling the ground to create the right conditions for growth, cultivating a sustainable culture of well-being in an organization requires far more than ‘surface-level’ programming. Rather, well-being demands a holistic and strategic approach that considers the employee experience in its entirety, from physical and mental health to social and emotional well-being. Moreover, it also requires that the organization align its well-being goals with business objectives and outcomes and demonstrate how investing in employee well-being can enhance performance, productivity, and innovation. As noted by the World Health Organization, "A healthy workplace is one in which workers and managers collaborate to use a continual improvement process to protect and promote the health, safety, and well-being of all workers and the sustainability of the workplace."

Here are some strategies to consider when making a commitment to well-being initiatives:

1. Leadership commitment: Well-being should be a core value, championed by leadership. When executives prioritize their own well-being and actively participate in well-being programs, it sets a powerful example for the entire organization.
2. Integrated policies: Policies should reflect a commitment to well-being. This includes flexible working hours, mental health days, and comprehensive health benefits. Policies should be rooted in a culture of respect, necessitating a shift from a ‘command and control’ mindset to a ‘trust and empower’ perspective. Central to this shift is establishing work structures and operational systems that create transparency and accountability. 
3. Physical environment: The workplace environment plays a crucial role in employee well-being. Ergonomic workstations, presence of natural light and nature elements, access to privacy rooms, and relaxing places to unplug from technology can significantly influence physical and mental health.
4. Community building: Foster a sense of community from day one! Design onboarding practices that introduce new hires to the values, norms, and expectations of your organization. Provide opportunities for socialization, mentoring, and collaboration, as a strong sense of belonging can enhance overall well-being. Encourage team-building activities, social events, and peer support networks. 
5. Continuous feedback: Well-being means different things to different people. Regularly solicit feedback from employees about their overall employee experience—not just your well-being initiatives. Use this feedback to make continuous improvements, and then communicate those improvements. When employees feel heard and valued, their engagement and satisfaction increase.

Reap the rewards

Investing in organizational factors that support well-being isn’t just a feel-good initiative; it’s smart business strategy. Research shows that companies with robust well-being programs see higher employee engagement, reduced absenteeism, and increased productivity. In other words, a healthy workforce is a high-performing workforce. Moreover, these companies also enjoy lower healthcare costs, improved retention rates, and enhanced employer branding. By fostering a culture of well-being, companies can not only attract and retain top talent, but also boost their bottom line and competitive edge.

Conclusion

While Fitbits, chair massages, and yoga are great starting points, they are simply insufficient to create a wholesome work environment. Establishing an enduring culture of well-being requires integrating it deeply—and holistically—into the organization’s core practices and values.

Put simply, you can’t expect to ‘yoga’ your way to employee well-being; rather, you must place a comprehensive and systematic approach toward cultivating a workplace environment in which your most valuable resource—your people—can flourish. By doing so, you can cultivate a culture where employees not only survive but thrive. 

If you have any questions about well-being programs or questions about your specific situation, please contact our Well-being Consulting team. We’re here to help.

Read this if you work within a State Medicaid Agency (SMA). This is the first article in a series of articles published in follow-up to the Medicaid Enterprise Systems Conference (MESC). Future article topics will speak to guidance shared at MESC on MITA 4.0, Advanced Planning Documents (APD), forthcoming templates, Artificial Intelligence (AI) in Medicaid, and operational reporting requirements.

If you haven’t already embraced the Centers for Medicare and Medicaid Services (CMS) as a partner for your SMA Medicaid Enterprise System (MES), now is a great time to start. CMS was out in full force at the Medicaid Enterprise Systems Conference (MESC), highlighting trends across the MES space, bringing policy and regulatory changes to the front of conversations, and showcasing SMA collaboration and reuse at every turn. Across sessions and collaborative workshops, CMS clarified the value it seeks from MITA 4.0, the steps taken to move it forward, and the industry partners committed to making it a reality. Most evident was CMS’s message about the value that can come from engaging CMS and SMA state officers (SOs) early and often in your enterprise planning, implementation, and operations discussions.

In true partner fashion, CMS highlighted several trends in Medicaid to help inform SMAs’ MES journeys:

• Certain module enhancements may no longer require streamlined modular certification and can be eligible for enhanced funding (i.e., Health Information Exchange [HIE], prescription drug monitoring program [PDMP], and data warehouse [DW] modules).
• SMAs continue to focus on a single module or vendor at a time as opposed to multiple modules for the same vendor.
• SMAs continue to implement cloud-based end-to-end solutions as replacements for legacy Medicaid Management Information System (MMIS) modules.
• SMAs are asking to forego Operational Readiness Reviews (ORRs) altogether due to testing delays and skip straight to requesting certification. CMS is asking SMAs to stop requesting ORRs be skipped and instead prioritize making sure the solution’s testing is comprehensive, of quality, and producing results that instill confidence in the solution’s ability to fulfill your program needs.
• During CMS site visits, SMAs shared concerns regarding procurement, vendor management, and public health emergency (PHE) unwinding as they relate to various MMIS projects.
• SMAs are continuing to replace legacy systems, and the industry should expect to see more MMIS module certifications as states and territories shift to new solutions.

Lastly—and for the first time at MESC—CMS presented a summary and synthesis of regulatory changes that highlighted each regulatory requirement’s timing so that it could serve as an input into SMA efforts. This is an incredibly valuable reference for all SMAs and is available via outreach to your SO!

Partnering with CMS is not optional—it's essential. CMS’s presence and insights at MESC underscored the importance of early and ongoing collaboration. By aligning with CMS guidance and leveraging its expertise, SMAs can navigate MES complexities more effectively. Whether it's embracing MITA 4.0, staying informed on regulatory changes, or integrating new technologies, the path to success lies in a strong partnership with CMS. Let’s continue to engage, collaborate, and build a future where our collective efforts drive meaningful outcomes for the Medicaid community.

Please contact our Medicaid team if you have any questions or would like to learn more. We're here to help.

Read this if your company is eligible for the Employee Retention Credit (ERC) and has filed a claim.

In a recent news release, the IRS announced that it will begin processing low-risk ERC claims submitted prior to September 15, 2023, when a moratorium on processing new claims was effective. The IRS indicated 50,000 low-risk ERC claims will be processed and paid out quickly. The IRS projects payments will begin in September, with additional payments going out in subsequent weeks. The IRS anticipates adding another large block of additional low-risk claims for processing and payment in the fall.

The IRS also indicated it has sent out 28,000 disallowance letters in recent weeks to businesses whose claims showed a high risk of being incorrect. The IRS estimates that these disallowances will prevent up to $5 billion in improper payments. We have seen a couple of denial letters that relate to the quarter ended September 30, 2021. Those denial letters indicate the IRS does not believe the employer was subject to government orders that impacted operations—nor did the employer incur a significant reduction in gross receipts. If you received a denial letter related to the quarter ended September 30, 2021, and do not have the appropriate support for the impact of government orders or a reduction in gross receipts then it may not make sense to appeal the denial.

The IRS also announced that it has shifted the moratorium period on new claims that was effective as of September 14, 2023. Per the agency, it will now start judiciously processing claims filed between Sept. 14, 2023, and Jan. 31, 2024. Like the rest of the ERC inventory, work will focus on the highest and lowest risk claims at the top and bottom end of the spectrum. This means there will be instances where the agency will start taking action on claims submitted in this time period when the agency has seen a sound basis to pay or deny a refund claim.

Given the complexity of the ERC (and to reduce the risk of improper payments), the IRS is moving methodically and deliberately on both the disallowances as well as additional payments to balance the needs of businesses with legitimate claims against the promoter-fueled wave of improper claims that came into the agency.

“The Employee Retention Credit is one of the most complex tax provisions ever administered by the IRS, and the agency continues working hard to balance our work to protect taxpayers from improper claims while also making payments to qualifying businesses,” said IRS Commissioner Danny Werfel. “It has been a time-consuming process to separate valid claims from invalid ones. During the past year, we maintained a steady cadence of both ERC approvals and disapprovals.”

As the IRS begins to process additional claims, the agency reminds businesses that they may receive payments for some valid tax periods—generally quarters—while the IRS continues to review other periods for eligibility. ERC eligibility can vary from one tax period to another if, for example, government orders were no longer in place or a business’s gross receipts increased. Alternatively, qualified wages may vary due to a forgiven Paycheck Protection Program loan or because an employer already claimed the maximum amount of qualified wages in an earlier tax period.

The IRS also reminds businesses that if they receive a denial of an ERC claim, they have options available to file an administrative appeal by responding back to the address on the denial letter. IRS.gov also has additional information on administrative appeals with the IRS-independent Office of Appeals.

Our take: For those employers still waiting to receive their ERC claims and who worked with a non-tax professional to calculate and claim the credit, now is the time to determine if you have (or received from the third-party vendor) the appropriate documentation to verify eligibility to claim the credit and confirm the calculation of the credit. At a minimum, you should have documented support for the reduction in gross receipts test or full/partial shutdown test related to the eligibility of the businesses or organizations to claim the credit and detailed support.

In addition, we recommend an employer who has received payment for some, but not all claims call the IRS to verify the outstanding Forms 941-X are actually on file at the IRS. We have encountered situations where the IRS has no record of receiving a Form 941-X and the client has the return receipt confirming receipt by the IRS.

Lastly, employers who receive a denial letter are encouraged to reach out to their tax advisor for assistance with the appeals process if they believe they are in fact eligible for the credit. 
 

Benchmarking doesn’t need to be time and resource consuming. Read on for four simple steps you can take to improve efficiency and maximize resources.

Stop us if you’ve heard this one before (from your Board of Trustees or Finance Committee): “I wish there was a way we could benchmark ourselves against our competitors.”

Have you ever wrestled with how to benchmark? Or struggled to identify what the Board wants to measure? Organizations can fall short on implementing effective methods to benchmark accurately. The good news? With a planned approach, you can overcome traditional obstacles and create tools to increase efficiency, improve operations and reporting, and maintain and monitor a comfortable risk level. All of this can help create a competitive advantage — and it  isn’t as hard as you might think.

Even with a structured process, remember that benchmarking data has pitfalls, including:

• Peer data can be difficult to find. Some industries are better than others at tracking this information. Some collect too much data that isn’t relevant, making it hard to find the data that is.
   
• The data can be dated. By the time you close your books for the year and data is available, you’re at least six months into the next fiscal year. Knowing this, you can still build year-over-year trending models that you can measure consistently.
   
• The underlying data may be tainted. As much as we’d like to rely on financial data from other organization and industry surveys, there’s no guarantee that all participants have applied accounting principles consistently, or calculated inputs (e.g., full-time equivalents) in the same way, making comparisons inaccurate.

Despite these pitfalls, benchmarking is a useful tool for your organization. Benchmarking lets you take stock of your current financial condition and risk profile, identify areas for improvement and find a realistic and measurable plan to strengthen your organization.

Here are four steps to take to start a successful benchmarking program and overcome these pitfalls:

1. Benchmark against yourself. Use year-over-year and month-to-month data to identify trends, inconsistencies and unexplained changes. Once you have the information, you can see where you want to direct improvement efforts.
2. Look to industry/peer data. We’d love to tell you that all financial statements and survey inputs are created equally, but we can’t. By understanding the source of your information, and the potential strengths and weaknesses in the data (e.g., too few peers, different size organizations and markets, etc.), you will better know how to use it. Understanding the data source allows you to weigh metrics that are more susceptible to inconsistencies.

3. Identify what is important to your organization and focus on it. Remove data points that have little relevance for your organization. Trying to address too many measures is one of the primary reasons benchmarking fails. Identify key metrics you will target, and watch them over time. Remember, keeping it simple allows you to put resources where you need them most.

4. Use the data as a tool to guide decisions. Identify aspects of the organization that lie beyond your risk tolerance and then define specific steps for improvement.

Once you take these steps, you can add other measurement strategies, including stress testing, monthly reporting, and use in budgeting and forecasting. By taking the time to create and use an effective methodology, this competitive advantage can be yours. Want to learn more? Check out our resources for not-for-profit organizations here.

Read this if you are an IT director, information security officer, compliance officer, risk manager, or organizational leader interested in enhancing resilience and robust continuity strategies.

Disaster Recovery (DR) involves processes and strategies to promptly restore critical business functions and IT systems following disruptive events like natural disasters, cyberattacks, hardware failures, or pandemics. The DRP is designed to restore operability at an alternative site after a declared disaster while minimizing downtime and data loss to resume normal operations.

The DR team, responsible for DRP planning, implementation, and management, is charged with minimizing the impact of a disaster on the organization and expediting the recovery of critical business functions. Assembling a team with both operational and technical perspectives is crucial.

Defining a clear chain of command is also important to specify when the DR team can make decisions, ensuring effective delegation of authority and control during a disaster. The DR team lead should initiate the plan after consulting team members and assessing the situation.

Key roles on a DR team include:

• Team lead: Oversees the entire DR planning and execution process. Responsible for coordinating activities and ensuring the DRP is up to date.
• Technology lead: Manages the IT infrastructure recovery process, including data backup and restoration, system recovery, and network restoration.
• Security lead: Manages the security aspects of the recovery process, including protecting sensitive information and ensuring that security measures are in place during the recovery process.
• Communications lead: Manages communication during and after a disaster, both internally and externally. Ensures that all relevant stakeholders are informed about the situation and communication channels are established.
• Human resources lead: Manages the human aspect of disaster recovery, including employee safety, relocation, and communication of HR policies during the recovery process.
• Legal/compliance representative: Makes sure that the recovery process adheres to legal and regulatory requirements, including data protection and privacy regulations.
• Facilities coordinator: Coordinates the recovery of physical facilities and sources alternative workspaces if the primary location is compromised. 
• Vendor/supplier coordinator: Coordinates with external vendors and suppliers to make available necessary resources and services during the recovery process.

Disaster Recovery Plans: Conclusion

To create an effective DRP aligned with the organization's needs and risks, it is crucial for the DR team to encompass representatives from various departments. Regular training, testing, and updating of the plan are essential for maintaining preparedness and effectiveness in addressing potential disasters.

This article is the first in a four-part series based on the book A Field Guide to Business Valuation, written by BerryDunn’s Seth Webber and Casey Karlsen. 

A banner hanging on the wall of a particular consulting firm states, “In God we trust – everyone else, bring data.” The message of this sign is humorous and clear: if one wants people to agree with one’s position, one must provide supporting data. This is particularly true when making major decisions.

Some of the most important decisions a business owner will make are related to the transition of ownership in their business. Yet when they come to the table for these big decisions, people sometimes neglect to bring the most important thing: data. At a minimum, they need to know the value of their business. It would also be beneficial to understand their business’s value drivers, risk profile, profitability drivers, and performance relative to their peers. A thorough business valuation contains this information and more.

Our favorite illustration of the business valuation process is the “valuation rocket ship.” The economic overview, industry analysis, and company overview provide the base to launch the valuation. The different approaches are then used to create three different perspectives on value. All of this information is then synthesized into the conclusion of value.

Economy, industry, and subject company analysis

The economic overview sets the groundwork for factors affecting value that are present in the general economy (unemployment rates, inflation, interest rates, etc.). The scope then narrows to the specific industry in which the subject company operates. The industry analysis discusses factors such as historical performance for the industry, supply chain risks, and barriers to entry. Valuation reports then get to the heart of the matter: the subject company. This analysis includes the history, ownership, risks, and other factors that may affect value.

Analysts carefully study the subject company to identify the features that affect value in an actual or hypothetical sale of the business. Acquirers need to know how a company operates and what factors may affect its viability and profitability moving forward. Analysts spend a lot of time looking for items that affect the risk profile of a company. Risk and business value are like children playing on a see-saw: As risk goes up, value goes down.

Once these analyses are complete, the data is considered through different lenses to get a complete picture. Businesses are commonly valued using three common approaches: The market approach, the income approach, and the asset approach, as we’ll discuss below.

Market approach

To understand the market approach, an analogy to the appraisal of real estate may be useful. If one is interested in buying a house, one could look at the price of similar houses to estimate the value of the house in question. Similarly, if one wishes to value a business, one can estimate its worth through a comparison to the sale of similar businesses.

Income approach

If one is trying to estimate the value of an income-producing property such as an industrial warehouse that will be leased out, one could estimate its value based on how much income it will generate over its life. This is called the income approach. Just like with income-producing properties, business value may be estimated based on how much income businesses are expected to generate.

Asset approach

A third way to value a building is by looking at how much it would cost to construct the building rather than buying a completed building. This “make vs. buy” approach is known as the cost approach for real estate appraisals. In the business valuation community, this approach is known as the asset approach. Rather than looking at the value of the company as it exists today, one could estimate value based on how much it would cost to start a similar company.

Conclusion of value

There is a parable about six blindfolded men who encountered an elephant for the first time. They each inspected the elephant by touching it with their hands. The first man felt the elephant’s trunk and concluded that an elephant was a type of large snake. The second man reached the elephant’s ear and stated that an elephant must be a type of fan. The third man felt the elephant’s leg, noting that an elephant is like a tree trunk. The fourth man, feeling the elephant’s side, thought that an elephant was like a wall. The fifth man felt the elephant’s tail and opined that an elephant is a type of rope. The last man felt the elephant’s tusk and decided that an elephant must be like a spear.

As this parable illustrates, when we have a narrow focus and consider only one perspective, we arrive at faulty conclusions. We can make this error in business valuations if we apply only one method to value a company. Each valuation method provides us with a different perspective on value. By considering several different methods, we can get a clear picture of what the subject company is worth.

BerryDunn’s Business Valuation Group partners with clients to bring clarity to the complexities of business valuation while adhering to strict development and reporting standards. We render an independent, objective opinion of your company’s value in a reporting format tailored to meet your needs. We thoroughly analyze the financial and operational performance of your company to understand the story behind the numbers. We assess current and forecasted market conditions as they impact present and future cash flows, which in turn drives value. Learn more about our team and services. 

The Centers for Medicare & Medicaid Services (CMS) issued the final rule for the PPS for SNFs for FY 2025, which was published in the Federal Register on August 6, 2024. The regulations in this rule are effective October 1, 2024.

The rule:

• Updates the PPS payment rates for SNFs for FY 2025 using the market basket update and budget neutrality factors effective October 1, 2024.
• Updates the International Classification of Diseases, 10th Revision, Clinical Modification (ICF-10) mappings used under PDPM.
• Changes the Nursing Home Enforcement Policies for civil monetary penalties (CMPs).
• Updates the Skilled Nursing Facility Quality Reporting Program (SNF QRP); and
• Updates the Skilled Nursing Facility Value-Based Purchasing (SNF VBP) Program.

2025 PPS Rate Calculations

The final rule provides a productivity-adjusted market basket increase for SNFs of 4.2 percent beginning October 1, 2024, which reflects:

• A market basket increase of 3 percent based on IHS Global Inc.’s (IGI’s) second quarter 2024 forecast with historical data through the first quarter of 2024.
• Plus, 1.7 percent associated with a forecast error adjustment.
• Less a reduction of 0.5 percentage points in accordance with the multifactor productivity adjustment.

CMS estimates that the aggregate impact of the payment policies in this final rule would result in a net increase of 4.2 percent, or approximately $1.4 billion, in Medicare Part A payments to SNFs in FY 2025. This estimate does not reflect a $187.69 million decrease as a result of the SNF VBP program reductions.

In addition to the SNF PPS rate update, CMS is rebasing and revising the SNF market basket to reflect a 2022 base year for FY 2025 and adopted the revised Core-Based Statistical Area (CBSA) delineations published by the Office of Management and Budget (OMB) in OMB Bulletin No. 23-01 (whitehouse.gov) to enhance the accuracy of wages and wage-related costs for the area in which the facility is located. The changes to the CBSA areas include changes to some counties from urban to rural, rural to urban, counties that will change to a different CBSA, and changes to some CBSA names and/or numbers.

The projected overall impact to providers in urban and rural areas is an average increase of 4.1 percent and 5.1 percent, respectively, with a low of 1.5 percent for urban outlying providers and a high of 7.4 percent for rural Middle Atlantic providers―actual impact will vary.

Changes in PDPM ICD-10 Code Mappings

CMS has made changes to the PDPM ICD-10 code mappings to help providers select more accurate and appropriate primary diagnoses for skilled intervention during a Part A SNF stay. These updated code mappings and lists can be found on the PDPM website in draft form until the final rule is in effect October 1, 2024.

Nursing Home Enforcement

Under the current regulations, depending on the health and safety deficiencies identified, penalties can be imposed per day or per instance for non-compliance, per-day penalties applied until the noncompliance is corrected and per-instance CMPs for isolated instances. Current enforcement did not allow the use of both types of CMPs during the same survey or for multiple CMPs to be imposed for multiple instances within the same deficiency that occurred on different days during a survey.

The new regulation revises the limitations to enable more types of CMPs to be imposed during a survey once a CMP remedy is selected, allowing the penalties to better align with the noncompliance identified and for more consistency of CMP amount across the nation. The revisions will permit multiple per-instance CMPs to be imposed for the same type of non-compliance, allow for both per-day and per-instance penalties to be imposed for noncompliance findings in the same survey, and ensure that the amount of a CMP does not depend solely on the date that the most recent standard survey is conducted or the date that the surveyors identified a finding of noncompliance.

SNF QRP Update

The following updates are being implemented by CMS beginning with the FY 2027 SNF QRP:

• Collection of four new items as Standardized Patient Assessment Data Elements under the social determinants of health (SDOH) category. These items include Living Situation (1 item), Food (2 items), and Utilities (1 item).
• Modification of the transportation item under the SDOH category.
• Implementation of a policy requiring participation in a validation process for assessment-based measures, similar to the SNF VBP process. On an annual basis, up to 1,500 SNFs will be randomly chosen to submit a limited set of medical records for data validation. If the SNF does not provide the requested records within 45 days, the SNF’s annual market basket percentage update will be reduced by 2 percentage points.
• Applying the Medicare Administrative Contractor’s (MAC’s) existing validation process for the SNF QRP claims-based measures.

SNF VBP Program Update

Updates to the SNF VBP program include the following:

• Adoption of a measure selection, retention and removal policy beginning with the FY 2026 program year.
• Adoption of a policy for incorporating technical measure updates into measure specifications and for subsequent updates to the SNF VBP performance standards beginning with the FY 2025 program year.
• Adoption of a measure minimum, for a SNF to receive a SNF performance score and VBP incentive payment for the FY 2028 program year, and subsequent years, SNFs must report the minimum number of cases for four of the eight measures during the applicable performance period.
• Updates to the SNF VBP review and correction process and the extraordinary circumstances exception policy.

As in prior years, our experts at BerryDunn have created an interactive rate calculator to assist you with the calculation of your PPS rates for FY 2025. The calculator is now part of the BerryDunn Senior Living Benchmarking Portal. The Senior Living Benchmarking Portal, along with the calculator, includes a carefully curated, comprehensive set of financial benchmarking reports, available in a self-service portal. Evaluating comparative financial performance and benchmarking is an important factor in helping facilities assess opportunities and move forward as innovators of the future. The Senior Living Benchmarking Portal can be accessed here.

Please note: The rates per our calculator are prior to any FY 2025 VBP adjustment. When CMS releases the final VBP incentive payment multipliers for FY 2025, BerryDunn will update the interactive rate calculator as necessary.

If you have any specific questions about the Final Rule or how it might impact your facility, please contact Ashley Tkowski or Melissa Baez.