Despite the fact that the health care industry now comprises the greatest component of the nations gross domestic product, most physicians will tell you that this has not translated into a windfall for them. To the contrary, shrinking reimbursements, ever increasing expenses, various and sundry regulatory restrictions (and the costs associated therewith) have continued to erode physicians incomes.
The lifeblood of any medical practice, from a financial standpoint, is its billing and collection functions. Whether done in-house or by an outside billing company, it is critical for medical practices to regularly evaluate their performance on this front. This should include:
An all too familiar story, a physician is presented with an agreement from a third-party payor and simply signs it without determining whether the agreement makes sense from an economic standpoint. In many cases, these arrangements go on indefinitely. The solution is hardly profound:
Too often, practices bring in a new physician without giving thought to the economic practicality associated with the manner in which the physician will be compensated. Simply entering into an agreement to pay what the market will bear can be a recipe for disaster. Correspondingly, putting associate physicians on a guaranteed partnership track after the expiration of some agreed upon time frame, without taking into consideration the economics of the arrangement, can be equally as disastrous. In lieu of blindly wading into an employment relationship, it is recommended that practices:
Many physicians who historically referred out a host of ancillary services have considered providing these services in-house in order to capture the revenues for these services. These arrangements carry with them a variety of legal and regulatory hurdles under the Anti-Kickback statute and the self-referral laws at the state and federal level. Beyond these hurdles, the practice needs to critically evaluate not only what it can expect by way of anticipated revenue, but the true costs associated with bringing these services in-house. Tax Matters
Many practices, particularly those that have been in existence for some time, are very likely to be operating as C corporations (entities which are tax paying entities in and of themselves). In an attempt to avoid double taxation, these entities bonus out compensation to the principals, thus reducing or eliminating the corporations taxable income. A relatively recent case out of the United States tax court, Pediatric Surgical Associates v. Commissioner of Internal Revenue, calls this methodology into question, particularly where the amounts bonused represent, in whole or in part, revenues attributable to associate physicians (and, logically, from ancillary services). In Pediatric Surgical Associates the amounts which were treated as bonuses were recharacterized as dividends, resulting in taxable income at the entity level and dividend income in the hands of the shareholders. Practices that may be in this position may be advised to:
Despite the adoption of the Medical Malpractice Reform Act last year, physicians still face unprecedented premiums for malpractice insurance coverage. The question on many physicians minds should I go bare? There is certainly a point at which malpractice premiums become economically unfeasible for many medical practices. It is not unheard of for annual premiums to exceed the per claim limit on the policy. In the end, the decision to self-insure or go bare is a very personal one and involves not only issues of economics, but the risk tolerance of the physician or physicians in question. Physicians may give some consideration to the following: