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Give the Government Their Own Medicine: Make Up for Declining Reimbursements with Financial Efficiency & Tax Savings Print E-mail
Written by Carole C. Foos, CPA & David B. Mandell, JD, MBA   
Sunday, 29 April 2012 00:00

Recent Medicare cuts in reimbursements for most physicians and coming changes from the healthcare overhaul are making it more difficult for physicians to prosper. There are "top line" tactics for procedures and billing that can increase revenues. However, this article will address "bottom line" strategies, how the practice produces wealth for the doctor-owner. Specifically, two strategies to save in taxes what may be lost in reimbursement will be covered.

Using the Ideal Corporate Structure

Choosing the form and structure of one's medical practice is an important decision that can have a direct impact on financial efficiency and the state and federal tax burdens. Several issues to consider are:
  • Utilize a Partnership or Proprietorship. While these entities are asset protection nightmares and can be tax traps for physicians, they present a tremendous opportunity to recoup some reimbursement losses through lower taxes.
  • Do Not Treat an "S" Corporation as a "C" Corporation.   Approximately 60%-70% of all medical practices are estimated to be "S" corporations. Unfortunately, inefficient compensation structures can completely erase the tax benefits of having the "S" corporation.
  • Implement a "C" Corporation. This corporate structure has declined for medical practices, likely due to the "double tax" problem of corporate and individual taxes. While this is crucial to the proper use of a "C" corporation, there are tax-deductible benefit plans available only to "C" corporations that could counter many of the proposed reimbursement cuts.
  • Use Multiple Entities. Very few medical practices use more than one entity for the operation of the practice. Successful practices can often benefit from a superior practice structure that includes both an "S" and a "C" corporation to reap both tax reduction and asset protection benefits.
Maximizing Tax-Deductible Benefits for Doctors in a Practice

Benefit planning can help reduce taxes, but inefficient plans that are deductible to the practice may be too costly for the doctor-owners. To create an efficient benefit plan, physicians need to combine qualified retirement plans (QRPs), non-qualified plans and "hybrid plans." QRPs include 401(k) s, profit-sharing plans, money purchase plans, defined benefit plans, 403(b) s, SEP or SIMPLE IRAs, and other variations. While contributions to these plans are typically 100% tax deductible and the funds are afforded excellent asset protection, many QRPs are outdated and are only one piece of puzzle.

The Pension Protection Act recently improved the QRP options for many doctors, allowing additional contributions and deductions. Maximizing QRP options under the new rules could increase deductions significantly for a tax year. Additionally, fringe benefit plans, non-qualified plans and "hybrid plans" enjoy favorable short-term and long-term tax treatment.

With the current and upcoming reimbursement cuts, tax and efficiency planning must be a priority.

The authors welcome your questions and can be contacted at (877) 656-4362 or through the website  David Mandell, JD, MBA is an attorney, author of 5 books for doctors, and principal of the financial consulting firm OJM Group, where Carole Foos, CPA works as a CPA and tax consultant. They can be reached at  Please click HERE to read important disclosures.
Last Updated on Sunday, 27 May 2012 15:58
What does it mean to be “at risk”? Print E-mail
Written by M. Alexandra Johnson, FACHE   
Friday, 13 April 2012 16:48

The concept of being "at risk" has to do with the level of financial risk the entity has in funding the care its patients receive. As profit-oriented enterprises, insurance companies generally assess the insured's risk and base the premium on the anticipated cost of care with the ultimate goal of minimizing that risk. MedicareAdvantage plans are insurance companies, in a sense, that are paid a capitation by the Centers for Medicare and Medicaid Services (CMS) for each enrolled member. In exchange for that capitation payment, the Plan is financially liable for all the care given to the patient (e.g., all medications, surgical procedures, office visits, etc.) by any provider.

Depending on the plan's business model, it may contract with physicians operating as Independent Practice Associations (IPAs) or with groups that own or manage multiple physician offices under a Management Services Organization (MSO). In many cases, the plan's risk is passed onto the IPA or MSO. Click here to read more.

About the author:  M. Alexandra Johnson, FACHE (click to view author's bio)

Last Updated on Friday, 13 April 2012 16:54
Avoid Financial Gridlock When Partners Disagree Print E-mail
Written by David B. Mandell, JD, MBA & Jason M. O’Dell, MS, CWM   
Friday, 30 March 2012 00:00

Financial Planning Gridlock

In our practice, we have addressed potential strategies that doctors can use to reduce income taxes, increase benefits, or build retirement savings.  We have also had the opportunity to consult with hundreds of medical groups on how to implement these strategies for their practices.  However, the outcomes of such consultations can occasionally be less than fruitful because of office politics related to the age-related perspectives of practice partners.

Generally, the younger members of medical practices are very motivated to reduce their income taxes, while the older doctors may have other priorities.  The result of such situations can be practice planning gridlock.  The long-term costs of these gridlocks can be significant, causing younger physicians to have to work more years to reach the same retirement goals as their older partners.  Within this new world of medical practice, more creative methods of practice planning and asset growth are necessary, as are alternatives for managing planning gridlock.

Hybrid Benefit Plans

Hybrid benefit plans, in addition to traditional qualified plans (e.g., 401(k), profit-sharing plan, defined benefit plan), are good options because each physician can choose the amount of money to contribute in the plan formula.  This amount can vary from $150 to $100,000 per year, and because participation levels can be individualized, hybrid plans can be successfully implemented in larger medical groups.  Other benefits to this type of plan include:

·         The plan can be utilized with a qualified plan such as pension, profit-sharing plan/401(k) or SEP IRA;

·         Contributions can qualify for current tax deductions.

·         The plan acts as an ideal “tax hedge” technique against future income and capital gains tax increases.

·         Balances can grow in a top asset protected environment.

·         Employee participation requires a minimal funding outlay.

·         There are no minimum age requirements for withdrawing income (no early withdrawal penalties).

Flexible Corporate Structures

Another way to address gridlock is to alter the practice’s legal structure so that it accommodates planning flexibility on the part of individual physicians.  In the typical medical group structure, there is one legal entity – a corporation, LLC, or professional association (PA).  Physicians are either owners of the entity (informally referring to themselves as partners) or non-owner employees. In all such cases, the physicians have no ability to separate themselves from the central legal entity.  If the central entity does not adopt a planning strategy, no individual doctor has any flexibility to adopt one on his or her own.

An alternative structure is a central entity that is neither owned by, nor the employer of, the doctors directly.  Rather, it is structured through individual professional corporations (PCs) or PAs.  In this way, the central entity pays the physicians’ PCs as 1099 independent contractors after it receives payments.

From a tax standpoint, there is almost no downside to the central entity or the doctors who are not motivated to engage in any additional planning.  However, the physicians who want to implement planning strategies may do so through their individual PCs, leaving the central entity unchanged.  This structure can avert conflict with partners, as well as enable individual physicians to save $10,000-$50,000 more for retirement each year.

Outside Consultants

Many practices that rely on internal resources to tackle financial gridlocks will end up identifying no solution to their dilemma.  In such situations, outside consultants can help physicians realize their financial planning goals.  Outside consultants with expertise in the fields of taxation, accounting, benefits planning, or corporate law can present additional information to facilitate more productive discussions that can help practice members reach more informed group decisions. 


If your practice is grappling with financial gridlock and difficulties with advanced planning options, it may be that the differential needs of the various partners are at odds with each other.  This article has presented some basic methods for dealing with such gridlock.  Nothing can take the place of a professional with experience in the fine points of financial planning for physicians.  The authors welcome your questions, and can be contacted at (877) 656-4362 or at

David Mandell is an attorney, lecturer, and author of five books for physicians.  Jason O’Dell is a financial consultant, lecturer and author of two books for physicians. They are both principals of the financial consulting firm OJM Group.

Please click HERE to read important disclosures.

Last Updated on Monday, 30 April 2012 06:11
A/R From Third-Party Payors - A GAAP Refresher Print E-mail
Written by Jeffrey B. Kramer, CPA   
Monday, 12 March 2012 15:25

Generally Accepted Accounting Principles (or GAAP) govern how healthcare entities prepare their financial statements. GAAP is not a single accounting rule, but rather the aggregate of many rules on how to account for various transactions.

Most healthcare entities participate in payment programs that pay less than full charges for services rendered. Accordingly, there is often a delay in time between the date of medical service and the payment date. Making matters more complicated, many payments are subject to billing reviews, retroactive adjustments or other queries which may occur over a considerable period of time. As such, the lengthy period of time between rendering services and reaching final settlement, compounded by the complexities and ambiguities of reimbursement regulations, makes it difficult to estimate the ultimate amount of revenue earned from these programs.

GAAP accounting standards require service revenue and the related patient accounts receivable, including amounts due from third-party payors, to be reported net of contractual and other adjustments. Since amounts ultimately collectible will not be known until some future date, which may be months or years after services are provided, healthcare entities need to make estimates in order to record revenue and related patient receivables in the financial statements. The basis for such estimates may range from relatively straightforward calculations to highly complex judgments based upon assumptions about future events and decisions.

Accounting standards recognize that estimates are inherently uncertain and that outcomes may not ultimately occur as anticipated. Accordingly, such estimates are reevaluated each time financial statements are prepared. Any differences between original and current estimates are generally reported in the income statement in the period that the revisions are made rather than as an adjustment to the prior period.

Article by Jeffrey B. Kramer, CPA partner in charge of GSK Healthcare Accounting Advisors. Mr. Kramer can be reached at or 954.989.7462.
The Dysfunctional Medical Practice Print E-mail
Written by Wilma N. Torres, CPC   
Monday, 06 February 2012 07:28

Several years ago, we were engaged to transform a dysfunctional medical practice. No matter where we turned, there were issues, the largest of which was that the last patient appointment was set at 4:30 p.m. but the staff rarely left the office before 7:30 each night. Lunch was a juggling exercise because the morning patients were walking out as the afternoon patients were walking in. Understandably, patient frustration ran high and employee morale was almost nil. This series will explore four issues that contributed to the chaos and how they were resolved.                            

Click HERE to read Part I.  Click HERE to read Part II. 

Click HERE to read Part III.   Click HERE to read Part IV.

Click HERE to read part V. 

Learn more about the author, Wilma N. Torres, CPC.
Last Updated on Monday, 05 March 2012 10:59
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