Turn Your Practice Into a Financial and Wealth-Building Engine

Posted by & filed under Business Owners, Doctors, Education, Healthcare, Resource, Uncategorized.

Do you run your own practice or hope to run your own practice in the near future? If your answer is “yes,” then you will want to pay close attention to the information within this Lesson. The purpose of this section of the article is to help you get the most—financially speaking—out of your practice. You will have to do more than the typical cookie-cutter planning that many CPAs and attorneys will suggest. As you learned in Lesson #3, an advisor who doesn’t specialize in the unique issues that Doctors face is likely to miss a number of key elements in their planning.
If your goal is to efficiently get the most out of your practice, you may find this Lesson to be the most valuable in this book. While intelligent planning can improve all aspects of your life, it is the impact on your practice that can be the most significant. You need to begin thinking about your practice not only as a treatment facility for patients, but also as a financial Fortress and a wealth-building Engine for you.
The Fortress analogy is important because we want to make sure that the practice is fortified. As the vehicle through which you will make most of your earnings in your career, the practice needs to be protected against all financial and legal threats. As you learned in the previous sections of the larger article, these threats are not just medical malpractice lawsuits. They include healthcare issues, employment risks, and other financial threats that can impact your ability to work and make money.

The Engine analogy is crucial because we want your practice to be an engine for wealth accumulation. You will want to apply the important concepts explained earlier in this book (e.g., Leverage and Efficiency) to your practice structure and operations. By doing so, you will finally be able to derive as much financial benefit as possible out of your practice—both during your working years and through your retirement.
In this Lesson, we will discuss ways to structure and operate your practice so it will act both as a Fortress and as an Engine. Specific articles will cover other risks to the practice not yet discussed, including the premature death or disability of a partner. This Lesson will also explain how to turn the practice into a Fortress by protecting your accounts receivable, real estate, and equipment. You will also be introduced to tools that can be used to transform your practice into a smooth-running Engine—including the use of qualified and nonqualified plans, friendly lease-back arrangements, and captive insurance companies. Finally, we will explain the ultimate wealth-building Engine—the million-dollar retirement buy-out.

How NOT to Structure Your Practice

Every year, we meet many Doctors who are practicing within a structure that offers very little, if any, protection for the assets of the practice. Even worse, we encounter Doctors who have put absolutely no barrier between the potential risks of their practice and all of their personal assets. In some cases, this is due to ignorance on the part of the Doctor. Other times, this is the result of poor advice. Many accountants have suggested that Doctors might not see enough benefit from incorporation to warrant the added time and expense corporations require. Other advisors still recommend general partnerships, although this practice form is all but extinct. In this chapter, we will discuss the pitfalls to avoid when structuring your medical practice.
It may be difficult to believe, but most Doctors who call us have practices that are structured with two things in common:
· Maximum lawsuit exposure
· Minimum tax-saving potential
In this chapter, we will discuss the common medical practice structural and operational mistakes that can cause these two highly undesirable outcomes. After you learn how not to structure your practice, you can continue reading the rest of this Lesson and learn how you can structure your practice for maximum flexibility and efficiency, enabling you to create the Fortress and Engine you desire.

The Worst Way To Structure A Practice: As A General Partnership
Fortunately, it is far less common for Doctors and their advisors to structure new medical practices as general partnerships today. Though new practices are rarely configured as general partnerships, we still come across dozens of mature (and profitable) practices every year that continue to be operated as general partnerships. There are rarely absolutes in medicine, finance, or the law. However, here is one simple rule: You should never operate any medical practice or other business practice as a general partnership. Why do we say this? The general (pun intended) reason is because a general partnership is a creditor’s or plaintiff attorney’s dream and a partner’s liability nightmare. More specifically, let’s consider the three hidden dangers of a general partnership:
1. Partners Have Unlimited Liability for Partnership Debts
This tragic fact goes unrealized by many Doctors who are involved in general partnerships. Without signing personal guarantees on every debt, the Doctors who are involved in a general partnership are, by default, personally guaranteeing every partnership debt and personally assuming the risk for malpractice, accidents, and other liability sources of the entire partnership. These Doctors fail to consider that their liability as a partner is joint and several with all other partners. A plaintiff who successfully sues the partnership can collect the full judgment from any one partner. Let’s look at an example to see how dangerous this arrangement can be:
Case Study: Jane and Ted’s Real Estate Venture
Jane and Ted were physician colleagues who wanted to increase their income by buying “fixer upper” houses, renovating them and then selling them. Events went well for a while, but the real estate market went sour and they defaulted on a $650,000 loan to the bank. Jane was much wealthier than Ted, so the bank pursued Jane for the full amount, ignoring Ted, under the theory of joint and several liability. To collect Ted’s share of the liability, Jane had to file suit against him, More

Avoiding Healthcare & Insurance Issues

Posted by & filed under Education, Healthcare, Legal, Resource, Uncategorized.

Avoiding Healthcare & Insurance Issues
Before we can show you how to turn your practice into a Fortress and an Engine in the next Lesson, we have to show you what to avoid in your practice so that you don’t cause any insurmountable financial damage to yourself or your practice. In addition to personal lawsuits, Doc-tors need to worry about business issues as well. This is consistent with our previous discussions about the “business of medicine.”
Many physicians have a false sense of security and believe that malpractice insurance will protect them from lawsuits. We agree with you that a medical malpractice claim is not “likely” to result in a significant depletion of your estate. However, if you go to trial and lose, you could be in serious financial trouble. According to Current Award Trends in Personal Injury (Copyright 2007), half of all jury awards for medical malpractice claims in 2005 exceeded $1,184,000. The average medical malpractice jury award in 2005 was $3,830,000. If you consider that most doctors carry $1 million of per occurrence medical malpractice liability insurance, half the doctors who lose a judgment will be out at least $200,000 and the average personal loss from a judgment will exceed $2.8 million of the doctor’s own money (after insurance has paid its limits).
In addition to medical malpractice threats, there are unexpected risks that carry an even higher likelihood of causing asset depletion. As a Doctor, business issues include liability for your business as well as liability that may result from regulatory issues and administrative investigations (i.e., OPMC, HCFA, Stark, HIPAA, OIG, etc.) and contract issues (i.e., Medicare Medicaid Fraud investigations, over-billing claims, and refund audits from insurance companies). These types of claims are increasingly overshadowing the threat of medical malpractice because, unlike malpractice risks, they are usually not covered by insurance, leaving the physician to privately fund the defense costs out of pocket. In addition, mistakes in regulatory issues can even land a Doctor in jail. No other risks in this book carry such a serious threat.
In this chapter, we will discuss some of the specific healthcare and insurance related risks, explain how they can be avoided, and offer suggestions on how to protect yourself from mistakes that may occur even when you do your best to avoid them.

Employee at Mac ComputerHIPAA
The Health Insurance Portability and Accountability Act (HIPAA) of 1996 was originally en-acted to enhance (not guarantee) certain health care insurance coverage for Americans. HIPAA also creates a national, standardized set of rules for maintaining (security) and protecting (confi-dential) patient medical information known as PHI (Protected Health Information). The failure to institute a good faith and reasonable office compliance program, to provide privacy notice to patients concerning their rights, to protect against the unauthorized release of confidential records and implement security safeguards for data in transit and maintained in the office could potentially place physician owners, their employees (including administrative office staff) and even business associates at grave risk for monetary fines and even criminal penalties for the unauthorized disclosure of PHI which is enforced by the OCR. Such penalties and sanctions could include civil penalties and fines for each violation ($100 per violation with a maximum penalty of $25,000/year for identical penalties) and for intentional violations of the law could even include criminal penalties (i.e. fines between $50,000—$250,000 and imprisonment terms from 1 to 10 years).

Over-Billing Issues
A key operational element in the business of medicine is the process of billing, coding and collecting professional fees from insurance companies. In some cases the payers are insurance companies and in other cases, the payers may be Medicare or Medicaid. Aside from the United States tax code (which we will call the most complex system of rules in the history of mankind in Lesson #7), the Medicare coding system may be the most complex system of rules ever created.
Despite best efforts to train administrative staff, medical offices are regularly audited by insurance companies, Medicare and Medicaid. These audits routinely result in claims of over-billing. Many Doctors fight a losing battle against the large insurance companies (and their teams of attorneys) and ultimately have to surrender funds they previously collected for services rendered. Unfortunately, when the audit comes from Medicare or Medicaid, Doctors have more to lose than just money. A Doctor found guilty of Medicare fraud can actually go to jail. Because of the significant costs resulting from both Medicare fraud and commercial insurance carrier audits, we will examine them both separately.

Medicare Fraud
Anyone who provides, or receives, healthcare services, could commit Medicare fraud. Fraud is defined as an intentional deception or misrepresentation that someone makes, knowing it is false, that could result in the payment of some unauthorized benefit. Abuse, on the other hand, involves actions that are inconsistent with sound medical, business, or fiscal practices. Abuse di-rectly or indirectly results in higher costs to the Medicare program through improper payments that are not medically necessary. In the eyes of investigators, fraud and abuse both have the same effect. They steal valuable resources from the Medicare Trust Fund that would otherwise be used to provide benefits to Medicare recipients.

Fraud Investigations
The federal law enforcement agency responsible for investigating Medicare fraud is the Department of Health and Human Services, Office of Inspector General (HHS-OIG). In some cases, HHS-OIG may involve other agencies, such as the Federal Bureau of Investigation (FBI), the Internal Revenue Service (IRS), or the Postal Inspection Service.
Many complaints are simply misunderstandings or billing errors and can be resolved fairly easily. Some complaints help identify abusive billing practices. The Medicare contractor will educate the health care provider, collect any overpayment, and then follow up to make sure the provider does not make the same mistake again. Other complaints involve Medicare fraud. These cases often require long, complex investigations by federal law enforcement agencies.

Penalties
The U.S. Attorney General’s office targets health care providers for civil and/or criminal prosecution. Some of the penalties for someone convicted of Medicare fraud are listed More