PPMC Redux

Physician Practice Management Corporations

By Dr. David Edward Marcinko; MBA, CMP™

[Publisher-in-Chief]dem21

Here Come the PPMCs … again, Maybe!

The Physician Practice Management Corporation (PPMC), left for dead by the year 1999, may make a comeback going forward in 2008.

PPMC are evolving from first generation multi-specialty national concerns, to second generation regional single specialty groups, to third generation regional concerns, and now to fourth and fifth generation Internet enabled service companies, providing both business to business solutions to affiliated medical practices, as well as business to consumer health solutions to plan members. 

Even survivors like Pediatrix Medical Group saw its stock drop was floundering following disclosure that federal officials were investigating its Medicaid billing practices a few years ago. 

On the other hand, many private medical practices were bought back by the same physicians that sold out to the PPMCs originally.

But, if an entity is being bought back and accounts receivable is being purchased, be careful not to pick this item up as income twice.  The costs can be immense to your medical practice 

Example: 

A family practice purchased itself back from a PPMC.  Part of the mandatory purchase price, approximately $200,000 (the approximate net realizable value of the accounts receivable), was paid to the PPMC to buy back accounts receivable generated by the physicians buying back their practice.   

Unfortunately, the physician-executive unknowingly began recording the cash receipts specifically attributable to the purchased accounts receivable as patient fee income.  If left uncorrected, this error could have incorrectly added $200,000 in income to this practice and cost it (a C Corporation) approximately $70,000 in additional income tax ($200,000 in fees x 35% tax rate).

The error in the above example is that the PPMC must record the portion of the purchase price it received for the accounts receivable as patient fee income.  The buyer practice has merely traded one asset, cash, for another asset, the accounts receivable.  When the practice collects these particular receivables, the credit is applied against the purchased accounts receivable (an asset), rather than to patient fees.

So, be careful out there! www.MedicalBusinessAdvisors.com

Assessment: Anyone burned in a similar manner?

PPMC Update 2019

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