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Further Implications of the U.S. Patriot Act for Hospitals

By Dr. David E. Marcinko; MBA, CMP™

By Hope R. Hetico; RN, MHA, CMP™dave-and-hope4

With the recent popularity and growth of health savings accounts (HSAs) and / or medical savings accounts (MSAs), compliance with the USA Patriot Act of 2002 has become an important issue for these new, hybrid health insurance products.

Many of these insurance plans place patients and insurers into relationships with shared information institutions like hospitals, healthcare organizations, medical clinics and patient clients.

The “Online” Connection

This occurs because many, perhaps even the majority of HSAs, MSAs and high deductible healthcare plans [HD-HCPs] are opened online, as patients and insurance company clients use Internet search engines to find the “best” policy type to meet their needs. 

Ditto, for more traditional health insurance plans, as well? 

Example: 

For example, on October 1, 2003, Section 326 (Customer Identification Program) of the US Patriot Act went fully into effect, requiring the implementation of reasonable procedures to verify the identity of new customers and certain existing customers opening a new MSA or HSA account. 

And, Section 3261 of the Act also requires banks, savings associations, insurance companies, hospital and medical union credit unions, and certain non-federally regulated banks to have the CIP fully implemented. Broker-Dealers [BDs] in securities are subject to similar, but slightly different rules.   

Bank Secrecy Act [BSA] 

For additional compliance, The USA Patriot Act also amended the Bank Secrecy Act (BSA) to give the federal government enhanced authority to identify, deter and punish money laundering and terrorist financing activities.

Increased Hospital Vigilance

This, the passage of the USA Patriot Act – and these important derivatives – means that affected hospitals and healthcare organizations must be more vigilant about laws concerning money laundering; reporting of disease and quarantine; and cyber attacks.

Moreover, it means that healthcare organizations must adhere to the Act, regarding affected health insurance policies, by meeting its Customer Identification Program (CIP) and anti-money laundering requirements.  

Assessment

Whatever the financial outlays required for compliance – there be very large savings later if affected hospital assets and patient health insurance information is safeguarded against attacks of virtual or real assets. 

Conclusion

And so, what is your opinion on the above health law and policy? 

Related source:Marc B. Royo and David B. Nash.Sarbanes-Oxley and Not-for-Profit Hospitals: Current Issues and Future.”

Speaker: If you need a moderator or a speaker for an upcoming event, Dr. David Edward Marcinko; MBA is available for speaking engagements. Contact him at: MarcinkoAdvisors@msn.com

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Charitable Giving Terms and Definitions for Physicians

A “Need to Know” Glossary for all Medical Professionals

Staff Writer’sdhimc-book

For most medial professional’s, charitable giving can either be a financial planning goal or an economic tool to achieve other goals more effectively.   

When charitable giving is viewed as a financial goal it becomes a very personal matter to the physician, much like an individual’s other lifestyle choices. 

For some doctors, charitable giving is a way of showing gratitude for their well-being. For others, it is a matter of social status. Still some physicians approach charitable giving as a discipline of their religious or philosophical view of life.  

Nevertheless, various charitable giving techniques are available to meet a physician’s unique financial planning requirements. These techniques generally fall into two broad categories: current gifts and planned or deferred gifts.  

Current gifts are rather simple techniques that can be completed at or near the current moment.

Planned or deferred gifts are generally complicated transactions that are to be completed in the future. 

Use of a particular charitable giving technique will depend largely on the doctor’s capacity to understand and evaluate complex alternatives – strength of donative intent – as well as his/her current and future cash flow needs, types of assets owned, strength of charitable intent, and income and estate tax considerations.

Glossary of Terms

5% probability rule: In general, charitable income tax deductions are disallowed when there is greater than a 5% chance that a noncharitable beneficiary will live long enough to exhaust the charity’s remainder interest. Charitable remainder unitrusts are exempt from this rule [Rev. Rul. 77-374]. 

Bargain sale: A sale of property to a charity for less than the property’s fair market value [Regs. §1.1011.2].

Charitable gift annuity: An arrangement under which a donor makes a gift to a charity in exchange for systematic payments of income for a period of time [Regs. §1.170A-1(d)]. 

Charitable income trust: A trust created by a donor doctor that provides for income payments to a charity for a period of time, after which the remainder is paid to a non-charitable beneficiary. Payments to the charity are limited to the amount of income earned by the trust [Rev. Rul. 79-223]. 

Charitable lead trust: A trust created by a donor that provides for payments to a charity for a period of time, after which the remainder is paid to a non-charitable beneficiary. Payments to the charity are either a fixed amount annually or a fixed percentage of the value of assets in the trust at the beginning of each year. Payments are not limited to the amount of income earned by the trust [IRC §664(a)]. 

Charitable remainder trust: A trust created by a physician-donor that provides for payments to a non-charitable beneficiary for a period of time, after which the remainder is paid to a charity. Payments to the non-charitable beneficiary are a fixed amount annually. Payments are not limited to the amount of income earned by the trust [IRC §664(a)].

Charitable remainder annuity trust (CRAT): A trust created by a physician-donor that provides for payments to a non-charitable beneficiary for a period of time, after which the remainder is paid to a charity. Payments to the non-charitable beneficiary are a fixed amount annually. Payments are not limited to the amount of income earned by the trust [IRC §664(d)(1)].

Charitable remainder unitrust (CRUT): A trust created by a physician-donor that provides for payments to a non-charitable beneficiary for a period of time, after which the remainder is paid to a charity. Payments to the non-charitable beneficiary are a fixed percentage of the value of assets in the trust at either the beginning or the end of each year, depending on the trust agreement. Payments are not limited to the amount of income earned by the trust [IRC §664(d)(2)].

Donative intent: The inclination of a physician-donor to make a gratuitous gift to charity.

Income in respect of a decedent: Amount due and payable to a decedent at his or her death because of some right to income. Examples of income in respect of a decedent include salaries, retirement benefits, annuity payments, interest, dividends, rents, and deferred gain on an installment contract, earned but not received by the decedent before his or her death [IRC §691(c)(2)].

Insubstantial rights: Rights to the use of donated property that is retained by a physician-donor when the retained rights do not interfere with the donee-charity’s unrestricted use or full ownership of the donated property [George v. U.S. 11/30/61, DC-MI]. 

Pooled income fund: A fund that commingles property gifted by several donors, where each donor designates a non-charitable person to receive income for life and a charity to receive the remainder interest [Regs. §1.642(c)-5].

Private foundation: A tax-exempt organization under IRC §501(c)(3) that does not enjoy a broad base of public support [IRC §§508, 509].

Public Charity: A tax-exempt organization under IRC §501(c)(3) that enjoys a broad base of public support [IRC §509(a)(2)].

Qualified appreciated stock: Stock for which a market price quotation is readily available and that would generate a capital gain if sold [IRC §170(e)(5)].

Qualified charity: An organization described in IRC §170(c). Gifts to these organizations can be deducted by donors for income, gift, or estate tax purposes. 

Qualified conservation contributions: A restriction on the use of real property, a remainder interest in real property, or a physician-donor’s entire interest in real property that is given to a qualified charity for conservation purposes [IRC §170(f)(3)(A)].

Quid pro quo: The expectation by a physician-donor that he or she will receive a bargained-for benefit in exchange for a gift to a charity [Rev. Rul. 76-185].

Reduction rules: Exceptions to the general rule that gifts to charity are deductible to the extent of the fair market value of the donated property [IRC §170(e)(1)(A)].

Supporting Organizations: A tax-exempt entity that is established by an individual or small group of donors for the purpose of supporting a public charity.

Remainder interests: Property rights that can be enjoyed only after prior rights have terminated. 

Undivided interests: Rights that joint owners share in the entirety of a property as opposed to rights they enjoy to segregated pieces of a property. 

For related information: www.HealthDictionarySeries.com 

Additional info: http://www.jbpub.com/catalog/0763745790/

Note: Feel free to send in your own related terms and definitions so that this section may be updated continually in modern Wiki-like fashion.

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Using Fraud Detection Software to Review Medical Claims

MDs May be Slow HIT Adopters – CMS and Insurers are Not!

Staff WritersShadows

Did you know that Medicare and private health plans increasingly have been “mining” medical claims data for potential fraud – for some time now – and with the help of sophisticated computer technology? 

Yes, it seems true – and such IT may be needed more than ever in 2008!

How Much Fraud? 

Fraud accounts for an estimated 3% to 10% of the $2 trillion spent annually on healthcare in the U.S. Within the past few years, companies including Fair Isaac, IBM, ViPS and Ingenix, a subsidiary of UnitedHealth Group, have developed software that detects suspicious patterns in claims data.  

“Spider-Web” Technology

According to the CMS, their technique is called “spider-webbing. 

IOW: Find one common denominator and follow the thread. 

“Red flags” indicating possible fraud include medical providers charging more than peers; providers who administer more tests or procedures per patient than peers; providers who conduct medically “unlikely” procedures; providers who bill for more expensive procedures and equipment when there are cheaper options; and patients who travel long distances for treatment. 

Private Insurers to Follow CMS

For example, Aetna reported its fraud-detection software helped the insurer prevent more than $89 million in fraudulent reimbursements from being paid last year, compared with $15 million it was able to recover after fraudulent payments were already made.

Companies are able to save far more money by detecting fraud before claims are paid than recovering the money after the fact. 

Conclusion 

And so, what are your thoughts on this HIT initiative? Are the private insurance companies and CMS taking advantage of the slow HIT adoption of medical providers? Who is to blame, if anyone? 

Please comment: 

More info: www.HealthcareFinancials.com

Related info: http://www.jbpub.com/catalog/9780763733421/ 

Original source: USA Today 11/07/06

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Medical Malpractice Claim Causation Study

Physician Errors Do Play a Role — A.I.M.

 By  Staff Writers

 According to a two-year old report in the Annals of Internal Medicine, physician errors are a factor in about 60% of medical malpractice claims that involved patients allegedly injured because of missed or delayed diagnoses. 

The B&WH Study 

For the study, researchers at Brigham and Women’s Hospital in Boston reviewed 307 claims from four large malpractice insurers that were closed between 1984 and 2004. 

181 of the claims involved diagnostic errors that allegedly injured patients; and ignored the outcomes of the claims.

Although most of the claims involved several factors, the major ones involved physician errors. 

The Results 

According to the study:

  • 100 claims involved failure to order appropriate diagnostic tests; 
  • 81 claims involved failure to establish a plan for appropriate follow-up care;  
  • 76 claims involved failure to obtain an adequate H&P or PE; 
  • 67 claims involved improper interpretation of diagnostic tests.  

 

Contributing Factors 

The main factors that contributed to the physician errors included failures in judgment (79%), memory problems (59%), lack of knowledge (48%), patient-related issues (46%) and patient handoffs from other physicians (20%).

Conclusion 

And so, how does this impact your thoughts on the topic; please comment? 

 More information: http://www.jbpub.com/catalog/9780763733421/

Cash Flow Terms and Budgeting Definitions

A “Need to Know” Glossary for all Medical Professionals

Staff Writers 

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Regardless of how much current income a physician may earn, financial resources and assets are only useful when they are converted to cash. Doctors who are in the accumulation phase of their careers can only amass new assets from free cash flow.

Free cash flow is the result of budgeting for excess cash flow and the prudent use of debt. And, debt can be either a friend or foe!  

If used properly, debt can increase a medical professional’s standard of living by allowing him or her to enjoy an asset or goal earlier than if he or she had to pay cash.  Or, it may be a catastrophe as seen in the recent housing market value-decline and security backed mortgage-bubble bust.   

Yet, debt management has become a serious issue in American society, especially for non-secured debt because of easy access to credit via credit cards. And, it is not unusual to hear the story of a medical professional with $100,000 of credit card debt; or more.  Although perhaps an extreme example, it is not unusual for doctor’s to have $15,000 to $25,000 of revolving credit card debt.  

Glossary of Terms 

Adjustable rate mortgage: A mortgage loan that has an interest rate that changes in response to market interest rates during the loan’s term. 

Cash reserve: The amount of assets that are quickly convertible into cash for the purpose of meeting un-foreseen expenditures or reductions in income. 

Closing costs: Expenses that accompany the buying, selling, or financing of real estate. 

Consumer Price Index: A statistic published by the Bureau of Labor Statistics for the purpose of reporting the average consumer inflation rate. 

Debt consolidation: A debt management strategy that involves borrowing money in a single loan to repay other debts. 

Deferred expenses: Expenditures that are planned to occur several years in the future, usually requiring large outlays of cash. Examples include paying for college expenses, buying a vacation home, and paying for a child’s wedding. 

Discount points: Payments made to a lender at the inception of a loan for the purpose of reducing the interest rate of a loan.

Federal Deposit Insurance Corporation: An agency of the United States government that insures deposits in federally and state-chartered banks. 

Federal Depository Insurance: A program of the Federal Deposit Insurance Corporation that insures depositors in federally and state-chartered banks. 

Fixed rate mortgage: A mortgage loan that has a constant interest rate for its whole term.

Home equity loan: A mortgage loan, usually in addition to the primary mortgage loan, which allows the borrower to convert a portion of real estate equity into cash. 

Loan origination fee: Payments made to a lender at the inception of a loan to pay for the lender’s underwriting services.

Money market deposit account: An account offered at a banking institution that has features similar to a money market mutual fund. Accounts under $100,000 are insured by the Federal Deposit Insurance Corporation. 

Money market mutual fund: A registered investment company that invests in securities that have short-term maturities (usually from several days to several weeks). 

Mortgage broker: An intermediary who charges a fee to facilitate acquisition of a loan to purchase real estate. 

Mortgage insurance: A coverage that is often required by lenders, and paid for by borrowers, for the purpose of insuring the lender against potential default by the borrower. 

National Credit Union Administration: An agency of the United States government that insures deposits in credit unions. 

National Credit Union Share Insurance Fund: A program of the National Credit Union Administration that insures shareholders of credit unions. 

Non-recurring expenses: Irregular household operating expenditures, the timing of which during a year may not be determined precisely, or expenditures that occur less frequently than monthly. Examples include car repairs, home repairs, and insurance premiums. 

Personal Inflation Index: A statistic that adjusts the Consumer Price Index to specific spending patterns of a household. 

Recurring expenses: Regular household operating expenditures that occur every month. 

Reverse mortgage: A loan secured by real estate that allows the borrower to convert equity into cash without having to make monthly payments during the term of the loan. The loan plus accrued interest is paid from the proceeds of the sale of the property.

Savings Association Insurance Fund: A program of the Federal Deposit Insurance Corporation that insures depositors in federally chartered savings institutions.

Securities Investor Protection Corporation: A membership corporation of securities firms that was authorized by the Securities Investor Protection Act of 1970. 

Total Annual Loan Cost: The total annual financing costs associated with a reverse mortgage.

For more information: www.HealthDictionarySeries.com 

Note: Feel free to send in your own related terms and definitions so that this section may be updated continually in modern Wiki-like fashion.

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Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com

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“First Do No Harm” – A Medical Legal Imperative

Primum Non Nocere

By Dr. Jay S. Grife; JD, MA

This Latin phrase is axiomatic in intent and is one of the earliest inoculations students of medicine receive.  It dovetails the Hippocratic Oath to provide both a moral and ethical foundation for physicians in furtherance of their mission to heal the sick. It asks little in objective terms but demands an immense measure of dedication and knowledge from those who practice their profession.  Yet, it is roughly estimated that one of every five practicing health care professionals will confront the enigmatic process of medical malpractice within a twelve-month span. Despite the fact that most health care practitioners will never see the inside of a courtroom, the sequelae of the event itself can scar the psyche forever after. And so, the quintessential risk-management question for all medical practitioners is: What can be done when the inevitable happens and what can you as a practicing doctor do to confront the process? 

-Dr. David Edward Marcinko; MBA, CMP™

[Publisher-in-Chief]

INTRODUCTION

“Even among the sciences, [and in the managed care era], medicine still occupies a special position. Its practitioners come into direct and intimate contact with people in their daily lives; they are present at the critical transitional moments of existence. 

For many people, they are the only contact with a world that otherwise stands at a forbidding distance.  Often in pain, fearful of death, the sick have a special thirst for reassurance and vulnerability to belief.” 

Socialization of Medicine and the Litigation Prescriptive “Spark”  

When this trust is violated, whether rooted in factual substance or merely a conclusion lacking in reality, American jurisprudence offers several remedies with the core being civil litigation.

For example, I have witnessed a vast spectrum of reasons that prompts a patient to seek the counsel of an attorney.

Whether it be an untoward result of treatment or surgery, an outstanding invoice being mailed to a less than happy patient who decides that the doctor’s treatment did not measure up to expectations, a physician’s wife, employed as the office manager, charging a patient eighty-five dollars to complete a medical leave authorization form, or simply a perceived lack of concern on the part of the doctor or his personnel, patients can be motivated to seek redress outside the realm of the doctor’s office. 

Compound any of the above scenarios with well-meaning friends and family, and the proverbial initiating “spark” has been lit; and the prescription for litigation has been written.

Bilateral Communication is a Preventative Key 

Woven throughout any discussion of the topic, should be suggestions that might obviate the foregoing.

While it is not a panacea, nor a cure-all for medical negligence cases, many believe it to be the most effective methodology for resolving those differences that see the growth of a medical malpractice lawsuit; honest and bilateral communications. 

Not Trial Bound by Destiny 

In the United States, a trial is thought to be the most common manner in which disputes are resolved. Contrary to what we see on television, very few cases actually make it to trial with most be either dismissed or resolved through mediation or arbitration.

In fact, a few years ago the U.S. Department of Justice recently reported that only about three percent of all civil cases are resolved by a trial. The vast majority of civil lawsuits, and in particular medical malpractice cases, are settled or dismissed before any of the litigants see a courtroom. 

MORE: http://shrutinshetty.com/2016/10/27/primum-non-nocere/

Conclusion:

What has been your experience on this often contentious topic – settle or litigate – please comment? 

Reference: [1] Paul Starr: The Social Transformation of American Medicine, Basic Books, 1982, pgs. 4-5.

  Risk Management, Liability Insurance, and Asset Protection Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™

***

New Pilot Program to Audit Hospital Bills

Medicare Program Promotes Bounty-Hunter Zeitgeist” Mentality

[By Dr. David Edward Marcinko; MBA]

Publisher-in-Chief dem2

According to a recent report in the Wall Street Journal, hospital groups have launched a vigorous campaign against expanding a pilot program to audit Medicare claims. And, it seems the most onerous aspect of the program is a contingency fee-schedule that encourages auditors to be aggressive.

Evolving Program Details

The program initially launched in California, Florida and New York and soon to be expanded nationwide, recouped $247.4 million in overpayments in fiscal year 2007 alone. It relies on private-sector auditing firms to examine claims filed by hospitals and other medical providers and then pays them contingency fees based on how much the government saves. 

Outcomes-to-Date

As an example of its success, the WSJ reported that in FY 2007, auditors identified $357 million in overpayments [$17.8 million or 7.1% of which were overturned on appeal], according to the Centers for Medicare and Medicaid Services [CMS]. Payments for contingency fees and other administrative expenses totaled $77.7 million. Auditors also found $14.3 million in Medicare underpayments.

Support versus Criticism

While supporters of the program say the contingency fees serve as an incentive, critics say it encourages auditors to rely on a “‘bounty hunter’ payment mechanism.”  

Same old Economic Song

Of course, most long-time observes of the compliance and audit scene realize that this zealous zeitgeist mentality is not new.

For example, under the Health Insurance Portability Accountability Act [HIPAA], the Department of Health and Human Service [HHS] started an “Incentive Program for Fraud and Abuse Information” [IPFAI] almost a decade ago. 

In that January 1999 pilot program – which continues in modified form – HHS paid fees ranging from $100-1,000 to Medicare recipients who reported abuse. To assist patients in spotting fraud, HHS even published examples of physician potential fraud, which include: 

  • Medical services not provided
  • Duplicate services or procedures
  • More expenses services or procedures than provided (upcoding / billing)
  • Misused Medicare cards and numbers
  • Medical telemarketing scams
  • Non-medical necessity, etc. 

To discourage flagrant allegations regulations require that reported information needed to directly contribute to monetary recovery for activities not already under investigation. 

Assessment

Nevertheless, expect a further erosion of patient confidence, as CMS continues to view all healthcare providers – and now hospitals and related healthcare organizations – in the same light as “bounty- hunters”. 

Ironically, this precise same phenomenon was reported in both the first and second editions of the book “The Business of Medical Practice”. 

And so, please remember all medical colleagues – forewarned is forearmed. 

More information: http://www.springerpub.com/prod.aspx?prod_id=23759 

Speaker: If you need a moderator or a speaker for an upcoming event, Dr. David Edward Marcinko; MBA is available for speaking engagements. Contact him at: MarcinkoAdvisors@msn.com

 

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Inheritance “Disclaimer”

What all Physicians Should Know

By Lawrence E. Howes; CFP™

By Joel B. Javer; CFP™fp-book1 

In some situations, an inheritance might complicate an estate and add to the estate tax burden.  If there are sufficient assets and income to accomplish financial goals, more assets are not needed. A disclaimer may be useful to such physicians.

A Simple Definition

A disclaimer is an unqualified refusal to accept a gift or inheritance, that is, when you “just say no”.  You have decided not to accept a sizable gift made under a will, trust or other document.

Formal Disclaimer Requirements

When you disclaim the property, certain requirements must be met: 

  • The disclaimer must be irrevocable;
  • The refusal must be in writing;
  • The refusal must be received within nine months from the date-of-death;
  • You must not have accepted any interest in the property; and
  • As a result of the refusal, the property will pass to someone else.

Intent and Results 

The disclaimed property passes under the terms of the decedents will, as if you had predeceased the decedent. If the filer of the disclaimer has control, the property will be included in the disclaimant’s estate and can only be passed to another as a gift for as an inheritance. The intent of the disclaimer is to renounce and never take control of the property. 

Assessment 

The use of disclaimers became a more important tool in estate planning under the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA). 

Many estate plans that were designed and drafted prior to EGTRRA, had unintended consequences when governed by the new law.  Hence, disclaimers may have been the only way to allocate estate assets according to personal desires versus legal design.

Nevertheless, current political machinations and the impending tax and estate planning “sunset-provisions” are sure to add to the confusion. 

Conclusion:

What is your experience with “disclaimers”; if any? 

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Physicians Expanding HIT Expenditures for 2008

A New Study from the Gantry Group

Staff Reporters

 

According to a new study from the Gantry Group, physicians and medical providers will be spending more money on health information technology tools and applications this year. And, their statistics suggest that healthcare providers are allocating forty percent or more of their current technology budget to clinical technology, in 2008.

This includes health information technology [HIT] expenditures for digital medical imaging, medication management, e-prescribing, RFID solutions, electronic medical records, patient care planning tools, patient documentation and various mobile applications.

Generally speaking doctors, physician-executives, CTOs, CIOs and most all organizational CXOs are moving away from custom, in-house created applications and looking for commercial packages that suit their needs.

By the end of 2008, over 80 percent of facilities will have invested in key clinical technologies, the Gantry Group predicted. The costliest items on provider budgets were digital medical imaging and electronic medical records, which in combination, ate up 64 percent of medical providers’ clinical technology budgets. 

Conclusion

And so, what does your HIT budget look like for 2008; is it fixed, flexible, hybrid, zero-based or some other type? 

More information: www.HealthcareFinancials.com 

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Does Merck & Company Give Refunds?

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“I Want My [Prescription-Drug] Money Back!”

[By Patrick C. Cox; Jr.]

Merck & Company may have to as a result of a recently filed lawsuit in the state of Florida.

Coming on the heels of the disappointing Vytorin™ Enhance Trial results, patient Marion J. Greene, 72, is suing to get her money back.  She had been taking Vytorin™ at $100 a month instead of generic cholesterol medications at about one third the costs.

Apparently Ms. Greene feels she hasn’t been getting her money’s worth and claims Merck has misled the public. Although some of her costs were reimbursed, she is seeking a refund of what her attorneys are calling “overpayments.” 

Class Action Lawsuit Status Sought 

The lawsuit has been filed in Jacksonville and attorneys are seeking class-action status charging Merck & Co. with misleading patients about the effectiveness of Vytorin™.

State consumer protection laws, breach of warranty, and unjust enrichment law violations will form the basis of the charges that Merck overstated Vytorin’s effectiveness vs. generics. 

Oversight 

The lawsuit certainly will raise more public eyebrows and questions about drug company sales and marketing practices.

You can bet too that Congress will be looking into expanding its oversight as the public demands more accountability. With more awareness and scrutiny physicians cannot afford to be caught in the middle by continuing take drug company promotional claims at face value. 

As things heat up MD/DO’s can count on being challenged even more to defend their choices of one medication over the other, or they too could be faced with a patient screaming, “I want my money back!” 

Assessment

Has a patient ever cried foul like this to you; if so, what have you done?  

Conclusion

Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

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What is the Probate Process?

Estate Planning for Medical Professionals

By Lawrence E. Howes; CFP™ and Joel B. Javer; CFP™

The motivating issue and primary purpose of estate planning is for the physician is to assure the proper transfer of property to desired heirs with a minimum expenses and taxation [not avoidance]. The process of transferring property is called probate.

Definition and Terms

Probate, meaning “to prove,” is the legal process of a court-supervised property transfer whose disposition is guided by either your will, or if you do not have a will, by the state laws of intestacy. 

Other property or non-probate assets include property held in trust, in joint tenancy, most life insurance policies [because they have a named beneficiary] and most retirement plan assets [401-k and 403-b], again because of a named beneficiary.

All property is subject to estate taxation – whether or not it goes through probate. But, avoiding probate does not mean you can also avoid estate taxes. 

Probate Avoidance

Probate avoidance is the subject of numerous seminars across the country. These programs rely mainly on doctor’s fears of the unknown.   In actuality, many states have adopted all or part, of the Uniform Probate Code [UPC]. The UPC provides for a streamlined probate process and in most situations, residents of these states have little to fear when it comes to probate.  

However, the probate process is a public process. Anyone can go to the court and look up the will of a decedent and delve into their personal life and bequests. This may be a negative idea for physicians.

State of Domicile 

An estate is usually probated, distributed, and taxed under the laws of the state in which you are domiciled. There are some states (e.g. California, Florida, and Nevada) that have no additional death taxes beyond what the federal estate tax would allow. 

Changing your residence to one of these states may avoid significant death taxes at the state level. You can do several things to establish domicile in a particular state.

Examples involve voter registration, automobile registration, driver’s license, safe-deposit boxes and having a principal residence there.   

Owning property in more than one state may also cause multiple taxation by multiple states claiming jurisdiction, if you are not careful. So, it’s best to determine in advance the requirements for each state and take a definitive position on where you wish your property to be taxed and probated.

Assessment 

The above considerations should be included in the estate planning process of any medical professional.

Conclusion:

And so, what is your experience with the probate process or estate planning process; and remember your opinion counts! 

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About our Didatic and Educational Content

The EXECUTIVE-POST Blog for www.HealthcareFinancials.com

[Integrating health economics & medical management information] 

THE EXECUTIVE-POST’s UNIQUE CHARACTERISTICS [like no other]:  

iMBA Inc., and Healthcare Financials Executive-Post is unbiased 

· Unlike most financial and managerial education providers, we are focused only on physicians, healthcare colleagues, medical executives and practices, clinics and related healthcare entities. We are unbiased and do not manage assets or sell financial services or products of any kind.

· Our posts, content and curriculum is free from any conflict of interest — designed by dual and triple degreed and/or certified medical and nursing experts, accounting, legal, management and health economists. Our fiduciary financial advisors and management consultants do not to sell financial products.  

iMBA Inc., and Healthcare Financials Executive-Post uses many formats

·  All personal financial planning and medical management topics are available and delivered in multiple formats to meet your needs.

·  All educational products are designed to enable users to participate in their own learning. We use highly engaging websites, essays, templates, .ppt presentations, lectures, seminars, speaking engagements, .pdf files and real-life scenarios. These media channels and content topics are highly valued by our target audience.  

iMBA Inc., and Healthcare Financials Executive-Post gets results 

· Our synergistic websites, wikis, books, journal, dictionaries, white-papers, seminars, blogs and related didactic programs achieve significant positive results for our subscribers and are of national repute.

·  Healthcare executives recommend us and say they are better prepared to make managerial business decisions. Doctors say they plan on increasing their savings, reducing debt or changing their investment strategies as a result of our education; and financial advisors gain insight into the contemporary healthcare space to the benefit of their current and prospective physician clients.

· Click on or “search” for any of listed topics to view our e-posts. All related print products are available in detailed traditional format, to be purchased and/or licensed for use, as needed. 

iMBA Inc., and Healthcare Financials Executive-Post offers niched content

1. All our content is created with the understanding that while doctors and their advisors tend to be uninterested in medical management terms, health economics and/or financial jargon; nearly all are interested in learning how to amass greater wealth thru improved medial practice efficiencies.

2. Our content is designed to answer medical executive’s most pressing financial and managerial questions, address their concerns and help advisors impart the information needed to achieve their client’s practice management and financial goals. Our blog forum is not only free and interactive, but highly focused and relevant to this important and underserved niche.

NOTE: Many content posts require either Adobe Acrobat Reader® or Microsoft Excel® to be installed on your PC. These applications may be downloaded for free.

 

Why Next Generation?                                                                               

The best way to describe our next-generation philosophy and educational approach is to illustrate it with three enterprising physicians who use a next-gen medical practice business model.

They are: Enoch Choi MD, of the Palo Alto Clinic who has a traditional, but technology enabled practice; Jordan Shlain MD, of “San Francisco On-Call” which provides a cash only mobile practice; and Jay Parkinson MD who has attained the most notoriety through his unique approach, clinical skill set, and artistic flair. These are representative of a growing number of similar practices that serve as an important concept to consider when preparing to serve the next-generation of physicians, executives, clinic administrators and health professional clients.

For example, Millenial doctors like these and others, will surely demand a new range of financial planners and advisors, and medical practice management services that do not exist within the current consulting construct.   

 In fact, the provision of integrated medical niche advice which has traditionally fallen outside the concept of traditional consulting services may be the biggest opportunity to impact the conjoined financial services profession and consulting industry. And, we are pleased to be considered vanguards in this exciting niche didactic endeavor, known as Healthcare Financial Planning and Business Advice, 2.0.

 

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DISCLIAMER: Our information, posts and content is offered for informative and educational purposes only. We are not acting as a Registered Investment Advisor (RIA), Wealth Management Advisor (WMA), Investment Counselor (IC), Financial Advisor (FA), Stock-Broker (SB), or Registered Representative (RR); nor are we providing Tax, Insurance, Accounting, IT Security, Legal or any other related advice or management consulting activity.

 

 

 

 

A Brief Overview of Estate Planning for Physicians

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A “Necessary” Process for all Medical Professionals

[By Lawrence E. Howes; CFP™]

[By Joel B. Javer; CFP™]

“When we hear about a colleagues’ estate, we often conjure up images of rolling green countryside, horses, sprawling mansions and established family dynasties with more money than elderly Daddy Warbucks. These images of wealth have absolutely nothing to do with today’s definition of an estate, and its importance in the life of most physicians. Most likely, you and your loved ones have estates that are worth protecting.

Now, take the time to understand what your estate consists of, and why integrated financial, business and estate planning is such a valuable imperative for all medical professionals.” 

-Dr. David E. Marcinko; MBA, CMP™

***

Mature female physician with PC

***

Introduction

Estate planning is an ongoing process for all physicians, and should be part of your thinking every time you cogitate about the future.

What is Estate Planning?

Estate planning is probably the last bastion for the sincere procrastinator. 

As a medical professional, you are likely so busy pursuing your career that you think that you do not have time to plan.  Perhaps the current state of flux in health care keeps you too unsettled to think about long-term planning.  Maybe a fear of family conflicts, unresolved issues, or believing it will be too expensive to develop an estate plan keeps you from acting.

Goals of Estate Planning 

The four primary goals, of estate planning, to consider are:

· To maintain financial independence during your lifetime

· To reduce costs and not delay settling the estate

· To minimize estate taxes

·  To maximize the inheritance to chosen beneficiaries.

Your Estate Defined 

Your estate is the total value of everything you own; more specifically it is your home and everything in it, the car, minivan, SUV, diamond brooch, wine collection, portfolio of mutual funds, other investments, retirement plans, medical practice, ASC, ownership in a family business, vacation homes, furniture and clothing.

It all adds up very quickly, especially when you consider any positive effect that the stock market may have had on your investments and the escalation in the price of homes in many parts of the United States. 

Of course, it can go down just as quickly too, as in the de-escalation of home prices and the recent global stock market decline, etc. 

“Your “Covert” Estate Plan by Default

All too often, estate-planning decisions are routinely made for us without our knowledge. This may be considered your “covert” or defacto estate plan by default. For example: 

  • When you buy a house, the realtor assumes that you want the house titled as joint tenants with your spouse;
  • Your investment account is opened and it is titled in joint tenancy;
  • Your life insurance agent names your spouse as primary beneficiary and your minor children as contingent beneficiary;
  • You don’t take the time to draft a will, so by default the state you live in has prepared one for you;
  • Your medical practice agreement doesn’t address death or disability;
  • Your ex-spouse is still the beneficiary of your IRA, 401 (b) and 401(k) plan;
  • Your parents are still the beneficiaries of your life insurance.

Transparency 

Regardless of your current planning, let someone know the whereabouts of your existing estate planning documents and the names of your advisers.  All too often medical professionals keep these critically important wishes a non-transparent secret, which adds a frustrating search process to an already sad and disruptive time in the lives of loved ones. 

Common Estate Planning Impediments 

There are three common impediments to estate planning that include: 

  1. Contemplate the consequences one’s own death.
  2. Not understanding terms that health economists and advisors use.
  3. Distributing assets between a family legacy -or- charitable intent.

 Future Assessment 

There is no way that anyone can predict what future tax and estate laws will look like. The best we can do is plan based upon current law.

However, if started early enough, the estate planning process consists of many intermediate steps that over several years and may be considered enjoyable to the informed medical professional.

Conclusion

Your thoughts and comments on this ME-P are appreciated; do you even have an estate plan? Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

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Senate Finance Committee to Limit Specialty Hospitals

Ban Due to Medicare Participation Prohibitions

Staff Reporters

 ho-journal9A new report outlining violations of health and safety standards at some physician-owned specialty hospitals has some lawmakers renewing efforts to ban the facilities. 

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The American Medical News [AMN] recently reported that Department of Health and Human Services [HHS], Office of Inspector General [OIG], investigated 109 of the country’s orthopedic, cardiac and surgical hospitals and found that more than one-third of them may be in violation of Medicare’s conditions of participation. 

The OIG concluded that the administration should work to require all hospitals – not just specialty facilities – to meet Medicare’s hospital staffing rules. These include having the capability for evaluation and initial treatment of emergency patients, and to include necessary information in their written policies regarding how to manage medical emergencies.  

The Centers for Medicare and Medicaid Services [CMS] concurred with the findings, and for those who oppose them, the report is more evidence that legislation is required to address potential problems. 

Conclusion: And so, what is your considered opinion of specialty hospitals?

Questions Doctors Must Answer Before Retiring

Getting off the “Must-Work” Treadmill

By Dr. David Edward Marcinko; MBA, Certified Medical Planner™

Publisher-in-Chief 

“Other than facing up to the thought of never writing another prescription or studying another X-ray, perhaps the greatest challenge for a physician approaching retirement is making reliable assumptions about the future. Since the quality of life in retirement will be determined by the quality of a long-term financial plan, it is imperative to make prudent and conservative investment choices. Just like preparing for a complex medical procedure, even a slight miscalculation in planning could cause a wide margin miss to your desired result.”

-Robert B. Wolf; CFP® 

Many physicians feel that practicing medicine today just isn’t as much fun (or rewarding) as it used to be.  I am [was] one of them.

With healthcare reform, your income may be lower while your efforts have increased substantially. Perhaps even worse to the ego, your social standing has plummeted faster than your income.  

And so, have you ever wondered how you can get off the “must-work” employment treadmill?

I have – and so did my buddy, Dr. Bill Zientak.  

The Most Important Questions 

Just imagine being able to work because you want to practice medicine – not because you “must”; or be able to retire completely!  

So, like Dr. Bill, ask yourself these questions designed to provide some answers to making practice optional and joyous [again]; rather than the mandatory economic drudgery it has become for many medical colleagues:

· How do I maximize qualified retirement plans [401(k)-403-(b]) during my working years?

· Do I have enough money for retirement; forever; for a legacy?

· What lifestyle do I envision during retirement?

· How do I maximize these qualified plan benefits when fully retired?

· How should I invest money that’s not in a qualified retirement plan?

· Why retirement planning determines my investment approach – not my “risk-tolerance?”

· What role should Social Security play in my retirement planning; if any?

· Why and how do I integrate estate and retirement planning? 

Conclusion

Please comment if you believe an important interrogative has been omitted. 

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Post-Mortem and Estate Planning Definitions for Doctors

A “Need-to-Know” Glossary for all Medical Professionals

Staff Writers

Activities of daily living (ADLs): Those functions or activities normally associated with bodily hygiene, nutrition, elimination, rest, and ambulation. These are the minimal requirements of mobility, toileting, and dressing, eating, and maintaining continence. Performance of ADLs indicates a person’s degree of physical independence as part of a functional assessment. The most common long-term care insurance (LTCI)-defined ADLs, which require physical assistance to perform, are defined below in the usual order of their occurrence:

• Bathing—Included only in a few LTCI contracts; the least impaired ADL.

• Mobility (transferring)—The ability to move from bed to chair.

• Toileting—The ability to get to and from a toilet.

• Dressing—The ability to put on and take off clothes and/or to fasten shoes.

• Eating—The ability to feed yourself. (Food preparation is not an ADL.)

• Maintaining continence—The ability to maintain control of urine/bowel movements. 

ADL impairment:  A physical impairment that prevents an elder from performing certain physical activities.

Adult day-care centers: Such centers provide social, recreational, and rehabilitation for full-day or half-day programs for people who cannot care for themselves during the day but can live at home at night.

Adult congregate living: A group living environment that promotes independent living by supplying supportive medical and social services either directly or through referral to seniors who are in relatively good health, despite financial limitations or social impairments. 

Alternate valuation: With certain exceptions, the value six months after the decedent’s date of death of all property includable in the decedent’s gross estate. If an asset is sold or distributed, then the sale price or the value on the date of distribution is the alternate value. In either case, however, the sale or distribution must occur within six months of death.

Alzheimer’s disease: A disease characterized by progressive dementia and diffuse cerebral cortical atrophy (an organic brain disease and is covered by most LTCI policies).

Alternate Valuation Date: Six months from date of death. 

Assisted living facility: A residential facility for independent seniors with multiple needs, including slight to moderate physical disabilities and cognitive impairment. Residents receive 24-hour supervision and assistance in daily living, meals, housekeeping, transportation, and recreational programming. Minimum health or nursing assistance is provided on an as-needed intermittent basis. Residents have their own private spaces and they share public spaces with others. This type of facility is also referred to or related to adult congregate living facility, adult’s home, personal-care home, or residential-care facility, depending on local nomenclature and state regulations. 

Attorney-in-fact, agent, or power-holder: The person who or institution that has been given the authority to act on behalf of a person under a power of attorney. 

Balance billing: A charge of up to 15% in excess of approved Medicare fees by a physician.   

Benefit eligibility: A prerequisite for receiving LTCI benefits, usually an inability to perform two ADL’s or serious cognitive impairment. 

Benefit period: The maximum number of years that benefits will be paid for nursing-home and/or home care. This can range from one year to a lifetime of benefits. 

Caregiver: A person who provides care to a resident or patient. Most long-term care (LTC) is less expensive custodial care, not expensive skilled medical or psychological care. 

Charitable remainder annuity trust (CRAT): An irrevocable trust that pays not less than 5% of initial fair market value to a donor or designated person annually or more frequently, if desired. The remainder interest of the split interest passes to charity at the end of a designated time or the annuitant’s life.  See the Personal Financial Planning Portfolio, titled “Charitable Giving.” 

Cognitive impairment: The deterioration or loss of short- or long-term memory, orientation, or deductive or abstract reasoning.  

Coinsurance (Co-payment): The portion of the medical-service bill that must be paid by the patient. (Coinsurance refers to a percentage; co-payments are stated as a fixed amount.) 

Compound annual growth rate (CAGR): The rate of interest earned on principal plus interest that was earned earlier multiplied annually. With LTCI, the customary inflation rate is 5% for a CAGR inflation rider. For estimate purposes, premium costs may increase at a 3% CAGR.

Conservator ship: Similar to guardianship and committee ship except that a court showing of mental or legal incompetency is not required. What needs to be demonstrated in this instance is the inability to manage one’s personal financial affairs.

Consumer price index (CPI): One of the broadest measures of prices using a market basket of goods. Changes in the CPI are used to measure the annual rate of inflation.  

Contestability period: The time period from a policy issue date during which a policy is contestable. 

Continuing care retirement community (CCRC): A residential, life care community for elders. The community includes a nursing-home facility. In a CCRC, a senior makes a substantial payment for lifetime housing in a home, condominium, or cooperative. In addition, the senior often pays a monthly maintenance charge. The senior holds title to his living unit and shares ownership of the common areas with other owners in the development. 

Cost shifting: The practice that forces a healthcare provider, such as a hospital, to charge private-pay customers more. This also applies to sellers who provide services to those who cannot pay, such as the uninsured poor. 

Custodial care (personal care): General assistance with activities of daily living, as well as household chores, provided by those who are not medical professionals. 

Daily benefit: The maximum reimbursement for daily, long-term care expenses per a LTCI policy. This may range from $75 to $500 daily. 

Deductible: The amount a patient must pay directly (usually each year) to a provider before the insurance plan begins paying the benefits. An example is the annual deductible for a doctor’s services under Medicare. 

Diagnostic related groups (DRG): A payment system for hospital care based on patient diagnosis, which limits reimbursement of most medical treatments. 

Disclaimant: The person who makes a disclaimer. 

Durable medical equipment: Medical equipment designed and intended for the regular use of a LTC recipient for medical treatment or possibly safety.  

Durable power of attorney: Enables one to appoint someone to act as his or her surrogate decision maker. The appointed person can make health decisions and/or administer financial or other personal affairs. If the authority granted in the power of attorney commences only upon the occurrence of a specific event or contingency, the power of attorney is known as a “springing power of attorney.” 

Exclusions: LTCI policies exclude coverage for mental illness (other than Alzheimer’s and related dementia), alcohol or drug abuse, confinement in a hospital, care outside the United States, and services paid for by the government. 

Family limited partnership: A partnership among members of a family that owns properties. It is used for estate-planning purposes to reduce the value of an asset or business. Such an estate plan may include an arrangement to purchase a business in the event of the principal owner’s incapacity.  

Family and Medical Leave of Absence Act: This act permits an employee (after a year of employment) to take up to 12 weeks of unpaid leave to take care of his own health problem or the health problem of the employee’s family, including his children, spouse, or parents. 

Full recovery: This occurs when an insured is no longer disabled and no longer requires substantial human assistance or supervision with two or more ADLs or a cognitive impairment.  

Geriatric care manager (GCM) or case manager (CM): A person who coordinates, oversees, or arranges the care of an elderly or disabled person. 

Grantor retained annuity trust (GRAT): A trust in which the grantor retains the right to a fixed dollar amount (the annuity) for a fixed term. If the grantor survives until the end of the annuity term, all of the trust principal will pass to others and escape the grantor’s estate for death tax purposes.

Grantor retained income trust (GRIT): A trust in which the grantor retains the right to receive the income. To satisfy all gift and estate tax law requirements; a GRIT must be either a GRAT or a GRUT (grantor retained uni-trust). 

Grantor retained uni-trust (GRUT): A GRUT is similar to a GRAT, except that with a GRUT the grantor retains the right to receive a fixed percentage of the value of the trust annually. Thus, the total annual payments will fluctuate in direct proportion to the value of the trust.  

Guardianships and conservatorships: Depending on the state of jurisdiction, a court-created vehicle in which a guardian or conservator is appointed the legal representative of a person who is an adjudicated mental incompetent. This guardian or conservator then acts on behalf of the incompetent. 

Guarantee renewable: An LTCI contract provision precluding cancellation of a policy, or a change of any of its terms, as long as the premiums are paid on time. Insurers can increase premiums after receiving approval from a state insurance department.  

Guardian: A person named by a court to represent the interest of minors or incapacitated elders. The appointed person is lawfully invested by a court with the power of, and charged with the duty of, taking care of a person who is considered incapable of administering his or her affairs. The guardian also is responsible for managing the property and rights of the person. 

Healthcare Finance Administration (HCFA): The federal agency [part of the Department of Health and Human Services (HHS)] responsible for Medicare and Medicaid rulemaking and administration.  

Healthcare proxy: A document that a person uses to appoint someone to make all his healthcare decisions in the event that he becomes unable to make his own.  

Home health aide: A person who performs custodial LTC services under professional supervision. 

Home health agency: A licensed public or private organization that provides home health aid custodial services, skilled nursing services, or other therapeutic services. 

Home healthcare plan: A home-care program prepared by a physician, a registered nurse, or a care manager without which the patient’s physical condition could be adversely affected. 

Home healthcare services: These may include the following services performed either daily or at least weekly: 

• Full or part-time, home health aide services helping with ADLs or Alzheimer’s disease.

• Physical, respiratory, occupational, or speech therapy provided by a licensed therapist.

• Nutrition counseling under the supervision of a registered dietitian.

• The development of a home-care plan by a registered nurse, a licensed practical nurse, a physician’s assistant, or medical social worker and approved by the attending physician. 

Hospice care: A program for terminally ill people who are expected to die within six months. It is primarily concerned with pain and symptom control. Hospice provides medical, nursing, and other health services through home or inpatient care. Medicare usually pays for hospice care. 

Inflation benefit rider: A provision for a periodic increase of benefit coverage to reflect the increasing costs of care based on the CPI or other economic indicators. Most LTC policies offer either a simple 5% annual increase or a more expensive 5% growth, which is compounded annually. Some policies offer an option to increase benefits for an additional premium without any additional medical examinations. 

Informal caregivers: Family members, friends, or caregivers who are not employed by established home-care agencies,  who provide care without pay and are not under the supervision of a licensed agency and, thus, not reimbursable according to most LTCI contracts. 

Instrumental activities of daily living (IADL): Actions performed by a person that are above and beyond the most basic ADLs. IADLs include shopping, driving, cooking, cleaning, and taking care of personal finances.

Insured event: Events determined by the LTCI policy to be covered by the insurance and that entitle a policyholder to benefits.  

Interrupted care requirements: A period of time after which benefits will be resumed without a new, start-up, waiting period. 

Irrevocable living trust: A trust established during a grantor’s lifetime whose terms cannot be changed. 

Joint tenancy with rights of survivorship: The holding of title to property by two or more people so that upon the death of one joint owner, the survivor or survivors take title to the property; to be distinguished from tenancy in common. 

Level premium: The premium (paid annually or more frequently) that is fixed unless, on a class basis, an insurance company obtains approval from the state to increase premiums. An increase is more likely to occur over a long time as claims’ experience increases and more likely will apply to younger policyholders. 

Life insurance living benefit rider: A rider that is available on some permanent life insurance policies. In the event of a terminal illness and a life expectancy of less than one year, the policyholder may receive an advance discounted payment on the face value of his policy after deducting any policy loans. The rider is usually available without any extra premium as a free upgrade feature to a policy. The amount of the payout will vary by policy. 

Limited partnerships: Unincorporated associations with one or more general partners who are personally liable and one or more limited partners who contribute capital and share in profits but incur no liability with respect to partnership obligations beyond their capital investment. These partnership interests may be gifted for estate-planning purposes.  

Living trust: A trust established by a grantor, donor, or settlor who is living at the time he creates the trust; also known as an “inter vivos trust.” 

Living will: A person’s written directive to his family, physician, and medical facility to be followed if he becomes unable to participate in decisions regarding his medical care. The person’s instructions usually reflect his wish to decline medical treatment in prescribed circumstances and his wish that his living not be artificially prolonged. 

Long-term care (LTC): Assistance provided over a period of time to those unable to care for themselves. LTC includes a wide variety of services from skilled nursing to custodial care, including personal, medical, social, and financial care. Such services are generally required by older people as a result of diminishing health, disabling illness, disability, or Alzheimer’s disease. 

Long-term care insurance (LTCI): Private insurance that helps pay primarily for custodial care over an extended period of time in a nursing home or at home. There are many different types of LTCI policies. 

Managed care: General term for any system of healthcare delivery, such as an HMO, organized to enhance cost-effectiveness. Managed care networks are different types of healthcare providers that agree to provide services to those covered under the plan. They are usually organized by insurance carriers, but also can be organized by employers, hospitals, or hospital chains. Payment is made on a fixed basis, which provides incentives to control costs. 

Medicaid: The joint federal and state program that provides a wide spectrum of medical services (including LTC) to the indigent as authorized in Title XIX of the Social Security Act. At the Federal government level, Medicaid is administered by the HCFA.  

Medicaid “community spouse”: The “healthy” spouse who is not on Medicaid while an ill spouse who is in a nursing home is on Medicaid. The income and assets of both spouses are pooled. The community spouse may receive a limited, possibly negotiable resource allowance (as determined by each state), but otherwise Medicaid has the first claim to income and assets to pay expenses for an ill spouse.  

Medicaid trust: A trust established by a Medicaid applicant whose purpose is to protect the trust assets from nursing home claims or from claims of the supervising state agency. 

Medicare: The federal government medical insurance program that pays for those over 65 years old and some medical and hospital expenses for disabled people as authorized in Title XVIII. Medicare Part A benefits cover inpatient hospital care, skilled nursing facility care, home healthcare, and hospice care. Medicare Part B benefits provide coverage for physician services, outpatient hospital services, diagnostic tests, various therapies, durable medical equipment, medical supplies, and prosthetic devices. Normally, Medicare pays for skilled care. Limited custodial care may be approved and may accompany skilled care.  

Medicare supplementary insurance (Medigap): Private insurance used to supplement Medicare. Medigap can be used to cover co-payments and deductibles, but it usually does not cover LTC services. 

National Association of Insurance Commissioners (NAIC): A non-profit association of state insurance commissioners who are the chief regulatory officials in all 50 states, the District of Columbia, and U.S. territories. These officials, often with the concurrence of private insurance companies, issue overall U.S. insurance guidelines. States may or may not adopt these guidelines; however, there is pressure on the states to adopt them as there is almost no other federal regulation or coordination among different states.  

Nonforfeiture of benefits: A provision, relatively expensive and usually optional, that may guarantee access to partial benefits after participating in a plan for a specified period of time. 

Nursing homes: Licensed facilities with licensed personnel that provide typically 95% custodial care; the remainder is intermediate and skilled care. Nursing home charges include custodial or skilled care, room, and board. Nursing homes may be used for respite care or post-hospital treatment.  

Omnibus Budget Reconciliation Act (OBRA) 1990: Federal legislation that approved standardization of Medigap policies.  

OBRA ’93:  Federal legislation that extended the lookback period for Medicaid qualifying purposes from 30 to 36 months and 60 months for certain trusts in order to require a longer wait time before receiving benefits.  

Policy limit: The maximum total benefit, which equals the daily benefit multiplied by the number of days of benefit selected. For example, if the daily benefit is $100 and three years are selected, then the policy limit is the $100 daily benefit × 3 years × 365 days, or $109,500. 

Pre-existing conditions: A bodily injury or sickness that a physician has treated or has advised treatment or that would have caused a prudent person to seek medical treatment within a specified period of time before the date that the insurance policy was issued. A condition that was fully disclosed on the application, and not excluded from coverage, will not cause denial of benefits.  

Qualified disclaimer: A written refusal to accept property from a decedent (by will, by the laws of descent and distribution, by contractual provision, or by beneficiary designation), made within nine months of the decedent’s date of death and delivered to the holder of legal title in such property. This is a common way to transfer property without paying a gift tax. 

Qualified terminable interest property (QTIP): Property that, were it not “qualified,” would not qualify for the marital deduction in the decedent’s estate because the interest left to the surviving spouse terminates at his or her death (and there are no other rights that would result in inclusion of that property in the surviving spouse’s gross estate). QTIP does qualify for the marital deduction in the decedent’s estate and will be included in the surviving spouse’s gross estate, provided the proper election is made by the decedent’s personal representative. 

Recoupment: The seizure of assets that are considered to be illegally transferred by the client and are subject to being recouped by Medicaid.  

Respite care: A temporary arrangement or facility for a LTC patient or other chronically dependent person so that family or other caregivers can have a respite from their duties.  

Retirement community: Privately built, usually self-contained housing facilities for those who are over a stated age, usually 55. Housing options include the lease or purchase of a single or multi-family house or townhouse, or an apartment, sometimes even in a high-rise building. Residents are usually of middle- to upper-class economic backgrounds. Costs can cover building maintenance and/or a variety of other services, including healthcare. 

Return of premium option: An expensive, optional LTCI feature in which the total premium paid may be returned if an insured dies before a certain age, such as 70. This option generally is not available.  

Reverse mortgage: A home-mortgage arrangement whereby a purchaser or mortgagor agrees to purchase a home, but does not take possession until the death of the seller or whenever the seller decides to move. The seller receives a mortgage as security for the sales proceeds. The purchaser or mortgagor makes monthly payments to the seller and allows the seller to reside in the home for a lifetime or period certain. The seller loses ownership but obtains a stream of cash flow and taxable income. This income may permit the seller to remain at home, which otherwise might not be affordable. The purchaser’s debt is usually guaranteed by a Federal Housing Administration insurance policy. The market for these mortgages appears to be limited until larger uninsured mortgages become more available in the private sector.  

Revocable living trust: A trust created by a donor, grantor, or settlor during his or her lifetime in a separate document in which the grantor reserves the power to revoke (or amend) the trust. This type of trust is often for the grantor’s benefit and is used as an estate planning and management vehicle.

Robert Wood Johnson Long Term Care Private Insurance State Partnership Programs: Programs in Connecticut, New York, California, Indiana, and Iowa that established plans to protect assets from Medicaid “spend down” requirements if LTCI is purchased that conforms to the state plan. 

“Sandwich generation”: The generation of adults caring for children and elder parents simultaneously and therefore “sandwiched” between two generations.  

Skilled nursing and intermediate care: Physician-ordered care provided by a registered nurse or therapist usually on a visit basis unless 24-hour intensive care is required. Skilled care may include such tasks as: tubal or intravenous feedings, intravenous injections, oxygen therapy, bowel or bladder retraining, catheterization, application of dressings involving prescription, and dialysis. 

Skilled nursing facility: A facility that provides room, board, and 24-hour skilled nursing care. 

Special-use valuation: Pursuant to Section 2032A, special-use valuation provides that the “highest and best use” value may be reduced in the gross estate by up to an amount based on special-use valuation for real property used in a farming operation or a trade or business that meets certain requirements, and where certain pre-death qualifications are met and post-death commitments are made. 

Spending down: Depleting income and assets to meet eligibility requirements for Medicaid; also called impoverishment 

Springing power of attorney: The authority of the holder of the power is not effective at the execution of the power, but instead goes into effect at some later time, usually when the client becomes incapacitated or incompetent.  

Standby trust: A revocable trust that is to receive assets upon the incapacity of the grantor. Typically these trusts appoint a bank, family member, or other trustee to manage these assets and to pay bills that a prudent, reasonable, responsible person would. The assets usually are transferred to the trust by the holder of a power of attorney, often a family member. 

Supplemental needs trust: A trust established by a third party that is specifically intended to supplement rather than supplant government benefits and that restricts the trustee from spending income or assets in a manner that can reduce government benefits. Also may be self-settled in unusual circumstances. 

Supplementary security income: A federal program of cash assistance for the aged, blind, and disabled. It is a Social Security program. 

Tenancy by the entirety: The commonly used equivalent of joint tenancy with rights of survivorship but restricted in use to husband and wife. However, due to the marital relationship, there are some minor differences. 

Tenancy in common: The holding of property by two or more people so that each has an undivided interest that, upon death, passes to heirs or devisees and not to the survivor(s); to be distinguished from joint tenancy with rights of survivorship. 

Trustee: The holder of a legal title to property held for the use and benefit of another.  

Twisting: The inducement of a policy owner to drop or replace an existing policy due to misrepresentation or incomplete information on the part of the salesperson or insurance agent  

Viatication: A loan made to a terminally ill insured in which the lender secures the loan with the discounted net death benefit from the insured’s life insurance policy.  

Waiting period: The number of days a person with LTCI must receive nursing-home or home healthcare before LTCI benefits are paid. This is also referred to as a deductible or elimination period.  

Waiver of premiums: A provision forgiving payment of future premiums once benefits have been paid for a specific period of time. 

Will: A document in which a person makes a disposition of his property, to take effect after his death, after the will has been “proved” in court. It is revocable during one’s lifetime. 

Related info: www.HealthDictionarySeries.com 

Note: Feel free to send in your own related terms and definitions so that this section may be updated continually in modern Wiki-like fashion. 

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National Physician Expenditures Slow

A CMS Health Economics Report

Staff Reporters 

 

The Centers for Medicare and Medicaid Services [CMS] recently reported that while the national health spending growth rate increased slightly in 2006, the percentage rise in expenditures on physician services slowed markedly, due largely to a small Medicare pay increase and its private-sector fallout. 

Overall national health spending reached $2.1 trillion, up 6.7 percent from $1.97 trillion in 2005, while the 2005 growth rate was 6.5 percent – a moderate increase that was possible because of a broad-based slowdown in spending growth in many categories, including physicians and clinical services. These expenditures increased by 5.9 percent in 2006, down from 7.4 percent in 2005.  

For the first time since 1999, physician spending increased more slowly than the gross domestic product, while the small size of Medicare’s physician payment update in 2006 played a role in the decelerating physician spending. 

Any thoughts-please opine?  

Related info: www.HealthDictionarySeries.com

Equity-Based Securities Terms and Definitions for Physicians

A “Need-to-Know” Glossary for all Medical Professionals

[By Staff Writers]HDS

ADRs (American Depository Receipts): Securities that allow trading of shares of foreign stocks on U.S. exchanges. ADRs are issued by U.S. banks in place of foreign shares that the banks hold in trust. 

Advance/decline ratio (A/D ratio): The number of stocks that have advanced divided by the number that has declined over a certain time period. Ratios plotted one after another show the direction of the market, and the steepness of the line shows the strength of that direction.

Alpha: The measure of the amount of a stock’s expected return that is not related to the stock’s sensitivity to market volatility.

Arbitrage: Profiting from differences in price by simultaneously buying and selling the same security on different exchanges or using different types of contracts on the same security (buying rights and selling the stock, for instance). 

Asset allocation: Apportioning investments among different categories of assets (cash, stocks, and bonds, for example, or different subcategories like cyclical stocks, small capitalization stocks, blue chips, and defensive stocks). An important financial planning tool used to control both risk and return.

Beta: The measure of a stock’s volatility relative to the market. A beta lower than 1 means the stock is less sensitive than the market as a whole; higher than 1 indicates the stock is more volatile than the market. 

Book value: Determined from a company’s balance sheet by adding all current and long-term assets and subtracting all liabilities, including outstanding bonds and preferred stock. This total net-asset figure is divided by the number of common shares outstanding to arrive at book value per share. 

Callable: Preferred stock or bonds that may be redeemed by the issuing corporation before their stated maturity at a pre-stated “call price” that is higher than the original issue price. 

Capitalization ratios: Analysis of the components of a company’s capital structure, including debt (bonds), stock, and surplus, which show the relative importance of the sources of financing. 

Common stock: Units of ownership of a public corporation that usually carry voting rights; common stock is sometimes called “capital stock” when the company has no preferred stock. Common stock is the last to be paid off at liquidation but generally has the most potential for appreciation. 

Convertible securities: Preferred stock or bonds that are exchangeable for a stated number of shares of common stock at a pre-set price (“conversion price”). The “conversion ratio” is determined by dividing the par value of the convertible security by the conversion price. The amount by which the conversion price exceeds the current market price is the “conversion premium.” 

Coverage ratios: The number of times income will meet the fixed charges of bond interest and preferred dividends.

Cyclical stock: Stocks that tend to rise or fall quickly, corresponding to the same movements in the economic cycle. Automobiles and housing, for instance, are more in demand when consumers can afford high-ticket durables. Lumber, steel, and paper are more in demand when manufacturing production is high.

Defensive stock: Stocks from companies that make necessities, such as food, drugs, and utilities that are in demand regardless of the economic cycle. These stocks tend to respond less negatively to down market cycles. 

Dilutive effect: The lowering of the book or market value of the shares of a company’s stock as a result of more shares outstanding. A company’s initial registration may include more shares than are initially issued when the company goes public for the first time. Later, an issue of more stock by a company (called a “primary offering,” distinguished from the “initial public offering”) dilutes the existing shares outstanding.  Also, earnings-per-share calculations are said to be “fully diluted” when all common stock equivalents (convertible securities, rights, and warrants) are included. “Fully diluted” numbers are used in analysis when there is a likelihood of conversion or exercise of rights and warrants.

Earnings per share (EPS): The amount of a company’s profit available to each share of common stock. EPS = Net income (after taxes and preferred dividends) divided by Number of outstanding shares.

Efficient market theory: Belief that all market prices and movements reflect all that can be known about an investment. If all the information available is already reflected in stock prices, research aimed at finding undervalued assets or special situations is useless. 

Emerging growth stocks: Shares of companies participating in new markets or niches with greater future expectations than those in established industries or services. Companies are usually smaller and do not yet have steady earnings streams or pay dividends. They may be more highly priced relative to the rest of the market.

Ex-dividend:  When dividends are declared by a company’s board of directors, they are payable on a certain date (“payable date”) to shareholders recorded on the company’s books as of a stated earlier date (“record date”). Purchasers of the stock on or after the record date are not entitled to receive the recently declared dividend, so the ex-dividend date is the number of days it takes to settle a trade before the record date (currently three business days). A stock’s price on its ex-dividend date appears in the newspaper with an X beside it. 

Form 10-K and Form 10-Q: Annual and quarterly reports, respectively, required by the Securities and Exchange Commission (SEC) of every issuer of a registered security, including all companies listed on the exchanges and those with 500 or more shareholders or more than $1 million in gross assets. Audited financial statements for the fiscal year must include revenues, sales, and pretax operating income, a 5-year history of sales by product line and a sources and uses of funds statement comparative to the prior year. The quarterly report is not required to be as extensive, nor must it be audited, but it should contain a comparison to the same quarter in the prior year. As a matter of public information, these reports are available to the general public and are required to be filed on a timely basis. 

Free cash flow: Cash flow after operating expenses; a good indicator of profit levels. 

Fundamental analysis: Equity research aimed at predicting future stock prices based on financial statements. FA considers past records of sales, earnings, markets, and management to attempt to determine future performance. Technical analysis relies on charting patterns of price and volume movements; it does not take financial fundamentals into account.

Growth stock: A stock that has a record of relatively fast earnings growth—usually 1½ to 2 times the average for the market as a whole. If the growth is expected to continue, the stock carries a higher price/earnings multiple (see price/earnings ratio) than the average for the market. 

Hedging: Offsetting investment risk by using a security that is expected to move in the opposite direction. Options and short selling are commonly used to hedge stock positions.

Index: Stock indexes measure changes in groups of stocks. They range from broad to narrow, measuring the overall “market” or small industry sectors. Some indexes are averages; others are weighted based on market capitalization. The most often quoted major stock indexes are the Dow Jones Industrial Average (DJIA) and the Standard & Poor’s 500 (S&P 500). 

Initial public offering (IPO): A corporation’s first offering of stock to the public (sometimes called “going public”). 

Insider: Technically, an officer or director of a company or anyone owning 10% of a company’s stock. The broader definition includes anyone with non-public information about a company.

Leverage: Financial leverage is the amount of long-term debt in a company’s capital structure relative to shareholders’ equity. Operating leverage measures the sensitivity of a company’s profits to sales levels. 

Limit order: An order to buy or sell a security at a set price or better. 

Liquidity ratios: Financial measurements of the ability of a company to meet short-term obligations quickly. Helps analysts determine a company’s credit quality.

Listed stock: Stock that trades on one of the registered securities exchanges. “Listed” usually implies listing on the two major exchanges—the New York Stock Exchange (NYSE) and the American Stock Exchange (AMEX). “Unlisted” company’s trade “over the counter,” usually through the National Association of Securities Dealers Automated Quotation System (NASDAQ). Listed stock symbols are three letters; unlisted symbols are four or more letters. 

Maintenance call: Sometimes called a “margin call”; a demand on a customer with a margin account to deposit cash or securities to cover account minimums required by regulatory agencies and the brokerage firm. Because these minimums are based on the current value of the securities in the account, maintenance calls can occur as a result of movements in the market price of securities.

Margin account: Brokerage account established to extend credit to the customer. Market capitalization: Current stock price multiplied by number of common shares outstanding. The higher the market capitalization is relative to book value, the more highly the investment community values the company’s future.

Market timing: Buy and sell strategy based on general outlook, such as economic factors or interest rates, or on technical analysis. 

Multiple: See price/earnings ratio. The “relative multiple” is the company’s P/E ratio relative to the multiple of the market, usually the S&P 500, but sometimes the price/earnings ratio of an index that more closely mirrors the company’s sector. 

Naked option: An uncovered option position. When the writer (seller) of a call option owns the underlying stock (said to be “long” the stock), the option position is a “covered call.” If the writer (seller) of a put option is short the stock, then the position is a “covered put.” Writing a covered call is the most conservative options strategy, but writing a covered put is the most dangerous because there is no limit to how high the stock can go and thus to how great the loss can be on the short sale.

Odd-lot theory: Supposition that small investors, who tend to buy in smaller units than the standard round lot of 100 shares, are always wrong. The idea is to buy when odd-lot investors are selling and sell when they are buying. The theory has not proved to be correct in modern times and is no longer very popular. 

Options: Contracts to buy (call option) or sell (put option) a security at a stated price within a stated time period. Puts and calls are “types” of options. All the same type options of the same security are said to be of the same “class.” Options of the same class may have different exercise prices (the stated buy or sell price, called the “strike price”) and different dates. All options of the same class with the same strike price and expiration date are called a “series.” The price of an option is called a “premium.” The price of a premium is made up of “intrinsic value” (the difference between the current price and the strike price) and “time value” (the difference between the premium and the intrinsic value). An option is said to be “covered” when the investor has another position that will meet the obligation of the option contract. When option rights are used they are “exercised”; unexercised options are said to “expire” after their set time period is up. A buyer of an option is called a “holder” and a seller is called a “writer.”

(NOTE: Companies often offer employees “incentive options” as part of their compensation. These operate more like rights or warrants and allow the employee to purchase stock in the company at a specified price for a certain number of years). 

Par value: For common stocks, the value on the books of the corporation. It has little to do with market value or even the original price of shares at first issuance. The difference between par and the price at first issuance is carried on the books of a corporation as “paid-in capital” or “capital surplus.” Par value for preferred stocks is also liquidating value and the value on which dividends (expressed as a percentage) are paid—generally $100 per share. 

Penny stocks: Stocks selling for under $1; usually highly speculative.

Pink sheets: Daily publication of wholesale prices of over-the-counter (OTC) stocks that are generally too small to be listed in newspapers. 

Preferred stock: A class of stock with a higher claim on the company’s earnings than common stock. Preferred stock usually is entitled to dividends and does not carry voting rights. Also, dividends on preferred stock must be paid before any dividend can be paid on common stock. “Cumulative” preferred stock accumulates dividends, and all past dividends owed must be paid before common stock can receive dividends. “Convertible” preferred stock is exchangeable for a set number of shares of common stock, and “participating” preferred stock allows shareholders to collect dividends above the set level, sharing in the profits allocated to common stock. 

Price/earnings ratio (P/E ratio): Often called a stock’s “multiple.” PE is the current price per share divided by earnings per share. Earnings can be “forward” (predicted) or “trailing” (actual last four quarters).

Quantitative analysis: Financial analysis, based on measurable mathematical actualities, that ignores considerations of quality of management. Advanced quantitative analysis has produced historical measures of stocks’ volatility relative to their own past history and the market’s. 

Quote: Current buy and sell prices of a security. The lowest price any seller will accept at a given time is “asked,” and the highest price any buyer has offered for a stock at a given time is the “bid.” The difference between bid and asked is the “spread.” 

Random-walk theory: A direct refutation of technical analysis, this theory posits that markets cannot be predicted because they move in a random manner like the walking pattern of a drunken person.

Retained earnings: That part of a company’s profits that is not paid out in dividends but used by the company to reinvest in the business. 

Rights: Granted to existing shareholders when a company issues more shares in a new issue. Usually the rights last for only a short time and the shares are offered at a lower price than they will be offered to the public. “Preemptive rights” are sometimes mandated by state laws to allow existing shareholders to maintain a proportionate share of ownership, thus preventing “dilution” of their existing shares.

Risk tolerance: The ability of an investor to tolerate the chance of loss on an investment. Risk measurement attempts to quantify these chances, which can result from inflation, interest rates, market fluctuations, political factors, foreign exchange, etc. 

Round lot: Standard unit of trading. For stocks, a round lot is usually 100 shares, although 10 shares may make a round lot for inactive or highly priced stocks. 

Secondary offering: A sale of a large block of securities already issued by a corporation and held by a third party. Because the block is so large, the sale is usually handled by “investment bankers” who may form a “syndicate” and peg the price of the shares close to current market value.

Sector: A group of stocks in one industry. 

Sell discipline: An investor’s criteria for selling a stock. A value investor, for instance, may sell when the price/earnings ratio of the security is a certain percentage higher than its historical level.

Shareholders’ equity: Total assets minus total liabilities of a company divided by the number of common shares outstanding. Theoretically, this is the value of the company to the shareholder at liquidation.

Short interest theory: When short interest positions in a stock are high (see short sale), although it is an indication that many investors feel the stock price will drop, the theory is that the phenomenon is bullish for the stock because the short sellers will all have to purchase the stock in the near future to cover their short positions. 

Short sale: An investor anticipates that the price of a stock will fall, so he sells securities borrowed from the brokerage firm. The securities must be delivered to the firm at a certain date (the “delivery date”), at which time the investor expects to be able to buy the shares at a lower price to “cover his position.” 

Small capitalization stocks: Publicly traded company with a market capitalization (see market capitalization) of $500 million or less.

Stock buyback: A corporation may repurchase shares outstanding on the open market and retire them as “treasury shares.” This anti-dilutive action increases earnings per share, which consequently raises the price of the outstanding shares. Companies often announce a “share repurchase plan” when insiders feel the company is undervalued; the action strengthens the company and helps preclude a takeover.

Stock dividend: Payment of a dividend in stock rather than cash, usually as a percentage of existing shares held. A dividend may be stock in the original company or that of a subsidiary. A stock dividend is a way for a corporation to maintain its cash position without being subject to the accumulated earnings tax, since it reduces retained earnings and increases capital stock on a company’s books. A stock dividend also carries a tax advantage for the shareholder, since a dividend would be subject to ordinary income tax but the tax on capital gains is not payable until the shares are sold. 

Stock split: The division of the outstanding shares of a company into a larger number of shares, while the overall equity in the company remains the same. Shareholders have more shares but the same proportionate interest in the company. Unlike a stock dividend, a stock split does not affect the books of the company. After a split, the shares will immediately fall to a proportionate market value (that is, in a 2-for-1 split, $30 shares will fall to $15 each). A split makes the stock cheaper and helps to broaden ownership in the company. A “reverse split” (1-for-10) allows a company with low share value to be noticed by institutional investors who may be restricted from considering low-priced stocks. 

Stop order: An order to buy or sell at the market price once a security has traded at a set price, called the “stop price.” A stop order to buy is placed above the market price and is used to protect a profit or limit a loss on a short sale. A stop order to sell is placed below the market price and is used to protect a profit or limit a loss on a stock that is already owned. Although stop orders are designed to be used to protect investors from market movements, there is no guarantee that the order, when it is executed, will be at the stop price. The buy or sell order could be triggered by a temporary market movement that was no longer in effect when it was executed. For this reason, stop orders are sometimes combined with limit orders (see limit orders). 

Style: Investment style is attributed to sophisticated institutional investors. Major styles include “value,” “growth,” and “contrarian” (going the opposite way of most investors at the time). “Bottom-up” and “top-down,” respectively, refer to picking stocks based exclusively on their individual characteristics or as a part of a broader economic view that predicts certain sectors will do better than others. 

Subscription price: The price at which a right or warrant is offered. 

Technical analysis: Research based on price and volume movement “patterns” in an attempt to predict stock movements based on supply and demand. When a stock shows a “breakout” above a “resistance level,” it is said to be “oversold”; this is considered a good time to buy. When a stock shows a “breakout” below a “support level,” it is said to be “overbought”; this is considered a good time to sell. An “accumulation area” is a place on a technical analyst’s chart where the stock does not drop below a certain price range, indicating that buying is occurring. A “distribution area” shows that the stock is weak—selling is occurring. Technical analysis usually focuses on short-term stock movements and does not consider the financial situation of a company. It may be applied to the overall market as well as to individual stocks. 

Tick: Move up or down in price as a security trades, which may also apply to the overall market when index movements are measured in ticks. Zero-minus and zero-plus ticks are ticks at the same price as the preceding trade when the last preceding trade took place at a lower or higher price, respectively.

Total return: Measure of performance that includes capital appreciation (or depreciation) and reinvestment of dividends. 

Turnaround: Positive reversal in the performance of a company. 

Undervalued: Company that has an asset or a business niche that is not recognized for its true worth or value by the rest of the investment community.

Value stock: Stock trading below its own historical value for market, economic, or other reasons. If the stock is a large capitalization stock in a viable industry that has a relatively stable history, it usually can be expected to revert back to its prior value.

Warrants: Certificates that allow the holder to buy a security at a set price, either within a certain time period or in perpetuity. Warrants are usually issued for common stock, at a higher price than current market price, in conjunction with bonds or preferred stock as an added inducement to buy. 

Note: Feel free to send in your own related terms and definitions so that this section may be updated continually in modern Wiki-like fashion.

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Capitation “ReDux” – Part Two

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Global Physician “Capitation” Payments Making a Comeback

[By Staff Reporters]

biz-bookDid you know that Blue Cross and Blue Shield of Massachusetts is making a major change in the way it pays its physicians?

It’s moving from [discounted] fee-for-service pay to per-patient per-year capitation rates, adjusted for age and sickness (severity adjustments), plus a bonus for those MDs who improve patient health status. No definition of this term was given; however. 

Under the new “incentive” plan, BCBS hopes to transfer risk to primary medical care groups.

Typically, the capitation will cover all primary care, specialist, counselor and hospital costs. Interestingly, BCBS has publicly denied that this system is “capitation”, and assured the public that it has safeguards in place to make sure patients won’t be under-treated and doctors won’t be underpaid.

Yet, BCBS of Mass hopes to cut the growth in medical costs in half in two to four years among providers who accept this cloaked global capitation-redux.

Assessment

Talk about jargon obfuscation – what do you think?

PART ONE: The Re-Emergence of Medical Capitation?

Conclusion

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2008: Prognostications from Healthcare Financials

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SPECIAL REPORT:

A Medical “Executive-Post” Op-Ed Essay

Dr. David Edward Marcinko; MBA, CMP™

[Publisher-in-Chief]

dem-thinkingA new heuristic study by iMBA, Inc., www.MedicalBusinessAdvisors.com suggests that the New Year 2008 could be a big one for the healthcare industrial complex – with these dozen economic observations and postulated structural changes that could profoundly affect the industry – listed in no particular order of importance.

For example: 

1. Changes in both the upward and downward direction to hospital Medicare and Medicaid reimbursements [i.e., 200 new diagnosis codes for severity will increase income – refusing to pay for some “never-events” will decrease income] with corresponding private payer sector similarities.

2.IRS pressure on non-profit hospitals for increased economic reporting transparency [Sarbanes-Oxley Act], improved data integrity and national disaster threat protection [US Patriot Act] and more fiscal accountability [Stark III, etc] to demonstrate adequate community benefits.

3.Increased Medicare and private third-party insurer compliance scrutiny of physician reimbursement via the Omnibus Budget Reconciliation Act [OBRA], with concurrent but paradoxical diminishment of some enterprise-wide Health Insurance Portability and Accountability Act [HIPAA] edits. 

4.The growth of retail medical clinics and the use of healthcare para-professionals that produce more favorable clinical outcomes than initially postulated; as the FDA and related regulatory agencies boost drug and medical device safety standards.

5. Heightened emergence of consumer directed – health care plans [CD-HCPs] with increased consumer education, empowerment and individual accountability; and with augmented marketplace competition for these plans and patients. Moreover private, individual and non-employer based self-insured health care policies will grow. 

6.Rise, by “cohesive-persuasion”, of electronic medical records [EMRs], computerized physician order entry systems [CPOEs] and related health information technology [HIT] endeavors despite slow acceptance – and associated increased costs – by the aging medical community. This will be accompanied by increased protected health information [PHI] data and security breaches, and give credence to both portable and personal electronic health information [PEHI] repositories [flash drives, etc], as a well as commercial off-site aggregated data housing systems www.HealthVault.com and www.RevolutionHealth.com etc.  

7.Continued demise of regional health information organizations [RHIOs] because of the wider acceptance and security of LANs, WANs, intra-nets, blogs and wiki’s, etc., along with the faster spreading use of electronic virtualization technologies. Professional medical social networks will grow www.Sermo.com 

8. Growth of personalized medicine, genomics and individualized medical care plans. Diminished use of overused diagnostic modalities like CTs and PET scans – in favor of more thorough physical examinations [PEs], evidence based medicine [EBM], clinical acumen, experience and informed professional opinions. This will be followed by a decline in individual physician medical liability, but be more than offset with an increase in “class-action” claims with higher damage severity allegations.

9. Further evidence that a patient demand boom – not physician supply dearth – is the foreseeable supply/demand calculus of domestic healthcare; with corresponding macro-economic and budgetary dislocations. Medical school admissions will slow as paraprofessionals invade the scene – lost economic and social standing of physicians will increase – along with patient acceptance of alternative providers.  And, legislation mandating drug and medical device makers to report money given to doctors through honoraria, gifts and travel, etc. will grow as the Grassley-Kohl bill [Physician Payments Sunshine Act] – or similar legislation is enacted.

10. Confirmation that the US is already in the covert throes of a “de-facto” national healthcare system [NHS] – not by political fiat – but by current demographic econometric analysis that suggests that federal and state governments now pay for more than half of all patient care [Medicare, Medicaid; various regional, local and indigent health care systems; the Indian Health Systems, National Prison Systems, etc].

11.  Healthcare outsourcing will continue as “medical tourism” becomes more entrenched for individuals and corporate benefits managers, and the industry consolidates under new safety rules and regulations with slow, but relentless cost increases.

12. Healthcare costs will continue to rise because of sheer patient numbers, but be mitigated somewhat by a “back-to-basics” primary medical philosophy that includes novel utilitarian ideas like true medical-geriatricians, simple cost-effective measures like hand-washing to reduce nosocomial infection rates, end-of-life care initiative modifications, etc. And, the continued slow rise in domestic healthcare GDP over-time [from 15% to >22%, etc.] will not be as financially onerous as predicted. 

Analysis

Opinions on the above prognostications are desired, but comments that include citations are more favored. And, if your stated position is based on a particular observation, please cite the source 

Assessment

Since these predictions will be spurred by the shift in political power triggered by next year’s presidential election in the short-term – and the aging populations and its economic demographics in the long-term – your thoughts are appreciated?

Conclusion

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Split-Dollar Life Insurance Plans for Doctors

  A Valuable but Complex Business Arrangement for Physicians

 By Gary A. Cook; MSFS, CLU, RHU, CFP® CMP™fp-book

Split dollar arrangements can be a complicated and confusing concept for even the most experienced insurance professionals or financial advisors. 

Moreover, for most physicians and healthcare executives they seem to be fraught with even more confusion. 

The Basic Concept

This concept is, in its simplest terms, a way for a medical practice to share the cost and benefit of a life insurance policy with a valued physician employee. 

In a normal split dollar arrangement, the employee doctor will receive valuable life insurance coverage at little cost to them.  The medical practice business entity pays the majority of the premium, but is usually able to recover the entire cost of providing this benefit. 

Approaches and Structures [IRS Notice 2002-8 and 2002-59]

Following the publication of IRS Notices 2002-8 and 2002-59, there are currently two general approaches to the ownership of business split-dollar life insurance: Employer-owned or Employee-owned. (In addition, Proposed Regulation 164754-01, substantially changed split-dollar arrangements even further.  

Both the medical practitioner and his/her financial advisor should research this area thoroughly before proceeding or making any recommendations. Regardless of the method used, a written agreement must be prepared to spell out the rights and obligations of the parties.

[1] Employer-owned method [IRS Tables and PS38 Rates] 

In the employer-owned method the employer is the sole owner of the policy. A written split-dollar agreement usually permits the employee to name the beneficiary for most of the death proceeds. The employer owns all the cash value and has the unfettered right to borrow or withdraw it as necessary. 

At the end of the formal agreement, the healthcare business entity can generally (1) continue the policy as key person insurance, (2) transfer ownership to the insured and report the cash values as additional income to the insured, (3) sell the policy to the insured, or (4) use a combination of these methods. This is commonly referred to as “rollout.”

Medical practitioners, and their advisors, should be careful not to include rollout language in the split-dollar agreement. Many plans are set up with the intent—although not in writing—to transfer the policy to the insured after a certain number of years.

The reason the rollout should not be included is that if the parties formally agree that after a specified number of years—or following a specific event—related only to the circumstances surrounding the policy, that the policy will be turned over to the insured, the IRS could declare that the entire transaction was a sham and that its sole purpose was to avoid taxation of the premiums to the employee.  

If that happens, the IRS may deem that the premiums paid should be considered income to the employee when they were paid. If this comes up in an audit years after the inception of the agreement, it may generate substantial interest and penalties in addition to the additional taxes due. The death proceeds available to the insured employee’s beneficiary are considered a current economic benefit. Also called reportable economic benefit (REB), it is an annually taxable event to the employee.  

If an individual policy is involved, the REB is calculated by multiplying the face amount times government’s rate tables, or the insurance company’s alternative term rates, using the insured’s age.  

If a second-to-die policy is involved, the government’s PS38 rates or the company’s alternative PS38 rates will be used.

Any part of the premium actually paid by the employee is used to offset any REB dollar-for-dollar. 

The employer-owned method is primarily used when the employer wishes to maintain as much control as possible over the life insurance policy or for officers and executives of publicly-held corporations. This employee perquisite can be used to reward key employees with current inexpensive death protection and simultaneously provide a potential handcuff for them by informally funding a deferred compensation agreement. 

[2] Employee-owned method [Code § 7872] 

With the employee-owned method, the insured-employee doctor is generally the applicant and owner of the policy.  Any premiums paid by the practice are deemed to be loans to the employee and the employee reports as income an imputed interest rate on the cumulative amount of loan based on Code § 7872.

A collateral assignment is made for the benefit of the business to cover the cumulative loan amount.  In some cases, the assignment may allow the assignee to have access to the cash values of the policy by way of a policy loan. This method is unavailable for officers and executives of publicly- held corporations because of the current restrictions on corporate loans (the Sarbanes-Oxley Act). 

The employee-owned method is somewhat similar to the older collateral assignment form of split-dollar. The benefits for the employee are both the ability to control large amounts of death proceeds as well as developing equity in the policy.

Whether or not this new method catches on will depend greatly on the imputed interest rate published by the IRS every July. If set low enough, this may be an excellent opportunity for the employee to use inexpensive business dollars to pay for life insurance.  

Illustrative Example: 

Dr. Charles Tryon is a valuable member of a team of surgeons at St. Mary’s Hospital.  He has recently developed a new technique for treating brain aneurysms.  The hospital would like to keep him on staff for years to come. 

Dr. Tryon is married and has one small child and his wife is pregnant.  He has requested that the hospital provide him with more life insurance.  The hospital’s board of directors meets with a number of financial advisors to review their options and they settle on an employer-owned method split dollar arrangement. 

As a result, they will purchase and pay for a life insurance policy on Dr. Tryon, providing him the bulk of the death benefit for his family, as long as he is a member of their hospital staff.  They have also agreed to bonus Dr. Tryon the amount equal to the Reportable Economic Benefit, in order to keep his insurance cost at a minimum.

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Assessment

The above is not intended to be a complete treatise on the split dollar concept. There are many different variations that continue to change and develop daily.  Due to the complexity of split dollar and potential tax implications it is recommended that when considering a split dollar arrangement, an experienced team of advisors be consulted.

Conclusion

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Mutual Fund Terms and Definitions for Physicians

A “Need-to-Know” Glossary for all Medical Professionals

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HDS

[ME-P Staff Writers] 

ADV: A two-part form filed by investment advisors who register with the Securities and Exchange Commission (SEC), as required under the Investment Advisers Act. ADV Part II information must be provided to potential investors and made available to current investors.

Alpha: A measure of the amount of a portfolio’s expected return that is not related to the portfolio’s sensitivity to market volatility. A benchmark that uses beta as a measure of risk, a benchmark and a risk free rate of return (usually T-bills) to compare actual performance with expected performance.

For example, a fund with a beta of .80 in a market that rises 10% is expected to rise 8%.

If the risk-free return is 3%, the alpha would be –.6%, calculated as follows: (Fund return – Risk-free return) – (Beta x Excess return) = Alpha   (8% – 3%) – [.8 × (10% – 3%)] = (–) .6%   

Note: A positive alpha indicates out-performance while a negative alpha means underperformance. 

Asset allocation: Strategic asset allocation refers to the long-term targets for allocation of a percentage of a portfolio among different asset classes. In contrast, tactical asset allocation refers to short-term targets.

Average maturity: The average weighted maturity of the bonds in a portfolio providing an indication of interest rate risk.

Benchmark: An index, managed portfolio, or fund used to compare performance characteristics with the targeted portfolio or fund.

Beta: A statistically computed measure of the portfolio’s relationship to changes in market value. If, compared to the S&P 500, a fund has a beta of .80; it is expected to underperform a rising market by 20% and outperform a falling market by 20%. 

Bond: Publicly traded debt instruments that are issued by governments and corporations. The issuer agrees to pay a fixed amount of interest over a specified time period and to repay the principal at maturity.

Closed-end mutual fund: An investment company that registers shares in accordance with SEC regulations and is traded in securities markets at prices determined by investments. 

Diversification: Buying a number of different investment vehicles to protect against default of a single vehicle, thereby reducing the risk of the portfolio.

Duration: A more technical calculation of interest rate risk exposure that uses the present value of expected cash flows to be returned to the bond holder over the term of the bond. 

Fundamental analysis: An analysis of a company’s stock that focuses on the economic environment, the industry the company is in, and the company’s financial situation and operating results.

Mutual fund: A regulated investment company that manages a portfolio of securities for its shareholders.

Net asset value (NAV): The value of fund assets fewer liabilities divided by outstanding shares. 

Open-end mutual fund: An investment company that invests money in accordance with specific objectives on behalf of investors. Fund assets expand or contract based on investment performance, new investments and redemptions.

Portfolio manager: The person(s) who is/are responsible for managing the portfolio in accordance with the objectives dictated by an investor or a fund’s prospectus.

Prospectus: A disclosure document filed with the SEC and made available to prospective and current investors. The prospectus covers sales charges, expenses, investment objectives and restrictions, management fees, financial highlights, and other information. 

R-squared (R2): Relationship of a fund or portfolio’s performance to a benchmark index.

For example, a fund R-squared of .5 means only 50% of its return is explained by the index. Other factors are responsible for the balance of performance. 

SEC yield: A standardized calculation of yield over a 30-day period, sometimes quoted as the “30-day yield.” It takes into account yield-to-maturity rather than current dividends. 

Standard deviation: A statistic that looks at a series of returns and expresses the average deviation from the mean return.

Statement of additional information: A disclosure document filed with the SEC that supplements the prospectus. It is made available to investors upon request. 

Technical analysis: An analysis that focuses on trends in financial markets generally.

For example, a technical analyst may view an entire industry’s group of stocks to be declining. Although the analyst may be correct about the group of stocks as a whole, there may be exceptions represented by specific, individual companies.

Total return: The combination of investment return from income, such as dividends and interest, and appreciation or depreciation in the value of the investment (Income returns plus capital return.) 

Turnover: Under SEC rules, a figure computed that indicates how often securities in the portfolio are bought and sold. For example, if turnover is 100% over a one-year period, the securities (on average) were replaced once. 

12b-1 fee: The maximum annual fee payable from fund assets for distribution and sales costs as allowed by the SEC. 

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CD-HCPs and Pharmacy Benefits

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Safety and Compliance Needed

[By Staff Writers]

A new report suggests that Consumer Directed-Health Care Plans and Pharmacy Benefits Plans [PBPs] must focus on safety and compliance.

The survey, done by the Employee Benefit Research Institute [EBRI], found that nearly 70% of those enrolled in consumer-directed health care plans (CD-HCPs) said that they considered costs when deciding to see a doctor or filling a prescription. This compared with fewer than 40% of those in a more traditional comprehensive health insurance plan.

Assessment

However, the survey also found that CD-HP enrollees were twice as likely to avoid, skip or delay healthcare services. Is anyone surprised; please opine? 

Note: CD-HCPs: aka High-Deductible-Health Care Plans [HD-HCPs]

Conclusion

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Advisor Selection for Emerging or Suddenly Wealthy MDs

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Monitoring the “Professional” Advisors

[By Dr. David Edward Marcinko; MBA, CMP™]

An emerging or non-previously wealthy doctor may never have had a reason to develop a team of “professionals” to help manage his or her personal finances and/or affiliated medical practice businesss entity.Many areas of expertise such as tax planning and medical compliance, risk and investment management, or HR, practice succession planning and medical practice valuations may not be within the background, training, and health economic experience of the emerging or newly wealthy individual physician. 

Required Protean Subject-Matter Mix

The first step in developing a single or cadre of advisors is identifying which specific services are needed. For the practicing physician today, this often includes a protean mix of expertise in:

· Banking and credit relationships

· Budgeting and debt reduction

· Employee benefits negotiations

· Practice business planning and practice organizational start-up

· Practice funding and cash flow

· Financial accounting and tax planning

· Managerial accounting and practice cost accounting

· Insurance planning

· Risk Management implementation

· Continuous practice management

· Practice compliance

· Human resource management

· Investment advice and implementation

· Medical practice equity building

· Mature practice health law and policy issues

· Medical practice valuation and appraisal

· Practice sale and succession planning

· Retirement plan administration

· Professional trustee appointments

· Estate planning and documentation; etc.

Advisor Characteristics

Next, the individual physician should write down the criteria that will be used for selecting these advisors. These criteria could include:

·  Fiduciary capacity

·Medical specificity and expertise

· Educational degrees

· “Professional” credentials [many require just a HS diploma or GED]; age and experience

· Size of firm providing the services [agent, representative or owner].

·Compensation arrangements

·Location; increasingly less important; etc. 

A written document should also specify the services to be provided by the advisors that outline not only the specific responsibilities of all parties, but also the amount and source of compensation. (Some advisors receive compensation only from their clients; others are paid only when they sell certain products – try to avoid the latter). 

Avoiding the Hype 

Additional factors for the emerging or newly wealthy doctor to consider are reviewed below. Finding the right match in advisors can be a difficult but not impossible task.

While many advisors may fulfill the doctor’s initial criteria, it also is important to secure the services of those with whom the physician can have a relationship based on (documented-legal) trust and professional interaction. 

Because the emerging or newly wealthy doctor may have little experience in dealing with financial advisors, the doctor needs to be wary of the flashy, aggressive marketing hype that can accompany different types of advisors.

Physicians should look for fiduciary integrity, personality, extreme physician focused subject matter specificity and professionalism when selecting advisors. 

Compensation Schemes

From the beginning of a relationship, it is important to establish a clear understanding of how an advisor is to be compensated. 

Advisors who are paid a fee directly by their clients, based on time worked or the complexity of their services, are more likely to provide objective advice than are agents or representatives – who are paid to sell certain products.

Services delivered should be reviewed on a systematic, regular basis as outlined in the engagement agreement. The time period for review will vary, depending on the services being provided.

For example, in working with a money manager, it may be appropriate to schedule quarterly review sessions to check investment performance, expected changes in asset allocations, the types of investments made, and so on. Many however, feel this may be too often and merely serves as a pretense to conscientious-industry on the part of the advisor.

With an insurance agent, a bi-annual review may be sufficient for checking on policy coverage and premium costs.

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Evaluating the Advisors

Ask advisor level of experience in dealing with other physicians in similar settings. And, consider employment setting.

For example, a large firm provides continuity and depth, while a small firm often results in more personalized, individual attention. Most broker-dealers [BDs-wire-houses] use non-fiduciary stock-brokers [aka vice presidents, wealth managers, investment advisors, etc]; while most Registered Investment Advisor (RIA) firms are true fiduciaries.

  • Ask about confidentiality as well as transparency.
  • Do not sign arbitration agreements; if possible. You do not want to give-up your right to sue as the deck is stacked against the plaintiff by most arbitration panels.
  • Check references that are not offered by the advisor. Make sure they are long-term clients.
  • What are the advisor’s professional affiliations? For instance, what professional organizations or societies does he or she belong to and what do their codes of ethics require? Nevertheless, remember ethics is not fiduciary capacity which entails a much high legal duty (i.e., to the doctor-not the representing firm); etc.

Conclusion

Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

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Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com

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FINANCE: Financial Planning for Physicians and Advisors
INSURANCE: Risk Management and Insurance Strategies for Physicians and Advisors

8 Things your Financial Planner Won’t Tell You: http://articles.moneycentral.msn.com/RetirementandWills/CreateaPlan/8ThingsYourFinancialPlannerWontTellYou.aspx

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Homeowner Insurance Policy Endorsements

Home Title and Boat Insurance for Physicians

By Gary A. Cook; MSFS, CLU, RHU, CFP® CMP™ insurance-book

The physician homeowner is well advised to consider a multitude of endorsements and/or potential increases in their insurance policy limits. 

Examples include:

· Scheduling personal property, such as jewelry, furs, golf equipment and computers, which have been exempted from coverage, or coverage has a severe dollar limitation. 

· Increasing liability coverage to take advantage of the minimums needed for “Umbrella Liability” to be covered shortly.

· Theft extension endorsement to remove the exclusion for loss of unattended property from a motor vehicle, trailer or watercraft.

· Earthquake and/or sinkhole collapse coverage.

· Increasing the deductible from the standard $250 to a convenient self-insurance amount. 

Two other important riders include home-title and boat insurance. 

Home Title Insurance

As a routine part of any home purchase, a history of the title to the property, as well as any liens or conveyances, is completed.  This is referred to as title insurance, and typically protects the mortgage lender from any title defects.

If a title defect causes loss, the title insurance company will indemnify the lender, not the homebuyer, to the extent of the loan.  These are single premium policies of indefinite duration, but can terminate when the loan is retired.

Title insurance is usually required by the lender at the time of settlement.  If the state does not required this coverage to be paid by the seller, its payment can certainly be negotiated by the parties involved. The medical professional should also inquire as to the cost of their own title insurance policy.  This second policy would protect them rather than the mortgage lender. 

Although it would undoubtedly add to the expense of closing, there is no harm in requesting that the seller be responsible for providing this protection to the purchaser as well.

Boat Insurance Overview

Watercraft and small pleasure boats are usually covered within a homeowner policy, but generally only for $1,000.  More expensive boats are often insured either under a separate Inland Marine policy or as a Personal Articles Floater (attachment) to the homeowner’s policy.

The decision between these two alternatives usually involves the liability risk element. There is no provision in the Personal Article Floater for liability, and although it could be increased on the homeowners, it is usually preferable to use a separate policy.

Other items to consider are the size of the craft, maximum speed, engine horsepower, waters navigated and special uses, such as water skiing or racing. Yacht insurance is usually written in the traditional terms of Ocean Marine insurance, with both “Hull” coverage and “Protection and Indemnity” liability coverage. 

It is quite different from an Inland Marine policy and is beyond the scope of this discussion. 

Conclusion 

And so, what is your experience with any – or all – of the above insurance policy riders; worthwhile or worthless? 

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Debt-Based Securities Terms and Definitions for Physicians

A “Need-to-Know” Glossary for all Medical Professionals

Staff Writers

 

Accrued interest: Interest that has been earned but not received; when a physician purchases a bond from a bondholder, the physician owes the bondholder interest for the period of time the bondholder held the bond. Because interest is paid semi-annually, the period of time that has elapsed is the accrual period. 

Basis point: One one-hundredth of a percent; a measure for interest rates and bond yields. Bearer bond: A bond with coupons attached, evidencing ownership. 

Call feature: The provision in the indenture allowing the issuer to redeem the bond prior to its maturity date.

Convertible bond: A bond that promises that the holder can convert it into stock within a specified period of time at a specified price and specified ratio (a bond equals a given number of shares of stock). 

Coupon rate: The specified interest rate paid by a bond issuer.

Credit rating systems: The classification systems used to indicate the risk associated with a particular bond issue.

Debenture: A debt security that is not secured by a mortgage on a specific asset. It is backed only by the earnings of the issuer, known as full faith and credit.

Default: The failure to pay interest or principal on debt securities when those payments are due. 

Discount: The sale of a bond below its par value. 

Duration: The measure of volatility, expressed in years, taking into consideration all of the cash flows produced over the life of a bond. For example, if the duration of a bond is four years, then the price of the bond changes 4% for every 1% change in interest rates.

Indenture: A formal agreement between the issuer of a bond and the bondholders that specifies the maturity date, interest rate, and other terms.

Interest: The payment the issuer makes to the physician bondholder for the use of the bondholder’s money. 

Maturity: The time at which a debt issue becomes due and the principal must be repaid. 

Principal: The face value of the bond, also known as par value. 

Refunding: The act of issuing new debt and using the proceeds to retire existing debt.

Registered bond: A bond that has its ownership registered with the commercial bank that distributes interest payments and principal repayments. 

Sinking fund: A fund in which money to pay off the debt accumulates; bond issues that have a sinking fund are considered less risky than those without one.

Trustee: The entity, usually a commercial bank that is appointed to ensure that the terms of a bond’s indenture are met. 

Yield: The potential return offered to the bondholder. 

Yield curve: The relationship between yields and dates of maturities of debt securities as plotted on a graph. 

Yield to maturity: The yield earned on a bond from the time it is purchased until it is redeemed. 

Zero coupon bond: A bond that pays both principal and interest at maturity. 

  • Related info: www.HealthDictionarySeries.com 
  • Note: Feel free to send in your own related terms and definitions so that this section may be updated continually in modern Wiki-like fashion.  

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Doctors Dealing with Financial Favor Requests

Staff Writers

 

Physicians who have earned wealth – or recently acquired new wealth – often receive numerous requests from family, friends, acquaintances and others for financial assistance.

These requests may take the form of requests for loans, gifts, contributions and/or “investments.” They often come at a time when the doctor is most vulnerable to requests for assistance, especially when resources are new or far in excess of his or her previous experience. 

Just Say “No” – Initially

It is often advantageous to make no transfers [whether as outright gifts or investments and loans from which there is the expectation of an ultimate return of the funds] until after both short-term and long-term cash flow models have been constructed.

Within the framework of existing or the newly wealthy doctor’s short-term and long-term needs, transfers can then be considered and/or incorporated. With a cash flow model, total annual transfers can be forecasted and planned for, much the same as with any other anticipated disbursement. 

Example:

To illustrate within the context of the short-term and long-term projections of the newly wealthy, the doctor may want to incorporate -say- $50,000 per year of intra-family assistance. Both the timing and amount of this type of disbursement can be planned for, in much the same way as the purchase of replacement automobiles can be planned. 

Construct an Action Plan

Having a definitive, written action plan [or charitable foundation] can reduce the emotional demands placed upon a newly wealthy individual.

A written plan provides the framework for making informed, timely, disciplined transfers, rather than mere reactions to emotional pleas for assistance. 

For example, the affluent doctors may find it advantageous to adopt a policy that no transfers will be made until at least six months after the first request. This waiting period can provide the doctor time to consider whether or not the transfer meshes with his or her long-term desires and investment policy.

Retain a “Third-Person” Intermediary

It also is common to use a trusted financial advisor – or personal health economist – as an initial screening mechanism for requests, as a sounding board to discuss merit, and as a potential “bad guy” onto whom the ramifications of denying a request can be shifted. 

Just as this advisor or third-person intermediary can play an important role in being the deal breaker when appropriate in the corporate setting, he or she can be equally effective in taking the blame for the doctor, who then can maintain personal interaction with the party requesting a transfer. 

Depending on the personality of the wealthy physician, the intermediary can also serve an important role in preventing the individual from sharing too much.

Adhering to established formal written guidelines [IPS = Investment Policy Statement] that outline the parameters of an individual’s long-term financial plan can be an effective backstop to the untimely depletion of an asset base. 

Transferring the Right Way

When financial or other asset transfers are made they may take the form of outright gifts, investments, or loans. And, always be sure to do it correctly, formally and thru your intermediary. For example:

  • Gifts must be examined in the context of associated gift tax liabilities.
  • Investments should be accomplished within the framework of the individual’s written investment objectives document.
  • Personal loans should be implemented as legally enforceable transactions. 
  • Don’t forget charitable intent and philanthropic giving. 

Conclusion 

Feel free to comment and discuss your experiences with the above? 

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Insurance Terms and Definitions for Physicians

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[By Staff Writers]

Attained age: The premium rate charged to an insured at his or her current age on a policy conversion that would be the same as that offered by a company to new insureds who could qualify for standard rates.

Beneficiary: A person or entity named by the policyholder to receive death benefits under a life insurance policy. 

Cash value: The amount available in cash that accumulates in a whole life, universal life, variable life, or universal variable life policy upon voluntary termination of a policy before it becomes payable by death or maturity. 

Death benefit: Gross proceeds payable to a beneficiary from a life insurance policy. This includes the policy face amount and any additional insurance amounts paid by reason of the insured’s death, such as accidental death benefits and the face amount of any paid-up additional insurance or any term rider.

Deficit Reduction Act of 1984 (DEFRA): Act that changed the way life insurance companies are taxed, including a tax law definition of life insurance for purposes of determining whether a policy qualifies for favorable tax treatment. DEFRA made endowment policies obsolete. 

Grace period: A period of 31 days past the payment due date, during which the premium may be paid without penalty. 

Investment yield: Yield calculated after investment-related expenses and before taxes.

Lapse ratio: Percentage of policies that are terminated by the insured or lapse, prior to death.

Life insurance: The transfer to an insurance company of part or all of the risk of financial loss due to the death of an insured person. Upon such death, the insurance company agrees to pay a stated sum or future income to the beneficiaries.

Mortality charges: Charges a company makes against the policy to cover the policy’s share of the cost of death claims, which is the cost of providing the insurance protection.

Nonforfeiture option: Choices available to a policyholder who surrenders a cash value policy before the maturity date based on his or her interest in the contract. 

Period of contestability: A stipulated period of time in which a life insurance company is prevented from voiding a life insurance contract and challenging the coverage because of alleged statements by the insured. When fraud is involved, the period of contestability does not expire. 

Tax and Miscellaneous Revenue Act of 1988 (TAMRA): Act that created a new class of life insurance contracts (modified endowment contracts), which are subject to less favorable taxation rules than those applying to life insurance that failed the TRA 1986 test. 

Conclusion

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Retirement Planning Terms and Definitions for Physicians

A “Need-to-Know” Glossary for all Medical Professionals

HDS

 

 

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  • 5- and 10- year averaging: A special tax treatment for qualified plan lump sums. 
  • Annuity: A distribution of a retirement plan in equal amounts over a physician’s lifetime.
  • Deferred compensation plan: A nonqualified compensation plan, often tied to a physician-executive bonus plan, allowing for payments in the future, such as retirement.
  • Defined benefit plan: The traditional [older] legacy pension plan. The benefit is defined in a formula that is often based on the final years of physician employment. The benefit is paid as a single life annuity for single doctors without dependents. Married physicians must take a 50% or greater survivor annuity unless waived in writing by the spouse.
  • Defined contribution plan: A popular [newer] retirement benefit in recent times. The most popular version of this type of plan is the 401(k) or 403 (b), plan. The amount of contribution is defined, not the final benefit. The final benefit depends on how well a doctor employee’s investments perform. Another important feature is that the physician employee must choose the investments to which to allocate his or her contributions (and often the employer’s contributions). Plans typically offer three or more selections, and the doctor-employee decides on the percentage of money to be invested in each.
  • Employee stock ownership plan (ESOP): A benefit plan that offers company stock to the doctor as the investment. Available plans are leveraged ESOPs, which are highly complex financial arrangements, usually in the form of profit-sharing.
  • Hybrid pension plan: A plan that has features of both a defined contribution plan and a defined benefit plan:

1. Money purchase plan: A plan in which an employer agrees to contribute a specified amount to the plan on behalf of each physician employee. The amount available at any time is determined by the contributions and how well the investments perform.

2. Target benefit plan: A plan in which an employer agrees to contribute a specified amount to the plan. This plan features a formula that sets up a target benefit for each physician employee. The target benefit plan is meant to be similar to a defined benefit plan, but without the actual guarantee of the final benefit. The final benefit ultimately is determined by how well the investments perform.

  • Individual retirement account (IRA): A personal retirement savings plan for individual physicians. Several types are listed below:

1. Regular deductible/nondeductible IRA: Amounts of IRA contributions that is either deductible or non-deductible for individual income tax purposes. Earnings on these IRAs are tax deferred, meaning that taxes on earnings are paid at the time of withdrawal.

2. Roth IRA: Amounts of contributions to Roth IRAs are nondeductible. Earnings on Roth IRAs are never taxable.

3. Educational IRA: Amounts contributed to Educational IRAs are nondeductible; however, earnings are not taxable if withdrawn to pay qualified educational expenses. Anyone can contribute an indexed amount per year to an Educational IRA for a child under age 18, provided the total contributions for a child do not exceed per year limits. The account must be designated as an Educational IRA from its inception.

4. Conduit IRA: A rollover IRA consisting only of a single qualified plan that may be rolled into another qualified pension plan.

5. Inherited IRA: An IRA of a deceased physician.

6. Rollover IRA: An IRA consisting of a qualified plan(s) that has been “rolled over” into it.

  • Keogh plan: A plan for self-employed physicians and partnerships. A Keogh plan can be a defined benefit, a defined contribution, or a hybrid plan. 
  • Lump sum distribution: A distribution of all of the money in a doctor participant’s qualified benefit plan account. This generally occurs at one time or at least in one calendar year. 
  • Pension: An employer retirement plan providing payments at retirement. It is usually based on an employee’s compensation and doctor length of service. 
  • Qualified benefit plan: A specific plan that is qualified by the IRS to receive special tax advantages. Typical plans are defined benefit, defined contribution, ESOP, profit-sharing, and thrift plans.
  • Recalculation / Non-recalculation: Methods of determining the use of life expectancy tables for mandatory withdrawals at age 70½. 
  • Simplified employee plan (SEP): An IRA plan that is simplified and easy to administer for self-employed physicians. These plans are sometimes referred to as SEP-IRAs.
  • Supplemental executive retirement plan (SERP): A nonqualified plan, primarily but not exclusively for executives, that provides for lost qualified pensions due to IRS restrictions.
  • Tax-deferred annuity (TDA) or 403(b) plan: This typically is a defined contribution plan available to teachers, hospitals, nurses, doctors and not-for-profit organizations. An organization must sponsor the plan. Once sponsored, insurance companies offer annuities through the company. Employees then select which insurance company will receive their contributions. The contributions are almost always on a pre-tax basis.

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Questionable Insurance Policies for Doctors

Beware the Hype of Superfluous Products

Gary A. Cook; MSFS, CLU, RHU, CFP® CMP™

The following insurance policies should be carefully considered by physicians before purchase, since they may be unnecessary, too expensive, provide only minimal benefits or be duplicated in other insurance policies.

Avoid or Purchase?

These suspect insurance policy types include credit life or home mortgage insurance (decreasing term), life insurance for children, accident policies for students and pets, hospital indemnity policies, dread disease insurance, credit card insurance, pet health insurance, life insurance for the elderly, funeral insurance, flight insurance, pre-paid legal insurance and most extended warranties on automobiles, televisions, stereos, home computers and the like.   

On the other hand, the following types of coverage may be important in selected cases: trip cancellation insurance, termite insurance and flood and earthquake insurance. Regardless, the purchase choice for all of the above is your own – so think carefully. 

The “Perfect” Retirement Insurance Vehicle – Does Not Exist! 

Additionally, according to fee-only life insurance expert Peter C. Katt of Kalamazoo, Michigan, doctors should be on guard against believing in the existence of perfect retirement vehicles funded through “springing” cash value life insurance plans.

These plans reportedly feature payments of very large premiums while the policy is subject to favorable tax treatment, and then transferring the policy to the insured doctor when it appears to have no taxable value, after which the cash value springs to life. 

Assessment – Beware the VEBA

Unfortunately, in the real world, tax deductible contributions and tax-free benefits do not exist without resorting to fraud or deception.

Particularly notorious are the so-called continuous group insurance and VEBA (Voluntary Employee Benefit Association) pre-paid retiree plans, despite the fact that the later have been mistakenly endorsed by state medical societies – in certain cases.  

Conclusion

Always remember that no matter how professional and sincere marketers appear, there are no life insurance that can legitimately provide tax-deductible insurance with tax-free retirement benefits.  

Therefore, you should always consult a qualified professional for further information regarding your specific needs. And so, have you ever been “burned” or benefited by any of the above insurance policy types? 

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Celebrating a Physician’s Financial Windfall

Controlling the Euphoria of Newly Acquired Wealth

Staff Writers fp-book2

A physician’s spending patterns can be drastically altered with the receipt of a financial windfall. Caught up in the euphoria of sudden riches, newly wealthy doctors, as with most people, often purchase new homes and buy flashy sport cars, boats, airplanes and jewelry, etc.

Some may even be driven to fulfill the message of a common bumper sticker: “He who dies with the most toys wins.” 

Cash Flow Management is Key

For these medical professionals, current cash flow management takes on a new importance.  Adequate resources must be set aside to fund future needs, or else fewer resources will be available in the future to fund an affluent lifestyle. If resources are depleted, the doctor may be forced to reduce spending to the pre-wealth level.

The lucky physician and his/her health economist – or physician focused financial advisor – should construct projections of expected net worth accumulations to contrast the long-term impact of current consumption with saving and reinvestment at various levels. These models can be used to educate the newly rich about the implications of drastically changing their lifestyles.

Consider a “Spending-Hiatus”

The physician should also consider a “spending-hiatus” on major expenditures or changes in lifestyle. It is a good suggestion that the newly wealthy make no changes in employment – medical practice – housing, or make major acquisitions for twelve months.

Such a “cooling off” period allows the physician to make long-term plans before consuming a large portion of the wealth. 

Example: 

Dr. Mary Jones recently won the lottery and hired a health economist for advice. As a jackpot winner, she will receive $150,000 each year for the next 20 years.

The economist suggested that in the first year she use not more than $35,000 to purchase new “things” and that she should not change her employment until after twelve months. She should not purchase a new home until she receives the lottery proceeds for the second year. Loans and gifts to family members should be kept within the $35,000 “things” budget until the proceeds for the third year are received.

Assessment

By keeping a deliberate and controlled attitude toward spending, Mary has time to develop a new attitude toward money. This includes developing a long-term plan for dealing with the wealth, while avoiding immediate decisions that cannot be easily reversed. 

 Don’t Forget Tax Planning

The newly wealthy doctor also must plan for a potentially large income tax obligation in the first year. Depending on the source of the wealth, the new wealth can create the first significant tax liabilities that the physician has ever incurred. The newly wealthy often overlook the tax burden that comes with their new assets.  

For example, when a medical practice owner – or physician executive – sells a closely held clinic valued at $5 million, the true resource available to the owner is only half that after taking into account the related federal and state tax burden. A stock portfolio with a trading value of $1 million is actually worth less when the related taxes are subtracted on liquidation. 

Developing a short-term budget for disbursements can also help the newly wealthy maintain control over his/her personal, real and financial assets?

Although it may no longer be necessary to strictly watch each dollar that is spent, it is important to implement total preset levels of spending within specific categories. 

Practice Employment 

For a newly wealthy doctor, continuing to work after receiving a windfall is more than just a financial decision; it may be a life-goal. After developing a long-term net worth and cash disbursement model, he or she can make an informed financial decision regarding continuing to practice. A purely financial decision, however, does not take into account the emotional and psychological ramifications of significantly altering one’s professional standing and social lifestyle by quitting the profession.

The advantages of continuing to practice include the social support of involvement with one’s professional or vocational peers, self-fulfillment and the full utilization of available time, experience and prior education. Medicine after all, is still a noble professional that is highly regarded.

The advantages of not practicing include having time available to pursue non-income-producing activities, such as spending time with family members, traveling, volunteering for nonprofit healthcare organizations, practicing pro-bono and teaching; etc.

Conclusion

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Department of Labor Curtails Healthy Habits

New DOL Regulatory Guidelines Seem Paradoxical

Staff writers 

New regulatory guidelines from the Department of Labor [DOL] may curtail the ability of employers to motivate workers and employees to kick unhealthy habits.  

According to a report in the Wall Street Journal, the guidelines close a legal loophole that could have allowed employers to make health insurance more expensive for unhealthy workers than for their colleagues. 

High Deductible – HCPs 

Some employers have incorporated a form of supplemental insurance into their wellness programs under which workers enroll in an employer sponsored high-deductible health care plan [HD-HCP] and can offset the deductible by earning “wellness credits” for meeting certain health benchmarks – such as weight control or cholesterol levels – issued under a separate supplemental policy.  

Legal Opinions and Risk Management Concerns

But lawyers, benefits managers and risk management consultants have voiced concerns that such programs could hurt employees with health problems, as unhealthy employees could face insurance deductibles more than $1,000 higher than healthier co-workers. 

Conclusion 

And so, is this fair or not – and – does it promote the public good?

Revisiting Medical Malpractice Insurance

Further Liability Considerations for Physicians

By Staff Writers 

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As a physician or other medical professional, you are no doubt suffering under the spiraling premium payments for malpractice insurance. So, always take the time to review your policy often and consider the following evolving issues.

New Considerations for 2008 … and Beyond

·Perhaps your practice has specialized as your reputation has grown?

 · Has your insurance agent designed a policy around the needs of your office? 

Do not pay for coverage you would not use, and certainly do not leave gaps in your coverage so as to bear the risk of losses yourself.  A series of riders and endorsements from an insurance company will create a more specialized policy that addresses your insurance needs. 

Staying within Policy Scope

With respect to the scope of malpractice coverage, many liability insurance policies will deny coverage if an intentional tort is alleged.

One example of an intentional tort is intentional infliction of emotional distress, which doctors may need to defend against if they misdiagnose a patient while having a financial interest in the treatment of the diagnosis.  

Battery is another intentional tort with which doctors are often charged. 

Battery can be defined as any injurious contact without consent. The necessity of obtaining informed consent from each patient is becoming increasingly important as a defense against such claims.

Intentional torts are to be distinguished from torts of negligence, which are usually covered under most liability insurance policies.  Negligence claims arise out of mistakes usually attributable to carelessness. 

Make sure your insurance policy extends to intentional torts to prevent these kinds of cases from being denied coverage by your insurance company.

Policy Limit Considerations

In addition, carefully consider the policy limits of your insurance.  Do not accept the customary limits proposed by the insurance company. 

Instead, research the minimum amounts of coverage required in the location in which you practice, and adjust that upward to reflect the factors that cause malpractice judgments to increase.

Such factors include the clientele that you serve, the speed with which you must make medical decisions, the hospitals and surgical centers with which you are affiliated, and the relative cost of repairing damage made by an erroneous decision.

Conclusion 

And so, have you ever been sued for a cause other than strict medical negligence; an intentional tort, for example? 

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Medical Practice Human Resource Budgets

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Seeking Optimal FTE-to-Doctor Ratios

 [By Staff Writers]

The full-time-equivalent (FTE) – to doctor (provider) – ratio of a medical practice is often more useful to know than the total amount of staff salary expense, according to industry experts like Dr. Jon Hultman MBA, of Los Angeles, CA.  

Why? Because comparable salaries have a wide geographic variance; and it is just more expensive to practice in New York City, than it is in Phenix City, Alabama.  

Introduction 

Payroll (human resources) typically is the largest singe expense and cost-driver of most medical practices. So, an optimal staffing ratio must be determined for every practice, considering quality, productivity and patient satisfaction at the lowest possible cost.

Reducing the FTE ratio, and hence overhead salary expenses, is desirable only when it does not lower productivity, quality or patient satisfaction. 

Most FTE ratios are significantly high, with no corresponding benefit to the typical medical practice (if there even is such an entity).

Moreover, this FTE excess establishes an environment for which “idle-time” for any given point is about 30%. And, corresponding redundant or unnecessary “task-time” is about 25%. 

In fact, it is often a management truism that smaller FTE ratios may be consistent with higher levels of productivity. On the other hand, lower FTE ratios may actually be consistent with lower levels of productivity, lower medical care quality and higher costs; all other things being equal. 

 The NAHC Review

The National Association of Healthcare Consultants (NAHC), Statistical Report 2000, is summarized below and was considered reliable at the time because the numbers were reported by accountants, not doctors. More current information is now available.

Nevertheless, these benchmarks may serve as a cogent starting-point for HR budget analysis and FTE evaluation:

Specialty                                FTE Ratio 

  • Ophthalmology                     5.19
  • OB/GYN                                 4.35
  • Dermatology                         4.30
  • Otolaryngology                     4.22
  • Hematology                          4.19
  • Oncology                               4.19
  • Family Practice                      4.18
  • Orthopedic Surgery               4.12
  • Pediatrics                              3.79
  • Gastroenterology                  3.75
  • Internal Medicine                  3.51
  • Dentistry                               3.00
  • Urology                                 2.94
  • Podiatry                                2.94
  • Neurology                             2.70
  • General Surgery                   2.50

Assessment

Now, consider the specialty FTE-to-physician ratios listed above – index them over time for your medical specialty – and consider that famed investor Warren Buffett once said,

“There is a right size of staff for any business operation. For every dollar of sales (professional service income), there is an appropriate level of expense.”  

And so, how does your medical practice, clinic or healthcare organization stack-up to current NAHC benchmarks and their resulting HR budgets?

Conclusion

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Economics of Statins [Trials]

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The Competition Heats-Up

[By Patrick C. Cox; Jr.]

The chances are pretty good that you are taking a proven compound – called a statin – on a daily basis along with millions of other patients. The drugs are relatively safe, easy to take, widely available, and covered on most healthcare insurance plans … And, they do work. 

While not a license to do or eat whatever we want; a smart lifestyle and diet along with a statin will result in reduced cholesterol levels in most patients.

But, there’s lots of pharmaceutical manufacturer competition and the results will be dramatic. Billions of dollars will be spent on statins alone this year. And, the stakes are high.

The Vytorin™ Enhance Trial

With the recently released but disappointing results of the Enhance Trial where Vytorin™ did not reduce arterial plaque, the race is heating up between manufacturers. The contest is for a drug company to be able to lay claim to the statin efficacy “crown” – lower cholesterol and favorable results on arterial plaque.

But of course, you have to prove it first and then have the medical community buy-in.

Saturn Trial Launching Soon [Crestor™ versus Lipitor™]

Within the last few days AstraZeneca has announced plans for launch of the Saturn Trial pitting its A/Z’s Crestor™ 40 mg. – against Pfizer’s Lipitor™ 80mg. The goal is to prove product superiority in the ability to decrease – or regress – atherosclerosis over a two-year period.

Future Trials?

Of course, millions of dollars are on the table in both research costs and potential long-term revenues. And, we’re likely to see similar comparative trials on the horizon as companies struggle to increase their statin market share.

Assessment

And so, are statins worth this kind of attention and associated research dollars? Health economists call this type of ciphering a “cost-volume-profit-analysis [CVPA].”

Or, should big-pharma drug companies be putting their research dollars toward the discovery of more novel compounds?

Conclusion

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More on “Umbrella” Liability Insurance

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Negligence Based Coverage – Vital for Physicians

By Gary A. Cook; MSFS, CLU, RHU, CFP® CMP™ 

Negligence is generally the basis for liability “umbrella” insurance.   

Definition of Negligence

Negligence may be defined as the failure on the part of an individual to exercise the proper degree of care required by the circumstances.

It may consist of the failure to do something, or doing something that should not have been done.  It is the omission to do what a reasonable and prudent person would have done in the ordinary conduct of human affairs.

Umbrella Insurance Policy Structure

Umbrella insurance policies should be considered anytime the medical professional or healthcare practitioner has a substantial current income or has accumulated a sizable estate, and is concerned about asset protection from potential litigation.   

Umbrella policies vary greatly in structure so care should be taken to examine all of the various aspects of the policy carefully. Not only do umbrella policies vary in structure, but they can be arranged with many different endorsements to meet the specific needs of the medical professional. 

Examples:

A few illustrations for the practicing physician would be:

· The addition of personal injury coverage (to include libel, slander and defamation of character).

· Incidental medical business pursuits (to include coverage to personal automobiles where the healthcare or business activity was incidental and not the primary purpose of the use of the car).

· The broadening of personal automobile coverage (to the insured regardless of whose vehicle they were driving and the coverage afforded that vehicle).

***

policy insurance

***

Assessment

And so, what has been your experience with this insurance policy type which is typically very inexpensive?

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Conclusion

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Free Drugs for the Affluent

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Pharmaceutical Samples to Wrong Patients [PRMA]

[By Staff Writers]

matrix pillsMost free drug samples that physicians reserve for poor or uninsured patients actually go to wealthier patients who have insurance, reports a new study by the American Journal of Public Health [AJPH].

Patients with the highest incomes were the most likely to get free samples, according to the survey of nearly 33,000 Americans, while only 28 percent of those who got samples were poor, whether insured or not, with incomes less than twice the federal poverty level.

The Pharmaceutical Research and Manufacturers of America [PRMA] studies show 75 percent of physicians frequently or sometimes give out samples to help patients with out-of-pocket costs, while many poorer and uninsured folks never get to see a doctor and/or more often visit public health clinics or emergency rooms, where samples may not be available. 

Assessment

Or, they forego care!

And so, what is your opinion on this finding; malicious or merely absent-minded?

Conclusion

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“Never-Events” Payment Trends

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Aetna and WellPoint Refuse to Pay for Medical Errors

By Staff WritersMedical Chart

According to The Wall Street Journal, some large private health insurers are following Medicare’s lead by refusing reimbursement for erroneous medical care. Aetna and WellPoint now have contract provisions stating their refusal to pay – or allow patient-balance-billing – for care related to the 28 “Never-Events” compiled by the National Quality Forum [NQF].  

These NEs include, death of a low-risk pregnancy mother, instruments left in-situ after surgery, and using contaminated instruments or medical devices. Of course, the very definition of some other NEs is hotly contested.

Significant Examples 

Nevertheless, Aetna is including contract provisions that bar payment for all 28 NEs. And, WellPoint is refusing payment for 4/28 NEs in the State of Virginia.

Other insurers, like UnitedHealth Group and Cigna are considering similar moves; as are all 39 members of the Blue Cross/Shield Association. Hospitals in Minnesota and Massachusetts have already agreed to not charge for all, or at least some, of the 28 never events identified by the NQF. 

Assessment

And so, is this a national economic trend whose time has come; or just an unfortunate quality-care issue gone wrong regarding the “law of unintended consequences?”  What are your thoughts? 

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Conclusion

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Key-Person Insurance for Physicians

Another Business Use of Life Insurance

Gary A. Cook; MSFS, CLU, RHU, CFP® CMP™ 

If a key physician were to die prematurely, what would potentially happen to the affected medical practice?

In many cases, especially in smaller practices, it would have a devastating affect on the bottom line, or even precipitate a bankruptcy. 

In these circumstances, a form of business insurance, called “key person coverage”, may be recommended in order to alleviate the potential financial problems resulting from the death of that employee.

Variations on a Life Insurance Theme

In our scenario, the medical practice would purchase and own a life insurance policy on the key person or physician. Upon the death of the key doctor employee, the life insurance proceeds could be used to:

· Pay off bank loans for the practice;

· Replace lost profits of the practice;

· Establish a reserve for the search, hiring and training of a physician replacement. 

Example: 

Main Lion Hospital [MLH] gained national recognition as an innovator with a new procedure for laser eye surgery. Not only have they invested an enormous sum of money in the equipment used, but they are also very dependent on the talents and continued employment of Dr. David James Williamson IV, who helped design the equipment and procedure.

Assessment:

Fearing the economic consequences if Dr. Williamson were to die, MLH purchased an insurance policy on his life to help pay for the immediate replacement and the training of another specialist.

And so, do you have this type of insurance policy as either the key-physician, or an associate doctor in a medical practice that recognizes the need?

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Trends Suggest Specialty Liability Insurers Growing

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Physician Owned Malpractice Risk Retention Groups [RRGs]

By Dr. David Edward Marcinko; FACFAS, MBA, CMP™

[Editor-in-Chief]

dr-david-marcinko1 One new(er) method used to keep medical malpractice liability premiums low(er) may be specialty specific carriers, using Risk Retention Groups [RRGs].

In this business model, member physicians perform underwriting tasks, rate setting, and strategic operations. They also provide additional services, such as providing attorneys, medical risk and practice management experts; and are less likely to settle lawsuits, too.

History of RRGs

First prominent in the 1970’s, controlling more than 60% of medical malpractice market share and $ 6.1 billion in net premiums, RRG muscle dwindled in the 1990’s. RRGs however, seem to be making a comeback in 2008; according to proprietary iMBA Inc research studies www.MedicalBusinessAdvisors.com 

But there is a downside to physician owned liability insurers like RRGs. These include limited experience, reserve requirements, financial backing and a sparse but improving track record.

Current State of the Industry

Nevertheless, there are more than 51 specific sub-markets, and 40 so-called “bed-pan” mutuals, now serve orthopedic surgeons in Pennsylvania (Positive Mutual Risk Retention Group, Inc.), ophthalmologists in San Francisco (Ophthalmic Mutual Insurance Company), podiatrists in Tennessee (Podiatry Insurance Company of America), general practitioners in Illinois (Illinois State Medical Inter-Insurance Exchange), internists in New Jersey (MIIX Advantage Insurance Corporation), optometrists (Optometric Insurance of America) and chiropractors (Nationwide Chiropractors) across the country.

The Physician Insurers Association America, in Rockville MD, represents many of these RRGs and reports a membership combined-ratio which is a measurement of company viability of 141 – compared to an industry average of 154.

Actuaries suggest the figure should be closer to 125.*

The top five physician-owned medical malpractice mutual companies include: MLMIC Group, Doctors Company Insurance Group, Pro Assurance Group, Healthcare Indemnity, Inc., and the NORCAL Group. Laggards included neurosurgeons and OB/GYNs.

Assessment

A related new innovation for RRGs may be in the form of a tracking company, or system of medical providers to monitor and follow unhappy patients who are considered the most likely to sue.

Remember, liability underwriters and actuaries are risk-adverse by education and training. They react slowly, cautiously and incrementally to shifting risk factors; especially toward positive trends that might suggest reduced underwriter income and liability premiums.

Conclusion

Physicians, healthcare executives and medical group administrators must therefore develop their own strategies for evaluating liability risk factors, and lead the trend to reduced operational expenses through managed liability costs.

Perhaps this may be accomplished by RRGs in some cases?

And so, what experience do you have with this hybrid medical liability insurance machination?

Speaker: If you need a moderator or a speaker for an upcoming event, Dr. David Edward Marcinko; MBA is available for speaking engagements. Contact him at: MarcinkoAdvisors@msn.com

*Source: AM Best  

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“Wrong Profession” Insurance for Physicians

Framing Livelihood Insurance as a Risk Management Product [One Healthcare-Executive’s Experiential Opinion]

DEAN: Dr. David Edward Marcinko; MBA, CMP™

PROVOST: Hope R. Hetico; RN, MHA, CMP™

HOME:  www.CertifiedMedicalPlanner.org

Some might say that this is not a good time to be practicing medicine?  

Why? The reasons are TNTC.

But, increased tuition; decreased income, social and political standing; more paperwork and related scrutiny, and other  associated risks of all types make medicine a less attractive career choice than it was just a generation ago.  Most importantly perhaps – is the fact that for many – Abraham Maslow’s concept of self-actualization is just not happing for us.

What a pity? What a shame? What a loss? 

Of course, doctors like most people, tend to experience loss and risk more intensely than gains, and evaluate associated risks in isolation rather than conglomeration.  While unfortunate, it comes as no surprise for example that goaded physicians might prefer insurance vehicles like the “guaranteed” minimum death benefit of variable annuities – or the “assurance” that comes with disability or long term care insurance – or a traditional and “safe” cash value life insurance policy despite their decidedly higher operating costs and sales commissions, etc.

All human beings tend to seek the “peace-of-mind and safety” of guarantees, assurances, promises and the like. Most of us docs are no different.

The Insurance Mindset 

As an example of this insurance mindset, the economist Christian Gollier PhD revisited the very raison detra’ of the insurance sector by asking the simply question:  “Should one buy any insurance at all since the industry itself is so very skilled at exploiting human fears and foibles on many levels?”

Although this emerging work is descriptive and it is not yet time tested – since some of it aspires to be normative – developing modern economic models of savings and consumption hint that insurance may deserve a smaller role in our personal risk management profile than previously believed.

As a former Certified Financial Planner™ – this is anathema – or is it?  Of course, it may be especially true for medical professionals; or not!

Doctors in Personal Risk-Denial Mode

Amazingly, some physicians – unafraid of the patient death experience they encounter almost daily in their professional lives – enter into a personal risk-denial mode of sorts, when it comes to potential liability impact of professional and political machinations like HIPAA, the US PATRIOT Act, Sarbanes-Oxley and the Balanced Budget Act; etc.

Similarly, they might eschew the new Stark I, II and III self-referral risks, OSHA, DEA, EPA, OCR and the myriad managed care contract and capitation risks that are incumbent to medical practice in 2008.

Moreover, some doctors may disregard new-wave employee, expert witness, peer-review and on-call risks, or even their educational debt load risks. 

There are many liability risks assumed while practicing medicine today; aren’t there?  Of course, we have not mentioned medical malpractice liability risks at all – far too boring and de-rigueur.

The Insurance Industry Visionary Boom

As a former insurance agent, on the other hand, this is an exciting time to be practicing medical risk management and insurance planning.

Why? There is much research and creative enlightenment occurring for the academic and practitioner communities in the insurance industry.

But – and here is the rub – one must be willing to abandon ancient thoughts and remain open to new ideas that identify and provide solutions to the contemporaneous problems of physicians, and enlightened others. 

Allow us to repeat again – as in some areas of medicine today – one must be willing to abandon ancient thoughts and remain open to new ideas that identify and provide solutions to the contemporaneous problems of physicians, and the entire healthcare industrial complex, today.  

Nevertheless, with the acceleration of private, state and federal healthcare reform care initiatives, physicians may face the ultimate personal contingent liability crisis of all – by selecting the wrong profession [or medical specialty].

Thought-Leaders and Fast Followers

First suggested by Yale University economist Robert J Shiller PhD in his new book, The New Financial Order: Risk in the 21st Century, he opines that a new risk-sharing paradigm to protect ourselves from “gratuitous random and painful inequality” may be required.

His solution for laymen – and our own solution for medical professionals – Why, let’s all purchase “livelihood insurance” and frame it as a risk management contract! 

Assessment

Reassuringly, the risks and perils identified on this blog and/or in our related textbooks, dictionaries and online educational courses are not quite as philosophically thought-provoking and new-wave as Shiller’s ideas.

Although, we believe they are equally compelling, more effective, and most applicable to solo practices, small group medical practices, clinics and related healthcare entities.  They are also more pragmatic than this personal diatribe, and we are certain that our products and services will help you recognize and reduce personal and medical practice risks; but only if appreciated, integrated and executed with a trusted and knowledgeable professional.

Conclusion

So, what are your thoughts on this new insurance product to mitigate professional risk; please comment? Are you a visionary thought leader – a fast follower – a slow adopter – or a plodder; please opine?

Invite Dr. Marcinko

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The Malpractice Insurance Capitation-Liability Theory

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A New Litigation-Equation Philosophy of Liability

[One Healthcare-Executive’s Experiential Opinion] 

[By Dr. David Edward Marcinko; MBA, CMP™]insurance-book

Developed by iMBA Inc, the factors that comprise the so-called “litigation-equation” include: (1) patient communication factors, (2) provider healthcare delivery systems and reimbursement factors, (3) payer factors and, (4) revised liability legislation and patient encounter data factors. All are briefly reviewed below:

Communication Factors

Patient communication factors for the CLT include; reduced economic and financial fear, consideration of cultural barriers, improved medical awareness through continuing education, concern for geographic access, focused primary and specialty care availability, management information systems, and the frequency and duration of utilization.

Reimbursement Factors

Provider reimbursement factors and healthcare delivery systems include both soft and hard varieties.

Soft CLT provider factors include increased patient availability to services, accessibility to timely appointments, office and quality care satisfaction surveys, communication assessments, known fixed costs and technical information interchanges.

Hard CLT factors include managed operational procedures, illness severity, defined treatment options, clinical variations, outcomes measurements and quality monitoring, performance quotas, aligned financial incentives, and predictable reimbursements.

Payer Factors

Payer factors of the CLT include practitioner screening and shifting, quality assessment, behavioral modification and team care, provider discipline, complaint management, cost and call economic considerations, and adequate capitalization rates.

Liability Factors

Finally, liability factors of the CLT include allegation frequency and severity, standards of care, defensibility, risk management, premium pricing, loss adjustment, legislation, settlement losses, and administrative costs.

WHITE-PAPER: ACOs VBC Capitation SAMPLE DEM

Assessment

To fully understand the CLT, all four parts of the litigation-equation must be recognized. These factors, when integrated with underwriter data and experience, may help determine the level of liability risk and the ultimate cost of malpractice coverage.

For example, if capitated medical care is deemed to involve less risk than in the traditional indemnity environment, then the cost of liability coverage should gradually decrease as the percent of capitated managed care increases, in any particular office setting.

In actual terms, the CLT suggests that capitated insurance and patient care risk are inversely, but not necessarily proportionally, related since experiential data will determine the percentages.

Conclusion

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Pharma Ties Common in Medical Schools

Study Economically Links Medical Leaders to Industry

By Staff Reporters

56372274A new study suggests that nearly two of three academic leaders surveyed at US medical schools and teaching hospitals have financial ties to the pharmaceutical industry, illustrating how pervasive these relationships have become; researchers say.

Assessment

This link to a related report was sent in by a reader-advocate, with our thanks: http://www.msnbc.msn.com/id/21333262 

Conclusion: Now, is anyone really surprised? Your comments are appreciated.

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Physician Workers’ Compensation Insurance [WCI]

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A Necessity for Contemporary Medical Practices

[Staff Writers]

Workers’ Compensation Insurance [WCI] is reported to be the largest line of commercial insurance, possibly because it is also a statutory obligation for most physicians and all employers who have common law employees.

Purpose of WCI

Workers’ Compensation provides coverage for lost income due to on-the-job accidents or work-related disability or death, and benefits vary by state. Its purpose is not only to provide these benefits but also to reduce potential litigation.

Physician-Executive Benefits of WCI 

Medical office staff employees accepting the benefit payments from a Workers’ Compensation claim generally forego the right to sue their physician-employer. Workers’ Compensation rates are established by job descriptions and commercial rates for the medical professional’s office are some of the lowest available.

WCI Structures

Generally, the three methods of providing Workers’ Compensation coverage are: 1. Private commercial insurance; 2. Governmental insurance funds; and 3. Self-insurance.

There are however, seven “monopolistic” states – Nevada, North Dakota, Ohio, Washington, West Virginia, and Wyoming – which may not permit private commercial insurance.

Assessment 

The medical professional may be inclined to the third method of WCI coverage, especially in the larger offices.  Since the weekly benefits are typically below $750, this seems to make some sense. In larger medical groups, the physician-owners can elect not to be covered, as it is usually more convenient for the medical-executive to cover this risk with personal disability income insurance. 

Medical clinics or other healthcare entities, which wish to take more direct control of costs and benefit management, should consider self-insuring only after receiving expert advice.  This is one form of coverage that truly requires a trusted, knowledgeable insurance and risk-management advisor. 

Conclusion

What has been your experience with WCI in your geographic area? If your medical practice does not provide WC insurance; why not? 

***

PHYSICIAN FOCUSED RISK MANAGEMENT TEXTBOOK

Risk Management, Liability Insurance, and Asset Protection Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™

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Completing the Medical Practice Sales Transaction

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Issues to Consider Before Signing a Final Contract

[By Dr. David E. Marcinko; MBA, CMP™]

[Hope R. Hetico; RN, MHA, CMP™]David and Hope

Depending on whether the likely buyer of your medical practice is a health system, a private physician or a corporate partner, medical practice sale deal structures will vary.

From the physician’s perspective, deal negotiations are based on consideration of personal as well as financial planning goals.

Therefore, some key issues to consider are presented below to help negotiate the “art of the deal”, and may include:

Working Capital – In or Out

Including working capital in the transaction will increase the sale price.

Stock versus Asset Transaction

Structuring the deal as an asset purchase will increase practice value due to the tax amortization benefits received by the buyer for intangible assets of the practice.

Common Stock Premium

The sale price can be as high as 50% more than a cash equivalent price for accepting the risk of common stock as part of the payment.

Physician Compensation

If your personal financing planning goals are to maximize future practice value, negotiating a lower current salary within a range you feel comfortable with will increase the ultimate practice sale price.

Do the reverse and cannibalize your practice if you wish to increase your current salary.

Assessment

Were you previously aware of these negotiation sales points, and medical practice transaction contract concepts?

Conclusion

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The US Supreme Court

Denies GA Hospital Peer-Review Case

Staff Writers

According to Gregg Blesch of Modern Healthcare, the US Supreme Court just declined to review a case that hospitals hoped would clarify whether federal courts must defer to state laws protecting the confidentiality of peer review. 

The 11th U.S. Circuit Court of Appeals ruled in June that peer-review records should be fair game for a urologist attempting to prove he was the target of racial discrimination at 186-bed Houston Medical Center [HMC] in Warner Robins, GA.

HMC appealed to the Supreme Court. No federal law provides a privilege for hospital peer-review, yet all states have laws that protect the confidentiality hospitals say they need in order to foster the participation and candor crucial to identifying and addressing mistakes. 

And so, have you ever been on a hospital peer-review panel, and what are your thoughts on this case regarding privilege and confidentiality?

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Medicare Prescription Drug Benefit Outcomes

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Annals of Internal Medicine [AIM] Study on Part D

[By Staff Writers]body

The AIM recently reported from its online survey that Medicare Part D induced a 13.1 % decrease in out-of-pocket expenses for patients and a 5.9 % increase in prescription drug use.

The study compared out-of-pocket costs and the number of pills purchased by those who were eligible for Part D – with comparable patients who were not. It also compared Part D members to patients who were eligible for, but did not enroll in, Medicare Part D.

The program saved pre May 15, 2006 members about $6 per month and gave them an extra three to four days worth of one medicine per month.

After the enrollment deadline, average savings among all eligible seniors increased to about $9 a month with 14 extra days of medicine per month. The study also found that patients who enrolled early in the Part D program and higher rates of utilization and out-of-pocket costs prior to the Part D period and stood to benefit most from enrollment.

Assessment

And so, what are your thoughts on these results, first reported by Newswise on January 8, 2008?

Conclusion

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ETFs and Tax Efficiency

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A Better Financial Product than Mutual Funds?

[By JD Steinhilber]

Exchange-traded funds are inherently more tax efficient than actively managed mutual funds, which have been rightly criticized for their tax-inefficiency. Tax-efficiency is a critical issue for financial advisors and physician-investors because delaying the taxation of appreciating assets normally enhances after-tax returns over time.

For example, it is estimated that between 1994 and 1999, investors in diversified U.S. stock mutual funds lost, on average, 15% of their annual gains to taxes. The tax inefficiency of mutual funds is the result of portfolio turnover at the fund level caused by two factors: the trading activity of the portfolio manager and the activity of other shareholders in the fund.       

The Mutual Fund Performance / Redemption Problem

Due to fund manager efforts to outperform benchmarks, actively managed mutual funds almost invariably experience more “manager-driven” portfolio turnover than ETFs, where trading is generally driven by change in the composition of the underlying indexes being replicated. Mutual fund portfolio turnover can also be caused by the actions of shareholders in the fund. 

In a mutual fund structure, redemption requests by shareholders can force the fund to sell securities to raise cash. These sales may give rise to gains that, by law, must be distributed and will be taxed to all shareholders in the fund.

Unique Architectural Structure

ETFs, in contrast, are structured in such a way that the actions of one shareholder do not result in tax consequences to another shareholder.  ETFs accomplish this through the innovative architecture in which ETF “units” (which are subdivided into individual ETF shares) are created and redeemed to accommodate the fluctuating demand for the shares of a particular ETF.

ETF units are created and redeemed by institutional investors though non-taxable, “in-kind” transactions, which means that only securities – not cash – change hands in the creation and redemption process. 

An example of this process would be an institution exchanging a portfolio of stocks constituting the S&P 500 index for an S&P 500 ETF “creation unit”. And, once created, the S&P 500 ETF can be subdivided into individual shares that are tradable by investors on the exchange.   

Assessment

As a result of the above – physicians may be insulated from a tax standpoint by the actions of other investors – because taxable transactions don’t take place at the fund level.  Instead, ETF shares are traded between retail investors in transactions on the exchanges, so the tax accounting becomes very similar to that associated with individual stocks.    

Have you used ETFs in your own portfolio, and what is your tax efficiency experience with them; truth or hype? 

Conclusion

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