Innocent-Spouse Tax Relief

Posted on August 13, 2008 by Dr. David Edward Marcinko MBA MEd CMP™

Getting the IRS Facts

[Staff Writers]

Married physicians and other couples generally choose to file a joint tax return because they get the best tax breaks from that filing status; despite elimination of the “marriage penalty” several years ago.

However, joint filing has its downside. One spouse can be held fully liable for all the tax due—even if all of the income was attributable to the other spouse. What’s more a divorce does not limit a spouse’s liability—even if the decree requires the other spouse to pay the taxes.

IRS Reform Act

There is, however, a way out: The taxpayer can apply to the IRS for innocent spouse relief. What’s more, the IRS Reform Act, as previously discussed in the Executive-Post, liberalized the rules for obtaining relief.

Get the FAQs

Some time ago, the IRS released answers to frequently asked questions [FAQs] about the innocent spouse rules. The IRS release spells out policies and procedures that apply to innocent spouse requests.

Q. What kind of relief is available?

A. There are three kinds of relief: (1) innocent spouse relief; (2) separation of liability; and (3) equitable relief. Each category has different requirements and procedures.

Q. What are the rules for innocent spouse relief?

A. To qualify for innocent spouse relief, a taxpayer must meet all of the following conditions:

• The taxpayer filed a joint return with an understatement of tax.

• The understatement was due to erroneous items of the other spouse.

• At the time the return was signed, the taxpayer did not know and had no reason to know of the understatement of tax.

• Taking into account all of the facts and circumstances, it would be unfair to hold the taxpayer liable for the understatement.

Q. What are the rules for separation of liability?

A. Under this type of relief, the joint return understatement is divided between the spouses, according to their earnings and assets. To qualify for separate liability, the taxpayer must meet either of the following requirements at the time of the request:

1. The taxpayer is no longer married to, or is legally separated from, the spouse with whom the joint return is filed. For this purpose, a taxpayer is no longer married if he or she is widowed.

2. The taxpayer was not a member of the same household as the spouse at any time during the 12-month period ending on the date of the request. However, a request for separation of liability may be denied if the taxpayer or spouse transferred assets to avoid paying tax or the taxpayer had knowledge of any of the incorrect items when the joint return was filed.

Q. Will the IRS grant a request for separation of liability if a husband and wife are still married, but have been separated for at least 12 months for an involuntary reason such as incarceration or military duty?

A. Separation of liability applies to all taxpayers who have been living apart for 12 months or more preceding the filing of a claim.

Q. What are the rules for equitable relief?

A. Equitable relief is available only if a taxpayer does not qualify for innocent spouse relief or separation of liability. The IRS must determine that it would be unfair to hold the taxpayer liable, taking into account all the facts and circumstances. Unlike innocent spouse relief or separation of liability, equitable relief may apply to an underpayment of tax properly shown on a return.

Q. What factors will the IRS consider in deciding whether to grant equitable relief?

A. The following factors will be considered:

• Current marital status

• Abuse experienced during the marriage

• The taxpayer’s reasonable belief, at the time the return was signed, that the tax was going to be paid

• Current financial hardship

• Underpayment or understatement attributable to the nonrequesting spouse

• Lack of significant benefit received by the requesting spouse.

Bear in mind, however, that this list is not all-inclusive.

Q. What if one spouse forged the other’s name on a joint return? Does the nonsigning spouse qualify for relief?

A. Relief is available, but not under the innocent spouse rules. If a spouse can prove that his or her signature was forged, and there was no tacit consent to the signing, the return is invalid for that spouse.

Q. If a spouse signs an examination report that lists omissions of income, does that mean he or she had knowledge of the items giving rise to the deficiency?

A. No. The innocent spouse rules make it clear that knowledge has to do with what was known at the time the return was signed.

Q. How do state community property laws affect a taxpayer’s ability to qualify for relief?

A. Community property laws are not taken into account by the IRS for purposes of any request for relief from liability.

Q. Do the new relief rules apply to any outstanding tax liability?

A. The rules apply to (1) unpaid balances as of July 22, 1998, and (2) liabilities arising after July 22, 1998, and as amended.

Q. How does a taxpayer request relief?

A. The taxpayer should file Form 8857, Request for Innocent Spouse Relief, along with a statement providing additional information for the IRS to consider. One form can cover multiple years. The IRS will automatically consider all three types of relief when processing a request.

Assessment

It is not know how many medical professionals are familiar with the above; but it is likely very few. That’s why the sage advice of a CPA or tax attorney is always helpful.

Conclusion

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Filed under: Accounting, Taxation | Tagged: innocent spouse rules, IRS | 1 Comment »

Introducing Medpedia

Posted on August 12, 2008 by Dr. David Edward Marcinko MBA MEd CMP™

A Not-So New Idea!

By Dr. David Edward Marcinko; MBA, CMP™

[Publisher-in-Chief]

By Hope Rachel Hetico; RN, MHA, CMP™

[Managing Editor]

Medpedia, an online medical encyclopedia launching later this year, aims to have the open-source, evolving, and comprehensive nature of Wikipedia.

According to its Website

“The Medpedia Project is an extraordinary global effort to collect, organize and make understandable, the world’s best information about health, medicine and the body and make it freely available on the website www.Medpedia.com

Physicians, health organizations, medical schools, hospitals, health professionals, and dedicated individuals are coming together to build the most comprehensive medical resource in the world that will benefit millions of people every year.”

The Wikipedia Difference

In a key departure from Wikipedia’s all-comers sensibility, however, the new encyclopedia will be edited only by those with advanced degrees in medicine and biomedical science, and the site is taking online applications from would-be volunteer editors – MDs, biomedical research PhDs, and clinicians who will be screened in a rigorous internal review process, according to a July 23^rd press release.

Incubator Backing

The site is backed by an incubator, called Ooga Labs, and it will run text ads, while Harvard Medical School is giving the site some seed content.

Medpedia’s advisers include current and former deans from the medical schools at Harvard, Stanford and Michigan and the school of public health at UC Berkeley, while the site will pull in public domain content from the likes of the Center for Disease Control and Prevention [CDC], the National Institute of Health [NIH] and the Food and Drug Administration [FDA].

Other health and medical organizations that are supporting Medpedia include the American College of Physicians [ACP], the [Oxford Health Alliance (OxHA.org)], the Federation of Clinical Immunology Societies, [FOCIS], and the European Federation of Neurological Associations [EFNA]. These groups are contributing content and promoting participation in Medpedia to their members.

Assessment

A wiki is an electronic collection of web pages designed to enable anyone who accesses it to contribute or modify content, using a simplified internet markup language. It is named after the Hawaiian term for “quick.”

But, the concept and execution in late 2008 of www.Medpedia.com is not new or exactly as innovative as its originator’s seem to suggest; in the healthcare or any other space.

An Earlier Healthcare Success Story

For example, the Comprehensive Health Dictionary Series™ was started by email collaboration in 2005. Its genesis sprang from those who suggested that changes in health and managed care appeared malignant, as many industry segments, professionals and patients suffered because of it. This tumult was so great, that many Americans and the HDS founders realized that they could no longer assume definitional stability of non-clinical health administrative terms. The resulting managerial and business chaos was legion.

And so, since knowledge is power in times of great flux, codified information protects us all from physical, economic, financial and emotional harm!

By its very nature, the Comprehensive Health Dictionary Series™ was ripe for electronic aggregation and modified wiki-styled creation; with periodic updates by engaged-readers working in the fluctuating health care industrial complex. Internet connectivity was the best way for the Health Dictionary Series™ to be edited and revised to reflect the changing lexicon of terms, as older words were retired, and newer ones continually created.

Moreover, we did not simply listen to our colleagues, visitors, submitters and clients; we believed that true innovation means putting development tools in their hands, stepping back, and allowing them to lead the way! And, it was so.

Coupled with our Collaborative Lexicon Query Service™ and a modified and moderated interactive social network, we maintained continuous subject-matter expertise, professional and user input, with peer-reviewed editors and experts; just like the Medpedia’s of today.

In fact, after our internet and email collaboration, three successful printed dictionaries were ultimately released in 2006 and 2007 as a result of the initial successful initiative; and more are to come:

The Dictionary of Health Insurance and Managed Care

http://www.amazon.com/Dictionary-Health-Insurance-Managed-Care/dp/0826149944/ref=sr_1_5?ie=UTF8&s=books&qid=1217414309&sr=1-5

The Dictionary of Health Economics and Finance

http://www.amazon.com/Dictionary-Health-Economics-Finance-Marcinko/dp/0826102549/ref=sr_1_3?ie=UTF8&s=books&qid=1217414309&sr=1-3

The Dictionary of Health Information Technology and Security

http://www.amazon.com/Dictionary-Health-Information-Technology-Security/dp/0826149952/ref=sr_1_2?ie=UTF8&s=books&qid=1217414309&sr=1-2

Detailed information, including Tables of Contents, Celebrity Forewords, unique features, reviews and ordering access may be obtained from: www.HealthDictionarySeries.com

Conclusion

And so, we certainly congratulate the righteous old-school founders of Medpedia on its upcoming launch. Yet, a singular query remains, considering the social networking cultural phenomena that are Facebook, MySpace, Twitter etc. “What took you so long – seriously?”

Moreover, we believe the marketing driven advertising nature of the beast will make its integrity, highly suspect [vis-a-vie big pharma].

In other words, if eyeballs can be reached and/or monetized … they can be slanted.

Please opine on this method of edited medical; knowledge aggregation; pro or con. Your comments are appreciated.

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Physician Advisors: www.CertifiedMedicalPlanner.com

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New-Wave Medically Focused Financial Advisors

Posted on August 11, 2008 by Dr. David Edward Marcinko MBA MEd CMP™

Avoiding the “Managed Care Ripple Effect”

By Dr. David Edward Marcinko; MBA, CMP™

The healthcare industrial complex represents a large and diverse industry, and the livelihood of other synergistic professionals who advise doctors depend on it as well. These include financial planners and investment advisors who themselves wish to avoid the collateral ripple effects of the current health and managed care debacle.

Future Growth Potential in Financial Services

As a CFP, CFA, financial planner, CPA, investment advisor or general securities representative, you realize that the financial service sector is going to become the next great growth opportunity of the 21st Century.

Even H & R Block and the Charles Schwab Corporation are trying to build medical professional interest in their respective firms and compete with your independent practice. They are fervently wooing away one group or another to interface with their embryonic management, accounting or advisory programs.

For example, it has been estimated that more than one-third of the nations 60,000 accounting firms are contemplating the introduction of investment and medical management services to their business line.

Another 100,000 solo CPAs are interested in personal financial planning for their physician and lay professional clients; a survey several years ago of senior CPA partners conducted by Prince & Associates of Shelton, Conn., revealed that more than 60 percent were “highly interested” in offering investment management services, and three quarters of those said they were evaluating the best approach for their firms.

The Migration to Advisory Services

Meanwhile, more than 260,000 of the nation’s brokers are moving into the investment advisory and financial planning business because securities sales and transactions are being commoditized by the internet’s World Wide Web.

In another survey several years ago, conducted for the old International Association for Financial Planning [the older IAFP is now the Financial Planning Association, or FPA], clearly demonstrated the dominance of registered investment advisors [RIAs], over stockbrokers [regardless of nomenclature derivatives], among clients 35-49 years old.

With the average Merrill Lynch private client well over 60, and the firm and industry imploding in 2008, it’s easy to spot the future vulnerability of this business model.

Valued Industry Players

When asked to determine the added value of key industry players, baby boomers in a more recent Dalbar study ranked financial planners first, followed by stockbrokers, CPAs, mutual fund companies, insurance agents, and commercial bankers, respectively.

Even if you are a CFP® or investment adviser, and despite the proliferation of investment advisors, evidence suggests that your individual impact is still narrow.

Furthermore, a Prince & Associates study of 778 affluent individuals, each with more than 5 million dollars to invest, examined the relationship between clients and their providers of five key financial services; retirement planning, estate planning, investment management, executive benefits and health-disability insurance. Prince found that 59 percent of the clients had been serviced in only one area by a particular advisor.

Despite the significant assets of each client, the advisers have been unsuccessful at broadening these relationships — a key indicator that many affluent clients do not have a primary financial adviser.

Medical Niche Players

Among the challenges you face to broaden your influence is to offer your clients value-added services, perhaps by establishing your expertise in the medical niche and capitalize on being different; as in the Certified Medical Planner™ online health economics program of iMBA, Inc.

You must not be just another of the more than 250,000 or so individuals who claim to be financial planners, with a collective universe of an additional 700,000 or so who purport to be financial advisors, in some fashion or another. You must begin to develop the strategic competitive advantage of practice management knowledge to synergize with your existing financial service and product line.

Integration of Disciplines is Key for the Healthcare Space

Integrated practice management and financial planning will also become much more competitive among physicians because of the above professional fusions.

No one is suggesting therefore that you abandon your core financial advisory business for business management. It is merely a fact that medicine has drastically changed during the past decade, and the knowledge that you used yesterday will no longer be enough for you to get by on in the future.

Assessment

Medical practice management is the natural outgrowth of traditional financial planning services, and investment advice, in turn, is central to the implementation of a contemporary medical office business plan. The most successful physician-focused financial planners therefore, will be those who incorporate medical management services into their practices.

Disclaimer: Dr. Marcinko, a former stock broker, Certified Financial Planner and investment advisor is Founder of the Certified Medial Planner™ program for all fiduciary consultants in health economics, finance and medical practice management www.CertifiedMedicalPlanner.com

Conclusion

Your thoughts are appreciated; please opine?

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Filed under: "Advisors Only", Career Development, Marketing & Advertising, Op-Editorials, Research & Development, Sponsors | Tagged: certified medical planner | 1 Comment »

Domestic Healthcare Access Survey

Posted on August 9, 2008 by Dr. David Edward Marcinko MBA MEd CMP™

Still an Elusive System for Many

[By Staff Reporters]

Access to health care in the United States continues to elude more and more Americans, and the nation’s health care system hasn’t improved overall, even though the U.S. spends more on medical care than any other industrialized nation, a new Commonwealth Fund survey shows.

The Study

The authors compared average performance in the United States to those of top-rated performers across the country and abroad. Overall, the U.S. score averages just 65 out of a possible 100, falling far short of benchmarks with wide gaps in all dimensions of the health system, while the score was lower than that achieved in the Commonwealth Fund’s 2006 scorecard, according to HealthDay, on July 17, 2008.

Efficiency Scores Low

For example, scores for efficiency were particularly low, held down by fragmented, poorly coordinated care; lack of access that leads to avoidable hospitalizations; variations in costs with no return in quality; lack of investment in information technology; and very high insurance overhead costs.

USA is Dead-Last

Although no pun is intended, the United States is now “dead-last” among 19 industrialized nations in premature deaths that might have been prevented by better access to health care. In 2006, the United States was 15th on the list.

The scorecard also found that health care varies widely from state to state, region to region, and from one hospital and health plan to another, while the difference between the best and worst performers can be as much as fivefold.

On the positive side, mortality rates in hospitals improved 19 percent over the past five years, the result of concentrated public-private efforts to improve hospital safety.

Related Findings also Disappoint

Related other findings of the scorecard included:

Basic preventive care hasn’t improved, with only 50 percent of all adults receiving recommended preventive care, such as cancer screenings.
Health insurance premiums continue to rise faster than wages. In 2007, 41 percent of adults said they had medical debt or trouble paying medical bills, up from 34 percent in 2005.
The number of primary care doctors using electronic medical records rose from 17 percent in 2001 to 28 percent in 2006, but this gain still lags some other countries where 98 percent of doctors use electronic records.

Assessment

Disparities in health care continue to be pervasive, with minority, low-income and uninsured adults more likely to wait to see a doctor and encounter delays and poorly coordinated care. Also, they have worse dental care, more uncontrolled chronic disease, more avoidable hospitalizations, and worse outcomes.

Conclusion

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Implications of Portfolio Withdrawals for Physician Investors

Posted on August 8, 2008 by Dr. David Edward Marcinko MBA MEd CMP™

Obtaining Income in a Low Interest-Rate Economic Ecosystem

By Jeffery S. Coons; PhD, CFP®

Managing Principal-Manning & Napier Advisors, Inc

The general trend of declining interest rates experienced over the last decade and a-half, part of a long-term trend Manning & Napier Advisors, Inc. had focused on since the early 1980’s, created new challenges for managing investment portfolios with regular and significant cash withdrawals. And, this report will provide an analysis of the investment implications of withdrawals in light of the secular shift in the economic and market conditions; for all physician, healthcare executives, and financial advisors The analysis aims to guide decisions as to the appropriate level of withdrawals from an account in this environment.

Restricted Ability to Generate Income

Declining interest rates restrict the ability to generate income from high quality investments, so a greater proportion of a given withdrawal requirement must come from the potential price appreciation of the securities.

Of course, the inherently volatile nature of the financial markets makes price appreciation the less predictable of the sources of total return available to fund withdrawal needs. The natural questions that arise from this observation include:

· What withdrawal rate inhibits the ability to pursue long-term capital growth as a primary investment objective?

· What withdrawal rate may create a significant risk of a sustained deterioration of capital?

· What is a reasonable range of withdrawal rates given the relatively low interest rate environment that we face?

Interest Rates and Dividend Yields

The answer to the first question can be derived by looking at interest rates and dividend yields of the recent past. For example, with a dividend yield of 1.0%-2.0% on stocks (e.g., the current yield on the S&P 500 Index as of December 1999 is 1.2%) and yields on intermediate-term and long-term fixed income securities between 6.0% and 6.5% (e.g., as of December 1999, a one-year Treasury Bill has a yield of 6.0% and a thirty-year Treasury bond has a yield of 6.5%), growth-oriented portfolios should have generally produced a level of income adequate to allow 2.5%-3.5% withdrawals on an annual basis.

Thus, rates of withdrawal of less than 3.5% generally should not inhibit the pursuit of long-term capital growth as a primary investment objective.

High End Results

To establish the high end of the achievable withdrawals under a management approach pursuing long-term capital growth, consider some additional historical evidence.

For example, assume that withdrawals are taken from each of three portfolios (i.e., 100% stocks, 80% stocks/20% bonds, and 50% stocks/50% bonds using data from Ibbotson Associates, Inc.) starting at the beginning of 1973. How many years did it take to regain the original capital of the portfolio?

As can be seen in the table below, it took between 4-8 years for these portfolios to recover from the 1973-74 bear market with a 5.0% withdrawal rate. If withdrawals are at a 7.5% rate per year, over ten years elapsed before the original capital was restored. Finally, with a 10.0% withdrawal rate, it took between 13-15 years to restore the capital.

While the 1973-74 bear market was severe, it is not the worst bear market that can be used to illustrate the risk of significant withdrawals taken when the portfolio’s market value is depressed. The clear conclusion is that withdrawals of greater than 5.0% are a potential impediment to pursuing long-term capital growth, given the long periods required to restore capital for the various growth-oriented asset mixes offered in this analysis.

When Was Original (12/72) Capital Restored?
	5.0% W/D	7.5% W/D	10.0% W/D
100% Stock	9/80 (7.75 years)	6/83 (10.5 years)	6/86 (14.5 years)
80% Stock/ 20% Bond	9/80 (7.75 years)	3/83 (10.25 years)	6/86 (14.5 years)
50% Stock/ 50% Bond	12/76 (4.0 years)	3/83 (10.25 years)	3/87 (15.25 years)

When Was Original (12/72) Capital Restored?

5.0% W/D

7.5% W/D

10.0% W/D

100%

Stock

9/80

(7.75 years)

6/83

(10.5 years)

6/86

(14.5 years)

80% Stock/ 20% Bond

9/80

(7.75 years)

3/83

(10.25 years)

6/86

(14.5 years)

50% Stock/ 50% Bond

12/76

(4.0 years)

3/83

(10.25 years)

3/87

(15.25 years)

Understanding Market Value

Another key issue to remember is that the withdrawal rates above are a percentage of current market value, so the dollar value of the cash withdrawn from the account is assumed to decline in a bear market.

However, most of us think of our withdrawal needs in terms of dollars instead of percentages (e.g., $50,000 from a $1,000,000 account, which translates to 5%). If we attempt to maintain the dollar value of withdrawals in bear market periods, the percentage of current market value being withdrawn actually increases, and the impact on the portfolio far exceeds the example provided above.

To demonstrate, consider maintaining withdrawals of $50,000, $75,000 and $100,000 on an account with a $1,000,000 market value as of 12/72 (see table below). In the case of a $50,000 annual withdrawal, approximately 8-10 years elapse before the original $1,000,000 market value is restored. If the withdrawals are $75,000 per year, 13 years elapse for the 50/50 asset mix and almost 19 years pass for the 80/20 asset mix before the $1,000,000 is restored. For the 100% stock portfolio, nearly 25 years elapse before the original $1,000,000 is restored.

Finally, for $100,000 withdrawals off of a $1,000,000 market value in 1972, all capital in the account is depleted within 10-15 years given these withdrawals. Thus, the risk of significant cash withdrawals having a detrimental impact on the ability to preserve and grow capital is much more pronounced when withdrawals remain high in dollar terms.

When Was Original Capital ($1,000,000 in 12/72) Restored?
	$50,000 W/D	$75,000 W/D	$100,000 W/D
100% Stock	3/83 (10.25 years)	9/97 (24.75 years)	Capital Depleted 9/83
80% Stock/ 20% Bond	12/80 (8.0 years)	9/91 (18.75 years)	Capital Depleted 3/85
50% Stock/ 50% Bond	9/80 (7.75 years)	3/86 (13.25 years)	Capital Depleted 9/87

When Was Original Capital ($1,000,000 in 12/72) Restored?

$50,000 W/D

$75,000 W/D

$100,000 W/D

100% Stock

3/83

(10.25 years)

9/97

(24.75 years)

Capital Depleted

9/83

80% Stock/ 20% Bond

12/80

(8.0 years)

9/91

(18.75 years)

Capital Depleted

3/85

50% Stock/ 50% Bond

9/80

(7.75 years)

3/86

(13.25 years)

Capital Depleted

9/87

Pursuing Long-Term Capital Growth

So far, the major point we have established is that a withdrawal rate of 2.5%-3.5% may be achievable without hampering the pursuit of long-term capital growth, but withdrawals of 5% or greater may have a significant impact on the ability to manage for growth.

Therefore, accounts expected to experience withdrawals of 4%-5% (or greater) should be managed with a goal of satisfying these withdrawal needs on a regular basis first, with the pursuit of capital growth taking secondary importance.

However, the analysis provided above also implies that there is a rate of withdrawals that forces us to focus on capital preservation, because depletion of capital is a likely outcome. For withdrawals in the range of 10.0%, the example above shows that the risk of depletion of capital is significant at these high annual levels, especially if the withdrawals are on a dollar basis and not adjusted by the decline of current market value in a bear market.

In fact, with long-term U.S. government bond yields at approximately 6.0%-6.5%, annual withdrawals greater than 7.5% are likely to be too high to allow a manager to effectively pursue long-term capital growth without a high degree of risk to the capital of the account. That is, since attempts to provide returns above the current Treasury yields imply risk of volatility, and volatility can lead to the examples provided above, withdrawals at 7.5% or more and maintained on a dollar basis imply a high likelihood that original capital will be depleted over a 15-20 year period. In general, the current level of yields in the market imply that management of a portfolio requiring over 7.5% per year in withdrawals faces a strong possibility of depleting capital under any scenario, and so portfolio management should focus on dampening market volatility so as to extend the life of the capital for as long as possible as it is drawn down.

Determining Appropriate Level of Withdrawals

The final question (i.e., the appropriate level of withdrawals) is driven by both the physician client’s need for the assets and the parameters outlined above:

1. Withdrawals less than 3.5% of current market value should not inhibit the pursuit of long-term capital growth as a primary objective.

2. Withdrawal rates between 3.6% and 7.4% require a primary focus on satisfying withdrawal needs over the market cycle, possibly with a secondary goal of long-term capital growth to protect future withdrawal needs.

3. Withdrawal rates greater than 7.5% are likely to result in a depletion of capital, so the goal should be to manage the draw down of capital by dampening year-to-year volatility of the portfolio.

While we all would like to achieve capital growth, the ability to pursue growth-oriented strategies depends on the flexibility to moderate withdrawals, if required by market conditions, and on the overall reliance on these assets.

As an example, an endowment or personal corpus can control its withdrawals to some extent, but there is a level beyond which the belt cannot be tightened without harming the services being funded.

Another example comes from someone living primarily on an IRA account, especially after becoming accustomed to the high (and falling) interest rate/high asset return environment of the last fifteen years. Aggressively pursuing capital growth in the face of large withdrawals may result in exposure to significant risk of depletion of the IRA assets when other sources of income are unavailable. If, on the other hand, the IRA was a small part of the wealth available in retirement, then there is some flexibility to work towards long-term capital growth.

Finally, a defined benefit retirement plan may have an outside source of funding to help restore capital (i.e., contributions from the employer), but defined contribution and Taft-Hartley plans have much less of a safety net. As a result, the risk taken to pursue growth in the face of significant withdrawals must take into account the nature of the assets and the problems associated with a deterioration of capital in the account.

Assessment

Portfolio withdrawals can have a significant impact on the ability of a wealth manager, or physician investor, to preserve capital and pursue long-term capital growth. However, while lessening the level of withdrawals will help provide flexibility for the manager to pursue these goals, the need for the assets may require that withdrawals are maintained at a certain level. Once withdrawals are minimized, the manager should focus on investment goals that correspond with this minimum level.

If withdrawals are below 3% of current market value, pursuit of long-term capital growth can be a primary objective. Withdrawals between 4% and 7.5% of market value on an annual basis require a focus on working towards satisfying these annual needs. Long-term capital growth, in this case, should be a secondary goal.

Finally, if withdrawals are above a 7.5% annual rate, then the investment management approach should focus on preserving capital and dampening market volatility so as to work towards allowing the assets to last as long as possible as they are drawn down.

Conclusion

As demonstrated above, income withdrawals can have a significant impact on the ability of a wealth manager, or physician investor, to preserve capital and pursue long-term capital growth. Does the current low interest-rate environment, and present financial ecosystem, mimic the above historic scenario and can it suggest strategies to be pursued today? Please opine and comment.

Related Information Sources:

Practice Management: http://www.springerpub.com/prod.aspx?prod_id=23759

Physician Financial Planning: http://www.jbpub.com/catalog/0763745790

Medical Risk Management: http://www.jbpub.com/catalog/9780763733421

Physician Advisors: www.CertifiedMedicalPlanner.org

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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Filed under: Financial Planning, Investing, Portfolio Management, Risk Management | Tagged: interest rates, portfolio withdrawals | 2 Comments »

Prescription Data-Mines and Insurance “Credit-Reports”

Posted on August 7, 2008 by Dr. David Edward Marcinko MBA MEd CMP™

The End to “Rx” Privacy?

[By Staff Reporters}

Collecting and analyzing [HIPAA protected?] personal health information [PHI] in commercial databases is a fledgling, but exploding industry, despite privacy concerns.

Industry Leaders

For example, Milliman’s IntelliScript provides personal drug profiles to insurers. And, Ingenix’s MedPoint is owned by UnitedHealth, the corporation that owns UnitedHealthCare. UHC is also the nation’s second-largest health insurance company.

Large Data Bases

Both firms created their large profiles by mining rich databases of prescription drug histories [eRXs], kept by pharmacy benefit managers [PBMs], which help insurer’s process drug claims. The data-base then aggregates and ranks the information, based on the drugs and dosages, dates filled and refilled, therapeutic class, and the name and address of prescribing doctor; etc. Higher scores imply higher health insurance premium costs.

Thus, prescription data is used to “rate” or economically judge potential insured patients via these “health credit-reports.”

***

Assessment

And so, while politician’s debate how to regulate electronic medical records [EMRs], and attorneys monitor HIPAA policies, some health insurers have already begun tapping into other information sources such as clinical and pathological laboratories, as well. And, other sources are sure to follow.

Conclusion

OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

PHYSICIANS: www.MedicalBusinessAdvisors.com
PRACTICES: www.BusinessofMedicalPractice.com
HOSPITALS: http://www.crcpress.com/product/isbn/9781466558731
CLINICS: http://www.crcpress.com/product/isbn/9781439879900
ADVISORS: www.CertifiedMedicalPlanner.org
BLOG: www.MedicalExecutivePost.com
FINANCE: Financial Planning for Physicians and Advisors
INSURANCE: Risk Management and Insurance Strategies for Physicians and Advisors

Filed under: Health Insurance, Health Law & Policy, Information Technology, Risk Management | Tagged: credit reports, HIPAA, PBMs, PHI, prescription privacy | 2 Comments »

Improving Inter/Intra Professional Relations

Posted on August 7, 2008 by Dr. David Edward Marcinko MBA MEd CMP™

Establishing Rapport within the Medical Community

By Dr. David Edward Marcinko; MBA, CMP™

Publisher-in-Chief

By Hope Rachel Hetico; RN, MHA, CMP™

Managing Editor

In our consulting work, publishing, speaking engagements and relate professional endeavors, we are often asked how to establish and even increase professional visibility in a particular medical, or even alternative-medial community.

While there is no-one-size-fits-all answer, the following are useful “tips and pearls” to enhance your awareness among known, and unknown, physician colleagues in your geographic locale.

A Few “Tips and Pearls”

Send office announcements to all health professionals in the community. Include pharmacies, pediatricians, family practitioners, PAs and NPs, concierge practices, chiropractors and alternative medical provides, convenient-care and convalescent facilities. All are potential sources of patient referrals.
Meet other health professionals personally and establish a one-to-one relationship with them. This will serve to educate them to your abilities and practice.
Send written reports to all practitioners who refer patients.
Do not hesitate to refer patients for consultations, as indicated. This is not only good business sense, but good medicine.
Use novel business cards, such as the new CD-ROMs cut into the size of a standard business card, by One Voice Technologies, of San Diego. For about a dollar, depending upon quantity, you can order a labeled disc with all the business information of a standard card, which also functions as a CD-ROM containing up to 100 megabytes of multi-media data about your medical practice or specialty.

Assessment

Please feel free to send in your own “tips” and favorite professional relationship building ideas.

Conclusion

What differentiates you from the competition, and how did you become know in your local medical community; please opine and comment?

Related Information Sources:

Practice Management: http://www.springerpub.com/prod.aspx?prod_id=23759

Physician Financial Planning: http://www.jbpub.com/catalog/0763745790

Medical Risk Management: http://www.jbpub.com/catalog/9780763733421

Healthcare Organizations: www.HealthcareFinancials.com

Health Administration Terms: www.HealthDictionarySeries.com

Physician Advisors: www.CertifiedMedicalPlanner.com

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Referrals: Thank you in advance for your electronic referrals to the Executive-Post.

Filed under: "Doctors Only", Career Development, Marketing & Advertising, Practice Management | Tagged: medical marketing, professional medical relations | Leave a comment »

Eroding Doctor-Patient Relationships

Posted on August 6, 2008 by Dr. David Edward Marcinko MBA MEd CMP™

The “Bed-Side Manner” Deterioration Continues

[By Staff Reporters]

A growing chorus of discontent suggests that the once-revered doctor-patient relationship is on the rocks.

Results

About one in four patients feel that their physicians sometimes expose them to unnecessary risk, according to data from a Johns Hopkins University [JHU] study published in the journal, Medicine, while two recent studies show that whether patients trust a doctor strongly influences whether they take their medication, according to the New York Times, on July 29, 2008.

Tell-all-Books

In bookstores, there is now a new genre of “what your doctor won’t tell you” books promising previously withheld information on everything from weight loss to heart disease, while the Internet is bristling with frustrated comments, blogs, text-messages and wiki’s, etc., from patients.

Raison Detra’

Reasons for the frustration include declining reimbursements and higher costs that give doctors only minutes to spend with each patient, news reports about medical errors and drug industry influence fueling patients’ distrust, and the rise of direct-to-consumer drug advertising and medical Web sites that have taught patients to research their own medical issues and made them more skeptical and inquisitive.

Of course, related quality improvement initiatives seem to be loosing ground.

Assessment

One can only wonder if more extensive use of physician-extenders; like PAs, CRNAs, CNMWs, NPs and DNPs are part of the solution; as well as well-trained limited licensed providers like podiatrists, dentists, optometrists and psychologists; along with walk-in, on-site and retail medical clinics, etc?

Conclusion

OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

PRACTICES: www.BusinessofMedicalPractice.com
HOSPITALS: http://www.crcpress.com/product/isbn/9781466558731
CLINICS: http://www.crcpress.com/product/isbn/9781439879900
ADVISORS: www.CertifiedMedicalPlanner.org
FINANCE: Financial Planning for Physicians and Advisors
INSURANCE: Risk Management and Insurance Strategies for Physicians and Advisors
Dictionary of Health Economics and Finance
Dictionary of Health Information Technology and Security
Dictionary of Health Insurance and Managed Care

***

Filed under: "Doctors Only", Career Development, Health Economics, Managed Care, Marketing & Advertising, Practice Management, Quality Initiatives, Surveys and Voting | Tagged: bedside manner, JHU | 2 Comments »

Medicare GAO Report on Radiology

Posted on August 5, 2008 by Dr. David Edward Marcinko MBA MEd CMP™

Prior Imaging-Authorization Suggested

Staff Reporters

As reported in the Wall Street Journal, on July 14, 2008, Medicare may be soon requiring prior authorization to curtail unnecessary utilization of CT scans, MRIs and other forms of medical imaging, a new Government Accounting Office [GAO] report suggests.

The Medicare Report

To cut imaging costs, Medicare has been reducing certain physician payments, sifting through its data to spot improper claims, and educating medical practitioners about the issue. But, the GAO reported that post-payment claims review alone is inadequate to manage medical imaging – one of the fastest growing parts of Medicare – and suggests that Medicare include prior authorization as a possible front-end tactic.

The Findings

The GAO pointed to new evidence of imaging overuse in physician practices, including:

The proportion of Medicare spending on in-office imaging rose from 58 percent to 64 percent from 2000 to 2006.
Imaging became an increasingly large slice of doctors’ revenue pie. For example, cardiologists got 36 percent of their total Medicare revenue from in-office imaging in 2006, compared with 23 percent in 2000.
In-office imaging spending per Medicare patient varied widely nationwide in 2006, from $62 in Vermont to $472 in Florida.

Assessment

What might proponents of the classic Dartmouth Study on healthcare quality say about these findings?

Conclusion

Please comment on the above; opinions from health economists, actuaries and our radiology colleagues are especially welcomed.

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Filed under: Career Development, Health Insurance, Health Law & Policy, Healthcare Finance, Insurance Matters, Managed Care, Practice Management, Quality Initiatives, Surveys and Voting | Tagged: GAO, radiology | 2 Comments »

Patients Challenging Medical Invoices and Bills

Posted on August 5, 2008 by Dr. David Edward Marcinko MBA MEd CMP™

Root Cause is Money, Failure-to-Disclose and Frustration

[By Staff Reporters]

Patients are challenging their medical bills with lawyers and lawsuits, out of frustration about the lack of up-front disclosure over costs by doctors and hospitals.

Involve More than a Few Cases

For example, after being charged $82,282 for a 23-hour stay in doctor-owned Westfield Hospital for two operations on her abdomen, a 56-year-old West Penn Township woman called the hospital and her insurer for an explanation.

Not satisfied with the response, she hired a lawyer and notified a reporter, after which Westfield officials said she was overcharged due to human error.

In another 2006 class-action Seattle lawsuit that was expected to have a ripple effect on consumers and hospitals, two patients of the Virginia Mason Medical Center filed suit against the center and won, after which Virginia Mason agreed to pay back an estimated $60 million to more than 3,200 patients who over six years had been charged ”overhead” for procedures performed in hospital-owned clinics – in some cases adding 60 percent to the price patients would have been charged for the same procedure performed by the same doctors in their offices.

Assessment

Although private legal action over medical bills is hard to track, the number of billing and coverage complaints filed with the Pennsylvania Attorney General’s health care unit has risen steadily, with the 2,000 or more complaints so far this year representing a five or six percent increase over last year; according to Morning Call, July 13, 2008.

Conclusion

OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

PRACTICES: www.BusinessofMedicalPractice.com
HOSPITALS: http://www.crcpress.com/product/isbn/9781466558731
CLINICS: http://www.crcpress.com/product/isbn/9781439879900
ADVISORS: www.CertifiedMedicalPlanner.org
FINANCE: Financial Planning for Physicians and Advisors
INSURANCE: Risk Management and Insurance Strategies for Physicians and Advisors
Dictionary of Health Economics and Finance
Dictionary of Health Information Technology and Security
Dictionary of Health Insurance and Managed Care

***

Filed under: Health Insurance, Health Law & Policy, Healthcare Finance, Professional Liability, Risk Management | Tagged: Add new tag, medical bills, medical invoice | 3 Comments »

Physician Malpractice Liability Immunity

Posted on August 4, 2008 by Dr. David Edward Marcinko MBA MEd CMP™

Free Charity Medical Care?

[By Staff Reporters]

Sen. Mike Enzi [R-Wyoming], the senior Republican on the Senate Health, Education, Labor and Pensions Committee [HELP], recently introduced legislation that would allow physicians and other medical professionals to volunteer their services at charity clinics and community health centers free from medical liability concerns.

Query

What is your opinion on this idea, given that there are more than 42 million uninsured Americans, in need? Please comment and explain? We are especially interested in hearing from doctors, lawyers, actuaries and health economists.

Conclusion

OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

DICTIONARIES: http://www.springerpub.com/Search/marcinko
PHYSICIANS: www.MedicalBusinessAdvisors.com
PRACTICES: www.BusinessofMedicalPractice.com
HOSPITALS: http://www.crcpress.com/product/isbn/9781466558731
CLINICS: http://www.crcpress.com/product/isbn/9781439879900
ADVISORS: www.CertifiedMedicalPlanner.org
BLOG: www.MedicalExecutivePost.com
FINANCE: Financial Planning for Physicians and Advisors
INSURANCE: Risk Management and Insurance Strategies for Physicians and Advisors

Filed under: Ethics, Experts Invited, Health Law & Policy, Insurance Matters, Professional Liability, Risk Management | Tagged: charity medical care, david marcinko, hope hetico, mike enzi, physician immunity | 7 Comments »

Reining In the Tax Collector

Posted on August 4, 2008 by Dr. David Edward Marcinko MBA MEd CMP™

IRS Restructuring and the Reform Act

Staff Writers

The “IRS Restructuring and Reform Act” is finally helping some professionals like doctors protect themselves from tax liens and levies

Prior to the Act

Before the IRS Restructuring and Reform Act went into effect almost a decade ago, matters concerning tax liens or levies were routine at the IRS, causing serious problems for medical professionals and family-owned businesses [FOBs]. Revenue officers issued notices of liens and levies merely as they deemed appropriate.

Since the Act

However, since the Reform Act went into effect, revenue officers have been required to obtain a supervisor’s approval before initiating collection activities or issuing notices of liens or levies. Now, supervisors review and investigate a case before a lien or levy is issued (i.e., homes and family business stock).

Specifically, for example, the supervisor must review the balance due from the taxpayer and confirm that the indicated collection action is appropriate given the amount owed by the taxpayer. This provision went into effect immediately upon passage of the act.

However, the effective date for automatic collection activities was delayed until Jan. 1, 2001. This delay was because most liens and levies are automated. Errors commonly occur in automatic liens and levies, but the IRS is working to introduce a human element into the transactions. Many doctors and family business professionals are taking advantage of the lien review requirement, helping clients avoid harsh collection activities.

Jeopardy Assessments Forbidden

In a related change, no jeopardy or termination assessments may be made without written review and written approval of the IRS chief counsel. Within five days of any jeopardy assessment, the IRS must provide the taxpayer with a written statement indicating the reason for taking action. As a result, substantially fewer jeopardy and termination assessments have been made. In addition, some family business professionals and doctors report they have been able to avoid jeopardy assessments and often challenge the basis for making the assessment.

Wage Levy

Under the Act, the IRS must release and cancel a wage levy once an agreement is made that the tax liability is uncollectible. If a wage levy is issued, tax-payers now have a firmer foundation for negotiating an end to the levy. This is helpful because, previously, levies were continued despite un-collectibility.

Seizure

Unless collection is in jeopardy, any property used in the business and personal property may not be seized without approval of an IRS district director. In determining whether to grant such approval, the taxpayer’s future ability to earn income will be taken into account. This provision has helped many substantially reduce the seizure of their business assets. Taxpayers have a right to contest a levy and to prevent or limit orders of seizures in appropriate cases.

IRAs and Qualified Plans

The IRS can continue to levy on IRA’s or qualified plan balances. However, the 10% excise tax on early withdrawals will no longer apply; this avoids the harsh double penalty of the past. If a doctor is faced with an IRS levy on an IRA or qualified plan, s/he may not want to withdraw the funds from an IRA or qualified plan to pay the obligation. The withdrawal will result in a 10% excise tax.

However, if the doctor pays the taxes with an IRS levy in place, the penalty is avoided. Some financial consultants report they have issued memoranda to their clients on this subject. For example, a taxpayer who previously had a federal tax lien placed on his or her property can have the lien discharged by posting a bond or by depositing the taxes. The cash deposited can be refunded if there is no deficiency, or if the deficiency is reduced. Such bonds are now being used in appropriate cases.

Liens

The IRS must notify a taxpayer if it intends to place a lien on the taxpayer’s property. The taxpayer then can request a hearing within 30 days. He or she also may contest any levy, unless collection of tax is in jeopardy. Doctors routinely are requesting hearings, using this procedure to terminate liens.

In addition, the taxpayer can request an installment agreement prior to levy. Thirty days after a hearing, the taxpayer can appeal the decision to the Tax Court. The act thus provides statutory appeals rights to taxpayers who are subject to a federal tax lien.

The hearing must be impartial and fair. The right of judicial review also ensures that the appeals officers act fairly. Taxpayers are informed of all their rights under these provisions. Congress has imposed a clear cut obligation on the IRS to consider alternatives to liens, such as posting of bonds, installment agreements, or offers in compromise. Thus, the medical professional has several alternatives to now consider. The right of judicial review is a major expansion of taxpayers’ rights.

Employment Taxes

The right of statutory appeal and the right of possible alternative obligations opens up a whole new area of appeal for the doctor and other taxpayers. The Reform Act permits early referral of disputes regarding independent contractors and similar matters. This should permit faster resolution of cases regarding employment status (employee or independent contractor). Many family businesses and/or medical practices contract with individuals employed by an outsourcing firm. The number of audits in this area has increased, and the IRS often regards the individual doctor as an employee of the medical practice or family business. In addition, the IRS has been encouraged to use mediation and arbitration to resolve disputes.

Offers-in-Compromise

Under the Act, the IRS must to consider factors such as equity or hardship when considering offers in compromise. The IRS is expected to forgo interest and penalties in appropriate cases. Rejected offers are subject to administrative review. Some medical professionals are finding the IRS more readily accepting of compromise offers.

Harassment

Many of the protections from harassment afforded to individuals by the Fair Debt Collections Practice Act in the commercial area have been extended to IRS collections. Some of those rights include not calling the taxpayer late at night, not harassing the taxpayer, and not dealing with the taxpayer if s/he has an authorized representative. If a violation occurs, the taxpayer can sue for negligent disregard of the Code. Here too, some doctors report that harassment-type activities have declined.

Innocent-Spouse Relief

The act contains significant provisions designed to protect innocent taxpayers from the tax misdeeds of their spouses the “innocent spouse relief” provision. The Tax Court can review any denials of innocent spouse relief.

Under the new rules, there must be actual knowledge of a tax misdeed before a taxpayer is considered “not innocent.” In the past, the test was whether the taxpayer knew or should have known about the other spouse’s tax misdeeds. Innocent spouse relief is easier to obtain under the “actual knowledge” test and is used routinely now.

Innocent spouse relief also is available on a partial basis. A taxpayer is relieved of liability on a partial basis even if he or she knew about the misdeeds, provided he or she did not know the extent of the misdeeds.

Thus, the spouse should not be liable for the portion of the understatement he or she had no knowledge of. This usually is as an alternative to a complete relief. All provisions (except the automatic lien provision) apply to any liability for taxes arising before, on, or after July 22, 1998.

Assessment

Since the IRS Reform Act passed, some doctors are working to protect themselves from tax collection activities or assessments. This is particularly true in innocent spouse cases. It bodes well therefore, for all family businesses, health practices, physician-executives and medical professionals to become and remain familiar with the provisions in the IRS Reform Act addressing such activities. You may just become grateful for this knowledge one day.

Conclusion

Your thoughts, comments and experiences on any or all of the above topics, are appreciated.

Related Information Sources:

Practice Management: http://www.springerpub.com/prod.aspx?prod_id=23759

Physician Financial Planning: http://www.jbpub.com/catalog/0763745790

Medical Risk Management: http://www.jbpub.com/catalog/9780763733421

Healthcare Organizations: www.HealthcareFinancials.com

Health Administration Terms: www.HealthDictionarySeries.com

Physician Advisors: www.CertifiedMedicalPlanner.com

Link: http://feeds.feedburner.com/HealthcareFinancialsthePostForcxos

Referrals: Thank you in advance for your electronic referrals to the Executive-Post.

Filed under: Taxation | Tagged: innocent spouse rule, IRS, tax reform | 3 Comments »

Blue Cross – Blue Shield Administrative Survey

Posted on August 3, 2008 by Dr. David Edward Marcinko MBA MEd CMP™

Cost Trends Demonstrate a Decline in 2007

By Douglas B. Sherlock; CFA

PRESS RELEASE REPORT

Gwynedd, Pennsylvania

The per-member [pm] administrative cost growth for BC/BS declined from 6.1% in 2006, to 4.3% in 2007. Adjusted to eliminate the effect of a shift in product mix, administrative expense growth declined from 6.5% in 2006 to 2.5% in 2007. Administrative expenses were 10.4% of premium equivalents in 2007. And, plans reported total administrative expenses of $25.36 PMPM.

All cited values exclude investment and non-operating income and expense, income taxes and miscellaneous business taxes.

Sherlock Expense Evaluation Report

These results are excerpted from the Sherlock Expense Evaluation Report, a benchmarking study comprising the results of 23 Blue Cross Blue Shield Plans surveyed by the Sherlock Company. More than 90% of participants also participated in the prior year’s survey and nearly 80% have five or more years of experience participating in our benchmarks.

Benchmarks and Metrics

The Sherlock Company benchmarks include thousands of operational and financial performance metrics. Besides Blue Plans, other universes include Independent / Provider-Sponsored plans, Medicare Advantage plans, Medicaid plans and larger plans. Collectively, the 46 plans serve approximately 36 million insured Americans.

Administrative Growth

The growth in administrative expenses ranged from a high of 10.0% for Medical and Provider Services to a low of 0.2% for Corporate Services.

In fact, the Sherlock Company said that, “The increasing emphasis of these Plans on Medicare Advantage had a profound effect on their expense trends. After holding constant the product mix, corporate service costs per member declined by 6.2% and provider and medical management costs increased by 2.2%.”

Assessment

Additional information is available in the Sherlock Expense Evaluation Report. We have also published a summary in July 2008 edition of the Plan Management Navigator accessible at www.sherlockco.com/docs/navigator/navigator-08-07.pdf

Conclusion

Your thoughts and comments on the above findings are appreciated? Do they agree, or disagree, with your factual or heuristic cost impressions of this institutional space?

###

The Sherlock Company www.sherlockco.com based in Gwynedd, Pennsylvania, provides informed solutions for health plan financial management. Since its founding in 1987, Sherlock Company has been known for its impartiality and technical competence in service to its clients.

Contact: Douglas B. Sherlock; CFA for more information.

215-628-2289, sherlock@sherlockco.com or visit www.Sherlockco.com

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Filed under: Health Economics, Health Insurance, Healthcare Finance, Monthly Reports, Surveys and Voting | Tagged: Sherlock Company | Leave a comment »

Risk Management: It’s Not All About Medical Malpractice Anymore

Posted on August 2, 2008 by Dr. David Edward Marcinko MBA MEd CMP™

Book Review

By Murray J. Goodman; MD

In the narrow world of our day-to-day practice, orthopaedic surgeons often think of risk management strictly in terms of avoiding exposure to medical liability lawsuits. But, in the book Insurance and Risk Management Strategies for Physicians and Advisors, author, physician, and healthcare economist David E. Marcinko has assembled a cadre of experts who address the broader issue of risk management.

Link: http://www.amazon.com/Insurance-Management-Strategies-Physicians-Advisors/dp/0763733423/ref=sr_1_3?ie=UTF8&s=books&qid=1217606361&sr=1-3

15 Chapter Overview

This book examines the many important risks that we, as physicians, face daily in the practice of medicine. You may not think of life insurance, sexual harassment, Medicare fraud, marital divorce, and privacy issues as part of a risk management plan, but they are. Dr. Marcinko has written a book that provides an initial reference point for these diverse issues.

Each of the 15 chapters covers a single area, providing a broad overview as well as specific information and recommendations. This book addresses the personal, professional and business risks physicians face on a daily basis.

Personal Insurance Matters

The personal side of insurance is first, beginning with a discussion on insuring the doctor’s life. The chapter explains the various types of policies available, as well as various permutations and combinations of policy provisions. It briefly discusses both health insurance and long-term care insurance. It includes the critical features to look for in selecting a long-term care policy for yourself and the necessary criteria for successfully filing a claim under such a policy.

Practice Insurance Matters

Many orthopaedic practices are also small businesses, so property insurance and the business uses of life insurance, such as in buy-out and succession planning, are covered. The author reviews the use of restrictive covenants and employment contracts, providing examples of what works and what does not. One of the questions this chapter addresses is the difference in applicability between a restrictive covenant with regard to a departing employed physician and a restrictive covenant included in the sale of a medical practice.

Compliance Topics and Medical Workplace Regulations

Recent actions by the Department of Justice [DOJ] and activities of the Office of the Inspector General [OIG] regarding Medicare have focused attention on compliance issues. The text provides a good overview on medical documentation and healthcare compliance, including a summary of record-keeping obligations.

In addition, the author includes pointers on how a medical practice can avoid running afoul of the federal False Claims Act, fraud and abuse statutes, Stark and safe harbor laws, and the “alphabet soup” of HIPAA, OSHA, and ERISA regulations. Risks involved with serving as an expert witness, doing peer review and taking call are also covered. The discussions are as timely as those sponsored by the AAOS. The chapter on medical malpractice even includes a discussion of physician self-regulation and expert witness discipline.

Sexual Harassment Issues

The section on sexual harassment explains what constitutes a hostile work environment and what the physician’s role should be in risk avoidance. Complimenting an employee’s dress or telling a slightly off-color joke may seem innocent enough, but not if they meet the two criteria that determine offensive behavior and can lead to a lawsuit. Violence in the workplace is discussed as it relates to patients and employees, both as perpetrators and as victims. The author recommends that every orthopaedic practice have a policy and a plan in place to deal with these issues should they arise.

Malpractice Liability and Going to Court

One-quarter of the book is devoted to medical liability risks. Although the discussion of the medical liability crisis might be a bit dated and only too familiar to many readers, the section on the anatomy and procedures of a medical liability trial and the physician defendant’s role in that process is excellent. From subpoena to verdict, the process is laid out. Written by a malpractice attorney who is also a physician, the chapter provides solid advice on how to respond to the subpoena, secure the medical record [make an exact copy and seal it], and find personal counsel.

Pre-Nuptial Agreements, Divorce and Asset Protection

The financial risks of divorce are rarely covered in books geared to medical professionals, but this text examines them in detail. It also discusses prenuptial agreements and the special circumstances surrounding older divorcing medical professionals. Final chapters cover asset protection principles and how to select insurance and financial advisers who specialize in serving medical professionals.

Recommended Reading

Each chapter is authored by an expert in that particular field, but the text has a uniform consistency and approach, listing basic principles and citing specific examples to illustrate the issues involved. Ample references are provided, including written texts and articles, case law, and Internet Web sites. The table of contents is functional, and the index is well-organized for quick reference.

Insurance and Risk Management Strategies for Physicians and Advisors[Jones and Bartlett Publishers, Sudbury, Mass] is a comprehensive examination of risk management strategies. It does not provide specific legal or financial advice, but it does provide a background in many areas germane to the practical aspects of maintaining a medical practice in this millennium. Although not a stand-alone text, it gives the reader the vocabulary and information necessary to take many of these issues to the next level.

Assessment

“This book is recommended reading for those about to enter the practice of medicine; those already in practice will find it a helpful reference when seeking resources on a particular issue”.

Personal

My wife tells me that because it also addresses the personal and emotional issues affecting physicians’ lives, it is suitable for spouses as well.

Note: Murray J. Goodman, MD, is a member of the Medical Liability Committee. He can be reached at mj-goodman@comcast.net June 2008 AAOS Now http://www.aaos.org/news/aaosnow/jun08/managing2.asp

From the article of the same title AAOS Now (06/08) Goodman, Murray J.

http://www.asoa.org/resources/practice-mgmt-news/practice-management-news.cfm

Conclusion

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Events-Planner: August 2008

Posted on August 1, 2008 by Dr. David Edward Marcinko MBA MEd CMP™

AUGUST 2008

Staff Writers

“Keeping track of important health economics and financial industry meetings, conferences and summits”

August 1: Print Edition Healthcare Journalism: If you would like to “step-up-your-game” and be considered as a peer-reviewed contributor to the third edition of: The Business of Medical Practice [Advanced Profit Maximizing Techniques for Savvy Doctors]; just contact Ann at: MarcinkoAdvisors@msn.com There are several chapter topics still available.

August 4-5: The 6^th Annual World Congress Leadership Summit on Healthcare Quality; Boston, MA

August 13: Care Coordination for Managed Medicaid Health Plans, World Research Group, Chicago, Ill.

August 24-27: 7^thAnnual Medical Quality Colloquium, Harvard University, Cambridge, MA.

Please send in your meetings and dates for listing in the next issue of our Events-Planner: MarcinkoAdvisors@msn.com

Related Information Sources:

Practice Management: http://www.springerpub.com/prod.aspx?prod_id=23759

Physician Financial Planning: http://www.jbpub.com/catalog/0763745790

Medical Risk Management: http://www.jbpub.com/catalog/9780763733421

Healthcare Organizations: www.HealthcareFinancials.com

Health Administration Terms: www.HealthDictionarySeries.com

Physician Advisors: www.CertifiedMedicalPlanner.com

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Physician Recruiting Success

Posted on August 1, 2008 by Dr. David Edward Marcinko MBA MEd CMP™

Senior Leadership’s Contribution
By Allison McCarthy; MBA

If you’re recruiting physicians to your organization, then you probably feel challenged by internal disconnects that hinder your progress. More than likely you deal with one or more of them daily. And for many of these issues you need your senior leader to be your ally, champion and advocate, helping you navigate around those obstacles.

But, exactly what skill set within your leader is your most important resource? And how can you optimize those attributes when you need them?

Leading-Up

Leading up is one of the physician recruiter’s greatest challenges. Getting the right amount of time and attention (to establish an internal environment attractive to candidates) is critical to successfully bringing new physicians into the organization.

Beyond that, it is about having your senior leader play the right role at the right time in the recruitment process to deliver results. Their most vital contributions are:

1. Establishing Priorities
Medical staff development planning and priority setting are senior leadership obligations. And, in today’s high demand/shrinking supply of physicians, most organizations and their senior leadership need to improve their recruitment planning to get ahead of the competition. With the average time to fulfill a recruitment project for some specialties taking 24 months or longer, many recruitment assignments need to start two to three years ahead of projected need. That means having solid delineation of recruitment priorities – not just for the coming 12 months but for the next three or more years. Medical staff development planning and priority setting is the obligation of senior leadership.

2. Clearing Clutter
Some recruitment priorities are unsettling to members of your existing medical staff. Others are important to only a select group and lack organization-wide urgency.

As a result, we can face internal team members that encumber success – either purposefully or innocently obstructing candidate advancement through the interview process. In those instances, your senior leader needs to clear the way – either by negotiating with saboteurs or motivating the unresponsive. This then leads to the third attribute.

3. Communicating the Vision
Establishing physician recruitment as a strategic core competency is not easy. So much of what it takes to achieve the desired goal – a recruited physician – requires many pieces and parts of organizational input and participation. To create that involvement necessitates that the entire enterprise understands the “why” behind the recruitment agenda. Senior leadership must regularly communicate the vision behind the effort.

Only leadership can motivate the parties needed to be involved. Only leadership can establish its urgency among conflicting agendas and clarify priorities when there is uncertainty. Only leadership can guide the necessary cultural change so the organization is receptive to and welcoming of new physicians.

We often assume that because someone is a leader they know what to do. We also know what happens when we assume (you know the old saying right?). But we are the organizational experts on physician recruitment. We are also senior leadership’s eyes and ears to organizational reactions and reverberations.

So, our senior leaders need us to direct them to what is needed. Some key strategies to do that include:

a]. Collecting/Sharing Market Intelligence
David Cottrell in Monday Morning Choices said, “The process of discovering reality includes examining the facts and separating them from feelings and egos.” Regularly sharing information from articles or external statistical resources can help leadership understand the realities of the market and the challenges of recruiting specific specialties needed.

Further, tracking and trending prospect feedback about our opportunities provides the justification senior leaders need to enhance package elements and make them more market attractive. While we can share this information anecdotally, it doesn’t have the same impact on those we are trying to influence. Senior leaders come from a data-driven world. They spend their days reviewing financial statistics and operational performance findings. So, we need to translate our recruitment findings into their decision-making language if we want to influence and change the outcome.

b]. Tracking the Recruitment Process
Not dissimilar to the above, benchmarking the various touch points in the recruitment process identifies the gaps and obstacles that need to be addressed.

A simple spreadsheet that captures those key dates when the candidate moves from one stage in the recruitment process to the other illustrates those situations when consistently there are delays in response by the organization. Match that with candidate rejection feedback and you tell a compelling story about the internal issues that need to be addressed by your senior leader.

c]. Sharing the Wins
All of us need positive reinforcement and your senior leadership and internal organization are no different. Beyond communicating successes, it also means giving credit to those who participated in reaching the goal. When you see all pistons firing – everyone is on-board and doing their part, and the process flows as it should – celebrate those victories and recognize those that contributed in obtaining the prize.

By doing so, inertia often gets lifted by illustrating that success feels good. Momentum is generated for the next recruitment assignment and the entire process has established credibility by demonstrating how much more can be accomplished when there is team energy and involvement.

“Leaders push boundaries. They desire to find a better way. They want to make improvements. They like to see progress. All these things mean making changes, retiring old rules, inventing new procedures.”
–John Maxwell

Assessment

As a former in-house recruiter and a consultant to organizations today, I know many health care enterprise senior leaders are looking to the physician strategy team to direct and guide the ways they can be most effective. That is not only an obligation but an opportunity to be leadership’s partner in fulfilling this vital strategic agenda. There is no greater reward!

Conclusion

And so, what do you think, and do, about physician recruiting success? Your thoughts and comments are appreciated.

Related Information Sources:

Practice Management: http://www.springerpub.com/prod.aspx?prod_id=23759

Physician Financial Planning: http://www.jbpub.com/catalog/0763745790

Medical Risk Management: http://www.jbpub.com/catalog/9780763733421

Healthcare Organizations: www.HealthcareFinancials.com

Health Administration Terms: www.HealthDictionarySeries.com

Physician Advisors: www.CertifiedMedicalPlanner.com

Link: http://feeds.feedburner.com/HealthcareFinancialsthePostForcxos

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Filed under: "Doctors Only", Career Development, Managed Care | Tagged: physician recruiting | 1 Comment »

CMS to Bonus Doctors for PQRI

Posted on July 31, 2008 by Dr. David Edward Marcinko MBA MEd CMP™

July – December 2007 Reporting Period

[By Staff Reporters]

According to Anne Zieger, of Fierce Health Finance, the Centers for Medicare and Medicaid Services [CMS] will pay out more than $36 million in monetary incentives to medical providers who reported data on quality of care delivered between July 2007 and December 2007; as part of its Physician Quality Reporting Initiative [PQRI].

Physician Quality Reporting Initiative [PQRI]

Under the PQRI, healthcare providers who choose to participate get bonuses of 1.5 percent of their total CMS payments during the reporting period in which they reported quality data.

Assessment

Average payments for the most recent period range from $600 for individual physicians to $4,700 for groups. The largest payment CMS plans to make to a practice is more than $205,700. Solo physicians, physician group practices, and other PQRI-eligible professionals should receive their payments by August, according to the agency.

Source: CMS press release

Conclusion

OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

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BLOG: www.MedicalExecutivePost.com
FINANCE: Financial Planning for Physicians and Advisors
INSURANCE: Risk Management and Insurance Strategies for Physicians and Advisors

Filed under: Career Development, Health Economics, Health Law & Policy, Healthcare Finance, Quality Initiatives, Surveys and Voting | Tagged: CMS, P4P, physician bonus, PQRI | 14 Comments »

Baby Boomers Financially Unprepared

Posted on July 31, 2008 by Dr. David Edward Marcinko MBA MEd CMP™

Potential Medical Disability Survey

Staff Reporters

According to findings from a recent Harris Interactive survey conducted on behalf of America’s Health Insurance Plans (AHIP) between April 25 – 29, 2008, baby boomers are financially unprepared if they themselves, or the primary wage earner in their household, suffered a medical disability and was unable to work for an extended period of time.

Survey findings:

More than half (55 percent) of baby boomers said that they are either not at all or somewhat unprepared financially should they themselves or the primary wage earner in their household became disabled.
One in five (22 percent) say they are “not at all prepared” if a disability occurred.
Conversely, only 15 percent report that they are very or extremely prepared for a potential disability.
More than half (55 percent) say that it is at least somewhat likely that they would tap into their retirement savings in the event that they or the primary wage earner in their household became disabled and could not work for an extended period.
Nearly a third (32 percent) reported that it is extremely/very likely/likely that they would need to tap into retirement savings.
Nearly one in five boomers (19 percent) reports that it is not at all likely that they would tap into retirement savings.
17 percent report that they do not have any retirement savings at all.

Source: Harris Interactive Inc.

Assessment

What does this survey reveal to doctors, hospitals, financial advisors and the entire health insurance industry?

Conclusion

Please opine and comment.

Related Information Sources:

Practice Management: http://www.springerpub.com/prod.aspx?prod_id=23759

Physician Financial Planning: http://www.jbpub.com/catalog/0763745790

Medical Risk Management: http://www.jbpub.com/catalog/9780763733421

Healthcare Organizations: www.HealthcareFinancials.com

Health Administration Terms: www.HealthDictionarySeries.com

Physician Advisors: www.CertifiedMedicalPlanner.com

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Filed under: Financial Planning, Insurance Matters, Retirement and Benefits, Risk Management, Surveys and Voting | Tagged: disability insurance, Financial Planning | 1 Comment »

Life Insurance Policies and Trusts

Posted on July 30, 2008 by Dr. David Edward Marcinko MBA MEd CMP™

Tax and Estate Planning for Doctors

Staff Writers

All subscribers to the Executive-Post know that carefully crafted arrangements may minimize estate and income taxes.

Life Insurance Policies

The simplest way for a medical or other professional to avoid estate tax on the proceeds from life insurance policy death-benefit, is having a properly drafted trust own the life insurance policy. The best approach is for the trust to purchase the policy, but if you already own it, you can transfer the policy to a trust. If the doctor survives the transfer by no less than three years, the proceeds will escape estate taxation [three year throw-back rule]. The settlor can retain the right to remove the trustee and appoint a successor, who is not related or subordinate to the grantor. Most grantors wish to retain such a right.

Periodic Gifting

Generally, the insured provides funds for the premium payments through periodic gifts to the trust. In most cases, the gift qualifies as a gift of a present interest (rather than future interest), qualifying for the $12,000 exemption.

By using a Crummey withdrawal power, the beneficiary is permitted to withdraw property whenever a contribution is made. The right usually is given each year with a specified period (30–60 days). If an affirmative election is not made, the power will lapse. This notice should provide reasonable time for the election and be in writing. Generally, the withdrawal right must be exercised affirmatively. In any event, if the beneficiary does not take action or respond to the letters, the Tax Court has previously indicated that 15 days is a reasonable period of time.

Minor’s Guardian

The Crummey power can be exercised by a minor’s guardian (parents). However, it is best if someone else can exercise the withdrawal right if the donor is also the parent. An unrelated guardian can always have the right to exercise the Crummey withdrawal power.

Last-to-Die Insurance

A popular use of insurance for physicians is the so called last-to-die insurance policy. Such insurance is payable upon the death of both the donor and his spouse.

For a Family Owned Business [FOB], this permits the owner to bequeath or gift the stock to the spouse free of transfer tax when the second spouse dies the insurance proceeds are paid to the trust and utilized to pay the estate taxes on the FOB stock. The insurance proceeds are free from both estate and income tax.

Conclusion

Your thoughts, opinions and comments are appreciated.

Related Information Sources:

Practice Management: http://www.springerpub.com/prod.aspx?prod_id=23759

Physician Financial Planning: http://www.jbpub.com/catalog/0763745790

Medical Risk Management: http://www.jbpub.com/catalog/9780763733421

Healthcare Organizations: www.HealthcareFinancials.com

Health Administration Terms: www.HealthDictionarySeries.com

Physician Advisors: www.CertifiedMedicalPlanner.com

Link: http://feeds.feedburner.com/HealthcareFinancialsthePostForcxos

Referrals: Thank you in advance for your electronic referrals to the Executive-Post.

Filed under: Estate Planning, Insurance Matters, Taxation | Tagged: insurance, insurance policies, trusts | Leave a comment »

Internet Drug Rx Abuse

Posted on July 30, 2008 by Dr. David Edward Marcinko MBA MEd CMP™

NCASA Study

Staff Reporters

A large majority of 365 Internet sites that advertise or sell controlled medications by mail are offering to supply the drugs without a proper prescription, while the online trade is stoking the rising abuse of addictive and dangerous prescription drugs, according to a National Center on Addiction and Substance Abuse [NCASA] at Columbia University.

The Study

Federal and state efforts to crack down on Internet sales appear to have reduced the number of sites offering such drugs, from 581 last year, according to a New York Times report on July 9, 2008. Drugs offered online include generic versions of opiates like OxyContin, methadone and Vicodin, which are legitimately prescribed as painkillers; benzodiazepines like Xanax and Valium, which are prescribed for anxiety; and stimulants like Ritalin.

DEA Assessment

The Drug Enforcement Administration [DEA] found that 85 percent of all Internet prescription sales involved controlled drugs, compared with just 11 percent of those filled through regular pharmacies, suggesting that online sales often are destined for misuse.

Conclusion

Do you think the current eRx initiatives will drive or reduce this phenomenon; please opine and comment?

Related Information Sources:

Practice Management: http://www.springerpub.com/prod.aspx?prod_id=23759

Physician Financial Planning: http://www.jbpub.com/catalog/0763745790

Medical Risk Management: http://www.jbpub.com/catalog/9780763733421

Healthcare Organizations: www.HealthcareFinancials.com

Health Administration Terms: www.HealthDictionarySeries.com

Physician Advisors: www.CertifiedMedicalPlanner.com

Link: http://feeds.feedburner.com/HealthcareFinancialsthePostForcxos

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Filed under: Breaking News, Drugs and Pharma, Health Law & Policy, Information Technology, Surveys and Voting | Tagged: internet, Rx | 3 Comments »

Polish Chiropractic Association

Posted on July 29, 2008 by Dr. David Edward Marcinko MBA MEd CMP™

Alternative Healthcare in Europe

[By Anthony Robert Narushka; DC]

The first Polish Chiropractic Association [PCA] was recognized by the European Chiropractors’ Union (ECU) www.ecunion.eu and founded in June, 2008. The Polish flag is listed on the page of all members.

New PCA BOD Members

Leszek Majowski DC attended Candadian Memorial.
Jane Hajduk DC, attended Parker Chiropractic College, TX.
Anthony Narushka DC, from Orlando, attended National University of Health Sciences, Ill.

Ministry of Health

On July 1^st 2008, Dr. Narushka and these Medical Executive-Post readers met with the Ministry of Health to discuss the legalization and regulation of Chiropractic, in Poland. Open discussion of how other European countries have formalized chiropractic health care into their national heath regulations was also discussed. We met with the Department Nauki i Szkolnictwa Wyższego – from the Ministry of Health.

Assessment

Also, a very important message from Mr. Hans-Gert Pöttering’s [President of the European Parliament] supporting the European Chiropractors’ Union was presented along with the recognition of the new members, Poland and Hungary, to the association. The video can be downloaded from the ECU website -Download Page and it is found first on the downloadable link list. http://www.ecuconvention.eu/default.asp?pid=114

Although all members of the nascent PCA are encouraged to visit, read and subscribe to the Medical Executive-Post; some physicians and other domestic medical practitioners are not always enamored with chiropractors or other alternative healthcare providers; despite the Healthcare 2.0 initiative of the modern era.

Conclusion

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Filed under: Career Development, iMBA, Inc., Media Mentions and PR, Op-Editorials | Tagged: Anthony Robert Narushka, chiropractors, DC, European Chiropractors' Union, Jane Hajduk, Leszek Majowski, Mr. Hans-Gert Pöttering's | 5 Comments »

“Loss of Chance” Liability

Posted on July 29, 2008 by Dr. David Edward Marcinko MBA MEd CMP™

Judicial Court of Massachusetts

Staff Reporters

The Supreme Judicial Court of Massachusetts [JCM] recently ruled that doctors can be held liable for negligence that reduces a patient’s chance of survival, even if the patient’s prospect for recovery was already less than 50 percent.

“Loss of Chance”

The SJC recognized for the first time a legal doctrine known in medical malpractice cases as “loss of chance,”

Definition

LOC allows a patient whose odds of recovery are 50 percent or less to receive damages for any negligence that reduced those odds. The court also established a formula for juries to award damages proportionate to the reduced survival rate caused by the doctor’s negligence, according to the Boston Globe July 24, 2008.

Assessment

Some medical malpractice lawyers opine that the decision could help patients who previously had little chance of collecting damages from physicians.

Conclusion

Your thoughts and opinion are appreciated; please comment?

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Practice Management: http://www.springerpub.com/prod.aspx?prod_id=23759

Physician Financial Planning: http://www.jbpub.com/catalog/0763745790

Medical Risk Management: http://www.jbpub.com/catalog/9780763733421

Healthcare Organizations: www.HealthcareFinancials.com

Health Administration Terms: www.HealthDictionarySeries.com

Physician Advisors: www.CertifiedMedicalPlanner.com

Link: http://feeds.feedburner.com/HealthcareFinancialsthePostForcxos

Referrals: Thank you in advance for your electronic referrals to the Executive-Post.

Filed under: Career Development, Health Law & Policy, Professional Liability, Risk Management | 1 Comment »

Prescription Quantity Survey

Posted on July 27, 2008 by Dr. David Edward Marcinko MBA MEd CMP™

The IMS Health Data Study

Staff Reporters

Did you know that the number of prescriptions dispensed by pharmacies in the U.S. is growing at its worst rate in at least a decade, as consumers are squeezed by both a troubled economy and the growing burden of out-of-pocket health-care costs?

The IMS Report

Data from market researcher IMS Health and Wall Street analysts indicate that the rate of prescription growth has fallen steadily since early last year, with preliminary data suggesting the number of prescriptions actually fell in the second quarter, according to the Wall Street Journal on July 16, 2008.

Big Pharma Brands Collapse

The hit is coming at the expense of some of the industry’s biggest brands. For example, in May 2008, branded medicines accounted for 30.6 percent of treatments dispensed, down from 45.9 percent in 2003, the WSJ noted.

Assessment

Pills for such chronic conditions like cardiovascular disease are also vulnerable, since patients tend to think they can do without treatments for so-called silent diseases more easily than for conditions such as cancer, or HIV.

Conclusion

Your thoughts are appreciated. Have you seen this happening in your practice, clinic or hospital setting? Please comment and opine.

Related Information Sources:

Practice Management: http://www.springerpub.com/prod.aspx?prod_id=23759

Physician Financial Planning: http://www.jbpub.com/catalog/0763745790

Medical Risk Management: http://www.jbpub.com/catalog/9780763733421

Healthcare Organizations: www.HealthcareFinancials.com

Health Administration Terms: www.HealthDictionarySeries.com

Physician Advisors: www.CertifiedMedicalPlanner.com

Link: http://feeds.feedburner.com/HealthcareFinancialsthePostForcxos

Referrals: Thank you in advance for your electronic referrals to the Executive-Post.

Filed under: Drugs and Pharma, Quality Initiatives, Surveys and Voting | Tagged: big-pharma, IMS Report, prescriptions | Leave a comment »

Sacred Trust-Review

Posted on July 26, 2008 by Dr. David Edward Marcinko MBA MEd CMP™

Book Review

By Gavin S. Sun

Sacred Trust [The Ten Rules of Life, Death, and Medicine] does an excellent job of describing Dr. Phyllis Hollenbeck’s experiences and lessons, and more importantly their importance in medicine.

Thereafter, I had a better understanding of what to expect from the medical profession, and it gave me the confidence to demand it. I wish all my doctors (past, present, and future) would read this.

I intend on purchasing this book for all my friends in medical school.

Gavin S. Sun

San Francisco

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Practice Management: http://www.springerpub.com/prod.aspx?prod_id=23759

Physician Financial Planning: http://www.jbpub.com/catalog/0763745790

Medical Risk Management: http://www.jbpub.com/catalog/9780763733421

Healthcare Organizations: www.HealthcareFinancials.com

Health Administration Terms: www.HealthDictionarySeries.com

Physician Advisors: www.CertifiedMedicalPlanner.com

Link: http://feeds.feedburner.com/HealthcareFinancialsthePostForcxos

Referrals: Thank you in advance for your electronic referrals to the Executive-Post.

Filed under: Book Reviews | Tagged: Book Reviews | Leave a comment »

Culture Change in Nursing Homes

Posted on July 25, 2008 by Dr. David Edward Marcinko MBA MEd CMP™

Commonwealth Fund Survey of Nursing Homes

[Staff Reporters]

The “medical culture change” movement is working to radically transform nursing home care, and help facilities transition from institutions to home.

Survey Highlights

The following highlights just a few of the findings from the Commonwealth Fund 2007 National Survey of Nursing Homes report, released in May 2008:.

Fifty-eight percent of culture change adopters allow residents to determine their own schedules, compared with only 22 percent of traditional nursing homes.
Nearly two-thirds (64%) of culture change adopters implement bathing practices that are more resident-centered, while only 37 percent of traditional nursing homes do so.
Seven of 10 culture change adopters reported that residents are involved in decisions about their facility, but only one-quarter of traditional nursing homes (27%) involve residents in such decisions.

Source: M. M. Doty, M. J. Koren, and E. L. Sturla: Culture Change in Nursing Homes: How Far Have We Come? Findings From The Commonwealth Fund 2007 National Survey of Nursing Homes, The Commonwealth Fund, May 2008 http://www.commonwealthfund.org

Conclusion

In any case, early planning is the key to supporting both your kids’ futures and your retirement. Making logical college funding decisions, rather than emotional ones, creates a win/win for everyone.

Link: http://feeds.feedburner.com/HealthcareFinancialsthePostForcxos

Filed under: Career Development, Practice Management, Quality Initiatives, Surveys and Voting | Tagged: collaborative medical care, healthcare 2.0, patient centered care | 9 Comments »

Physician Compensation Trends Query?

Posted on July 23, 2008 by Dr. David Edward Marcinko MBA MEd CMP™

Tacoma / Seattle Washington Area

As compensation professionals, Certified Medical Planners [CMPs] and financial advisors [FAs], what kinds of trends are you observing in physician compensation for multi-specialty hospitals in the Tacoma/Seattle Washington state locations?

Additionally, what innovations (in 2008) are observed in the manner doctors and hospital leadership are compensated?

Please e-mail ASAP, if possible to Kkyewu1@aol.com.

Thank you ever so much!
Warm Regards.

Beverly Motley

Filed under: "Advisors Only", "Ask-an-Advisor", "Doctors Only" | Tagged: physician compensation | Leave a comment »

Financial Advisors Not “Up” on Annuities?

Posted on July 22, 2008 by Dr. David Edward Marcinko MBA MEd CMP™

Results of a New Survey

[By Staff Reporters]

In the interactive June edition of Investment Advisor magazine, Savita Iyer-Ahrestani reported on a new study of annuities.

Of course, subscribers of the Medical Executive-Post already know that more and more Americans are counting on financial advisors to help them prepare for a secure retirement; rightly or wrongly. And, this includes physicians and medical professionals.

But, what if the “advisors” are not up to the task – or even just product salesmen – as reported by Iyer-Ahrestani?

The Spectrem Group Survey

Mitch Politzer, senior VP of Lincoln, Nebraska-based Ameritas Advisor Services, had a suspicion that might be the case, so he teamed up with Chicago-based market research firm Spectrem Group and put together a survey aimed at testing advisor know-how and opinion on the kinds of investment products available on the market today.

Results

“The results of the survey showed that most financial advisors are really very skilled at investing for their clients, as they’re driven by equity markets (and to a lesser degree bond markets) and a desire to outperform industry benchmarks,” Politzer says.

“This works for the accumulation phase of a client’s life, yet advisors are less skilled when they have to shift gears for the phase of a client’s life when they’re interested in income and sustaining their assets.”

Gun-Shy on Annuities

Most advisors, Politzer says, seem to have dated beliefs about various retirement products, are slow to innovate, and most are gun-shy when it comes to annuities. According to the survey, 70% of advisors are concerned about locking their clients into a long-term retirement income product, and if they do, they would prefer the product not be an annuity.

Assessment

This survey of professional advisors shows strength in the “accumulation-phase” that is not matched when it comes to income and asset preservation during the “distribution-phase.” www.MedicalBusinessAdvisors.com

And, are FAs really shy about annuity product sales with their traditionally high commission rates?

Conclusion

OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

PRACTICES: www.BusinessofMedicalPractice.com
HOSPITALS: http://www.crcpress.com/product/isbn/9781466558731
CLINICS: http://www.crcpress.com/product/isbn/9781439879900
ADVISORS: www.CertifiedMedicalPlanner.org
FINANCE: Financial Planning for Physicians and Advisors
INSURANCE: Risk Management and Insurance Strategies for Physicians and Advisors
Dictionary of Health Economics and Finance
Dictionary of Health Information Technology and Security
Dictionary of Health Insurance and Managed Care

Filed under: "Advisors Only", Estate Planning, Financial Planning, Insurance Matters, Investing, Surveys and Voting | Tagged: annuities, financial advisors | 6 Comments »

1/3 of Medical Procedures Fail to Improve Health

Posted on July 21, 2008 by Dr. David Edward Marcinko MBA MEd CMP™

A Startling Congressional Budget Office Report!

Staff Writers

Almost one-third of the procedures that doctors perform fail to improve a patient’s health!

Of course, this may come as quite a surprise to most citizens, but not so to readers of the Executive-Post, or the books, white-papers and dictionaries of its sponsor, the Institute of Medical Business Advisors, Inc [www.MedicalBusinessAdvisors.com]

Congressional Budget Office Report

Congressional Budget Office [CBO] Director Peter Orszag opined thusly to federal lawmakers in a recent special report. Mr. Orszag noted that the collective cost for these services top more than $700 billion each year, or roughly five percent of the nation’s total economy.

Misaligned payment, disparate health care costs and an overabundance of untested procedures have placed health care on a fiscally unsound path, which was likened to “running up credit card debt,” according to Modern Healthcare on June 18, 2008.

Assessment

Senate Finance Committee Chairman Max Baucus (D-Mont.) called on the CBO and Government Accountability Office [GAO] to study the potential development of an independent health reform board, possibly like the Federal Reserve Board [FRB] that would set health policy absent of political pressure.

Conclusion

Your thoughts and comments are appreciated. Do you believe the Orszag CBO report is more factually, or heuristically true; why or why not? Is it a startling report at all; or just medical de-rigueur?

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Healthcare Organizations: www.HealthcareFinancials.com

Health Administration Terms: www.HealthDictionarySeries.com

Physician Advisors: www.CertifiedMedicalPlanner.com

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Filed under: Managed Care, Quality Initiatives, Surveys and Voting | Tagged: CBO | Leave a comment »

Consumer Health Plan Satisfaction Survey

Posted on July 20, 2008 by Dr. David Edward Marcinko MBA MEd CMP™

New Deloitte Center for Health Solutions Survey

Staff Reporters

Nine out of 10 Americans are not completely satisfied with their health plans, according to “The Deloitte Center for Health Solutions 2008 Survey of Health Care Consumers.”

The Survey:

According to the survey of what more than 3,000 Americans thought about a variety of healthcare issues; these findings were reported:

73 percent are interested in accessing information about quality or price from their health plans,
78 percent would rather customize their insurance by selecting the benefits and features they value, rather than choose their plans from a few pre-packaged options,
78 percent are interested in online access to medical records and test results,
76 percent want e-mail communication with doctors,
72 percent support online office visit scheduling, and
46 percent would like a software program or web site [cloud computing] to create a personal health record.

Assessment

Tommy Thompson, senior advisor at Deloitte and former secretary of health and human services in the Bush Administration, said dissatisfaction with health plans should serve as a wake-up call for health insurers to offer more quality and transparency information; according to HealthLeaders Media, June 20, 2008

Conclusion

Is there a disparity-gap in this study between provider and patient opinions; or is it more accurate than not? Please comment?

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RAC Contractors to be Identified

Posted on July 19, 2008 by Dr. David Edward Marcinko MBA MEd CMP™

CMS Aims to Reduce Fraud

[By Staff Writers]

This month, the Centers for Medicare and Medicaid Services [CMS] will name the auditing firms that will review hospitals’ books for payment mistakes, while hospital officials say results in other states suggest the auditors will give priority to recovering overpayments.

The RAC Program

Under the so-called Recovery Asset Contractor [RAC] program, CMS pays auditors a fee based on the amount of improper payments discovered.

Hospital officials worry this “bounty hunter” approach – the second for CMS after medical practice audits – will create a bias in auditors to focus only on collecting government overpayments, reported the Pittsburgh Business Times on June 16, 2008.

Pilot Program Results

Some hospitals point to a pilot audit program in New York, Florida and California, which found $357.2 million in overpayments and just $14.3 million in underpayments. Medicare estimates its error rate at 3.9 percent in 2007, down from 9.8 percent in 2003, but still totaling $10.8 billion in improper payments

Assessment

Is this another instance of brute intimidation or just honest review?

Conclusion

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Economics of Variable Annuities

Posted on July 18, 2008 by Dr. David Edward Marcinko MBA MEd CMP™

The “Ups and Downs” of Variable Investments

[By Staff Writers]

The chief advantage of variable annuities is that investment income or gains are not currently taxable. However, when distributions are made, all gain is ordinary income, even if substantially all of the gains realized on the investment were capital gains.

Investments made directly by a Family Owned Business [FOB] member, for example, does not achieve tax deferral. But, assuming the dividends and other income are small (e.g., a growth portfolio), and all gains are capital gains taxed at the maximum rate, then direct investment may be a far superior method of investment.

Forbes summed it up, saying, “Don’t be a sucker!”

Despite Forbes’ warning, variable annuities are not necessarily an easy investment decision.

Sales Growth

Sales of variable annuities have continued to grow despite the reduction of capital gain rates in the recent years of the Bush Presidency, and the future is unknown. But, if the deferral is long enough, or if the portfolio throws-off ordinary income (e.g., a bond portfolio), then variable annuities may be desirable. However, doctors and medical professionals should exercise caution about variable annuities.

Fees and Expenses

Variable annuity fees vary widely from carrier to carrier but in many cases they are still high, putting such investments at a competitive disadvantage. If the fees are reasonable, and the medical professional client intends to invest in high yield bonds (also know as junk bonds), then a variable annuity can be attractive.

The same is true for traders who move in and out of funds and earn a large amount of short-term capital gains. In any event, all doctors should check the fees charged by the insurance company because they vary widely. Some funds that charge fees also have outperformed other funds.

Taxation

Investing in traditional equity can give rise to dividends of 1.5% (the average) that is subject to taxation. Variable annuities shelter the dividends, but at a cost often reaching 1.25%. This is not exactly an attractive investment trade-off.

Capital Gains

In addition, all capital gains derived from the portfolio are taxable as ordinary income when distributed; also not a good result.

Distributions upon Death

Assets held outright get a step-up in basis upon death. Variable annuity distributions are income-in-respect-of-a-decedent. Thus, there is no step-up in basis. This is harsh taxation, and the combined estate and income taxes can be 100% (e.g. the decedent’s estate may be is subject to a 5% surtax).

Thus, a 55-60% estate tax and a 35-40% ordinary income tax rate results in 100% taxation and confiscation. Counting the limitation on a deduction, the effective tax rate might be 42%, causing the combined taxes to exceed 100%. If the estate taxes can be deducted from the income taxes, the taxation of variable annuities is lessened.

Moreover, if a family business client has a charitable interest, using income-in-respect-of-a-decedent property to fund a gift to charity is a sound planning idea (the charity pays no income taxes and gifts to charities are not subject to estate taxes). Here, variable annuities may have one big advantage; they can prevent creditors from reaching assets. However, if this is a concern then the same results can be achieved by using an asset protection trust.

Assessment

Tax deferral always appeals to medical and other clients, but in some cases, variable annuity tax deferral may not be a effective tax planning tool. In addition, postmortem planning can help to reduce the tax burden to children.

Variable annuities require clear analysis and discussion. Doctors, and their accountants and financial advisors should discuss this issue before investing in them. The reason, quite simply, is that most doctors do not like to pay current tax and they may leap at a variable annuity which can result in increased taxation. How ironic!

Conclusion

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Living Trust Myth-Busters

Posted on July 17, 2008 by Dr. David Edward Marcinko MBA MEd CMP™

Reality Bites for Some Doctors

Staff Writers

Medical professionals are turning to living trusts in increasing numbers for their estate planning needs. But, two major trust myths need to be explored.

Myth 1: Living trusts save taxes.

Reality: They do not. Income earned by a living trust is taxable to the physician or other grantor, and when he or she dies, the assets are includable in the estate for estate tax purposes. All traditional planning methods (i.e., marital deduction, estate tax exemption, charitable giving) are available to all estates—whether or not the assets are in a living trust.

Myth 2: Living trusts save probate expenses.

Reality: Living trusts do avoid probate, which makes them attractive to medical professionals, but the question is whether the costs of establishing and administering the trust outweigh probate costs. Living trusts are quite useful, however, when the grantor owns real estate in more than one state. The living trust avoids ancillary probate in other states, which can result in significant savings—especially if the investments are relatively modest because ancillary probate can cost more than the real estate is worth. Likewise, living trusts are helpful if a discretionary investment manager is used. Living trusts also result in faster estate proceeds transference.

Assessment

A living trust should be only a part of a physician’s estate plan. Currently, living trusts are commonly used in conjunction with wills www.MedicalBusinessAdvisors.com

Conclusion

What has been your experience with living trusts; pro or con? Comments are appreciated.

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MD Compensation and Benchmarking Tools

Posted on July 16, 2008 by Dr. David Edward Marcinko MBA MEd CMP™

MGMA and ValueSource Release Software

Staff Reporters

Free online compensation and productivity benchmarking tools for physician practices are now available from ValueSource Software and the Medical Group Management Association [MGMA].

Dashboards in the Cloud

The two web-based [internet computing] dashboards enable physicians and group practices to enter a few easy-to-find variables about physician compensation, and production and costs, and then compare themselves to national norms. Practice managers select their specialty from a pull-down menu, enter information about compensation, collections, gross charges, ambulatory encounters, surgery/anesthesia cases, and work RVUs, etc.

Assessment

The internet based cloud dashboards compare that data to national norms and produce a series of six gauges that measure physician performance in specific areas.

Conclusion

Please opine if you have used these new tools in your practice, clinic or hospital setting; and tell us what you think. Your review and evaluation is appreciated and will assist Executive-Post readers.

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Medical Cultural Disparity

Posted on July 13, 2008 by Dr. David Edward Marcinko MBA MEd CMP™

A Real or Perceived Contemporary Concept?

Staff Writers

Question

Joseph R. Betancourt, MD, MPH, director of The Disparities Solutions Center at Massachusetts General Hospital [www.massgeneral.org/disparitiessolutions] was asked during a recent interview with Physician’s News Digest how he defined the emerging concept of “medical cultural competency.”

Answer

He replied that he viewed it as basically an “expansion of patient-centered care,” which he said is characterized by the physician’s awareness of and agreement with “the need to be attentive to the health beliefs, values and perspectives of the patient.”

Conclusion

And so, is this the same or different from participatory or collaborative Healthcare 2.0.

Your opinions and comments are appreciated.

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CRNA Salaries Rise – Exceed Some MDs

Posted on July 12, 2008 by Dr. David Edward Marcinko MBA MEd CMP™

ADVERTISEMENT

Merritt Hawkins & Associates Study

[Staff Reporters]

Some nurses land higher salaries than primary care doctors, according to staffing firm Merritt Hawkins & Associates.

The Survey

In the past year, nurse anesthetists recruited through the staffing firm Merritt Hawkins & Associates, landed salaries that averaged $185,000; compared to the pay for family practice doctors hired through the firm, who averaged $172,000; and internists, who averaged $176,000; according to a Wall Street Journal report, on June 18, 2008.

Assessment

The Merritt Hawkins figures for the nurses are higher than some other sources, like the Medical Group Management Association. The MGMA also tracks health care salaries and puts nurse anesthetists’ median compensation at $140,000 per year. The discrepancy may be because fewer employers go through recruiters to hire the nurses, and those who do are willing to pay top dollar.

Related Information Sources

Medical Assistant Job Description: Learn about the salaries of those who assist with medical procedures: http://www.medicalassistantschools.org/what-does-a-medical-assistant-do/

Conclusion

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Faux Healthcare 2.0 Collaboration for Terminal Patients?

Posted on July 11, 2008 by Dr. David Edward Marcinko MBA MEd CMP™

American Society of Clinical Oncology Study

[By Staff Writers]

Only one-third of terminally ill cancer patients said their doctors had discussed end-of-life care, according to a recent federally funded study presented at the American Society of Clinical Oncology conference in Chicago.

Study Results

According to the study, patients who had these talks were no more likely to become depressed than those who did not. Moreover, they were less likely to spend their final days in hospitals tethered to machines, avoided costly futile care, and with loved ones more at peace after they died, reported the Associated Press on June 15, 2008.

Assessment

The study was the first to look at what happens to patients if they are, or are not, asked what kind of care they’d like to receive if they were dying, according to lead researcher Dr. Alexi Wright of the Dana-Farber Cancer Institute in Boston. The study involved 603 people in Massachusetts, New Hampshire, Connecticut and Texas. All had failed chemotherapy for advanced cancer and had life expectancies of less than a year.

And so, is the emerging new concept of collaborative or participatory medicine – known as Healthcare 2.0 – fact, fiction or just plain hype?

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Conclusion

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Doctors Unite!

Posted on July 10, 2008 by Dr. David Edward Marcinko MBA MEd CMP™

On the “Open Letter from America’s Physicians”

By Dr. David Edward Marcinko; MBA, CMP™

Publisher-in-Chief

As we have seen in this healthcare-charged election season, almost every form of political activism or debate has moved online. So, it is no surprise that a coalition of disgruntled physicians would electronically socialize and network together, as seen with www.sermo.com

About Sermo – Peer 2 Peer Doctor Network

First billed as a physician’s only online community, where 65,000 doctors around the nation exchanged the latest medical insights with each other to improve patient clinical outcomes, some portions of the Sermo community have morphed into a kind of political action committee [PAC] representing a particular flavor of zealot doctor activist.

Political Activism

And, not to miss out on a marketing opportunity, Sermo has allowed itself to be used as a vehicle for an open letter signed by physicians, decrying the state of domestic healthcare, that’s only going to get more public.

According to Mr. Matthew Arnold of Medical Marketing & Media, the letter is a physicians’ manifesto of sorts, composed by selected Sermo doctors demanding an end to intrusive insurers and overzealous regulators. To date it has garnered 5,200 signatures in the several weeks since it was posted on www.mmm-online.com

So, You Want a Revolution?

According to Arnold, “There’s a sense of revolution in this,” said Dr. Daniel Palestrant, founder and CEO of the physician social networking site, which boasts around 70,000 members. “It’s doctors coming together for the first time, voicing discontent with the representation they’ve had to date, and making it clear to the public that the quality of care is going to be suffering based on some of these outside forces.” http://www.mmm-online.com/Fed-up-Sermo-docs-draft-manifesto/article/112006

Doctors Unite

The “Open Letter from America’s Physicians,” hosted at www.doctorsunite.org blames “The insurance industry’s undue authority and oppressive control over healthcare processes,” “Excessive and misguided government regulation” and “The practice of defensive medicine in response to a harmful and costly legal environment” for America’s healthcare crisis, and vows: “We, the physicians of the United States, will no longer remain silent. We will not tolerate a healthcare system where those without medical expertise or genuine interest in our patients’ health have absolute control.”

Assessment

As almost every other form of political activism has moved online, don’t be surprised to see more websites, blogs, wikis or social e-communities like this. Of course, if the details get specific, it’s tricky to know whether the coalition of disgruntled doctors will stay together, and/or whether Sermo will emerge as representing a new breed of doctor “turned-political-pundit.”

Conclusion

And so, is political activism an appropriate initiative for the medical community; why or why not?

Might it be considered more self-serving; or more patient centric? Your thoughts and comments are appreciated.

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Key-Man Life Insurance Proceeds Ruling

Posted on July 10, 2008 by Dr. David Edward Marcinko MBA MEd CMP™

IRS Tax Exempt Treatment Ruling

[By Robert Whirley, CPA]

A recent revenue ruling has been issued by the Internal Revenue Service addressing the tax exempt treatment of life insurance policy proceeds on “key-man” policies of Subchapter S-Corporations; medical and/or otherwise.

Excerpts

Revenue Ruling 2008-42 concludes that premiums paid by the S-Corporation on an employer-owned life insurance contract, of which it is directly or indirectly a beneficiary, do not reduce the S-Corporation’s AAA. Further, the benefits received because of the death of the insured from an employer-owned life insurance contract that meets an exception under Code Sec. 101(j)(2) do not increase its AAA.

Assessment

This may sound like Greek to some doctors. The affect is that life insurance proceeds on key-man policies in an S-Corporation are essentially trapped in the corporation. Any distribution of that cash to surviving S-Corporation shareholders – or to the estate of the deceased shareholder – triggers a taxable event.

It is therefore vital for any doctor with a life policy paid by your medical practice, or other S-corporation, to discuss the tax policy and estate planning particulars with your accountant.

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Conclusion

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Dictionary of Health Economics and Finance
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The Cure for Claims Campaign [CCC]

Posted on July 9, 2008 by Dr. David Edward Marcinko MBA MEd CMP™

Reducing Healthcare Administrative Burdens and Costs

Staff Writers

To help reduce the administrative burden of ensuring accurate insurance payments for physician services, the American Medical Association [AMA] recently launched the “Cure for Claims” Campaign [CCC] and unveiled the first AMA National Health Insurer Report Card on claims processing.

Goals

The goal of the AMA campaign is to hold health insurance companies accountable for making claims processing more cost-effective and transparent, as physicians divert substantial resources – as much as 14 percent of their total revenue – to ensure accurate insurance payments for their services.

The National Health Insurer Report Card [NHIRC]

The AMA’s new National Health Insurer Report Card provides physicians and the public with information on the timeliness, transparency and accuracy of claims processing by health insurance companies. Based on a random sample pulled from more than 5 million electronically billed services, the NHIRC examines the claims processing performance of Medicare and seven national commercial health insurers: Aetna, Anthem Blue Cross Blue Shield, CIGNA, Coventry Health Care, Health Net, Humana and United Healthcare.

Study Results

According to the June 16, 2008 AMA study:

There is wide variation in how often health insurers pay nothing in response to a physician claim (from less than 3 percent to nearly 7 percent), and in how they explain the reason for the denial. There was no consistency in the application of codes used to explain the denials, making it expensive for physician practices to determine how to respond.
Health insurers reported to physicians the correct contracted payment rate only 62 to 87 percent of the time. When health insurers report an amount that does not adhere to the contracted rate, it adds additional, unnecessary costs to the physician practice to evaluate the inconsistency.
More than half of health insurers do not provide physicians with the transparency necessary for an efficient claims processing system.
There is wide variation among payers as to how often they apply computer generated edits to reduce payments (from a low of less than .5 percent to a high of over 9 percent). Payers also varied on how often they use proprietary rather than public edits to reduce payments (ranging from zero to as high as nearly 72 percent).

Assessment

The use of undisclosed proprietary insurance claims edits, only serve to inhibit the flow of transparent information to physicians, adding additional administrative costs to reconcile their health insurance claim issues.

Conclusion

Your thoughts and comments are appreciated. Will likely outcomes of the CCC and NHIRC be real, or illusionary?

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Perceptions of Electronic Health Records

Posted on July 8, 2008 by Dr. David Edward Marcinko MBA MEd CMP™

New Awareness Study

[By Staff Writers]

Kaiser Permanente, through independent market research company StrategyOne, conducted a nationwide survey between May 8-11, 2008 to gauge the awareness and perceptions of electronic health records.

Survey Findings:

38 percent have used their insurance company’s online tools to learn more about their care, up from 29 percent in 2007.
47 percent had a preference for doctors who use EHRs and 61 percent had a preference for insurance companies who employed EHRs.
51 percent agreed that health IT should be a top priority for the next president to ensure that all Americans have access to their own personal medical records [PMRs] electronically.

Assessment

Americans continue to have concerns about privacy issues. Assurance is required, from all who store personal medical data, that patient information is secure.

Source: Kaiser Permanente, June 12, 2008.

Conclusion

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Meet an Executive-Post Sponsor

Posted on July 8, 2008 by Dr. David Edward Marcinko MBA MEd CMP™

The Institute of Medical Business Advisors, Inc

July 7, 2008

PRESS RELEASE: iMBA, Inc

Atlanta, Georgia

The Executive-Post at www.HealthcareFinancials.com is now proudly sponsored, in-part, by the Institute of Medical Business Advisors Inc.

Since inception in 2000, iMBA Inc has become one of North America’s leading professional health consulting firms; and focused provider of textbooks, CDs, tools, templates, onsite and distance education for the health economics, administration and financial management policy space. Other consulting services include:

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As competition increases, and the cognitive demands of the global marketplace change, iMBA Inc is well positioned with offices in five states and Europe to meet the needs of medical colleagues, related advisory and corporate health clients today; and into the future.

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Getting IRS Answers

Posted on July 7, 2008 by Dr. David Edward Marcinko MBA MEd CMP™

Even When You Shouldn’t Ask

By Staff Writers

Our complex tax system has sparked moves toward a flat tax in 2008 and other efforts at simplification. But until such a change occurs—if it ever does—we are stuck with what we have. This means many doctors and all taxpayers will continue to be confused and uncertain about their tax situations, and they will have a lot of questions.

The IRS Source

According to many experts, the IRS, which should be the best source for doctor answers, does not come through nearly often enough. But, it does offer some options. Which one you choose depends on the complexity and nature of the problem. Some simple, straightforward questions may be readily answered by a phone call. But for questions that are more complicated, it might be better to do it in a letter—following IRS guidelines—and get a written answer. And, in some cases, you may be better off not asking the question in the first place.

Phoning the IRS

Getting through to the IRS can be difficult. Its lines are often busy, especially during tax season. According to a not-so-recent report by the General Accounting Office, only 20% of callers got through to the IRS on the first call during last year’s tax return season (50% eventually got through). The IRS itself says you should avoid calling during lunch hours or on Mondays. But more serious is the reliability of the information you get. And, as a rule, the IRS will not stand behind its oral advice.

Example:

—Emma and James Clarke called an IRS helpline and asked whether they would be taxed on funds they wanted to withdraw from an individual retirement account (IRA) to buy a home. The Clarkes believed that they were told the transactions would result in no tax. So they withdrew the funds. When the IRS taxed them on the withdrawals, the Clarkes went to the Tax Court. They argued that they should not be taxed because they had relied on the erroneous advice of an IRS representative.

The IRS said that the Clarkes had misunderstood. According to the IRS, its representative told them only that they would not face the 10% tax on early withdrawals since they were over age 59½.

The Tax Court had no way of knowing whether the Clarkes had misunderstood or had been given mistaken advice. But the court said it did not matter. The tax law calls for taxes on IRA withdrawals, and the IRS had to follow the law.

Note: The IRS is not legally bound by mistakes its agents may make.

Precautions

The risk of getting incorrect advice does not mean that you should never call the IRS. But you should do some things to protect yourself. In particular, after you get an answer to your question, ask the IRS representative if information on the subject appears in any IRS publication. Then order the publication from the IRS and check the answer you received.

For example, suppose you want to know whether you can claim your father as your dependent. Even if the IRS representative says you can, you would be smart to check the IRS’s Publication 17, Your Federal Income Tax, which sets forth all the requirements for claiming someone as a dependent. Even if the representative is knowledgeable, it’s easy in a conversation for one party to misunderstand the other.

The same basic principles apply if you visit a local IRS office and speak to an agent. You can then easily pick up the publications you need, too.

If you use your computer to surf the Internet, you now can get some forms and basic information from the IRS via the World Wide Web (www.irs.ustreas.gov). But you cannot yet ask questions and get tax help this way.

Writing for Help

You will get the most protection by writing to the IRS with your question, because it will have to send you the answer. Then, if you follow this written advice and it turns out to be wrong, penalties you would otherwise owe will be avoided.

Private letter rulings

—These are among the most common forms of IRS guidance. You would request a private letter ruling from the IRS National Office when you want to know the tax impact of some strategy or transaction you are considering. Such a ruling is like insurance. As long as you give full and accurate details of the proposed transaction, you can rely on the ruling. (You cannot rely on private letter rulings issued to other taxpayers, but you can study them for signs of how the IRS views particular transactions.)

A small medical business might seek a letter ruling to be sure, for instance, that fringe-benefit plans or corporate restructuring will be tax-free.

Example

—A company was engaged in two businesses, A and B. The company needed capital to finance B’s new technology product. It found a venture capitalist willing to invest in B, but not in A. So the company sought to spin off B to a new corporation. The IRS said that there would be no tax on the transaction.

If your transaction will achieve the desired results, the IRS may suggest ways you can fix it. If the IRS plans to issue a negative ruling, it may offer you a chance to withdraw your request.

Technical advice memos

—Similar to letter rulings, these also come from the IRS National Office but are most often requested when a technical question comes up during the course of an audit. IRS agents themselves regularly request them. But, as a taxpayer, you can request such advice yourself. Technical advice memos are usually retroactive, but you can request relief from retroactivity if it would hurt you.

Technical advice memos may be issued on some of the same matters as letter rulings. Typical memos deal with such issues as whether a medical office worker is an employee or an independent contractor, validity of pension plans, and use of accounting methods.

Example

—A repairman had worked in an auto body shop for several years. Originally, he was classified as an employee. Then the shop owner turned the business over to his son, who designated the worker as an independent contractor. But the worker’s job did not change. He worked eight to 10 hours a day at the shop, using some of his own tools—but also some of the shop’s tools and equipment. He was paid half of the total amount of the bill for the repairs he did. But receiving his pay did not hinge on whether the customer paid; he took no risk. The IRS ruled in a technical advice memo that the worker was an employee.

Example

—A company asked the IRS to rule on whether its pension plan was qualified for tax breaks. The IRS said yes. A year later, the IRS realized the plan violated the rules because it excluded some workers who put in more than 1,000 hours a year. In a technical advice memo, the IRS said that the company would have to amend the plan to comply with the tax law. But because the company had relied on the IRS ruling in good faith and had originally disclosed all of the facts, the change did not have to be made retroactively.

When Not to Ask

There is no reason not to call the IRS with a basic question so you can fill out your tax return correctly. You probably will not even have to give your name. But if you want a letter ruling, first weigh the pros and cons.

In some situations—for example, to change your accounting method—you must get an advance ruling. In other cases, an advance ruling may be desirable because you want to be sure of the tax consequences of a transaction. Moreover, as we said, the IRS may suggest ways to restructure the transaction to get the tax result you want.

However, sometimes it’s unwise to seek IRS advice. You may not have time for a ruling—they generally take two or three months. Or, if the transaction offers no chance for flexibility, you will be stuck if the IRS gives you a negative response. (You must attach the ruling—favorable or not—to your return.) The National Office will review all related issues and transactions when it examines your request. So you must also be sure such scrutiny will not create a problem for you.

Cost is another factor. Fees vary by type of ruling, but a typical one would be $500. Then you need professional assistance in preparing your request and responding to IRS questions.

Assessment

The IRS will not answer every question. It will not give you a “comfort ruling”—where the answer is clear or reasonably certain. And it will not rule in hypothetical situations.

Letter rulings are public information, but you don’t lose your privacy. The IRS will have you sign a deletion statement: You can tell it to block out items that would reveal your identity. Most all physicians and medical professionals should do this.

Conclusion

Your comments are appreciated. What has been your experience with IRS queries?

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Filed under: Accounting, Taxation | Tagged: Accounting, private letter rulings, tax, technical advice memos | 1 Comment »

“S” Corporation [Case Law] Tax Advantages

Posted on July 6, 2008 by Dr. David Edward Marcinko MBA MEd CMP™

Family Owned Business [FOB]

Staff Writers

Some doctors understand the advantages that S corporations have over regularly taxed C corporations—and vice versa. But, an unfamiliar Tax Court decision, more than a decade ago, points up an advantage for S corporations that are sometimes overlooked.

Scenario

Suppose the owners of a family corporation are about to retire. Their children will buy their stock, giving them a note for the purchase price. The children will, of course, pay interest on the note.

Tax Difference

If the corporation is an S corporation, the younger generation will be able to write off their interest payments in full.

On the other hand, if it’s a C corporation, they may have few or no deductions.

Why the difference?

—Because interest you pay to buy S corporation stock is considered “business” interest, and that’s fully deductible. On the other hand, interest paid to purchase C corporation stock is treated as “investment” interest. And the tax rules say that investment interest is deductible only to the extent of your investment income (dividends, interest income, etc.). If you don’t have any investment income, you get no deduction for your interest payments.

Naturally, that brings up another question: Why is the ownership of a C corporation considered an investment, while the ownership of an S corporation is treated as a business? For the answer to that, let’s look at the above mentioned Tax Court case.

Case Report

Three brothers, Milton, Leo, and Dale Russon, founded Russon Brothers Mortuary as a regular C corporation. The business did well, and the Russon brothers began training their four sons, Scott, Brent, Robert, and Gary, in the mortuary business.

Eventually, the four younger Russons were trained and actively involved in the business, and the older Russons were ready to hang up their hats. The younger Russons agreed to buy all the stock in Russon Brothers for $999,000. Each of the four younger Russons agreed to pay one-fourth of the purchase price, with 10% payable up front and the remainder to be paid in 180 equal monthly payments at 9% interest.

Agreement

The agreement gave the four younger Russons their right to exercise ownership rights, including “the right to all dividends from the stock,” subject to certain limitations. One of those limitations provided that the buyers could not “declare or pay any dividends or make any distributions” without written permission from the older Russons. After the sale, the four younger Russons continued to run the mortuary business, and their fathers retired.

On his tax returns following the sale, Scott Russon deducted the interest he paid on the purchase price for the Russon Brothers stock. However, the IRS denied the deduction on the grounds that the interest was subject to the investment-interest limitation.

Scott Russon countered that his interest should be treated as fully deductible business interest. After all, he bought the stock so that he and the other younger Russons could conduct the business full time and “earn a living.” Moreover, he contended that he couldn’t have purchased the stock as an investment since Russon Brothers had never paid a dividend in its entire history.

Tax Payer Loser

The Tax Court concluded that the Russon Brothers stock was “held for investment,” and the interest paid to acquire the stock was subject to the investment-interest limitation [Russon, 107 T.C. No. 15].

The court pointed out that property “held for investment” includes any property of the type which produces interest, dividend, or royalty income. And, in the court’s view, that means property that normally produces those types of income—regardless of whether it actually produces such income.

The tax law does not require corporate stock to pay a dividend before it becomes investment property. What’s more, the court pointed out that the definition of investment property is inclusive and applies uniformly to every taxpayer; it does not depend on a taxpayer’s mind-set when buying the property.

Finally, the court pointed out that the possibility of the Russon Brothers stock actually paying dividends was clearly contemplated by all the Russons when they drew up the sales agreement. The agreement gave the younger Russons the right to “all the dividends from the stock,” subject only to the written consent of the older Russons until the purchase price was fully paid.

S Corporation Advantage

If Russon Brothers had been an S corporation; it would have been a different story. The IRS has said that interest paid to buy an S corporation is treated as interest to purchase the corporation’s assets, not its stock [Notice 89-50]. Thus, the interest the Russons paid would have been treated as fully deductible business interest to the extent the assets were used in the corporation’s business [Notice 88-20]. And since virtually all of Russon Brothers’ assets were used in the active conduct of its mortuary business, Scott Russon would have been entitled to his deductions.

Assessment

There is one bright spot for astute doctors and other buyers of C corporations. You can switch. The IRS has ruled that once a C corporation is converted to an S corporation, interest paid thereafter will be treated as paid for the assets, not the stock. So your interest will become fully deductible business interest [Ltr. Rul. 9040066].

Conclusion

Of course, switching to an S corporation has other important tax consequences. So you will want to talk things over with your tax adviser before making a final decision. And so, your thoughts and comments are appreciated.

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Marital Dissolution, Buy-Sell Agreements and Practice Value

Posted on July 3, 2008 by Dr. David Edward Marcinko MBA MEd CMP™

Doctors, Divorce and Medical Practice Worth

[By Mark P. Gross; JD]

Determining how to value the business interest of each medical partner is a critical element of the buy-sell agreement.

Family law courts, however, have broad discretion about whether to accept or reject the validity and binding effects of the formula stated in these agreements. When assessing whether the formula is binding in the dissolution proceeding, the courts consider, in general: (1) the proximity of the date of the agreement to the date of the marital separation to ensure that the agreement was not entered into while contemplating a marital dissolution; (2) the existence of an independent motive outside of divorce for entering into the buy-sell agreement, (e.g., the desire to protect all shareholders against the affects of a business dissolution); and (3) whether the value determined by the formula used in the agreement is similar to the value produced by other methodologies.

Case Law

For example, in one case [Nichols v Nichols (1994) 27 Cal. App.4th 661, 671-672], these factors were enunciated. The attorney-husband became a partner shareholder and signed a stock purchase and sales agreement under which the price of the stock was determined by a formula based on the book value of all the firm’s assets, except its accounts receivable, goodwill and work in progress, etc. When the husband and wife began divorce proceedings, the husband’s expert valued the community interest of the husband’s stock according to the stock purchase agreement.

The wife’s expert valued the interest by the book value of the firm’s net assets including accounts receivable, goodwill, and work in progress. The dispute went to the family law court and the court ruled in favor of the husband. The appellate court upheld the decision.

The appellate court noted that the agreement was entered into eight years prior to separation and thus did not appear to anticipate the divorce. The firm had an independent motive for entering into the stock purchase agreement, (i.e., avoiding a major economic impact on the firm when a partner leaves). More importantly, the court found no evidence that the stock purchase agreement was designed to deprive the wife of any rights.

A Marital Settlement Agreement

In drafting the buy-sell agreement, the principals of any medical practice or business should view it as a marital settlement agreement.

In a separate divorce case [Slater v Slater (1979) 100 Cal. App. 3d 241, 245, 160], the asset being divided was the husband’s interest in his medical practice partnership.

During the parties’ marriage, the husband and wife both signed the partnership agreement which specifically provided that the partnership could buy back the husband’s interest upon his death, withdrawal, or expulsion. Under the agreement, the purchase price was to be the husband’s interest in the capital account plus the total of the accounts receivable [ARs] less than six months old.

The agreement further stated that “the partners agree that a portion of the purchase price as determined above includes the sale of their interest in the goodwill of the partnership, and in the event of their withdrawal or expulsion from the partnership, that they will not enter into the practice of medicine in that portion of Alameda County for a period of three years.”

Trial Court Proceedings

The trial court proceedings, in determining the value of the husband’s medical practice according to the partnership agreement, found it had a goodwill factor of zero.

The wife appealed claiming the trial court erred in setting a value of zero on the goodwill of the husband’s practice, pursuant to the withdrawal provision of the partnership agreement. The appellate court reversed the trial court’s decision with directions to value of the husband’s interest in the partnership. It rejected the husband’s contention that his wife was bound by the terms of the agreement—even though she had signed it. It found that the agreement was irrelevant because the asset being divided in the dissolution of marriage was not the husband’s contractual withdrawal rights; rather it was his interest in the partnership.

Therefore, the wife was not bound by the terms of the withdrawal provision, and the trial court was not precluded from valuing the goodwill of the husband’s practice. This is a troubling decision and probably an incorrect one.

Fair Market Valuation [FMV] Factors are Key

In order for a buyout plan to better withstand rigorous examination in the family law court, the buyout price should be related to fair market factors of the business and should not be intended to deprive the non-shareholder spouse of any community interest.

A formula should be used based on profitability instead of a fixed price (as in the actuarial business example), and an explanation for the formula should be developed. Having the spouse sign the agreement is probably a good idea.

Fiduciary Duty

Other issues in drafting a buy-sell agreement include breach of fiduciary duty.

California Family Code Section 721(b), for example, states that transactions between a husband and wife are subject to the general rules governing fiduciary relationships. Because the buyout provision is tantamount to an agreement disposing of a community asset, the rules governing fiduciary duties may apply and render the provision voidable or chargeable to the principal spouse for greater value. Therefore, a buy-sell agreement that too heavily favors the principal spouse may not be of any value in a dissolution proceeding.

Community Interest

Finally, when both parties in a divorce agree to the disposition of the community interest in the stock of a company upon dissolution of marriage, the rules governing disclosure apply, including disclosure of valuation. Neither spouse may dispose of community personal property for less than fair and reasonable value [FMV] without the written consent of the other, and each part has an obligation to fully disclose proper valuations of assets. In equitable distribution states, similar disclosure rules are applicable.

Assessment

Buy-sell agreements should be created early in the family-owned business. Once accomplished, unpleasant issues can be discussed before the emotional baggage weighs upon the parties’ sensibilities. It is much easier and more prudent to include the divorce scenario in the agreement up front instead of waiting until it becomes an issue (the agreement already deals with death, disability, and business dissolution). To ensure proper wording of the marital dissolution portion of the buy-sell agreement, a draft of the document should be reviewed by a family attorney prior to execution. With a solid plan in place in the event of divorce, the family business will be better able to weather the stormy events that can sometimes occur within a family.

What are your thoughts and opinions on this often contentious topic, from the spouse, doctor, legal and medical partner perspective? Your comments are appreciated.

About the Author: Mark P. Gross Esq. is a shareholder in the Encino, Calif., law firm of Alpert, Barr & Gross.

Conclusion

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Events-Planner: July 2008

Posted on July 2, 2008 by Dr. David Edward Marcinko MBA MEd CMP™

JULY 2008

Staff Writers

“Keeping track of important health economics and financial industry meetings, conferences and summits”.

July 10-11: Health Reform & the 2008 Elections: What’s Ahead for Health Care Access, Delivery and Financing? Washington Court Hotel, Capitol Hill; Washington, DC | Phone: 800-521-4323

July 14: Medicare Advantage Special Needs Plans | Institute for International Research, Washington, DC.

July 15-17: 3rd Annual Achieving Return on Investment for Wellness; Hamilton Crowne Plaza Hotel; Washington, DC | Phone: 800-647-7600

July 15-18: Association of Medical Directors of Information Systems Symposium, Ojai Valley Inn, Ojai, CA | Phone: 530-596-4477

July 16: Medicare Marketing Compliance | Financial Research Associates, Chicago, Illinois.

July 21-22: Optimizing Managed Care Contracting for Hospitals; Boston, MA | Phone: 800-647-7600

July 21-22 Executive Forum on Rx Benefit Management for Employers and Health Plans; Las Vegas

July 22-23: The 3rd Annual World Congress Leadership Summit on the Road to Interoperability; Boston Waterfront Hotel; Boston, MA | Phone: 800-767-9499

July 23-25: 2nd Annual Public Health Care Congress; Mandarin Oriental Hotel; Washington, DC | Phone: 800-817-8601

July 24-26: Health Forum Leadership Summit; Manchester Grand Hyatt; San Diego, CA | Phone: 312-893-6897

July 25: SCF Arizona Medical Provider Seminars 2008; Worker’s Compensation, Sheraton Tucson Hotel | 602-631-2513 lbrott@scfaz.com

July 29-31: Medicare Today & Tomorrow; Washington, DC | Phone: 800-647-7600

July 30-31: The 2nd Annual Leadership Summit on Process Improvement and Business Excellence in Healthcare; Hilton Suites Chicago Magnificent Mile; | Phone: 781.939.2410

Please send in your meetings and dates for listing in the next issue of our Events-Planner: MarcinkoAdvisors@msn.com

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Ending Governmental Barriers to e-Prescribing

Posted on June 28, 2008 by Dr. David Edward Marcinko MBA MEd CMP™

AMA’s – HOD Wants End to Governmental e-Prescribing Barriers

[By Staff Writers]

According to Modern Healthcare [June, 2008] the American Medical Association’s-House of Delegates [HODs] adopted a resolution calling for an end to government-imposed barriers to e-prescribing.

The Resolution

The resolution called for the removal of all federal Medicare and state Medicaid requirements mandating the use of paper prescription forms for certain drugs – that the AMA initiate discussions with the federal Drug Enforcement Administration to allow e-prescribing of schedule 2 drugs – and that Medicare or Medicaid payments not be contingent upon adoption of e-prescribing.

Assessment

The resolution also called on the AMA to work with federal and private entities to ensure universal acceptance by pharmacies of electronically transmitted prescriptions.

Assessment

Should we really bite the [Medicare] “hand that feeds us?”

Conclusion

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Worthless FOB Stocks

Posted on June 27, 2008 by Dr. David Edward Marcinko MBA MEd CMP™

Getting the Tax Deduction

Staff Writers

All physicians and other investors should know when their stock becomes worthless.

Example Scenario:

Some time ago, an FOB physician investor [Family Owned Business] founded two FOBs: One was doing fine while the other floundered. Under the IRS Tax Code, the investor can receive a loss deduction on the second FOB if: 1) the stock is worthless, and 2) the loss is claimed in the year it became worthless.

Definition of “Worthless”

The problem often is determining when a stock is completely “worthless”—there is no deduction for partial worthlessness. A company does not have to file for bankruptcy or end operations for its stock to be worthless.

Generally, if an FOB’s liability greatly exceeds its assets, and there is no real hope of continuing the business at a profit, the stock is considered worthless under the Tax Code. Often, to prove a worthless loss deduction, the business owner sells his or her stock at a nominal price.

Loss is Limited

The amount of the loss has traditionally been limited to the business owner’s tax basis. Capital losses are used to offset capital gain, but $3,000 can be used as a deduction against ordinary income. The $3,000 can be carried forward indefinitely.

Section 1244

If the business’s stock qualified as Section 1244 stock, the loss is an ordinary and fully deductible loss (subject to dollar limitations). In these cases, the loss is deductible against ordinary income. Obviously, if a loss is deductible against ordinary income in the first year, the taxpayer will receive a significant tax savings.

Most FOBs issue Section 1244 stock if it is qualified as a “small business corporation.” To qualify, the total capital invested at the time the stock is issued cannot exceed $1 million. In addition, the FOB must have less than 50% of its gross receipts from passive sources: rents, royalties, dividends, and investment income.

In other words, the majority of the receipts must come from operating an active trade or business. Finally, the maximum loss is $50,000 for an individual; $100,000 for a couple. When organizing an FOB, the stock should be classified as Section 1244 stock if it qualifies.

Assessment

Financial professionals and accountants must advise their clients about “worthless” FOB stocks to ensure the deduction is claimed. Medical professionals should also be aware of this concept.

Conclusion

Have you ever had a worthless stock? How did you deal with it and what were your experiences? What has changed relative to the above review, if anything? Is Section 1244 indexed? Please opine and comment.

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The Annual Gift Exclusion

Posted on June 25, 2008 by Dr. David Edward Marcinko MBA MEd CMP™

Avoid Estate Taxes by Giving-it-Away

Staff Reporters

A doctor may transfer up to $12,000 a year as a tax-free gift to another person. This also applies to gifts of present interests, which includes gifts (if they satisfy the rules of Section 2503 (c) of the Code) to trusts. If the doctor or other donor is married and the spouse consents to join in the gift, the tax-free exclusion is $24,000.

Gifting Limits

The annual tax-free transfer may not seem significant, to some, but there is no limit to the number of donees eligible for such gifts each year. If the gift program is started early and continued every year, it can result in substantial savings.

Example—A physician or other couple with three married children and three grandchildren can utilize the annual exclusion to gift up to [9 X $24,000] = $216,000 tax-free. If they consistently do this for twenty years, the tax-free transfer amount is $4.32 million. Had they not made such life transfers, the federal estate tax on this amount could deprive the family of several million dollars.

In making joint gifts, a gift tax return, Form 709, must be filed to indicate the non-owner spouse’s consent. If each spouse gives his or her separate property and no gift exceeds the annual exclusion, no gift-tax return is required.

The current $12,000 exclusion amount is indexed in $1,000 increments periodically for inflation.

Direct Gifts for Medical or Educational Purposes

There is no dollar limit on the amount a person can give each year for the benefit of another person’s medical care or education. However, the gift must be made directly to the medical or education provider (such as a hospital or college).

“Education” includes not only higher education, but also primary and secondary schooling as well (for example, prep school). These direct gifts can be made in addition to the annual gift amount specified above. This is especially useful for educational gifts since most high net worth individuals have medical coverage.

Like the annual exclusion, there is no family relationship requirement for making the gift.

Gifts to Qualified State Tuition Plans

Many states, like New York, now offer qualified tuition plans that allow tax-advantaged savings for higher education. These plans are fashioned like an IRA. The earnings on the contributions are not taxed annually but become taxable and are subject to penalties when withdrawn for non-qualified education expenses.

In addition, special gift-tax rules offer additional tax-saving opportunities. From a gift-tax perspective, the contributions are treated as present-interest gifts and qualify for the annual gift-tax exclusion. There is a special election that contributors can make which allows the gift to be treated as having been made repeatedly over five years.

Gifts up to the Exemption Amount

Even if gifts exceed the tax-free transfer limits, there may still not be current gift-tax cost to donors. Each person can give away up to the estate tax exemption amount which increased from $2 million to $3.5 million between 2006 and 2009.Of course, to the extent that the exemption amount is used to shelter lifetime transfers, it is not available to the donor’s estate.

Assessment

However, using the full exemption amount during life yields an important advantage. The appreciation on the amount transferred is also removed from the donor’s estate.

Conclusion

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Filed under: Estate Planning, Financial Planning | Tagged: Estate Planning, estate tax, gifting | 2 Comments »

About Tax Record Retention

Posted on June 23, 2008 by Dr. David Edward Marcinko MBA MEd CMP™

Which Ones to Keep—How Long?

[By Staff Writers]

By law, we are all required to keep records the IRS could use to determine our tax liability accurately. And doctors, more than most, know what it’s like to keep records. So you should retain whatever papers and documents support or clarify your calculations. If the IRS thinks you owe it money, you—both as an individual taxpayer and as a medical business owner—must prove it wrong. Your records are your only real protection if the IRS sets its sights on you for an audit.

Query: But what papers? And how long does the IRS have to determine your taxes for any given year? Do you have to keep everything forever? He following information may provide some clarity to this query.

Individual Tax Records

Accuracy means more to the IRS than the form of recordkeeping you use. Even more important is thoroughness. While certain papers are more significant than others, all of them together build your case for stated adjusted gross income, taxable income, deductions, exemptions, etc. For example:

Income:

Your medical, and other, employment-related records are top priority. The basic ones are W-2s from your hospital, clinic or medial practice, W-2P (for recipients of pensions, annuities, and IRA payouts), and 1099s for freelance income, speaking and pharmaceutical fees, and royalties, etc. You will also need 1099s that show interest and dividend income, as well as stock brokerage statements and any other documents that contain information pertaining to the amount you report as income.

Deductions

Generally, to back up your various deductions, the records you keep should include all related canceled checks and receipts. Here are some specific deductions and their requirements:

Medical expenses:

Keep all canceled checks and receipts. Keep records of any expense reimbursed or paid directly by medical insurance and medical insurance policies on which you deduct the premium cost. The person on whose behalf payments were made should be noted on every check, bill, and receipt.

Mortgage interest:

Keep bank (or mortgage company) statements, notes, and canceled checks.

Child-care credit:

Maintain a record of the name and address of the person or center providing the care, copies of canceled checks, and receipts to verify costs, and amounts paid for household services during the year. The latter will allow you to differentiate costs if the IRS tries to claim your child-care payments were really for a housekeeper. If you pay an individual to provide child care, keep a record of his or her taxpayer ID number, since you need that to get the credit.

Alimony:

You should maintain a copy of the divorce decree, separate maintenance agreement, or other document that specified the basis for the payments; name and address of the ex-spouse to whom you made payments; and canceled alimony checks. If you made payments indirectly through insurance policies, annuity contracts, or endowments, keep the documents showing the source of the payments.

Charitable contributions:

To prove charitable contributions, keep canceled checks and receipts showing the donee’s name, plus the date and amount of the contributions. If you don’t have a check, you need other reliable records showing the same information. If contributions are made by credit card, keep the receipt, the bill, and a statement from the charity with the required information. If you make a contribution of above certain periodically indexed thresholds, or more, to a particular charity, you must get a written acknowledgment from the charity (letter, postcard, etc.). A canceled check is not enough. Generally speaking, if you make separate deminimus contributions each year, the written acknowledgment rule may not apply.

A donation of property will complicate recordkeeping. You need the same items as above, plus a description of the property and the place you made the contribution. You should also keep documents showing the method you used to determine the fair market value of the property, with a signed copy of appraisal reports, if any. If you have an agreement with the charitable organization regarding the use of the donated property, hang on to a copy of that as well.

For property, you will also need documents showing how and why you acquired the property and your cost or other basis (except for publicly traded securities) if you held it for less than one year. For property valued over certain thresholds, you must get a qualifying appraisal and keep a copy of the report

Business Tax Records

As a medical business owner, your recordkeeping requirements are more substantial. There are so many more soft spots where the IRS can probe. The following areas are of particular importance:

Depreciation:

Keep any records needed to establish the reasonableness of a depreciation deduction, such as the original sales receipt showing what you paid for the property. Records must show the yearly depreciation claimed.

Withholding:

Keep all compensation records. For each employee, show name, address, job, and Social Security number, total amount and date of each wage payment, and any other type or form of payment; amount of wages subject to withholding; amount of tax collected; employee W-4 forms; and any agreement with employees regarding additional withholding.

Travel and entertainment:

The IRS does not accept estimates. You must keep itemized bills and receipts, Back them up with a diary showing cost, time, place of travel or entertainment, business purpose, and business relationship of guests.

Also, you must keep a log of your business use of items, such as a car, pager, computer, or server; or PDA, ipod or cell phone, etc., that you use partly for business and partly for personal purposes. For travel, your diary should show the date of departure and return, plus how many days of the total trip were spent on business. If you are an independent medical contractor, keep a diary of your daily work activities. This will reinforce the specific items and pull them together.

How Long to Retain Records?

By law, you have to keep tax records “as long as material” to the administration of the tax law. Since the statute of limitations runs for three years from the time you file your return or the due date of the return (whichever is later), and the IRS is free to audit your return during this time, you want to keep the records at least that long. After an assessment, the IRS has six years to begin collecting, so you are up to nine years. But you then have two years to claim a refund after payment, giving you a grand total of 11 years.

This may seem extreme, and not everyone keeps records that long. Many individuals keep records for six years—the amount of time the IRS has to audit if it suspects a gross error—an underreporting of 25% or more of the gross income shown on your return.

The 11-year time frame is the maximum time frame for assessment, collection, and refund claim. Business owners would be wise to use that period as a rule of thumb, even if individual taxpayers don’t.

Homeowners—

Keep any documents connected to home ownership that have a bearing on your taxes, if any, for the entire time you own your home. If you sell your home, keep the documents as long after the last tax filing as they have a bearing on your tax records. Remember the newer rules for homeowner tax exemption.

Withholding—

These records are subject to a special four-year retention rule. Most doctors and medical business owners keep them longer.

Fraud

In the case of fraud, there is no limit on the time the IRS has to charge you. But here, the burden of proof shifts to the IRS, and you get the presumption of innocence. So you need not feel you have to keep records forever to protect yourself against such an accusation.

Conclusion

OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

PHYSICIANS: www.MedicalBusinessAdvisors.com
PRACTICES: www.BusinessofMedicalPractice.com
HOSPITALS: http://www.crcpress.com/product/isbn/9781466558731
CLINICS: http://www.crcpress.com/product/isbn/9781439879900
ADVISORS: www.CertifiedMedicalPlanner.org
BLOG: www.MedicalExecutivePost.com
FINANCE: Financial Planning for Physicians and Advisors
INSURANCE: Risk Management and Insurance Strategies for Physicians and Advisors

Filed under: Accounting, Financial Planning, Practice Management, Taxation | Tagged: Add new tag, alimony, deductions, income tax, tax records | 4 Comments »

Dining and IRS Induced Gastroenteritis

Posted on June 20, 2008 by Dr. David Edward Marcinko MBA MEd CMP™

Doctor’s Beware Taxation on Rebates

[By Staff Writers]

In the past decade or so, several companies has been marketing a culinary twist on airline frequent flyer programs—a kind of frequent-eater program.

Under the program, doctors who love to hold “business meetings”, and other diners use their regular credit cards to charge meals at participating restaurants, and the program sends them a rebate check for 20% of the bill.

Not All Gravy

While a 20% discount on restaurant meals sounds appealing to most everyone, you should be aware that it’s not all gravy. In some cases, the IRS is likely to take the position that those rebate checks represent taxable income to a medical executive who is using the program for business dining.

The IRS has not specifically addressed the issue of rebates on restaurant bills. But, in a private letter ruling back in 1993, it did give examples of when cash frequent flyer awards will be taxed [Ltr. Rul. 934007]. Here are some examples:

Example 1—

Your medical practice buys you tickets for a medical conference trip. The tickets entitle you to a cash payment under the airline’s frequent flyer program. If you do not turn the cash payment over to your company, the IRS says you have received a taxable fringe benefit.

Example 2—

You pay for air flights for which you take a business expense deduction. You subsequently receive a cash frequent flyer award. In this case, the IRS says you have taxable income to the extent that your prior deduction saved you taxes.

Back to the Table

Now, let’s get back to the discount dining program. By analogy to the IRS rulings, if you are reimbursed by your practice for the full amount charged on your credit card, the IRS will view the 20% rebate check as a taxable fringe benefit that must be reported on your tax return.

Or, suppose you are a self-employed doctor and take a deduction based on the full amount of the meals charged on the credit card. The cash rebate would be taxable to the extent the deduction produced tax savings. (Note: Since only 50% of the cost of business meals is deductible, only 50% of the rebate check will have produced tax savings.)

Practice Angle

How your medical practice decides to address the issue of dining discounts may be more a matter of tactics, than taxes. In theory, allowing its employees to pocket their dining discounts could jeopardize the tax-free treatment of business meal reimbursements for all employees.

For example, in a 1995 ruling, the IRS said that a company’s travel reimbursement arrangement did not qualify for tax-free treatment because employees were permitted to retain frequent flyer awards for their own personal use [Ltr. Rul. 9547001].

However, the ruling aroused a storm of controversy, and higher-ups at the IRS quickly announced that they would reconsider the ruling in limbo. But, it is very likely that the company in question triggered its own tax troubles by making the right to retain frequent flyer miles an official part of its reimbursement plan, rather than an unofficial “perk” for employees.

***

Assessment

The IRS may be less likely to raise the tax issue if a medical practice plan has no policy on rebates and awards, or officially requires employees to account for them to the company. And so, is this an example of the “friendlier IRS” that a former tax-commissioner spoke about, or that was mentioned in a previous Medical Executive-Post? Did we miss anything else? Has anything changed recently? Please opine and comment?

Channel Surfing the ME-P

Conclusion

OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

PRACTICES: www.BusinessofMedicalPractice.com
HOSPITALS: http://www.crcpress.com/product/isbn/9781466558731
CLINICS: http://www.crcpress.com/product/isbn/9781439879900
ADVISORS: www.CertifiedMedicalPlanner.org
FINANCE: Financial Planning for Physicians and Advisors
INSURANCE: Risk Management and Insurance Strategies for Physicians and Advisors
Dictionary of Health Economics and Finance
Dictionary of Health Information Technology and Security
Dictionary of Health Insurance and Managed Care

Filed under: Accounting, Investing, Taxation | Tagged: IRS, rebate taxes, tax rebates | Leave a comment »

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