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17 posts from June 2010

June 30, 2010

Should a physician practice use the cash basis or accrual basis of accounting?

Oftentimes a medical practice wants to know whether or not it should keep its books on the cash basis of accounting or the accrual basis of accounting. The answer often depends on the intended use of the financial statements. There are two basic “financial statements”: A Balance Sheet, which displays the practice’s assets, liabilities, and equity, and the Statement of Income, which displays the practice’s revenues, expenses, and net income.


The accrual method of accounting records revenues when they are earned and expenses when they have been incurred. In other words, revenues are recorded on the books when billed to patients, insurance companies, and other third party payers and expenses are recorded when incurred and there is an obligation to pay. Banking institutions or other lending institutions in order to receive and maintain a loan usually requires accrual basis statements. The cash basis method of accounting records revenues when the cash is received and other transactions, such as expenses, when they are actually paid.


So which method should a practice utilize to keep its books and records? The industry standard is to use the cash method of accounting. This is because practices use their financial statements to manage and track their operations. For example, revenues and expenses are often compared to annual and monthly budgeted amounts. Even more important, published practice statistics are expressed on the cash basis of accounting. Surveys from reputable sources such as the Medical Group Management Association, American Medical Association, and Medical Economics publish their statistical figures on the cash basis of accounting. Practices, as a management tool, compare their own operational statistics to these surveys. Practices need to know whether their collections are in line and whether or not their overhead is within reasonable limits or not.


So how does a practice owner or owners manage a practice on a day to day basis? One way is to use what is commonly termed a Medical Practice Management Report. Medical practice performance can be tied directly to the numbers it produces. Poor statistics usually indicate poor performance somewhere in the practice. This is how the managers of a practice knows there are or could be existing problems in the medical practice. Good statistics indicate good performance; it is that simple. Remember this one axiom: “NUMBERS DON’T LIE!” If a medical practice (or any other health care provider for that matter) is not able to meet or achieve certain statistical benchmarks, then you can be rest assured there is some problem that warrants your investigation. This is why it is so important for a medical office to monitor financial statistics on an ongoing basis.


Keep the concept of benchmarking in mind. Benchmarking is basically goal setting, and all medical practices and other healthcare providers need it. Each medical practice needs to determine where the practice should be in terms of financial statistics and numbers and where it should stand financially day to day, at the end of the month and at the end of year. For example, should the practice’s overhead be 50 percent of collections? Should only 15 percent of practice receivables be over 90 days old? Should the net collection percentage always exceed 90 percent at any point in time? By constantly monitoring these benchmarks, a practice can ensure its ongoing financial success.


A Medical Practice Statistical Report summarizes a practice’s clinical activities, production, collections, contractual adjustments, and accounts receivable data. Related financial percentages and ratios are then prepared from these data. The purpose of the statistical report is to provide practice managers and owners with a financial snapshot of the practice. By analyzing the information in the report, these individuals and their advisors should be able to detect potential financial problem areas and correct them immediately. Also, these benchmarks should and can be monitored on an ongoing basis. These are just a few excellent ways to monitor and maintain practice profitability.

June 29, 2010

Accountable Care Organizations and Antitrust Concerns

Federal Trade Commission Chairman Jon Leibowitz recently gave a speech before the American Medical Association to address the FTC’s position on the formation of accountable care organizations. As long as the government purchases the services and unilaterally sets payment levels and terms, there won’t be an antitrust issue. However, there have been discussions within the healthcare community about how ACOs can contract with payers in the private sector. The Chairman in his speech said such a transition could indeed raise competition issues, and so the FTC wants to work with healthcare providers going forward. As a result, FTC will be conducting a workshop this fall in which the public may assist with the formation of FTC’s policies on competition and reimbursement as they relate to ACOs.


Stay tuned for more details!

June 25, 2010

Law firm sets up healthcare reform center

Duane Morris’ Health Law Practice Group announced that an analysis and business treatment of the Patient Protection and Affordable Care Act of 2010, otherwise known as the healthcare reform legislation, has been posted on the firm’s website at


The Center includes information to help guide employers, hospitals, physicians, nursing homes, and providers of home care services and new nursing home alternatives in their efforts to comply with the new law. It includes links to the relevant legislation; websites and other online resources; a timeline of what to do and when to do it; and changes and provisions affecting healthcare providers.

June 24, 2010

Another reminder about looming PECOS deadline for Medicare providers

Another reminder the PECOS ordering/referring physician deadline is right around the corner.  You or your physicians must be listed in the database by July 6.

Here is the link to the most current list of providers who are enrolled in PECOS and thus are able to legally order and refer in Medicare come July 6.  It is a huge list...12,000 plus pages.  If a provider is not on the list, they are not enrolled in PECOS.



June 23, 2010

Don’t be stupid?

I was catching up on some reading and ran across the following Letter to the Editor of the publication I was reading:

“With reference to your article on accountable care organizations, insurance companies have long tried to shift risk to doctors using various schemes and disguises. ACOs are another example of this deception. Doctors who sign up for these programs are just stupid. It is that simple. It is time to call a spade a spade and refuse to participate.”

It will be interesting to see where all this goes with ACOs. Are they going to be just really “puffed up” PHOs? I know a lot of healthcare systems are gearing up to form one and I know of independent physician-owned IPAs also looking in to the ACO concept. Like anything, do your due diligence for hopping on the so-called bandwagon. I’m sure I’m going to have a lot more to say about this topic and additional guidance on ACO formation is published.

June 22, 2010

Tax Timeline in the Health Care Reform Act


Tax Timeline in the Health Care Reform Act


IRC Section   


Effective Date   





Adoption credit increased (to $13,170 from $12,170 in 2010), extended through 2011 and made refundable.

after 12/31/09 and before 1/1/12


An insurance credit is allowed to small employers paying at least 50% of employess' health insurance costs. The average annual wage of employees must be under $25,000. The credit is as high as 35% (50% after 2013).

after 12/31/09


50% credit provided to small business for investments in certain qualifying therapeutic discovery projects for 2009 and 2010.

amounts paid or incurred for tax years after 12/31/08


Income exclusion for employer-provided health insurance extended to children under age 27.

after 3/30/10


Exclusion for employer-provided adoption assistance increased by $1,000.

after 12/31/09


Self-employed health insurance premium includes premiums paid by taxpayer for child under age 27.

after 3/30/09


Penalty increased to 20% for nonqualified HSA and FSA distributions after 2010.

after 12/31/09


10% excise tax on indoor tanning services.

performed after 7/1/10





FSA, HSA, HRA, and MSA qualified distributions include withdrawals for prescription drugs and insulin only, no over-the-counter drugs.

after 12/31/10


Establish simple cafeteria plans for small employers.

after 12/31/10


Cost of employer-sponsored health coverage must be shown on W-2.

after 12/31/10





Information reporting is required for payments of $600 or more for property or services to a non-tax-exempt corporation.

after 12/31/11





Medical expense deduction increases to 10% after 2012, after 2017 for people 65 or older.

tax years after 12/31/12


FSA contributions limited to $2,500.

after 12/31/12


Medicare premium increases by 0.9% for taxpayers whose AGI exceeds $200,000 single and $250,000 MFJ.

after 12/31/12


Medical expense deduction increases to 10% after 2012, after 2017 for people 65 or older.

after 12/31/12


.09% employee Medicare tax increase on wages over $200,000 ($250,000 combined wages MFJ).

after 12/31/12


New 3.8% Medicare tax assessed on net investment income of individuals, estates, and trusts with income over $200,000 single and $250,000 MFJ.

after 12/31/12





Individuals between 100% and 400% of federal poverty level will qualify for refundable tax credit ("premium assistance credit") to offset exchange-purchased health insurance premiums.

after 12/31/13


Exclusion from income of free choice vouchers.

after 12/31/13


Deduction allowed to employer for free choice vouchers.

after 12/31/13


Employers with at least 50 full-time employees may be subject to penalty if not providing health insurance coverage to employees.

after 12/31/13


"Shared responsibility penalty" assessed against taxpayers who do not have health coverage. Penalty is phased in over 3 years starting in 2014 at $95 per individual ($285 per family); in 2015 at $325 per individual ($975 per family); and in 2016 at $695 per individual ($2,085 per family).

after 12/31/13


Reporting of employer health insurance coverage.

after 12/31/13





40% excise tax assessed against "Cadillac" employer-sponsored health plans where the premium exceeds $10,200 for individual coverage and $27,500 for family coverage.

after 12/31/17

June 21, 2010

Proposed Revisions to Horizontal Merger Guidelines

In case you missed it, on April 20, 2010, the U.S. Department of Justice and the Federal Trade Commission issued proposed revised Horizontal Merger Guidelines intended to inform companies and lawyers how the federal agencies evaluate the likely competitive impact of mergers. The proposed guidelines clarify guidelines issued by the two agencies in 1992 and last revised in 1997. The period for public comments closed June 4, 2010. These guidelines could impact physician practice merger and other related integrated joint ventures. As such, they are worth your time to take a look at. This is the time when we are going to see a lot of physician mergers and hospital acquisitions of physician medical practices.


June 17, 2010

The Importance of a Recall System for Medical Practices

Medical practices can run a serious risk if its patients are not recalled for follow-up as required by medical protocols and just as important, also lose revenues.  Practices can easily develop a recall system using their own computer system. This type of system should ensure that patients will not “fall through the cracks.” Recalling patients for follow-up attention is more than just good marketing.  It's an essential aspect of good medical care.  In fact, a practice could be courting trouble with a potential malprac­tice issue if it does not bring certain patients back.


For instance, take a gastroenterologist who has seen a patient with early indications of potentially cancerous polyps.  Professional protocols call for re-examination on a regular basis.  If the patient ends up dying of colon cancer, an effective malpractice attorney is going to wonder and ask if the gastroenterologist had recalled the patient as the pro­tocols require.


Many practices have a very simple recall system. This is when the receptionist pulls the charts of patients he or she had listed for recall when they checked out from their prior visits.  But the receptionist, in a busy front office, often misses some names and never check to see if the people ac­tually recalled made and kept their appointments.  Worse yet, the system would probably collapse if the receptionist ever quits.


A practice’s computer billing system is the logical device for highly effective patient recall.  When the physician marks “months," or "one year" on the patient's fee slip, for example, the instruction can be punched into the computer system along with the fee for the current visit.  Having a set of codes for "reason for recall" (such as to recheck polyps) allows storing the reason until the patient is actually re-contacted.


A practice’s system should then be able to automatically print out recall letters a month before the visits are due.  Those letters may include pre-drafted sentences or paragraphs, keyed to your "reason for recall" codes, telling the patient why the visit is important to his or her health.  The system should also print out a list of patients to be recalled so your staff can check them off as they are actually scheduled and seen.


Some computer systems can automatically check off the recall patients as they are later billed for their visits.  It can then generate a list of patients who have not responded to the recall and who should thus be followed up further.  If appropriate, the practice should send a final warning letter, retaining a copy in the chart, to each patient who fails or refuses to honor the recall effort.  The computer should be able to generate this final letter as well.


An effective recall system can be handled by most medical software systems. If a practice’s system cannot handle this, make sure at least a manual recall system is in place and is being implemented properly.  Whether to provider a better service, to avoid potential liability or to increase practice income, a recall system is too important to be left ignored.

June 16, 2010

NSCHBC releases physician benchmarking survey

Each year the National Society of  Certified Healthcare Business Consultants surveys its members and compiles a Statistics Report on Medical and Dental Income and Expense Averages.

The report is a joint effort of the National Society of Certified Healthcare Business Consultants and the Academy of Dental CPAs. The survey includes information on overhead percentages, average monthly charges in accounts receivable, full time equivalent staff ratios, and more.

The 2009 Joint Statistics Report Based on 2008 Data features data from over 2,800 professional practices representing over 5,800 FTE doctors. The following is a list of specialties in the survey:

Dental Composite:

General Dentistry - with Hygiene
General Dentistry - without Hygiene
Oral Surgery
Pediatric Dentistry


Medical Composite (Non Surgical):

Allergy & Immunology
Emergency Medicine
Family Practice - with Obstetrics
Family Practice - without Obstetrics
General Internal Medicine
Infectious Disease
Physical Medicine & Rehabilitation
Pulmonary Disease

Medical Composite (Surgical):

Cardiology - Invasive
Cardiology - Non-Invasive
Cardiovascular Surgery
Colon-Rectal Surgery
General Surgery
Gynecology Only
Obstetrics & Gynecology
Ophthalmology - Dispensing
Ophthalmology - Non-Dispensing
Orthopedic Surgery
Plastic Surgery
Retina Surgery
Thoracic Surgery
Vascular Surgery


Other Non-Composite Specialties:

Ambulatory Surgical Center
Radiation Therapy
Physical Therapist (Independent)
Physical Therapy
Veterinary Medicine


To order the survey, go to http://www.nschbc.org/statistics/index.cfm.

June 15, 2010

PPACA - New 60-Day Time Limits for Reporting and Returning Overpayments

Reporting and returning overpayments is now an obligation of providers and suppliers. As part of the enhanced program safeguarding provisions in the new Patient Protection and Affordable Care Act (PPACA), providers and suppliers are required to report and return overpayments within 60 days of the date the overpayment has been identified. Failure to meet this deadline may result in liability under the False Claims Act. This obligation, based on the plain statutory language, appears to be effective immediately according to attorneys I’ve talked to. The PPACA, however, does not seem to define the word “identified.”