By Ricky Newton, CPA Director/Consultant Peninsula Cancer Institute T/A Cancer Specialists of Tidewater (757) 639-4855 Rnewton@tidewatercancer.com What all physicians need to know about Hospital/Physician Relationships, Miscellaneous Tax Tips, Utilizing Midlevel Providers and Other Key Oncology Management Issues
Why Did We as a Private Practice Consider Becoming a Part of Hospital? Increasing expenses and decreasing revenue since 2003 Cash flow issues due to rising drug costs We were seeking a way to be able to negotiate contracts with third party payers Needed size Needed geography We wanted to be able to access Large Practice drug contracts through ION/Oncology Supply and Onmark/McKesson We were good friends with Dr. Mark and Lynn Ellis and had already established a great working relationship Other competitors were in relationships with other hospitals in our area
Net Percentage Revenue Changes* Percentage 2003 to 2004-6.31% 2004 to 2005-50.43% 2005 to 2006-13.76% 2006 to 2007-8.75% 2007 to 2008-2.20% 2008 to 2009-10.29% 2009 to 2010-4.16% 2010 to 2011 5.75% TOTALS 2003 to 2010 2011-67.50% * Net drug revenue + gross infusions room service revenue + demonstration project revenue for Medicare and private payors who use Medicare s fee schedule for Cancer Specialists of Tidewater * i.e., gross drug revenue drug costs rebates + gross drug infusion code revenue + demo project income from Medicare 2005
Cancer Specialists of Tidewater Actual Collections Rate per year = Actual Receipts / Actual Charges 2003 50.96% 2004 48.32% 2005 43.76% 2006 43.76% 2007 42.51% 2008 40.80% 2009 40.20%
Avalere Health Washington DC health policy and research firm Components of Care Committee The oncology community needed a data set that accurately accounts for the time, effort and cost of providing care to cancer patients CMS and others rely on survey data to calculate reimbursement for practice expense and physician work Current survey data (AMA) does not capture this data properly
Medicare Payments to Physician Practice Cost Ratio for Infusion Services All (Total expenses excluding drugs and labs) 56.53% Work (Provider Physician Salaries & Benefits) 35.10% Practice (Practice Overhead expense) 60.25% Impact of 5% Decrease in 2010 and increase in 2011 on the overall coverage of Medicare Payments to Physician Cost Ratio for all Infusion Services 2011 55.25%
Why Did the hospital want us to be a part of them? They were seeking a way to be able to negotiate contracts with third party payers the expertise was lacking with hospital in understanding oncology They wanted management expertise They sought to become more regional since a competitor hospital had partnered with US Oncology and they were seeking to keep other hospitals and oncologists independent They were seeking the income from referrals from imaging and other services from oncologists For other hospitals it is to take advantage of 340b pricing
Who We Became
Physician & Hospital Relationships Complete Hospital Ownership Physicians and staff are all employees of hospital Physicians and staff still have autonomy to run the practice similar to being a private practice Physician compensation usually is on either a revenue minus expenses model or some sort of production model such as a wrvu payment model
Physician & Hospital Relationships Professional Services Agreement Usually where the hospital utilizes their space to treat patients in an infusion center and hires the staffing and pays the bills to operate that infusion center Hospital bills all infusion services Hospital pays an oncologist or an oncology group some fair market value compensation to manage the infusion room
Physician & Hospital Relationships Service Line Management Agreement Physicians are hired to manage the entire oncology service line for the hospital Compensation is usually based on a base amount plus incentives on predefined quality and efficiency indicators Physicians do have to spend more time actually working in overseeing all of the oncology programs and entire service line beyond just infusion room services
Disadvantages Bureaucracy (This is an unavoidable consequence of becoming larger) Things move much slower even sometimes on the simplest of tasks such as hiring someone. Policies & Procedures where ever you turn (Very much needed but still slows you down at times i.e. termination of someone) Loss of complete freedom (There is accountability to budgets and capital expenditures) It is not all about oncology as oncology is one piece of a much larger team which means decisions have to be weighed on the impact of the overall system (This is fair but does not always benefit what we may want in oncology) Physicians do relinquish some control over certain decisions Physicians are not able to retain unlimited income potential Less Payments on the government insurance payments for hospital outpatient billing (Medicare, Medicaid & Tricare) All patients are treated in the infusion room Staff may lose benefits or be set at new pay rates that are unfavorable
Benefits Physician s can focus on providing excellent patient care while administration focuses on running the practice Shopping LPP contracts for drugs and higher levels on mfg contracts with better price breaks Stronger negotiating of third party payer contracts Paying oncologists fair salaries from day 1 and treating them as partners from day 1 without having to worry about buy ins and payouts when they leave (Lower financial risk to physicians) Being able to have robust clinical trials including being able to participate in cooperative trials that were not financially feasible in private practice Being able to provide integrative medicine services to our patients Having access to an IT, HR, A/P, legal and accounting, contracting and other departments of the hospital in assisting our practice EMR with major network of physicians in area on the same EMR Cash Flow is no longer an issue Higher payments from private payers but does go to hospital not to physicians All patients are treated in our infusion rooms Employees may get better benefits and/or pay
Miscellaneous Tax Tips
2013 Tax Rates which include the following increases from Health Care Reform -After Bush Tax Cuts expire at the end of 2011-1/1/13 -.9% Medicare tax increase on wages over $200,000 for (S & HH) and $250,000 MFJ/$125,000 MFS -1/1/13 3.8% Medicare tax on lesser of net investment income or modified AGI in excess of $200,000 (S & HH), $250,000 MFJ/$125,000 MFS $110,100)
Meals & Entertainment Expense Deduction of 100% of Meals under Internal Revenue Code Subsection 274(n)(2) if 1. Meals that qualify as a de minimis fringe benefit provided on the employer s premises for employer s convenience if more than 50% of the employees who are furnished meals for employer s convenience. The following are some IRS-approved ways to meet the employer s convenience rules (Reg Section 1.119-1(a)(2) Meals are provided so employees are available for emergency calls during the meal period, and such calls actually occur or can reasonably be expected to occur Meal periods must be short (30 to 45 minutes) because of the nature of the employer s business and the employee does not have time to eat elsewhere. Because of a lack of eating facilities near the business (or other similar circumstances), employees cannot be expected to secure proper meals within a reasonable meal period. Meals are furnished immediately after working hours that would have been provided during business hours, but, because of work duties, were not eaten during working hours. 2. Companies picnics or holiday parties.
Meals & Gifts Expense 3. Create two Meals and Entertainment income statement accounts for your accountant and label one of them as Meals and Entertainment and the other as Tax Deductible Meals and Entertainment 4. For example, if you currently spend $3,000 on total Meals and Entertainment for the year, your accountant would deduct $1,500 of this amount as tax deductible. The other $1,500 would be taxable on the federal level at 35% or (35% of $1,500) $525. If your Christmas party, office lunches for everyone or office picnics costs $2,500 and was broken out as tax deductible then you would only have 50% of the remaining $500 or $250 of which you would pay taxes on or (35% of $250) $88. This would save the company ($525 - $88) $437 just by properly classifying them on your income statement for your accountant. Gifts Expense Break out gifts on your income statement by creating two accounts labeled Gifts > $25 and Gifts <= $25. Gifts less than or equal to $25 are tax deductible
Retirement Plans 401(k) Deferral Max $17,000 < Age 50 or $22,500 >= 50 Retirement Plan Employer Contributions limited in 2012 to the lesser of 100% of employee compensation or $50,000 Family members legitimately working for you could put away all their salary into the salary deferral and you could create a match that would take the $17,000 to $50,000 with an amount to get to the lesser of 100% of their salary or $50,000 If you have over 10 years until retirement and don t have a lot of money in IRA s but earn too much to contribute to a ROTH IRA, you can contribute $5,000 or $6,000 (if age 50 or older) and an IRA which will be considered a non deductible IRA for which you can then immediately roll over to a ROTH IRA without any tax consequence assuming that their were no earnings on conversion
Fixed Assets & Leases Go through and identify your specific assets on your fixed asset schedule that goes to your accountant who prepares your corporate tax return each year (Don t note as a description Furniture or Equipment or group furniture together and call it nurse s office furniture) At the end of each year go through this list and make sure tell the accountant to dispose of any assets that you no longer have If you pay personal property taxes in your state then doing what I asked above will cut down on how much tax you pay each year on each asset Also, many states don t have you pay tax on software and leasehold improvements. When you do add leasehold improvements or do any construction then ask for Cost Segregation to be done with your accountant (This may be very beneficial financially for your practice and your accountant will be able to tell you this) Negotiate Rent on a long term lease if you have no opportunity to own your own building to rent back to yourself. Make sure that in lease agreements that the rate it increases each year (i.e. consumer price index rate) does not cause your lease to exceed your fair market value of rent in similar properties over the course of that long term lease.
Utilizing Mid-Level Providers
Using Nurse Practitioners and Physician Assistants to improve patient care which also improves the business bottom line (Posted Medicare Rates are noted without GPCI adjustments) Patient and Family Education visits that follow the initial visit from the physician that are going to start on chemo and are billed strictly on time (99215 $137.60 for that 40 minutes and 99354 $95.47 for an additional 30 minutes assuming proper documentation). See all patients getting chemo while they are in the chemo room and did not have preoffice chemo visits with a physician (99212 $41.45, 99213 $68.97 & 99214 $102.27) Sees the majority of patients needing to be seen immediately (walk-ins & emergencies) This keeps the patients out of the hospital Responsible for first line triaging by nurses before interrupting physicians during the day Responsible for helping out on identifying clinical trials with clinical trials coordinator Responsible for QOPI and other clinical survey s needed for third party payers If physician has to be out of the office can still see patients and bill at 85% of Medicare s rates Genetic counseling Smoking Cessation counseling 99406 Smoke Cessation (3-1 0 minutes) $17.26 99407 Smoking Cessation (>10 & minutes) $34.28
Example of Year end NP Evaluation
Oncology Management Issues Important to the Physician
Income Analysis What are my sources of income? Drug revenue used to make up 75 to 85% of total gross revenue of a practice and that has dropped for many to some where between 65 to 75% Additional revenue sources such as imaging, radiation, labs, pharmacy, research, other has diluted the percentage down over infusion room income Lower drug revenue (AWP to ASP with private payer s following suit) How much gross revenue is earned annually per FTE physician (Benchmarked figures show over $4 million annually) What is even more important than total revenue per FTE physician is total compensation per FTE physician as this is directly correlated with the total income minus total expenses per FTE physician Analyze the actual services performed by FTE physician to make sure that the reason income is not going down is due to the physicians being less productive
Work Production by Providers 2011 2010
Other Overall Production Analysis Totals Office #1 Office #2 Office #3 Office #4 Office #5 Office #6 Totals Office #1 Office #2 Office #3 Office #4 Office #5 Office #6 Office #1 Office #2 Office #3 Office #4 Office #5 Office #6
Expense Analysis Always analyze from the highest costs on the income statement to the least expensive The more time spent on improving the larger expense items results in the most payoff or financial reward The goal is to be able to get through all of your expenses so that you have done all you can to be as efficient as possible and then you start all over again. This process takes a few years the first time you do this. What is the total expenses per FTE physician equal too not including their salaries and benefits. In my state the amount is usually between $3.25 to $3.55 million.
Drugs What is the total net drug costs as a % to total revenue and how does that compare by location, by year and then by state and national standards? What is the drug cost per physician? This will probably be around the $2.5 million to $3.2 million dollar mark. What is the overall net drug margin as compared to each location in your practice, compared to prior year figures and then by state and national standards? You should probably be around the 8% mark for this benchmark. For every 1% savings on drug costs of $1 million you save your practice $10,000.
Employees What is total cost of employees per FTE physician (Will probably fall between $330,000 to $380,000) Analyze Staff by categories and compare the following: FTE staff to FTE physician FTE staff per square foot Dollars cost per employee position to total revenue Analyzing staff as how much work do they do (using E&M codes to measure productivity) by position How much do you pay per hour per position
Infusion Room Labor per Location for Business Cases of Hiring Additional Staffing
Account Receivables Insurance balances over 90 days If number is high then think of hiring an outside company to catch your staff up and then hold your staff accountable Patient balances over 6 months without a payment See about putting them in collections or send to a company that will work the account but that is not officially in collections and then write off on your books as the amounts are probably going to be uncollectible anyways (as you receive any payments then add back to billing system and post payments) Days in Accounts Receivable should be around 30 days or less as a goal Refunds found after 60 days should be refunded immediately Keep up with other receivables for such things as retail pharmacy as this should be easy to collect on within the first 45 days without much hassle
Other Miscellaneous Topics Signing off and dating all documents where services were billed in practice to insurer (Medicaid Audits example) All orders should be written No VERBAL orders especially for hospital outpatient infusion centers subject to the joint commission Medicaid and other insurance plans with small dollar drug out of pocket lifetime maximums such at $5,000 or less Quality does not equate to lower costs (EMR s) End-of-life care very costly to insurers