We have nothing to fear but fear itself… AND dwindling numbers of patients that are willing to come in and pay a co-pay, AND insurance carriers who seem intent on reducing the amount they pay, AND retirement accounts that are reducing, AND…

That seems to be the general consensus of some of the physicians that we saw at the last convention we attended. Interestingly, for every 2 physicians that had remarks like that, we talked to 1 that was positive about their income potential for 2009 and sought out new ways to help their patients by looking to expand their practice. Is the glass half empty or half full? We think full!

Ok – some people are frightened of the economy. Yet – instead of looking at withdrawing like a turtle and plan on living off of savings in hopes of surviving, many physicians are taking this opportunity to re-think previous decisions and many are restructuring their practices. No, we’re not talking about cutting staff, cutting hours, reducing services, etc… Many have looked at what Medicare and the private insurance industry have done over the past few years and changed their practices into evidenced based medicine and they are taking advantage of the healthcare stimulus (not to be confused with the one Congress is debating so that everyone saves $8 to $13 a week). Since 2000, Medicare has slowly – but deliberately moved money from procedures and therapy into evidenced based medicine such as diagnostics, clinical lab and some imaging (not all).

Yet – many physicians today are trying to see more patients, do more procedures and they’re wondering why they are having to delve into their savings every other month to cover payroll. It’s because Medicare moved the money (the same way private and managed care have). Since 2000, Removal of Impacted Cerumen has taken a 28% reduction. In that same amount of time, administration of joint injection took a 29% reduction. Some OMT codes took a 5.2% reduction. Yet – in that same amount of time, ABIs jumped in Medicare allowed from $52 to $109. Autonomic system testing jumped up 31.4% and other diagnostics increased as well. More and more physicians are starting to learn that Medicare and the other carriers want them to do diagnostic testing to capture things earlier rather than waiting until the patient’s condition deteriorates to where it is catastrophic care. That is one of the reasons that the PQRI has so many standards of testing, which we’ll be discussing in the next issue.

So, instead of pulling back – look at using that equipment you have in your office a little more. Have your staff go to www.cms.hhs.gov and look at the Local Coverage Determinations. If you’re not using that pulmonary test (spirometer or PFT) daily – then look at the 84 codes that Medicare says justifies a pulmonary test in your primary care office. With COPD being the 4th largest cause of death in our country – you may decide that Medicare is correct in wanting PFTs more often. You may decide that it’s time to use one of those 8 companies in the country providing holters to your office free when you consider that 22% of ASYMPTOMATIC diabetics have silent ischemia. You may decide to use one of the 7 companies providing 30 day CEMs when you remember that 40% of the women having a heart attack do not feel it in the chest. You may decide that you should be doing A1Cs on every controlled diabetic every quarter (and every visit on uncontrolled) to meet Medicare’s guidelines – but at the same time – you may start questioning why you’re letting one of the 2 large labs make all of the money instead of you doing those in your office either waived or non waived.

It’s time to start questioning why you’re doing what you’re doing – or maybe more importantly – why you’re NOT doing some things you should be. Just because you’ve always done things a certain way – that is not a good reason to continue doing it that way. That way may lead to bankruptcy, so you need to revisit your GPS or map and see what direction you really want to go in.

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You count yourself fortunate to have some of the finest employees in the business. They perform their jobs with precision and good cheer and they always strive to deliver their best. So how are you going to look them in the eye this year and tell them there’s no money for a raise?

Indeed, as lower reimbursements, rising costs, and the economic crisis take their toll, practice administrators across the country are grappling with the challenge of how to reward their deserving staff when the resources run dry. “We as managers need to be communicating financial information to the physician owners of our practices and then it’s our job to be at the forefront in coming up with creative ideas to [compensate the staff] because morale is important,” says Ken Hertz, a former practice administrator and principal with the Medical Group Management Association’s Health Care Consulting Group. “How you treat your staff is representative of your values.”

In years of profit shortfall, says Hertz, the best way to prevent a costly exodus of your top talent is to develop new ideas for nonmonetary perks. You may also need to revisit your policy for doling out cost-of-living and merit-based raises. “Some businesses give out 5 percent raises every year because they’ve always done it that way,” says Hertz. “But you have to be clear on what your policy is and what is best for the practice.”

Beef up your benefits

Where nonmonetary perks are concerned, flexible hours are among the most valued by office staff, especially dual-income families that have more money than free time. “If you’ve done a good job at crosstraining your staff and coordinate the schedule, you can really [offer flexible hours] without a lot of disruption to the practice and it helps meet the needs of your employees,” says Hertz. “A lot of employees these days are anxious to get more time off to spend with their families.” If your business model allows, consider giving employees the opportunity to work shorter days, work part of their day during nontraditional office hours or take one day off per week from Monday through Friday. The upside is that employees who come in early or stay late are often more productive, since they can focus on their job undisturbed. Those who opt for fewer hours or one day off during the work week can also help your practice by making up for it on Saturday, giving your office a competitive edge over practices that do not offer weekend hours.

All in the family

Family practitioners and other physicians might also consider offering free healthcare services to the immediate family members of their staff, which is worth more to your employees than any raise, says David Flemming, a practice administrator for 43 years who recently joined the solo practice Crutchfield Dermatology in Eagan, Minn. “Obviously if you’re a heart surgeon that may not be the right choice,” he notes. “But perks like that help to build more of a team spirit and a ‘we’re all in this together’ attitude.”

Education reimbursement

If your budget allows, you can offer reimbursement (partial or full) for classes that earn your employees new credentials. Generally, certification classes only cost from a few hundred dollars to a few thousand. At the very least, you can garner goodwill by giving them paid time off to attend those classes on their own dime. Remember, such credentials make your workers more valuable to the practice.

New titles

You can’t rely on title promotions forever, of course, but for employees who have shown real initiative you can also reward their contribution with a more senior title, and greater responsibility over a project or division. Even if they don’t get an immediate bump in pay, most employees recognize that with added responsibility comes the opportunity for higher salaries down the road.

Accolades

Recognizing your employees, not just during review time but throughout the year, is a major factor in reducing turnover, increasing staff buy-in and keeping morale running high. That’s especially important when they get passed over for a raise. Be sure to publicly acknowledge staff members who go the extra mile, solve a problem or help the practice achieve a milestone. It doesn’t have to be formal. An e-mail, a word of thanks at your monthly meetings or just off-the-cuff verbal praise at their desk will do. Just be sure you do it in front of their peers. Flemming notes gift cards to the movies or local mall cost little but mean much to your staff.

Keep them informed

Sue Shive, administrator for Phoenix-based pulmonologist John N. Glover, a solo practitioner with six clinical and clerical workers, says it’s equally important to communicate your financial position with the staff on a regular basis. You know all year-long how your profits are shaping up, so don’t wait until December 24 to tell everyone they won’t be getting a bonus or annual raise. “We normally give out large year-end bonuses, but we’ve had some years where we weren’t able to give anything,” says Shive. “I keep everyone informed through staff meetings and show them our revenue, expenses, and financial spreadsheets so they’re all aware of what’s going on. I’m totally open and they know that some years we will get a bonus and some years we won’t.”

Make sacrifices

Before you decide there’s no money in the budget for a raise, of course, it’s a good idea to ask your doctors whether they might be willing to sacrifice some of their own pay to compensate the staff — especially for the employees they can not afford to lose. Shive says her physician elected to forego his monthly salary on several occasions when times were tight to ensure all staff members got paid. “I always let our employees know when he does that,” she says. “It makes them appreciate him so much more to know that he makes sacrifices, too, once in a while so everyone gets paid and we don’t have to lay anyone off.”

Performance bonuses

With all the challenges facing medical practices today, Hertz says administrators can no longer afford to perpetuate outdated policies — especially when it comes to parceling out practice profits. “It’s up to good management working with their physicians to develop creative solutions for saying, ‘How can we do this differently and accomplish the same kinds of things and still meet the needs for our staff?’” he says.

Practices that tie bonuses and raises to performance, he notes, are often better positioned to succeed. Rather than doling out cost-of-living raises every year, for example, establish quarterly or annual bonuses that allow your employees to share in the practice’s success. “Create some kind of formula that says if the practice hits these milestones in collections, patient volume, or accounts receivable, each employee will receive a bonus of X amount,” says Hertz. “That tells your staff that if the practice does well going forward then you’re all going to share in that success and if it doesn’t do well then we won’t have the resources.”

It may be a tough year for your practice, but that doesn’t mean you’ll suffer a mutiny from your staff. Keep your employees in the financial loop at all times, offer positive feedback often, and provide whatever smaller perks your practice can afford. You’ll earn their loyalty in return. “We have birthday lunches where we all go out and the doctor pays for it,” Shive says. “We always try to work around our employees’ personal lives and we’re always very good about thanking them for their hard work. It’s such a positive environment that I’ve had many of my people with me for 12 years.”

Shelly K. Schwartz, a freelance writer in Maplewood, N.J., has covered personal finance, technology, and healthcare for 12 years. Her work has appeared on CNN-Money.com, Bankrate.com, and Healthy Family magazine. She can be reached via physicianspractice@cmpmedica.com.

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Last year, an emergency department physician who does his own taxes forgot to declare a sale of stock on his tax return. The IRS caught this mistake and sent him a tax bill for the entire value of the stock sale, which was about $100,000. Now the ED specialist is struggling to figure out what he paid for the shares, so that he will only have to pay the tax (plus interest and penalty) on the amount he gained on the sale.

Not keeping track of the “basis” or the original value of stocks is a common tax mistake that physicians make, notes David Schiller, the Norristown, Pa., tax attorney who is advising this physician on how to prepare his amended return. The 1099 form that brokers send stock sellers merely lists the sale price of stock, he says, not the basis. It is incumbent upon taxpayers to list the basis of each stock they sell on the Schedule D attached to their federal tax form. If they do not include that information, Schiller says, the IRS regards the basis as zero and taxes the entire amount.

This is one of several tax mistakes that can cost you big money if you’re not careful. But getting a grasp of complex tax rules — and knowing which missteps to dodge — can help you hold on to more of your hard-earned cash.

Taking stock

Understanding the tax implications can also help when you inherit stock, Schiller points out. If your parent gives you stock before he or she dies and you sell it later, you have to pay tax on the full difference between the basis and the sale price. But if you receive the stock after their death, and then sell it, you pay tax only on the appreciation from the time you received the shares until the date of the sale.

While we’re talking about stock, consider donating appreciated stock to charities. Not only is the gift deductible, Schiller says, but also you don’t have to pay tax on the gain on the stock. Conversely, he says, if you had a loss on stock, sell it and give the money to the charity so you can declare the loss on your tax return.

Don’t lose out on tax-deferred accounts

One of the biggest tax errors that many physicians make, Schiller says, is to not create or not fully fund tax-favored retirement plans. In his view, they should start these plans at the beginning of their careers. “When you’re in your 30s and you fund a retirement plan, that’s your most valuable money, because you have 40 years of tax-deferred compounding in front of you.”

Steven Leininger, a certified public accountant and wealth manager in Walnut Creek, Calif., agrees that too many doctors fail to take full advantage of tax-deferred retirement accounts such as 401(k) and profit-sharing plans. Between these two kinds of plans, he says, a doctor can stash away up to $49,000 a year without paying tax on it. One way to do that, he says, is to have your spouse work part time in your practice. If she puts in just 20 hours a week, he says, the amount you can add to your 401(k) doubles from $16,500 to $33,000 a year. As for profit sharing, he adds, you have to give your employees some of that, but there are ways to maximize the contribution to your own plan.

Appreciate depreciation

Depreciation is another area where physicians can easily go astray. For example, Leininger points out, there’s a major difference between the tax treatment of equipment and fixture purchases, which can be depreciated over five and seven years, respectively, and major tenant improvements, such as renovation or expansion of your office, which must be depreciated over 39 years. You might want to write off the latter during the period of the loan you take out for the improvement, but that would be illegal, he notes.

Schiller agrees, but says that landlords may be willing to put up all or part of the renovation cost in return for a long-term lease and a personal guarantee. Normally, the landlord will ask for a lease lasting five to 10 years and will add the cost of the improvements to the rent. But, rent is deductible, so that means, in effect, that the practice is able to write off the cost faster than it would if the physicians paid for the renovation directly.

More modest improvements can be expensed immediately. For example, you can write off the cost of painting part of your office the same year it’s done. But because carpeting has a useful life of more than a year, Schiller notes, you’re better off putting it down as a repair and expensing it. You can justify that if you carpet only part of the office and the cost is not too high.

Some office equipment qualifies for accelerated depreciation (meaning you can write it off immediately) under Section 179 of the tax code, he adds. Altogether, Schiller says, you can deduct up to $125,000 worth of equipment per year, including computers that cost you $5,000 to $10,000.

Leininger cautions that you don’t want to deduct too much in a single year, because it might lower your tax bracket for just that year, while letting you boomerang into the highest tax bracket the following year. If you “straddle” the deductions over several years, you might save more in taxes overall, he says.

Don’t trade in your car

Depreciation of automobiles used in your practice can also be a tax saver, but you have to do it correctly. First, you need to keep good records to establish the percentage of business use of the car. If it’s more than 50 percent — a fairly easy mark for a physician to reach, says Schiller — you’re able to depreciate it more quickly. Second, if you sell the car rather than trading it in when you buy a new vehicle, “you get to accelerate the depreciation that you didn’t take while you owned the vehicle,” Schiller notes. “If you trade it in, the depreciation that you haven’t taken rolls into the next vehicle.”

Leininger agrees it’s a mistake to trade in a car that you use for business. “If you have an expensive luxury car, there’s a limit on how much depreciation you can take per year. So at the end of five years, the book value of that car is much higher than what you can trade the car in for. If you trade the car in, you don’t get to recognize the loss on the sale of the car, because it’s a like-kind exchange. You have to carry the loss on the car to the next car, so if you keep trading them in you never get to take a deferred loss.”

No limits to CME

Another mistake that many practices make in the business expense area is limiting the amount of money doctors can charge to the practice for continuing medical education, Leininger says. “They should be able to take as much as they want, as long as it meets IRS rules. They might have to take a reduction in salary to offset the deduction.”

For example, if the practice has a limit of $1,000 on CME expenses, and a doctor spends $2,500 attending a CME seminar, $1,500 of that is after-tax money that is coming out of his or her own pocket. So the physician would be better off taking less in salary, which is a pretax amount, and the practice would profit by deducting the full cost of CME as an expense, Leininger explains.

Finally, remember to get some good tax advice. If a defendant who represents himself in court has a fool for a client, the same can be said for a high-income individual who does his own taxes.

Ken Terry is a New Jersey-based freelance writer and the author of the book “Rx for Health Care Reform.” He can be reached at physicianspractice@cmpmedica.com.

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