The "Other" Surtax?

Since we are in the midst of “tax season” and the subject of tax is on my mind, I thought I would spend just a few moments this month touching base on a lesser talked about tax that will have an impact on many of my doctor clients this year.

When the Supreme Court upheld the 2010 health-care law, much of the focus was on the 3.8% Medicare surtax that will apply to some high-income investors beginning this year.  Understandably this is a concern; especially when you consider that the top tax rate is being raised to 39.6%.  Those in this bracket will pay an effective rate of as much as 43.4% on their investment income.  Add to this to the tax you pay at your individual State level and the overall tax paid becomes a bit painful.

What seems to be overlooked, in much of the discussion, is the “other” surtax that is in effect this year.  An extra 0.9% Medicare tax will be applied to those whose “earned income” exceeds an annual threshold - $200,000 for “single filing” taxpayers and $250,000 for joint filers.  Unlike its 3.8% big brother, that is applied depending upon the amount of your investment income as well as your other overall earnings, the computation on this surtax is straightforward. And, it may seem like a small amount, but it still has an impact when you consider how much tax is already being paid over a career.

Let’s take look at an example with a married couple that earns $350,000 a year.  Starting this year, this couple will have to pay an extra $900 in Medicare tax ($350,000 - $250,000 = $100,000 X 0.9% = $900).  Compounded over ten years of work, this couple will contribute an additional $9,000 or more to the Medicare system.  Keep in mind that withholding for this additional Medicare tax occurs once an individual is paid wages in excess of $200,000.  In our example, here, if the couple each make $175,000 or some other combination where they both earn less than $200,000 they will not have any withholding out of their wages for the additional surtax.

In giving consideration to both surtax amounts and the higher tax rates being applied to your earnings, I would recommend two things:

1.     Proactive Tax Planning – taking time during the year to plan for the taxes that you may need to pay is more important now than ever before.  In addition to planning for the amounts you may need to pay, your planning should also give consideration to ways in which you may be able to limit the tax you pay.  This may include examining how you receive your money in some cases or even how you invest the money you earn.

2.     Save more money in your Retirement Plan – The new tax will not apply to income in tax-deferred retirement accounts such as 401(k) plans or distributions from such plans.  Increasing your retirement plan contributions should be considered.  And if you are already funding your 401(k) Profit Sharing Plan to the maximum, I would suggest that you give consideration to adding a Cash Balance Plan or review other retirement plan strategies that will assist you in saving for your future and help you keep more of the money you earn.

Complying with the New Omnibus Rule

The final omnibus rule, which makes changes to the Health Insurance Portability and Accountability Act of 1996 (HIPAA), goes into effect March 26 and covered entities must be in compliance by September 23.  The final rule was published in the Federal Register January 25th and contains the most changes to the HIPAA privacy and security rules since they were first implemented.  These statutory changes were included in a section of the American Recovery and Reinvestment Act of 2009 known as the Health Information Technology for Economic and Clinical Health (HITECH) Act.  This rule also finalizes changes required by the Generic Information Nondiscrimination Act of 2008.

Medical and Dental offices need to assess their compliance to these rules, which not only enhances a patient’s privacy rights and protections, but also strengthens the ability of the Office for Civil Rights (OCR) to enforce the established regulations, regardless of whether the patient health information is being held by a health plan, a healthcare provider or one of the physician or dentist’s business associates.  For starters, you may need to modify your Business Associate Agreements and Notice of Privacy Practices.  You should also evaluate the way you assess whether improper use or disclosure of personal health information should be considered a breach that would trigger official notification requirements spelled out in the rule.  Tackling the challenging task of mapping out responsibility for carrying out your compliance work is more important now than ever before.

Assign Responsibility

• Map out the privacy and security protocols and “tag” each with a person whom will be responsible for seeing that it is done and carried out in your business
• While the procedures may be defined, also make sure that your documentation of each for your business is complete and up to date
• Look to build efficiencies into your process by utilizing computerized systems
  
  

Set Priorities

• Focus on identifying all documentation and processes where changes need to be made, which includes privacy notices, policies, procedures, forms and documents
• Establish staff training as a top priority
• Determine who your business associates are and update your Business Associate Agreement with them
  
  

Good News

We are now offering assistance in helping you meet your compliance requirements and are excited to provide you with Healthcare Compliance Assistance (click here to download a flyer).  If you take advantage of this offer before the regulated deadline you will have the VMDE Healthcare Team and Compliance Pros available to help you with the tasks you need to accomplish to achieve compliance with the new HIPAA Omnibus Rule.

Leadership - Caring Enough to Make a Difference

Endurance DTS - Discipleship, Backcountry Adventure & Training, International Missions

It's been said that Leadership cannot really be taught.  It can only be learned - Harold S. Geneen.

If a music student wishes to learn to play the piano, he or she must have a teacher and then be dedicated to practicing until the movement of one's fingers quickly across the row of ivory becomes second nature and ultimately creates a sound that moves the spirit.

Like learning to play a piano, to be a leader you need to follow a similar process of learning.  You need an instructor, or a mentor - someone to model the characteristics of being a good leader.  But, having a teacher will not be enough. No, the student of leadership must also practice being a leader so that the responsibility and passion for guiding others becomes part of their nature to the point of stepping in confidence.

Betsy and Nathan Russell are dedicated to not only being mentors to youth, but also to creating an environment and opportunities for youth to practice being a leader, which takes endurance! Let's face it; we live in a world today that could benefit from good leadership.  Whether we seek leadership in our business, government, schools, or simply in family life providing opportunities for our youth to walk with a mentor and practice leadership will pay dividends for generations to come.

This year, as I begin a busy time of work, fondly referred to as "Tax Season", I have decided to provide this year's tax clients with an opportunity to help support a cooperative effort with Betsy and Nathan for the purpose of mentoring youth to make a difference for the future.  After all, caring for a better tomorrow starts close to home.

"Unless someone like you cares a whole awful lot, Nothing is going to get better.  It's not." - Dr. Seuss, The Lorax


   
                                  YWAM Montana

Healthcare Payment Options – Utilizing EFT’s

Staff time and labor spent interacting with multiple third party payers for the purpose of collecting a healthcare provider’s charge consumes two-thirds of a full-time equivalent employee per physician according to a study¹ that recently came across my desk.  The graph below (Figure 1) shows the various tasks that consumes the time of this non-clinical staff.   Additionally, it is estimated that providers of care spent more than thirty-five minutes per day dealing with billing and insurance related tasks costing medical groups approximately 10% of their revenue.

On Tuesday, August 7, the Centers for Medicare and Medicaid Services issued new electronic funds transfer (EFT) transaction rules for HIPAA-covered providers that is anticipated to assist in reducing the administrative burden of collecting and depositing paper checks, and then manually posting and reconciling the health care claim payments into their practice management system.  Currently, many of our practices receive some of their insurance payments by way of EFT, but the checks are then posted manually and reconciled to the insurance voucher.  While some practice management systems have the ability to post this payment directly into the practice management system, the process is often not done with complete confidence that the payment for the individual procedures will be posted correctly resulting in useless management reporting and time consuming tasks attempting to reconcile the accounts receivable.  The new rules and standards being established, requiring compliance by January 1, 2014, will hopefully help eliminate the current negative consequences to posting payments electronically and provide the healthcare practice with the benefits of electronic fund transfers that have been realized in many other industries.  It is estimated that 70 percent of healthcare claim payments are received in the form of a paper check and 75 percent of remittance advice is also received through the mail in paper form.² A medical or dental practice may eventually receive the many benefits and savings by utilizing transactional processes being developed for insurance payments, but you don’t have to wait to begin receiving some advantages in using the EFT process in its present form or with patient payments.

Given the amount of work it is estimated to take to collect insurance payments, it is no wonder that we are seeing higher levels of patient accounts receivable extend past 90 days.  After receiving the insurance payment, the patient responsible portion of the charge is typically billed to the patient in the form of a mailed statement to the patient.   If the patient pays promptly, great; however, often the patient doesn’t pay requiring additional work on the part of your staff.  The longer and more effort it takes to collect this money, the less profitable it is.  Much of this patient payment process can be eliminated by having or making adjustments to your financial policy and utilizing an EFT payment program. To learn more about establishing Healthcare Payment Options for your business, please give me a call.  Implementing this process today is very cost effective and will reduce the extra time and labor necessary to have your non-clinical staff work these accounts.

Figure 1

¹Sakowski, J.A., Kahn, J.G., Kronick, R.G., Newman, J.M., & Luft, H.S., "Peering into the black box: Billing and insurance activities in a medical group," Health Affairs: 28(4):w544-w554, 2009.

²Estimates for the percentage of EFT are taken from the interim final rule "Administrative Simplification: Adoption of Standards for the Health Care Electronic Funds Transfers (EFT) and Remittance Advice" published in the January 10, 2012 Federal Register (77 FR 1556). Estimates for the percentage of ERA are taken from the proposed rule "Administrative Simplification: Adoption of a Standard for a Unique Health Plan Identifier; Addition to the National Provider Identifier Requirements: and a Change to the Compliance Date for ICD-10-CM and ICD-10-PCS Medical Data Code Sets," published in the April 17, 2012 Federal Register (77 FR 22950). The calculations from these two rules are explained in more detail in the Regulatory Impact Analysis of this rule.

Retirement Plans & Planning - Know your Responsibilities

Many physicians and dentists who maintain an independent practice have learned that sponsoring a qualified retirement plan through their business can be a great savings tool.  Even though the stock market hasn’t performed as they might have desired over the past several years, doctors and owners of healthcare businesses are still able to put good sums of money into their “nest egg” for retirement and I have seen their personal balances become one of their major personal assets contained in their overall personal net worth.   Retirement plans are certainly a great resource for any business where the owner wishes to provide a means for saving money for the future, deferring tax obligations, and providing employees with a great benefit.  However, just like many things in the business of Healthcare, if you don’t comply with the rules and regulations set forth by governmental agencies, in this case the Internal Revenue Service (IRS) and Department of Labor (DOL), you could find yourself facing a governmental agency audit or a lawsuit brought on by a disgruntled employee participant in your plan.


As a sponsor of a retirement plan, you are responsible for making sure that your plan is administered properly.  You have obligations to provide some information automatically to each plan participant and to each beneficiary who is receiving benefits, while other materials are to be provided to participants and beneficiaries only upon their request.  Also, certain materials must be made available for inspection at reasonable times and places.  The following is a general and basic listing of some of the items that you should be aware of as a plan Sponsor:

•                 Summary Annual Report – Narrative summary of the financial statements contained on the tax return Form 5500.

•                 Summary Plan Description – Primary document for informing participants and beneficiaries about the plan and how it operates.  This document must be written in a language understandable by the average plan participant so that they can comprehend their rights and obligations under the plan.

•                 Participant Benefit Statement – A statement of the accrued and non-forfeitable benefits to which a participant is entitled.  Additional information may need to be provided depending upon the type of plan that is in place.

•                 Notification of Intent to Use Safe Harbor Notice – This notice, which summarizes the participants rights and obligations under the plan including the matching of non-elective contribution formula, and how and when to make deferral elections, must be given to participants not less than 30 days or more than 90 days prior to the beginning of each plan year.

•                 Summary of Material Modifications – This is a document that describes material modifications to a plan and any change required to be in the Summary Plan Description.

•                 In addition to the above items, trust agreements, contracts, or other instruments under which the plan is established or operated must be made available for inspection.

In February of this year, the Department of Labor issued a set of final regulations, to what is known as the Participant Fee Disclosure Regulations, which have an impact on 401(k) and 403(b) plans where participants have the ability to direct all or a portion of their investment.  The Department of Labor wants to ensure that participants with self-directed account plans have the information they need regarding their rights and responsibilities in managing their accounts, and that they are provided sufficient information about the plan itself, the designated investment alternatives, and fees to make informed decisions about the management of their account.  For calendar year plans beginning in 2012, these new regulations apply to all participant-directed defined contribution plans that are subject to the Employee Retirement Income Security Act of 1974 (ERISA).    


The fiduciary duty to follow these regulations has been placed upon the plan administrator, defined in the final regulations as the fiduciary with authority to cause the plan to enter into, or extend or renew, a contract arrangement for the provision of services to the plan.  In other words, as the Plan Sponsor, you are ultimately responsible for complying with these regulations just as you have been for many preceding regulations, which are often quite lengthy and complex as is the case with this set of regulations.   Currently there is no penalty imposed for failure to follow these regulations, however, as stated previously, the consequences of a breach in your fiduciary liability may result in legal action maintained by the DOL or a participant in your plan. 


Most investment companies that represent plans have been working on the necessary disclosure requirements and should be issuing this information to you this month if they have not done so already.  Plan Sponsors that rely on this information in good faith will not be liable for the completeness and accuracy of the information used to satisfy the disclosure requirements.  Keep in mind, however, that you are ultimately responsible for providing this information to your participants if your investment company does not supply you with the information.  And for plans that maintain several designated investment alternatives, this process may not be covered by one particular investment company which will create complexity to this process.


Under these new regulations, an initial notice must be provided to each participant or beneficiary on or before the first date the person can first direct his or her investments and then annually thereafter.  The following is a listing of the disclosures required:

1)     General Disclosures

a)      How the participant and beneficiaries may give investment instructions.

b)     Any limitations of such instructions, including and restrictions on transfer to or from a designated investment alternative.

c)      Any plan provisions relating to the exercise of voting, tender, and similar rights.

d)     The designated investment alternatives offered under the plan.

e)      Any brokerage windows, self-directed brokerage accounts, or similar arrangements that enable the selection of investments beyond those designated by the plan. 

2)     Administrative Expenses

a)      An explanation of any expenses or fees for general administrative services that may be charged to or deducted from all individual accounts and are not reflected in the total operating expenses of any designated investment alternative.

b)     A description of the basis on which these fees will be allocated.

3)     Individual Expenses – an explanation of any fees that will be charged to an individual account rather than on a plan-wide basis.

4)     Investment Related Disclosures

a)      The information must be provided for each investment alternative under the plan.

b)     The name and category of each investment.

c)      The performance data on each investment.

d)     Benchmark returns for each investment option based upon the appropriate broad market index on one, five, and ten year periods.

e)      The amount and description of each shareholder type fee against a participant’s investment.

f)       The total operating expense for each investment expressed as a percentage.

g)     A statement indicating that the cumulative effect of fees can substantially reduce the growth of the account.

h)     A statement that fees are only one of the several factors to consider in making investment decisions.

i)      The address of an Internet website that is sufficiently specific to provide participants information about the investment alternatives.

j)      A glossary of general terms.

k)     Fixed investment and annuity disclosures.

l)      Upon request, a paper copy of the website information is available.

In addition to the above disclosures, on a quarterly basis certain disclosures must be provided to plan participants no later than the 45th day following the end of a quarter.  These additional provisions include:

1)     The dollar amount of any plan administrative fees actually charged during the preceding quarter.

2)     The dollar amount of any individual fees and expenses charged to the participant’s account during the preceding quarter.

3)     A description of the services to which the fees relate.

4)     The amount and nature of any administrative expenses paid from total operating expenses of the plan’s investment options.

Be sure that your company's Retirement Plan continues to work well for "your tomorrow" by planning and making certain that you are fulfilling your responsibilities today.

A 15 Point Front Office Check-up!

Checking patients in and out of their appointments in a friendly and efficient way is a complex process that leaves a deep impression - for better or worse - of your practice. Because first impressions are often lasting ones, leaving this process up to chance is not a risk you want to take.

When patients enter your office, are they seeing the image of your practice you want to convey?

If not, educate your staff about the specific image you want to convey and provide the standards to support it. By establishing high standards, you eliminate mixed messages patients might get if they see another patient getting more personal attention or courteous, discrete service. While all office staff has a role to play in achieving high standards, the office receptionist is the first contact a patient makes when he walks through the door. Her efforts to maintain those standards need to be supported by the rest of the office team.

Here are some “check-up” tips to consider for your check-in and check-out procedures that will assist you in making that first impression a good one.

1.      A clean, well-organized front desk and reception area will go a long way toward creating a positive impression and making patients feel comfortable.

2.      Desks and work areas visible to patients should be neat and organized. Establish rules about eating and drinking in the reception area. Ensure that confidential phone calls to insurance companies by your billing personnel be made outside of earshot of the waiting room.

3.      The front desk should be configured to help the receptionist efficiently perform her duties. For example, have a copy machine available to copy insurance cards, driver's licenses, and referral or pre-authorization information. Some practices let receptionists lose valuable time by requiring them to walk to the back office to perform these simple tasks.

4.      Consider using "cheat sheets" to assist staff in answering questions about insurance co-pays, hospital/lab phone numbers or directions to your office. The station responsible for collecting payments should have a cash drawer and credit card machine available.

5.      A good receptionist has a demanding position that requires she courteously deal with difficult patients, scheduling delays and other problems. Making small improvements in the working conditions lets her know her skills are valued. For instance, consider providing a telephone headset that allows her to handle calls and appointment changes without getting a cramp in her neck.

6.      Staff should arrive at the office before the first scheduled appointment. This would be a good time to hold an informal staff meeting to discuss the upcoming day's appointments, open slots, potential problems, and other short timely topics.

7.      Unless you have implemented an electronic charting system, patient charts should have been pulled or created for new patients the night before or prior to the day's first appointment. A list of the scheduled patients and appointment times should be prepared and ready for the receptionist as each patient arrives.  This will allow for proper greeting of the patient along with an efficient means to follow-up with the patient through-out the visit.

8. A friendly, attentive receptionist can reduce the anxiety of a doctor's appointment. Does your receptionist make eye contact when speaking with patients? Does she listen and respond rather than spout rote phrases? Standard scripts can be helpful in ensuring that office policies are followed, but they must be flexible to accommodate individual situations.

9.      To assure confidentiality, patients should be signed in on a list that's kept next to the receptionist instead of on the counter. Patients requiring special assistance should be escorted to a seat in the reception area and then to the examination room.

10.  New patients should be pre-qualified during the appointment scheduling and reminder calls. Before the patient arrives at the office, you should know what type of insurance coverage the patient has; whether you are a participating provider in that plan, and if your practice provides the services needed. All such information should be in the patient's chart and verified upon arrival.

11.  Be sure to verify the patient's address, employer and insurance plan at the check-in time. It is better to ask the patient to provide this information than to assume that "everything is the same", which could create billing or reimbursement delays.  This is also a great opportunity for specialists to obtain the patient's referral and/or authorization form.

12.  Whether a practice collects co-payments and deductibles at check-in and check-out depends on the practice's philosophy and type of services offered. For all practices, however, it is important that the patient be aware that payments for which the patient is responsible are expected at the time of the visit.  Providing patients with a copy of your written financial policy as part of a welcome packet or prior to their visit with you can be helpful for having this discussion.

13.  If a follow-up appointment or referral letter is needed, handle it immediately. If the patient will be sent to the hospital, a lab for tests, or to another practice, provide directions and a phone number along with the appropriate forms. If necessary, make the appointment for the patient.

14.  The receptionist should know the co-payment, deductible and other fees due for the visit and politely request the payment. Here's a courteous way to phrase that request: "Mrs. Smith, your co-payment for today's visit is $30.  Will you be paying by cash, check or credit card today?" If the patient has forgotten her checkbook, provide a stamped, self-addressed envelope so that the check can be mailed as soon as she arrives home.  By not expecting appropriate payment for your services, you are implying to the patient that your knowledge, skill and care are not worth the fee you are charging.

15.  Before the patient leaves, ask if there is anything else you can do. Conclude the visit by thanking the patient and, if appropriate, relaying your concern for his or her well-being.

You will need to modify your procedures from time to time. Regularly schedule discussions at your staff meeting about how to handle a difficult patient; resolve scheduling problems, adapt to changes in insurance information; doctor delays, and the like. As new problems arise, the entire staff can work on providing a solution.

"Raising" Expectations of your Team

The cost of living from December 2010 to December 2011 was 3% as defined by Table 1 of the Consumers Price Index for all Urban Consumers (CPI-U): US city average, by expenditure category and commodity and service group.  I suggest that when you look at raising your team member’s pay, you do so with more of a focus towards “merit” raises.  Rewarding your employees that have performed well or exceeded your expectations makes good business sense, but make sure you communicate this to your employees as well.  The best way to do this is in person, but I would suggest that you also send them a note – here is an example:

Dear Valerie:
 
This notice serves to advise you of an increase in your wage that is equal to 5% of your current hourly rate.  The effective date of this increase is March 1, 2012 and the increase in pay will appear in the payroll check you receive on March 9, 2012.

We are pleased to award this increase based upon your performance over the last review period and believe it will serve as an incentive for you to continue to strive to meet our business goals and objectives in the future.

As the leader of your business, be sure to continually communicate the mission and objectives of your practice to your employees so they know what is expected of them.  Dealing with poor performance can be time consuming, but don’t let it go unchecked or it will send a clear message to the rest of your team that you don’t care, which can be an infectious attitude.  Poor performance usually only gets worse over a period of time and rarely corrects itself without some form of intervention.  So, as soon as it is noted, take the necessary time to address the matter, note it in your personnel files, and then reinforce this during the review with your employee.  At the time you give raises, you should address the change in compensation with those for whom you are giving a lower or no raise as well.  In additional to speaking with them in person, you should also include a notice - here is an example:

Dear Gertrude:

This notice serves to advise you of an increase in your wage that is equal to 2% of your current hourly rate.  The effective date of this increase is March 1, 2012 and the increase in pay will appear in the payroll check you receive on March 9, 2012.

This increase is reflective of your performance over the last review period.  We will review this and the goals set for you again in six months.

Among a medical or dental practice’s most valuable assets are its employees.  Most desire to meet or exceed your expectations.  So, as their employer, be sure to communicate, train, develop and treat your employees in a manner that wins confidence and raises expectations and your practice will run smoothly.