It shouldn’t be surprising that more and more practices are struggling to maintain financial stability. To stay above the pack, here are seven financial challenges physicians will face in the coming new year and advice on how to avoid their pitfalls.
7. Diminished negotiating power
“In the past, if you had three [health] plans in your area and two of them were strong, you could afford to not participate in the third because it might only have a 20% market share,” says Deloitte’s Mitchell Morris. “When dealing with such dominant market share, you can’t shrug them off. Meaningful use and ICD-10 are nothing compared to negotiating with giant conglomerates.”
6. Patients voting with their feet
Except in the wealthiest areas, patients could buckle under the dramatic increases they’ve experienced in higher deductibles and co-pays, experts say. That will mean a scramble for revenues for some doctors as patients forego some care or seek lower-cost providers.
5. Revenues walking away, too
If you do join a larger group, be aware that some of the ancillary services that used to enhance your income may now be performed by others in the group. Debra Phairas, president of San Francisco-based Practice & Liability Consultants, LLC, has cardiology clients, for example, who maintain a lot of in-office testing services. If they choose to merge with a hospital, they would potentially lose those services to the hospital radiologists, affecting their own RVU output.
4. Getting fired
It’s a real risk if mergers happen without strong due diligence around market demand, Phairas says. “It’s going to happen more often as hospitals lose money on the practices they buy,” she says. “It’s a big shock for physicians who never really contemplated being without a job.”
3. Neglecting retirement
With all the other challenges facing physicians in 2016, it’s easy to put retirement on the back burner. That’s a mistake, says Mitchell Kauffman, CFP, a financial planner with Raymond James Financial Services in Pasadena, California.
He suggests looking into whether a defined benefit pension plan might be right for your practice. If you have a couple of senior partners and a just a couple of early-career support staffers, you can use a concept called Social Security integration to lessen required retirement plan contributions for the junior staff. That’s because traditional pension plans call for substantial payments into the plan near the end of a worker’s career, and not so much in the early years.
Couples earning more than a combined $250,000 in annual income need to be aware of the 3.8% Net Investment Income Tax, in place since 2013, notes Robert Keebler, CPA, MST, tax adviser and partner with Keebler Associates in Green Bay, Wisconsin.
This is particularly true now as many physicians consider selling practices and other assets as consolidation continues, he says. The tax applies to gains on sales of real estate, securities, and certain types of passive income, among other investments. If you are selling a building, for example, and have an interest in charitable giving, you could drop the proceeds into a Charitable Remainder Trust, taking the proceeds as retirement income over a period of decades, Keebler said.
1. IRA stalls
Contribution limits for IRAs are holding steady in 2016, so you can’t sock away more money next year, according to the IRS. The top income cutoff for making Roth contributions, however, is being raised by $1,000 to $194,000 for couples filing jointly. And if you earn more than that, you can do a so-called “back-door” Roth conversion, contributing to a non-deductible IRA and then converting it to a Roth, Keebler says.