It's the time of year again when practices start preparing to flush out profits to their shareholders. Often times one of two things occur...The practice waits until the end of December to pay out the excess profits or they pay everything due and leaving themselves with little or no cash to pay bills in January and February.
While it seems like a good idea to hang onto the cash and make a payment after the first of the year, it really messes up proper reporting of taxes and possibly incurs a tax liability for the practice (I can only think of a few things worse than double taxation). With the increase in high deductible plans for 2015, it is important to develop a better strategy going forward....
Practices generally have two options:
1. Pay everything due to shareholders by December 31st and rely on a line of credit to get you started in the new year. While not an option for everyone, cash is cheap with record low interest rates. Just be sure to pay it off as soon as possible.
2. For the practices who have already created a 2015 budget, simply look to see your expected expenses and revenue. If you have not completed a budget yet, estimate how much cash you will need.If a physician is due $15,000 for this year and you need to keep $5,000 on hand for bills after the first of the year, write him/her 2 checks dated December 31st in the amount of $10,000 and $5,000. Give the physician the check for $10,000 and tell them they can deposit that one right away. Tell them that the second check for $5,000 cannot be deposited until April 1st (few weeks before taxes are due). By following this process, the physician becomes the bank providing a "float" to the practice. (As a side note, I have one practice who actually pays the shareholders interest on the second check because of the large disparity of bonuses due to the shareholders.)
Whatever you decide to do, be mindful of two important things:
1. High Deductible plans are becoming more popular- make sure you collect the right amount before the patient leaves your office.
2. Medicare Parity Payments for Medicaid providers have not (as of today) been approved by Congress.
While higher rates will continue to roll in for 2014 dates of service, you should expect to see a significant decline in the size of your Medicaid checks by the end of January. I would venture to guess that even if our lame-duck Congress were to authorize the parity payment extension today, the states and private contractors will need some time to adjust the 2015 payment rates in their system.