Avoiding Healthcare & Insurance Issues

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Avoiding Healthcare & Insurance Issues
Before we can show you how to turn your practice into a Fortress and an Engine in the next Lesson, we have to show you what to avoid in your practice so that you don’t cause any insurmountable financial damage to yourself or your practice. In addition to personal lawsuits, Doc-tors need to worry about business issues as well. This is consistent with our previous discussions about the “business of medicine.”
Many physicians have a false sense of security and believe that malpractice insurance will protect them from lawsuits. We agree with you that a medical malpractice claim is not “likely” to result in a significant depletion of your estate. However, if you go to trial and lose, you could be in serious financial trouble. According to Current Award Trends in Personal Injury (Copyright 2007), half of all jury awards for medical malpractice claims in 2005 exceeded $1,184,000. The average medical malpractice jury award in 2005 was $3,830,000. If you consider that most doctors carry $1 million of per occurrence medical malpractice liability insurance, half the doctors who lose a judgment will be out at least $200,000 and the average personal loss from a judgment will exceed $2.8 million of the doctor’s own money (after insurance has paid its limits).
In addition to medical malpractice threats, there are unexpected risks that carry an even higher likelihood of causing asset depletion. As a Doctor, business issues include liability for your business as well as liability that may result from regulatory issues and administrative investigations (i.e., OPMC, HCFA, Stark, HIPAA, OIG, etc.) and contract issues (i.e., Medicare Medicaid Fraud investigations, over-billing claims, and refund audits from insurance companies). These types of claims are increasingly overshadowing the threat of medical malpractice because, unlike malpractice risks, they are usually not covered by insurance, leaving the physician to privately fund the defense costs out of pocket. In addition, mistakes in regulatory issues can even land a Doctor in jail. No other risks in this book carry such a serious threat.
In this chapter, we will discuss some of the specific healthcare and insurance related risks, explain how they can be avoided, and offer suggestions on how to protect yourself from mistakes that may occur even when you do your best to avoid them.

Employee at Mac ComputerHIPAA
The Health Insurance Portability and Accountability Act (HIPAA) of 1996 was originally en-acted to enhance (not guarantee) certain health care insurance coverage for Americans. HIPAA also creates a national, standardized set of rules for maintaining (security) and protecting (confi-dential) patient medical information known as PHI (Protected Health Information). The failure to institute a good faith and reasonable office compliance program, to provide privacy notice to patients concerning their rights, to protect against the unauthorized release of confidential records and implement security safeguards for data in transit and maintained in the office could potentially place physician owners, their employees (including administrative office staff) and even business associates at grave risk for monetary fines and even criminal penalties for the unauthorized disclosure of PHI which is enforced by the OCR. Such penalties and sanctions could include civil penalties and fines for each violation ($100 per violation with a maximum penalty of $25,000/year for identical penalties) and for intentional violations of the law could even include criminal penalties (i.e. fines between $50,000—$250,000 and imprisonment terms from 1 to 10 years).

Over-Billing Issues
A key operational element in the business of medicine is the process of billing, coding and collecting professional fees from insurance companies. In some cases the payers are insurance companies and in other cases, the payers may be Medicare or Medicaid. Aside from the United States tax code (which we will call the most complex system of rules in the history of mankind in Lesson #7), the Medicare coding system may be the most complex system of rules ever created.
Despite best efforts to train administrative staff, medical offices are regularly audited by insurance companies, Medicare and Medicaid. These audits routinely result in claims of over-billing. Many Doctors fight a losing battle against the large insurance companies (and their teams of attorneys) and ultimately have to surrender funds they previously collected for services rendered. Unfortunately, when the audit comes from Medicare or Medicaid, Doctors have more to lose than just money. A Doctor found guilty of Medicare fraud can actually go to jail. Because of the significant costs resulting from both Medicare fraud and commercial insurance carrier audits, we will examine them both separately.

Medicare Fraud
Anyone who provides, or receives, healthcare services, could commit Medicare fraud. Fraud is defined as an intentional deception or misrepresentation that someone makes, knowing it is false, that could result in the payment of some unauthorized benefit. Abuse, on the other hand, involves actions that are inconsistent with sound medical, business, or fiscal practices. Abuse di-rectly or indirectly results in higher costs to the Medicare program through improper payments that are not medically necessary. In the eyes of investigators, fraud and abuse both have the same effect. They steal valuable resources from the Medicare Trust Fund that would otherwise be used to provide benefits to Medicare recipients.

Fraud Investigations
The federal law enforcement agency responsible for investigating Medicare fraud is the Department of Health and Human Services, Office of Inspector General (HHS-OIG). In some cases, HHS-OIG may involve other agencies, such as the Federal Bureau of Investigation (FBI), the Internal Revenue Service (IRS), or the Postal Inspection Service.
Many complaints are simply misunderstandings or billing errors and can be resolved fairly easily. Some complaints help identify abusive billing practices. The Medicare contractor will educate the health care provider, collect any overpayment, and then follow up to make sure the provider does not make the same mistake again. Other complaints involve Medicare fraud. These cases often require long, complex investigations by federal law enforcement agencies.

Penalties
The U.S. Attorney General’s office targets health care providers for civil and/or criminal prosecution. Some of the penalties for someone convicted of Medicare fraud are listed More

Using Qualified & Non-Qualified Plans

Posted by & filed under Business Owners, Doctors, Healthcare, Legal.

Asset Protection

Using Qualified & Non-Qualified Plans
This section discusses two topics which are related and can contribute to the practice being both a Fortress and an Engine. However, the article is unique in that almost every Doctor takes advantage of the first option—qualified plans—while almost none utilize non-qualified plans. We will discuss both popular qualified retirement plans and less common non-qualified plans here, so that you can be aware of options that are available to you and, hopefully, get more out of your hard work, build greater wealth and enjoy the fruits of your labor.

Use Qualified Retirement Plans
A “qualified” retirement plan describes retirement plans that comply with certain Department of Labor and Internal Revenue Service rules. You might know such plans by their specific type, including pension plans, profit sharing plans, money purchase plans, 401(k)s or 403(b)s. Properly structured plans offer a variety of real economic benefits, such as:
· The ability to fully deduct contributions to these plans.
· Funds within these plans grow tax-deferred.
· Funds within these plans are protected from creditors.
In fact, these benefits are likely the reasons why most medical practices sponsor such plans.
For this chapter, we will include IRAs as “qualified plans” even though, technically, they are not. We are doing this because IRAs have essentially the same tax rules as qualified plans and have the same attractions to Doctors who can use them.
As you will learn in Lesson #6 on asset protection, qualified plans and IRAs enjoy (+5) protection in bankruptcy—for asset protection purposes.
You can learn more about their tax benefits (and drawbacks) in Lesson #7. You will see that the obvious tax benefits may be outweighed by the less obvious tax drawbacks.
With qualified plans (not IRAs), they must be offered to all “qualified” employees (within certain restrictions). For a Doctor owner, there may be some economic costs to having a plan which you must offer to, and contribute for, everyone at the office or at related businesses. With these mixed benefits and drawbacks, it is surprising how many Doctors (nearly 100%) use qualified plans and ignore their cousins, non-qualified plans, which are far less restrictive. Review the following chart so you can better understand the pros and cons of qualified plans.

Benefits & Drawbacks of Qualified Plans
Benefits
Tax deductible contributions
Highest level of asset protection (+5)
Tax-deferred growth Drawbacks
You must contribute to plan for all
eligible employees
All withdrawals subject to ordinary income tax rates
Penalties for access prior to age 59
Must take minimum distributions at age 70
May be taxed at 75% or more at death

post 10Your Qualified Plan “Bet” on Future Tax Rates
In other parts of the book, we cover most of the benefits and drawbacks of qualified plans in more detail. Here, we want to make sure you understand the bet you are making on future tax rates when you rely on qualified plans heavily for your retirement. Since all amounts that come out of qualified plans (and SEP and roll-over IRAs, of course) are 100% income taxable, there is no way to know how good (or bad) a financial deal such a plan could be for you until you know the tax rates when you withdraw funds.
In other words, if you contribute funds to a qualified plan today (when the top federal income tax rate is 35%) and withdraw funds when income tax rates are at the same or a lower level, the deduction today and tax-free growth over time is likely a “pretty good deal” for you. However, if you withdraw funds from your plan and the top federal tax rates are 40%-50% or higher, then the qualified plan/IRA may be a “bad deal” for you. Certainly, future federal income tax rates of 50% or more could make qualified plans a very negative long term investment proposition for you.
[Clarification Point: Some folks may argue that, in retirement, doctors are likely to have less income and thus the plan distributions will be taxed at lower rates. While this may be likely for 95% of taxpayers, many doctors will build enough wealth in retirement and non-retirement assets to be in the top marginal tax rates in retirement. The second highest marginal income tax rate (2% less than the highest rate) goes into effect when a married couple earns TOTAL income of only $200,300 in 2008. If you are single, divorced or widowed, that second highest rate applies to income above $164,550. Do you think that your total income will be less than $164k or $200k when you add in retirement distributions, Social Security, rental income, and any investment gains from non-pension assets? In many cases, doctors are going to retire only when their retirement assets will generate incomes equal to their last year’s salary. For most of our clients, this is the retirement game plan—retire only when they can maintain the lifestyle to which they have become accustomed]
With this is mind, review the history of US income tax rates chart below. Putting aside politics, you must understand that it is certainly a possibility that tax rates can return to the levels they were for most of the 20th century. If they do, qualified plans utilized today by most doctors may turn out to be “losing bets” in the long run. Since we cannot know what future tax rates will be, we need to at least acknowledge the bet we are making and ask how we can reduce our risk and perhaps hedge against such a losing bet.

A New Concept for Investing—Tax Treatment Diversification
Does the fact that our qualified plans today may turn out to be losing bets mean that we should abandon them? In most cases, the answer is “no.” These plans generally have the strongest asset protection available and provide significant incentives for employees. We would strongly recommend, however, that EVERY doctor make investments that offer a hedge against potential tax rate increases.
The concept here is that you should have various More