Dr. Stuart Auerbach

What you need to know for a successful 2013.

If you were waiting for the end of the Mayan calendar and the world, that passed on December 21. The rest of us have survived to make it to a new year! All of us at Professional Transitions hope you enjoyed your 2012 holiday season and wish you a very happy, healthy and prosperous 2013.

In the last few years, we have noted that doctors have faced unprecedented uncertainty in the economy, their practices and investments. Our outlook has certainly brightened because of the general trends of the economy during 2012. (Most signs continue to point toward an ongoing and imminent recovery; visit our sister company’s site 

Economists nationally and worldwide have become more optimistic, but we know we are not out of the woods yet, and there continue to be constant and varying pressures on your practices. Uncertainty in Europe continues to affect our financial system. The “Fiscal Cliff” has been put off for two more months but will only be packaged within a larger discussion that will now include the nation’s debt ceiling. At this point, we can only hope the politically charged gridlock in Washington can be lessened and our “new” Congress and President can get to work on substantive policies that will enable our economy to continue its recovery.

Key to success in 2013:  A practice budget

To help ensure success, it has become most imperative that doctors spend the time and energy to establish a practice budget, in conjunction with a full review of their fee structure. Doctors who have not already completed a budget should begin the process now so they can have a comprehensive budget in place as soon as possible for the remainder of 2013. While only about 10% of doctors nationwide have a written practice budget, their practice profits are dramatically higher than the remaining 90% who do not.

Previously, we have suggested a close examination of overhead expenses, comparing to prior years and then adjusting accordingly. We also have suggested a review of your staffing, as this is the largest single overhead expense item. You should also review your policy on automatic pay raises versus bonus plans.

Another change to be aware of for 2013 is the treatment of health insurance. Health care reform does not require practices with fewer than 50 employees to provide health care insurance coverage for the staff. However, if you do provide health care insurance, there is a provision requiring that eligibility and benefits no longer discriminate in favor of the doctor and/or his family once the plan loses its “grandfathered” status. Policies already in effect on March 23, 2010, may not be affected, but the new regulations will be triggered if “significant” modifications are made. Fines and penalties for non-compliance are severe, so you will need to keep up to date with the implementation of this new provision. Other new taxes will be decided–or not–after the first of the year. We have already anticipated increases in capital gains tax, Medicare tax, and Federal income tax.

Of recent interest to dentists, a Medical Device Excise Tax is set to be imposed. The ADA has recently sent an advisory as follows:

1.     Dentists will not be responsible for collecting, reporting or paying the new 2.3 percent tax.

2.     The tax on "devices" specific to dentistry will in many cases be applied to the materials from which dental devices are manufactured rather than to the customized items supplied by a dental laboratory, whether a device is ultimately adjusted and adapted by the dentist for a patient. "Device" is used as a term-of-art because many "devices" would be more commonly described as "products," "materials," or "substances."

3.     The tax will result in some increased costs for dentists and dental patients.

4.     Dentists should be alert in reviewing manufacturer and vendor price lists and invoices to make sure the 2.3% tax is not being applied as a general cost increase with respect to all items, but is only being applied in cases where the law so requires. This tax survived the New Year’s votes, so is currently in effect.

All of these tax increases mean only one thing for you: less take-home income,

 you are able to offset them with higher gross income or an increase in the profitability of your services. As a supplement to budgeting, you should also review your fee schedule and consider the timing and amount of a fee increase for this year. We recommend that doctors select a fee percentile that accurately reflects their quality of care, and then increase all fees below that percentile up to it. (Request a localized ADA code report here. Once your fees are at the desired percentile, you should raise every fee by the same percentage across the board, 

Your practice budget and fees are vital for the ongoing success and health of your business. A little time now will save stress, and dollars, throughout the year.

 Stuart lives in Pembroke Pines, Florida and is a partner in Professional Transitions. Professional Transitions is a full-service firm providing comprehensive transition services for dentists from graduation to retirement. Its central focus is to assist clients in realizing lifetime personal, professional and financial goals in win-win-win-win (seller-buyer-staff-patient) structured transitions. Stuart has been associated with Professional Transitions Inc. and sister company ADS Florida LLC since 1994. He is a graduate of the University of Maryland Baltimore College of Dental Surgery, and practiced general dentistry for 18 years. Stuart has been a speaker at study clubs and dental society programs and has written for local, regional and national publications. Stuart can be reached at 

Articles

Try a New Year’s revolution for your practice

Today, the consumer is always looking for, and sometimes even expecting, a good deal when it comes to purchasing products and services. This mindset has helped to fuel the growth of companies such as 

Currently, Groupon totes over 50 million subscribers with close to half of those being in North America, while LivingSocial has a total user base of nearly 46 million with 34 million of those in the United States. 

The combination of the current economic strains and the size of the user base that these two companies have amassed has driven many dentists to at least consider using Groupon and/or LivingSocial and 

 as a means of attracting new patients. Unlike other professions for which social coupons may be utilized without fear of violating legal or ethical rules and regulations, it is vitally important for our dental and medical professionals to consider state and federal law when looking at this, or any kind of promotional program.

Are you prepared for life after dentistry?

 throughout the country have signed up with companies like Groupon and LivingSocial to offer discounted procedures including orthodontic treatment, 

 with the hopes that these patients will stay and need additional treatment.

 legal division, though, depending on the state in which the dental service is offered, this discounting/promotional program might raise legal issues.

In many states, there are regulations that prohibit or restrict what may be given to a third-party as a means of soliciting patients. So, in this case, the third-party (Groupon, LivingSocial, 1-800-DENTIST, etc.) is receiving revenue based on the patient who visited due to the marketing from their services or on the procedure performed.

On a national level, the federal anti-kickback statute regulates federal health care programs, including Medicare and Medicaid. The statute generally prohibits dentists from offering or paying money in exchange for a referral. Dentists found in violation of the federal law could be, at the least, excluded from federal healthcare programs and possibly subject to fines or even imprisonment.

The Medicare and Medicaid Patient Protection Act of 1987, as amended, 42 U.S.C. §1320a-7b (the "Anti-kickback Statute"), provides for criminal penalties for certain acts impacting Medicare and state healthcare (e.g., Medicaid) reimbursable services. Section 1320a-7b(b) provides in part whoever knowingly and willfully solicits or receives any remuneration (including any kickback, bribe or rebate (directly or indirectly, overtly or covertly, in cash or in kind - (A) in return for referring an individual to a person for the furnishing or arranging for the furnishing of any item or service for which payment may be made in whole or in part under [Medicare] or a State health care program shall be guilty of a felony and upon conviction thereof, shall be fined not more than $25,000 or imprisoned for not more than five years, or both.

On a state level, censure and reprimand, suspension or revocation of a doctor’s license and or fines, at the least, are all on the table as potential repercussions.

Some have felt that simply calling the discount "advertising" is shielding them from a potential problem, but they still may find themselves in violation of the law as many states have regulations that restrict the method of advertising discounts on dental services.

Beyond that, dentists must also look to be sure they're not violating third-party payer contracts  for the fee that they're submitting and whether the payer requires that the fee  reflect any rebates, co-pay, or reduction in the fee paid. Many third-party payers will require the reported fee paid be the actual, net (discounted), fee paid by the patient.

In reality, online discounting and the legality of it in medicine has been a topic of debate for awhile now. So far, only two regulatory boards in Oregon have acted on dentists and chiropractors using social discounting methods. Even so, national, state and local associations alike, including the ADA, have warned members about the potential ramifications of using these services as the legality question is still unresolved.

The bottom line is that, with few exceptions, licensed health professionals are forbidden from paying or giving anything of value to someone (websites included) for providing a referral. Why is this so? The rationale is that paying for referrals can corrupt the objective medical/dental decision of whether a patient needs and will benefit from some treatment.

While it is always important to look for new avenues to generate new patients, care and diligence should be used so to be sure that local, state and national laws are properly observed. We still feel that the best marketing source is your current patient base and the best-spent dollar on marketing is that which is spent within. While cutting edge technology and new marketing tactics may be enticing, the ramifications of losing your license or spending time in jail should certainly be considered.  

You should consult your individual state laws and rules to ensure that you are in compliance when designin

. Without a valid dental license, the number of new patients coming into your practice simply does not matter.

Stuart Auerbach, DDS,? lives in Pembroke Pines, Fla. and is a partner in 

. Professional Transitions is a full-service firm providing comprehensive transition services for dentists from graduation to retirement. Its central focus is to assist clients in realizing lifetime personal, professional and financial goals in win-win-win-win (seller-buyer-staff-patient) structured transitions.  Stuart has been associated with Professional Transitions, Inc. and sister company ADS Florida, LLC since 1994. He is a graduate of the University of Maryland Baltimore College of Dental Surgery, and practiced general dentistry for 18 years. Stuart has been a speaker at study clubs and dental society programs and has written for local, regional and national publications. Stuart can be reached at 

References: The Henry J. Kaiser Family Foundation, 

Today, the consumer is always looking for, and sometimes even expecting, a good deal when it comes to purchasing products and services. This mindset has helped to fuel the growth of companies such as Groupon (social coupons) and LivingSocial (social commerce). Currently, Groupon totes over 50 million subscribers with close to half of those being in North America, while LivingSocial has a total user base of nearly 46 million with 34 million of those in the United States. 

Know the laws before using social couponing as a means for dental marketing

	We are constantly reminded that our federal government is in debt. There is over $14 trillion in national debt, or over $128,000 per taxpayer. The federal budget deficit is in excess of $1.3 trillion. Our government is trying to close that deficit and has charged IRS with the task of enforcing the existing tax code.  

	While there have always been tax audits of individuals and corporate entities, we have recently become more aware of the increasing interest that IRS is paying to professional associations and corporations. The knowledge that these closely held businesses have been used to reduce personal income tax liability is well known.

	As one example, in August 2009, a West Virginia dentist, Dr. Alan K. Vance, was sentenced to one year in federal prison, three years supervised release and a fine of $40,000. So, what is this all about and what might it mean to you?

	Dr. Vance is 53 years of age. He is the youngest of 4 children born in Logan County West Virginia where his father was a coal miner for 33 years.  In response to an IRS investigation, on March 19, 2009 Dr. Vance entered into a guilty plea to one-count of tax evasion.

	Who is Dr. Vance?  He was a full-time clinical professor at the West Virginia University School of Dentistry for one year and the first Black professor in the history of the dental school. He opened private dental practices in Charleston and Williamson, West Virginia and even owned a dry cleaning business until 2008.

	For over 26 years, Dr. Vance travelled between his two dental offices treating 80 – 85 patients. He served as a mentor for local students, volunteered for the less fortunate and underserved in his community where he was well regarded and well respected.

	While Dr. Vance was a respected member of his community, as part of his plea agreement with the government, he stipulated that he did willfully attempt to evade and defeat a large part of the income tax due and owed by him to the United States of America for the calendar years of 2001-2003, in the amount of $190,667. Dr. Vance failed to account for and report to the IRS large amounts of cash generated by his dental practices and dry cleaning business.

	So, how did he come to owe over $190,000 in taxes? In his statements, he admitted that he altered his business bank deposit slips after they had been prepared by his dental office staff by marking out the cash deposit entries. He failed to advise his tax return preparer of the cash that was generated from his dental practice. He also deposited $23,002 in checks he received for working for another dentist into his personal bank account and failed to tell his tax preparer about that income.

	Additionally, Dr. Vance paid a contractor in cash to install a swimming pool at his residence. He falsely advised federal law enforcement officials that he deposited all of the income from his businesses including cash receipts. In addition to the 2001-2003 deficiencies, Dr. Vance also failed to pay $51,504 for tax year 2000. He agreed that the total amount of tax loss for the relevant years totaled $242,171.

	Is Dr. Vance the rule or the exception? As we began discussing in a newsletter article we published recently (“The IRS is Watching YOU” which you can find at articles.ADSflorida.com), each practice should consider how it accounts for its expenses and income. In relating to this case, showing no cash deposited for an entire year is probably going to raise some questions if the IRS ever decides to audit your practice. While there might not be large amounts of cash, a practice depositing zero cash for any year is very unlikely.

	Another area of concern should be the overuse of office expenses to hide personal income. Many times when reviewing practice expense statements, some categories are simply overstated. While this might seem to be a viable tax avoidance method, overuse can be a trigger for further investigation; and YES the IRS does have a reasonable idea as to what the normal expenses of a dental office are!

	When it comes time to consider the sale of your practice, overstated expenses that require in depth explanations to reconcile cause banks and prospective purchasers to look more closely at all of your accounting. In some instances, excessive expenses will trigger buyer accountants to request and review your general ledgers. With banks scrutinizing practice transactions more than ever, the more work that needs to be done to “clean” an expense statement, the less likely you are to achieve the highest price for your practice, or even get bank financing, even with a highly qualified, transition expert, assisting you. In some cases, banks have refused to finance practices where there is apparent fraudulent accounting and activity.  Some banks as part of their lending process will require both the buyer and seller to complete IRS form 4506T which allows them to obtain tax return transcripts directly from IRS to confirm the validity of the submitted tax returns.

	While we all believe that everyone does hide personal expenses and under-reports cash or other practice income, it may be time to recognize that there is a real risk in being caught. In this example, and most likely in the future, all of the community standing that you have accumulated over your practice career may not provide a useful excuse when defending yourself against the IRS. Dr. Vance certainly found out the hard way as the court refused his plea to vacate his prison sentence while he performed community service and dental treatment.

	The Special Agent in Charge, IRS-Criminal Investigation, Pittsburgh Field Office said “Today’s sentencing is another reminder how serious the consequences can be when someone commits tax fraud,” and “Those Americans who file accurate, honest and timely returns can be assured that the government will hold accountable, those who don’t.”

 We are constantly reminded that our federal government is in debt. There is over $14 trillion in national debt, or over $128,000 per taxpayer. The federal budget deficit is in excess of $1.3 trillion. Our government is trying to close that deficit and has charged IRS with the task of enforcing the existing tax code.  

Gotcha! The IRS nabs another

	Dental practice management software has become ubiquitous.

	Most practices today are computerized at some level, whether they are using computers simply as an internet portal or facilitating the completely paperless office. Dental practice management software is useful on a daily basis in addition to becoming increasingly critical in the evaluation of a purchase opportunity. Here’s how.

	When we are asked to value a practice we look for the reports that are available from most of the commonly used programs. Those statistics are utilized to evaluate the health of a practice and provide important information that purchasers require when they evaluate their interest in purchasing a practice.

	Further, practice acquisition lenders request the same, if not additional reports, to decide whether they will finance an acquisition. As the adage says, "garbage in, garbage out" meaning the accuracy of any computer report is limited to the accuracy of the information that is entered and maintained. In valuing a practice we try to interpret and verify the reports with as much data as available.

	As an example, prospective purchasers and lenders both want to know the number of active patients in the practice. But, what is the definition of an active patient? Generally, we look at the number of patients treated by the practice in the last 18 months.  This time window has been an accepted standard for years, however, practice software reports will not usually show that number anywhere. 

	Most offices that still use paper charts do periodic chart audits and move patient records to storage when the patients have not been in the office for approximately 2-4 years. However, when the inactive charts are removed, the practice software is not usually updated. 

	Patients need to be deactivated (set to “inactive”) in the software or they continue to be counted as “active,” erroneously, in the patient register. We often see practices with 3,000-10,000 patients on patient statistics reports but only 2,000 patient charts in the office. It is unlikely that there are more than 5,000 active patients in a general practice with two hygienists working five days per week. That ambiguity generally leads to more questions and research to ascertain the true patient census. In most cases, even 2,000 patients may be overstated and is often “too many” for a solo-practitioner.

	Another report that we have seen overlooked is the accounts receivable (AR) report. If you want to know how a practice is doing financially, look at this report. How much dentistry was produced and how much money was collected? Overhead costs are actually a function of the production of the office and not the collections. A practice’s overhead may seem to be too high when compared to the collections, but evaluating its overhead relative to its actual production may reveal a significantly different perspective.

	We have seen offices where the accounts receivables approach $500,000 and more. How does this happen? If the practice owner does not regularly review the status of the patient accounts and continuous errors are not corrected over time this can lead to an exponential error. Why is that a problem? At the time of the sale of the practice, the seller will be required to disclose the amount of money owed to or by the practice. 

	The accounts receivable is a compilation of actual money owed to the practice by patients and insurance companies (if claims are submitted for patients) and the amount of patient credits which is the total of patient overpayments, most likely due to duplicated payments by insurance companies and patient prepayments for dentistry not yet performed. Long-standing errors are usually going to be seen in the aged collection report and probably in the over 90 or 120 days column.

	If a practice does not regularly review this report a seller could find him/herself at the closing of the sale of the practice writing checks to patients to refund overpayments (credits) or transferring money to the purchasing doctor to be held for the patients to return to the office (prepayments). In either situation, it can be a real problem as sellers have had to return tens of thousands of dollars in order to sell their practices. Those using Care Credit and other prepayment sources must also realize that this "income" is actually a prepayment for services due and could cause money to be due to patients that would need to be accounted for.

	Practice owners should look at the accounts receivable report and if the balance or amount of credits is excessive, they may find that the office software has not been properly closed at the end of each month or at the end of the year, for many years.  The only way to rectify that is to have the practice administrator go back and close each month individually until the software is up to date.  The seller will also need to either write off very old and/or uncollectable accounts and remove them from the practice management software or send them to a collection agency.

	Whether you are contemplating selling your practice or are in the process of searching for a practice to purchase, you should consult with your transition expert to discuss the relevance of the practice reports.

 Dental practice management software has become ubiquitous.  Most practices today are computerized at some level, whether they are using computers simply as an internet portal or facilitating the completely paperless office. Dental practice management software is useful on a daily basis in addition to becoming increasingly critical in the evaluation of a purchase opportunity. Here’s how.