Tax and Accounting Strategies for the Year’s End
Tax and accounting strategies are ways that can help pave the road to successful financial evaluation in a healthcare transaction. The Ambulatory M&A Advisor digs into some of the most successful strategies and practices that ASCs and urgent care businesses can employ as 2017 approaches.
Mark DeBroux, CPA, shareholder of health services, Schenck SC says that as far as basic strategies the way a business can best prepare themselves is carefully consider their empty entity selection and knowing how their owners income comes to theme and making sure they are accounting for the income properly.
“Then when it comes to tax strategies it is knowing what has changed in the tax codes, things that effect their business specifically, making sure they are doing proper classification on assets, i.e. inventory verses repairs verses expenses verses capitalized. All organizations should be and then looking at what they have for outstanding bills to determine what should and shouldn’t be paid at year end to “manage profit”. Most entities do report on a cash basis of accounting; meaning money in the door and money out the door is the respective income and expense. Healthcare entities at year end need to be maximizing expenses, looking at what they have for income and managing the income flow bottom line,” DeBroux says.
Lucy Carter, partner with KraftCPAs says in the start up phases of a healthcare business the business should decide on the best entity structure. Flow through entities are most likely the best option and include limited liability companies or S-Corporations. When choosing an entity type, consideration should be given to state tax laws. For example, Tennessee taxes corporate profits from S-Corporations even if the income is distributed as a dividend to the owners while other states do not. The preferable structure will meet the needs of the entity and the owners.
Financials Prepared by Third Party
Kevin Reynolds, partner with the accounting firm Daszkal Bolton, LLP explains that there are both benefits and risks of a third party entity preparing monthly financials for a healthcare business.
“The benefits typically would be that the unaffiliated entity would have specific expertise in financial reporting which can be pretty beneficial for a start up or any ongoing business that may be looking for institutional financing, and other reporting metrics. Even greater than that, the outside company would have an unbiased approach in analyzing results, as opposed to just reporting numbers, with a specialty focus in the industry. With such focus, the business would have good access to market data that is real, based on the local market, for bench-marking purposes,” Reynolds says.
“On the flip side, the risk might be if the third party does not have that industry expertise, you may get a substandard product. Beyond that, there can be some issues with time delay in that if you are relying on a third party. If the information is not readily available there could be a delay in actually getting those reports to you. Those are things that can be mitigated with good planning, but are some issues that we see.”
DeBroux says the choice to go with a third party for financials depends on the size of the organization. DeBroux recommends that the third party monthly look at the client’s financial data from both a financial health and a bench-marking standpoint.
“Whether that is reconciliations tying out to their bank statements or tying out to the numbers from the practice management system clients sometimes don’t do the easy things that can catch an issue early on…it is amazing how many clinics don’t tie out daily to the practice management system as far as receipts that are taken in, total adjustments taken off patient accounts,” DeBroux says.
“I think an outside entity is best to look at that on a routine basis. But some clients do have the infrastructure and controls we have helped to put in place to manage those things internally because their internal controls and processes are looking at those items regularly.”
Check Yourself Regularly
Carter says internal controls are essential both from a compliance standpoint (coding, billing, HIPAA) and also in the protection of business assets from fraud or mismanagement.
“The OCR is actively auditing for HIPAA compliance, consequently, performing routine risk and security assessments are essential. Likewise, establishing a corporate compliance plan for billing will assist in providing a framework for coding and billing compliance. An integral component of a corporate compliance plan is periodic audits to establish a basis for provider education and compliance. Both the HIPAA assessments and the coding audits can either be performed internally or by an external professional firm,” Carter says.
DeBroux is an advocate on the belief that businesses should always be looking at internal controls and making sure they have solid internal controls in place.
“You could be a three person business office size in a clinic and still have some simple internal controls; or you could be a 200 member organization that has complex internal controls in place to make sure things are not being stolen. Health care organizations in their role as the employer should not being taken advantage of. Whether is it “time” to employees being paid when they are doing personal items while at work, writing off friends and family account balances, billing insurance inappropriately, or actually taking money from the clinic it is all considered fraud/theft,” DeBroux says.
According to DeBroux, health care providers should have proper procedures in place for the collection of the documentation for all services provided to generate claims data; and whether the documentation at is from the physician’s own hand writing in a paper chart, entered into an EMR, whatever the documentation method is, make sure that the company is getting the information timely so that you make the timely filing requirements of whatever policy a particular payor may have in place.
“There are a lot of operational issues that need to be monitored routinely from both a management and an operational standpoint of ASCs, clinics or urgent care clinics,” DeBroux says.
As far as how often a business should perform an audit on themselves, Reynolds says there is really no hard and fast rule, but typically, his business tries to look at it as that it depends on which processes are most critical, and certainly, those that are more mature in the process may not need as much attention.
“For instance, the life blood of a healthcare provider is in the billing process, so reviewing that on a very frequent basis may make more sense than, say, looking at cash controls. That process might be once every six months where other processes may not be that frequent. Generally, a good internal audit would involve reviewing written procedures, analyzing a sample size of transactions to ensure that those transactions are being handled in the manner in which those procedures were written,” Reynolds says.