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February 29, 2016

Can compensation paid to a hospital-employed physician be Fair Market Value (FMV) when the hospital loses money on the professional practice?

Recent government interest in the topic, as well as ongoing debates on the applicability of the Income Approach when valuing physician compensation, have highlighted the need to address this question. This article will explore the complexity of the issue, including some of the reasons why practice losses occur and focus specifically on the impact that operating in a quasi-regulated industry has on the determination of FMV.

Market Dynamics Impacting Physician Practices

Understanding the market dynamics impacting physician practices is an integral part of identifying why practice losses occur and how FMV is implicated when a hospital is subsidizing physician compensation.  Below are four important market factors that affect the finances of a physician practice.

Aging Population
Advances in healthcare have led to an increased life expectancy for Americans, and we now face an aging population. With an aging population comes an increased demand for healthcare services. While increasing life expectancies is positive; it does put a strain on healthcare resources. 

Supply and Demand of Physicians
Over past decades, the supply of physicians has not been able to keep up with demand. Now, the Affordable Care Act (ACA) has increased the number of insured patients, further increasing demand for healthcare services. One recent study reported a shortage of 46,100 to 90,400 physicians by 2025. The market is responding with non-physician practitioners, such as nurse practitioners and physician assistants; however, the demand for physicians will continue to exceed the supply. 

Hospital Employment Physician Practices
Over the past decade, there has been a substantial swing from private practice groups to hospital employment. Many financial changes occur when a hospital operates a physician practice. While these changes often have a positive financial impact, such as improved insurance contracts or bargain purchasing power for certain supplies, other changes often increase the expenses of the practice, such as increased salaries and benefits and overhead allocations from hospital departments. In addition, a hospital may choose to move certain services previously offered by the practice to another department of the hospital, whereas private practices take advantage of the in-office ancillary exception and often realize a profit from those ancillaries. Private practices must “break even” to stay in business; however, hospital-owned practices are merely a department or subsidiary of a larger operation and do not necessarily have the same economic restrictions.

Government Payers
Medicare is the most significant payer for many physician practices. It is the rare physician practice that can survive without participating in the Medicare program. But, Medicare reimbursement rates are not negotiated like other payers; they are regulated by Congress.  Sequestration and other government imposed sanctions increase the pressure on available dollars to fund Medicare. Recently, a budget deal was struck to keep the federal government functioning and depends largely on Medicare cuts. Additionally, government payers, such as Medicare and Medicaid, are typically the lowest payers in a market. Changes in Medicare do not only impact government payers in the long run; Medicare largely sets the reimbursement for much of the healthcare market.  Commercial insurances often index their fee schedule to the Medicare fee schedule, so when Medicare cuts rates, the commercial insurances presumably will follow.

Each of the above dynamics can contribute to physician practice losses. Valuators have an obligation to gain an understanding of a client’s business and industry, including the dynamics listed above. As such, each of the above market factors can significantly impact a FMV analysis. Below, we will discuss the resulting implications for FMV.

Impact on FMV

The aging population, coupled with the supply and demand for physicians, creates a significant amount of pressure on the physician practice model. Traditional market theory of supply and demand does not hold true in physician practices, due primarily to a regulated reimbursement model. As previously discussed, demand for physician services is exceeding supply. The increase in demand is reflected in market data traditionally used to value physician compensation, but is not reflected to the same extent in the government reimbursement. Further, the aging patient base that is creating much of the demand is increasingly covered by Medicare. Unfavorable payer markets and the requirement for hospitals to treat patients regardless of their ability to pay further increase the volume of Medicare, Medicaid, and uninsured patients. This will generally lead to lower reimbursement, leaving less money available for physician compensation, and potentially leading to losses at the practice level.

The question remains: can physician services be supported as FMV even when practice losses are incurred? In attempting to answer this question, we must consider how FMV is determined. Valuators are required to consider all three primary valuation approaches: the Market, Income, and Cost Approaches, and then use professional judgment to determine the applicability of each. 

As healthcare valuators, we have historically been somewhat limited to the Market Approach for physician compensation valuations. With the inapplicability of the Cost Approach, along with the issue of physician practice losses, ultimate reliance on the Market Approach is commonplace. However, ultimate reliance on the Market Approach does not diminish the importance, or responsibility, of considering the Income Approach.

The application of the Market Approach alone results in compensation driven by market data without consideration for the economic impact on the hospital or practice. This creates risk, as inappropriate application of the market data causes self-perpetuating increases in physician compensation without regard for the impact on the hospital. 

Conversely, in situations where a hospital is incurring a loss on a physician practice, sole reliance on the Income Approach would not be adequate to support competitive or FMV physician compensation. However, many valuators feel singular reliance on the Income Approach in such a situation would not result in an appropriate indication of FMV, due to the market factors and restrictions discussed above. Assuming the employing hospital has sufficiently documented the community need for the physician’s professional services, and physician compensation can be supported as FMV under the Market Approach, it may be appropriate to place little to no reliance on the Income Approach in a final conclusion of value. 

Conclusion

Valuators, attorneys and the government have all considered the implication of practice losses on FMV, and the theoretical debate is sure to continue. The facts and circumstances of each market and each individual transaction between a hospital and physician should be carefully considered in conjunction with practice losses and the Income Approach to value. Proper documentation of factors such as community need, physician supply and demand,  and the history and ability to recruit in a particular market are just a few of the factors that should be analyzed when determining the FMV of physician compensation and the appropriate consideration of the Market or Income Approaches.




February 29, 2016

Originally published on Startland News

You know the feeling you get when you find $20 in your pocket that you forgot was there?

Or have you seen the late-night infomercials about all the “found money” just sitting around waiting for you to claim it?

It’s exciting stuff — the kind that makes your pulse race and your mind wander to the endless possibilities available to you and your newly found money. But then the nagging voice in the back of your head questions, “Are there other savings opportunities I may be missing out on?”
As a startup, you may be overlooking something more lucrative than that extra $20. It’s called a Research and Development (R&D) tax credit and may even result in CASH!

The Basics: Beginning this year, startup companies with gross receipts of less than $5 million may elect to claim the R&D credit against payroll tax liabilities. Congress wants to encourage companies to remain persistent in developing new products and has created a way for companies investing in these activities to save money.

Almost any for-profit company working on new products or processes may qualify, regardless of whether the company is currently making money. Specific items might include software application, new tangible products or even upgrades to older products. Another great indicator is if you have engineers, computer programmers or other technicians on staff.

Who qualifies: We won’t go into the specifics of the calculation here, but basically, if you’re spending money on personnel and outside professionals to research a new product or platform, you’ll likely qualify for the credit.
The hardest thing for most companies is trying to compile all the research and development costs at the end of the year. While all good companies track spending, they don’t necessarily track costs for specific types of tasks, so when it comes to the end of the year, it may be difficult to accumulate the actual research costs incurred.

The best thing to do is make sure your accounting platform is setup to capture these costs as they occur. Understanding what type of costs can go toward the credit is critical to maximizing the accumulation. For example, does an administrative assistant helping a computer programmer compile data qualify? The answer to that and similar questions depends on the business.

The Bottom Line: Now is the ideal time to talk with your accounting and tax advisors to guarantee you are taking the proper steps to ensure you don’t leave money on the table. 

The only question you should be asking yourself now is, are you ready to discover your company’s hidden savings?  After all, in the words of another late-night infomercial, “It’s your money”.

By: Dan Schmidt, Founder of EBCFO and Ben Anderson, Manager at CBIZ MHM, LLC Kansas City




February 26, 2016

Josh Finfrock, Director in the CBIZ MHM Memphis office, recently spoke at the U.S. Intermediate Transfer Pricing Update Bloomberg BNA conference on February 22nd & 23rd.

The two-day conference included instruction on common transfer pricing methodologies and concepts for accountants, attorneys, and other tax practitioners.  The program was designed as a training session to introduce tax practitioners to the key reporting and compliance issues in establishing an arm’s length price under Sec. 482 and the OECD guidelines.

Finfrock leads the Transfer Pricing practice at CBIZ and performs work for companies all across the world.  At the conference, Josh presented 'Analyzing the Intercompany Transfers of Tangible Property.'  In this session, he discussed… available methodologies, types of manufacturers, types of distributors, and examples of common intercompany transactions as it all relates to sales of tangible property.

Transfer pricing in the United States continues to be a topic of major concern to tax executives at U.S. outbound and inbound multinationals. Transfer pricing requires financial statement results to properly reflect profits between business units for tax and earnings forecasts. As a result, corporate tax and financial executives must establish effective internal controls and defend their pricing policies before their auditors and the IRS.

For questions regarding transfer pricing and its impact on your international operations, please contact Josh Finfrock at jfinfrock@cbiz.com or 901.685.5575.




February 25, 2016
CBIZ MHM Memphis hosted an Employee Benefit Plan seminar last week called Retirement Plan New Year’s Resolution: Is Your Plan Ready for 2016?  This session covered understanding of fiduciary duties and responsibilities, financial planning for 2016, and the DOL’s audit quality study.

With a room full of plan sponsors and administrators eager to start their 2016 planning right, Jennifer Kiesewetter, ERISA, ACA, & Executive Compensation Attorney at Kiesewetter Law Firm, began discussing the various fiduciary duties and responsibilities that are overlooked or unknown.  Furthermore, Jenny educated attendees on consequences of breach of fiduciary duty as well as ways to limit fiduciary liability.

Jeff Barnes, Senior Consultant at Gavion, LLC, shared with the group how to determine goals and best practices for Plans in 2016.  He also covered various plan considerations and proposed many questions sponsors and administrators should be answering during their planning processes.

In closing, Linda Lauer, Lead Managing Director for the Memphis Office, reviewed key findings and conclusions that were found in the recent DOL Audit Quality Study.  The statistics in the study confirmed that the more plans audited by a firm, the less deficiencies performed.  Linda concluded the presentation with the DOL enforcement, regulatory, and outreach recommendations.

To attend one of our future seminars, join our mailing list by clicking here.  For questions regarding the study and/or the impact on your company’s benefit plans, please contact Linda Lauer at llauer@cbiz.com or 901-685-5575.





February 24, 2016

CBIZ MHM Tampa Bay is proud to be a presenting sponsor of the Tampa Bay Business Journal’s CFO of the Year event. The 2016 CFO finalists were invited to a VIP reception at the offices of Shumaker this month to recognize their accomplishment for being selected as an outstanding financial professional in the Tampa Bay area.

The awards luncheon revealed the results of this year’s CFO of the Year winners.  More than 400 people gathered to recognize these financial professionals for their exceptional performance in their roles as corporate financial stewards.

Winners in each category were chosen from an independent panel of judges.  The winners in their respective categories are as follows:

Rob Taylor, CFO of Accuform Manufacturing Inc., was the 2016 overall CFO of the Year winner for his service within the financial sector.

CBIZ MHM Tampa Bay is proud to sponsor an event that honors such influential leaders in their various financial fields and wishes to extend a warm congratulations to all individuals selected to be part of the Class of 2016 CFO of the Year Finalists. 

To see a full list of the 2016 finalists, click here.



February 16, 2016
Steve Dunavant Managing Director for the Memphis office, will present a webinar as part of the CBIZ & MHM Executive Education Series.  Joel Superfon, Director of Investment Management & Advisory Services at Dudley Ventures  will co-present.

This webinar, Emerging Trends in Real Estate - Tax Incentives as Part of Capital Formation, will include an overview of the New Market Tax Credits (NMTCs), types of projects that qualify, community impact, and various technical aspects of the tax credit strategy.

Steve and Joel will also discuss how the NMTCs and Historic Tax Credits (HTCs) can be employed along with traditional sources of capital (bank and government loans, grants, investor capital) to fund real estate development project costs.

To register for the webinar on February 25th, or for more information, click here.





February 16, 2016

CBIZ MHM Tampa Bay is pleased to announce the appointment of Christine McAlarney to the firm’s Professional Standards Group (PSG).  The PSG is a designated group of technical professionals, who are called upon when there is uncertainty surrounding a complex question or issue.  The members of the PSG are chosen based upon their level of expertise and involvement in the profession.

Christine is serving on the PSG as a technical Subject Matter Expert on complex debt and equity arrangements and financial instruments.  She provides internal consultations and supports the Professional Standards Group's thought leadership and educational activities.  Christine’s exposure through the PSG to these topics across the country will enable her to provide additional insights and best practices to our local clients in Tampa Bay.

Christine is a Senior Manager at CBIZ MHM Tampa Bay and has worked extensively in all aspects of audit, review and compilation engagements, as well as SEC reporting. Most recently, Christine has been spending a significant amount of time working in the Accounting Advisory practice and additional areas of technical consulting for MHM in the Northeast.



February 12, 2016

CBIZ MHM Tampa Bay hosted a Not-For-Profit Seminar in their ongoing series last week on Best Practices in Executive Compensation. This session covered the basics of executive compensation and planning concepts through real-world examples and case studies.

With the ever changing not-for-profit employment landscape, attracting talent demands creative rewards, energizing retention, and compliance. Ed Rataj, Managing Director in the Compensation Consulting Practice at CBIZ, discussed what CFOs should know regarding rewards, retention, and regulation.

Ed covered how to protect executives and board members from personal liability, trends in not-for-profit compensation, case studies, highlights of the proposed FLSA revisions, and the new overtime regulations. He also advised on what actions organizations should be taking now.

For more information on how to integrate best practices in planning executive compensation or compensation regulations impacting Not-For-Profit organizations, contact Ed Rataj at 314.692.5884 or erataj@cbiz.com.

To get on the invite list for future seminars in our Tampa Bay series, contact Craig Gilman at cgilman@cbiz.com or Tracey McDonald at tracey.mcdonald@cbiz.com.





February 10, 2016

The Memphis office is focusing on different specialties and services by featuring a Q & A with one of our local experts each month.

Linda Lauer serves as Lead Managing Director and Co-Attest Practice Leader and leads the employee benefit plan (EBP) audit practice in Memphis.  With more than 25 years of experience in accounting and employee benefit administration, Linda has become a well-known source of EBP knowledge in the Memphis area.

Not only does this series allow you to get to know Linda on a more personal level, but Linda also answers important questions like “What should you ask your benefit plan auditor?”  The conversation continues with Linda discussing the uniqueness of EBP audits, common issues found during EBP audits, and how companies should comply with ERISA.

More resources featured on Linda’s Conversation page include previously featured articles, an EBP audit whitepaper, and information on the audit quality study that was just released by the Department of Labor.

Read the full conversation by clicking here.




February 1, 2016

Lloyd Grissinger, Tax Practice Leader and Lead Managing Director for the Memphis office, was recently featured in an article from NBC News regarding charity-related deductions.

"Many taxpayers miss out on their share of charity-related deductions, because they don't pick up the little contributions they do throughout the year," said Lloyd.  "We all get involved in organizations that ask for volunteer efforts and food drives that involve you spending money not as a donation but as supplies."

Lloyd continues to speak on different examples of charitable donations and cautions individuals to track any and all information related to the donations.

To read the full article on CNBC.com, click the button below.

Lloyd focuses on large privately-held companies and portfolio companies of private equity groups with operations in multiple states and countries. He provides his clients with tax and consulting services, which include entity taxation, asset protection, transaction analysis, family wealth planning, income and estate tax planning, business succession planning, and entity structuring to reduce taxes.

If you have more questions regarding charity-related deductions, contact Lloyd at lgrissinger@cbiz.com or 901-685-5575.





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