One Physician’s Tax, Personal Problems Could Land on Your Practice’s Bottom Line

February 24, 2012

Beware: Your best efforts to protect your bottom line through compliant billing and strong collections can become undone because of the personal actions of just one of your physicians. As of October 2009, the IRS can garnish Medicare payments due to a physician for debts such as education loans, child support, alimony, personal taxes, payroll taxes, and other business transactions.

This expands the program, launched in October 2008, which allowed the IRS to offset Medicare reimbursements when the recipient has not paid taxes. When those payments are being reassigned to your practice, the financial hit goes right to your cash flow.

Note: Payments can be reduced by as much as 100% until the outstanding debt is paid in full or other arrangements are made to satisfy the debt, according to CMS. The IRS is willing to use this weapon in its arsenal. Don’t expect sympathy when one of your providers mistakenly fails to follow the tax code.

Example: An orthopedic surgeon is facing a garnishment of $90,000 that may take 10 years to repay because he received a payroll refund by mistake and didn’t return it, says Houston-based consultant Reed Tinsley, CPA.

One physician can hurt the whole practice The failure of one of your doctors to pay taxes or other debt can significantly affect the expected revenue of your entire practice, especially when other physicians don’t know about the debts, according to Maxine Lewis, CPC, president of Medical Coding Reimbursement Management in Cincinnati, Ohio. “It becomes a nightmare in a medical office. You have to give the patient credit but you don’t have the money in hand,” she points out.

What may be more disconcerting is that the agencies are working together to recoup the money owed to the government. No one knows exactly how many physicians could face garnishments, but the Government Accountability Office estimates between 5%-6% of Medicare providers have some sort of outstanding tax debt. Sen. Chuck Grassley (R-Iowa), ranking member of the committee on Finance, asked the IRS on Dec. 14, 2009, for an accounting of what it’s doing to collect these taxes and coordinate enforcement efforts with CMS.

Take 3 steps to protect your practice

There are three steps you can take to prevent or reduce the risk to your practice’s Medicare revenue:

  1. Make sure your physicians and other health care professionals know that their Medicare payments could be garnished for failing to pay personal debts and that could adversely affect the office. Let them know that what they think is a private matter may have an impact on the group.
  1. If a practitioner is subjected to wage garnishment, have a mechanism to account for it until the debt is paid, says Tinsley. You can add a line item to your accounting book or program, Tinsley suggests.
  1. Determine how to allocate salary or partner shares. Example: When you deduct amounts from a physician’s salary to address decreased productivity or a drop in revenue generation, include garnishments under the list of deductions or make an agreement to take it from physician bonus payments, says Lewis. Or the levy may affect the affected physician’s bonus payments. “You need some agreement,” she adds.

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