How To Avoid Financial Gridlock In A Group Practice
- Volume 17 - Issue 4 - April 2004
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What About Pursuing A More Flexible Corporate Structure?
Despite the availability of NQPs, we still see medical groups stuck in planning gridlock. Another way to solve this problem is to alter the practice’s legal structure so it allows individual physicians their own planning flexibility.
In the typical medical group structure, there is one legal entity, whether it is a corporation, LLC, or professional association (PA). Physicians are either owners of the entity (informally referring to themselves as “partners”) or non-owner employees. In all such cases, the physicians have no ability to separate themselves from the central legal entity. If the central entity does not adopt a planning strategy, no individual doctor has any flexibility to adopt it on his or her own.
If this is the case in your group practice, you might consider a superior structure in which the central entity is not owned by, nor employs, the doctors directly. Instead, each physician in the practice would have his or her own professional corporation (PC) or PA. In this scenario, the group is paid by the insurers and the group, in turn, pays the physicians’ PCs through 1099 independent contractor income.
Tax-wise, there is no downside to the central entity or to the doctors who are not motivated to engage in any additional planning. However, for the physicians who want to implement advanced strategies, they may do so through their individual PCs. They could implement their strategies at the PC level without affecting the central entity.
While this may seem simple, it is not. Experienced corporate counsel is required to navigate issues such as the state rules on the ownership of medical practices, the ERISA and other rules on affiliated services, as well as Medicare billing rules among other considerations.
Nevertheless, if such a planning effort results in the ability of physicians to put away anywhere between $10,000 to $50,000 more for retirement each year, it is obviously well worth the effort.
Seek Out The Advice
Of A Financial Planner
As noted previously, we speak to over 1,000 physicians each year, many of whom experience this planning gridlock. Unfortunately, the vast majority of them struggle to arrive at a solution to this problem. The only ones that are able to navigate past the gridlock have help, which typically comes in the form of counsel from outside advisors or consultants who convince the group to implement creative planning.
If you are personally grappling with financial gridlock in a group practice or would like to explore advanced planning options, keep in mind that your partners may prove to be the toughest hurdles to overcome. Experts in the field of tax, benefits planning or corporate law have the credibility and expertise to convince your partners to “see the light” in a way that fellow physicians cannot. Consider bringing in an expert to speak to your group in order to get a jumpstart on productive discussions.
Mr. Jarvis and Mr. Mandell are the authors of The Doctor’s Wealth Protection Guide (endorsed by the Florida Medical Association) and co-founders of Jarvis & Mandell, LLC (see www.jarvisandmandell.com). You can reach them at (888) 317-9895.
For a free tape on asset protection, retirement, and tax planning, please call 800-554-7233.