Key Strategies For Protecting A/R Accounts

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By David Edward Marcinko, MBA, CFP©, CMP©

Whether they are due from patients, insurance companies, HMOs, Medicare, Medicaid or other third-party payers, accounts receivable (A/R) are the lifeblood of any medical practice. Unfortunately, it is not unusual for a podiatry practice to wait six, nine, 12 months or longer for payment. In fact, older A/R are often written off or charged back as bad debt expenses and never collected at all. Also keep in mind that A/R are often the biggest practice asset to protect against creditors or adverse legal judgements. A judgement creditor pursuing you for a claim may pursue the assets of your practice and A/R and cash are the most vulnerable assets. A/R are as good as cash to a creditor, who usually only has to seize them and wait no more than a few months to collect them. It is no wonder healthcare administrators like Rachel Pentin-Maki, RN, MHA, of West Palm Beach, Florida, feel the cash flow stream that A/R represent is an important practice asset that must be constantly monitored and protected much like any other valuable asset. Given the potential implications of lost A/R revenue on both the immediate cash flow and long-term survival of your practice, let’s take a closer look at managing these accounts and an array of strategies for protecting A/R from creditors. Taking A Proactive Approach To Monitoring A/R Typically, bad debt control occurs because doctors are too busy treating patients and/or their front office staff does not have or follow a written formal system of A/R control. Here are some questions you need to ask yourself. • Is there an A/R policy in place for the collection of self-pay accounts (de minimus/maximus amounts, APR, terms, penalties, etc.)? • Do employees receive proper A/R, bad debt and follow-up training within legal guidelines? • Are A/R exceptions approved by you or your office manager, or do they require individual scrutiny? • Are A/R policies in place for hardship cases, pro-bono work, co-pay waivers, discounts and no-charge cases? Are collection procedures within legal guidelines? • Are A/R policies in place for past due notices, the amount of telephone calls one should make, when to turn accounts over to collection agencies and when to turn accounts over to a small claims court, etc.? • Are guidelines in place for hospital consultations, unpaid claims, refiling of claims, appealing claims, etc.? • Are office A/R policies periodically revised and reviewed with employee input? • Does you agree with and support the current A/R guidelines in your practice? Why It Pays To Incorporate Your Practice Developing a proactive mindset to maintaining A/R accounts and preventing them from getting too far behind is commendable. However, it’s also important to look at long-term asset protection strategies as well. With this in mind, let’s take a closer look at what incorporating your practice can do for you. In medicine, certain types of property can’t be conveniently held outside of a practice’s business entity. However, far too many podiatrists are solo, unincorporated practitioners. This is especially the case in the industrialized Northeast, in states such as Maryland, Pennsylvania, New Jersey and Delaware. Nevertheless, assets, like accounts receivable, may cause tax and accounting difficulties unless one maintains these assets in corporate form. See “A Guide To Common Corporate Entities” below. If a podiatry practice becomes a corporation, it could be an Inc., Corp., P.A. or P.C., depending on the state in which the practice entity is organized. In addition, almost every state has enacted legislation to create limited liability entities, such as LLPs and LLCs that provide the liability protection afforded a corporation while having the attributes of a partnership. These entities are popular with physicians because they allow much flexibility with regard to buy-ins and buyouts, and in the allocation of practice income and practice deductions. However, if you have significant value in your A/R accounts, one strategy for protecting them is to create liens, secured by a loan against the A/Rs that will have priority over subsequent creditors. For example, podiatrists can make loans to the corporation for working capital or other needs. The loan proceeds are not taxable income to the practice and the interest payments on the loan are tax-deductible, making the effective cost of the loan considerably lower. In today’s low-interest climate, the effective interest rate can be as low as 3 to 5 percent.

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