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Striking Your Best Deal: Things to Look at on the Front End of Negotiating an EHR Vendor Contract

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Striking Your Best Deal: Things to Look at on the Front End of Negotiating an EHR Vendor Contract

Article Contributed by Christopher L. Richard, Gilpin Givhan, PC

Backdrop

Imagine you’re selling your practice . . . or leaving your practice . . . or retiring. You want to continue to have access to the patient records you’ve maintained through the practice over the years, and in fact, you have an obligation to do so. Under Rule 540-X-9-.10(1) of the joint guidelines of the Alabama State Board of Medical Examiners and Medical Licensure Commission, physicians are required to retain medical records “for such period as may be necessary to treat the patient and for additional time as may be required for medical-legal purposes.”[1]In addition, you must provide patients notice and a reasonable opportunity to request their records or request that they be transferred to another practice. It used to be you would maintain physical copies of these records in your practice office, a secure storage area, or by some other means. However, your patient records are now stored in an electronic health record (“EHR”) system maintained by a third-party vendor. Your third party vendor is planning to charge you a regular monthly service fee for the entire duration of time you have to keep the records. The alternative is an exorbitant one-time fee for you to obtain a copy of the digital patient records maintained in the EHR system. Neither option is particularly good, but the scenario provides an important opportunity to examine key contractual provisions you and/or your counsel should pay attention to when negotiating EHR and other vendor contracts.

I Have the Need . . . for Legalese

Contracts, especially vendor contracts, can be filled with overly-complicated, legalese-ridden language that tends to earn attorneys their fair share of grief. However, a good portion of this language is born out of experience and necessity. For one, attorneys tend to loathe repeating (or allowing) the same mistakes more than once (“Fool me once, shame on you; fool me twice, shame on me,” as the saying goes). Unfortunately, attorneys cannot anticipate every possible scenario that might unfold, but we often attempt to ensure that contractual provisions at least provide clarity in situations where past ambiguities have turned into disputes.

Secondly, attorneys do their best to memorialize what are often extremely complicated arrangements between their clients. Complicated structures frequently require complicated descriptions. Otherwise, a contract may be lacking in meaningful standards and may be no more useful that the “handshake” agreement that started the contract negotiation process.

With the (perhaps) optimistic notion that attorneys craft documents out of necessity according to the principles above, consider the following contractual provisions that are worth the extra attention in the contract negotiation process.

Important Contract Provisions

Ownership of Records; Rights to Use.  It should go without saying that you and your patients are the owners of your patient records, regardless of whether they are stored in, or on, your vendor’s software and/or hardware. Be wary of any contractual language that seems to give ownership rights in your patient records to the EHR vendor. By that same token, consider what rights your EHR vendor reserves to use and/or disclose information stored on their system. When intense scrutiny of tech company privacy practices is layered on top of HIPAA and increasingly restrictive state, federal, and international privacy laws, it’s worth an extra look to ensure you’re not allowing your EHR vendor to take any actions that would impact your obligations under applicable privacy laws.

Indemnification/Hold Harmless/Limitation of Liability.  Experience tends to show that contracting parties will listen and respond to reasonable concerns, especially when they are trying to earn your business. The same principles apply to the remedies provisions of vendor contracts. For instance, the initial contract presented may require you to “indemnify, defend, and hold harmless” the vendor against a host of liabilities that may be incurred by you or the vendor. It is almost always a reasonable request to have the indemnification language be mirrored between the parties. In other words, if you are required to indemnify the vendor for your negligence, gross negligence, or willful misconduct, they should be willing to indemnify you for their similar conduct.

In addition, the contract may limit the amount of damages recoverable to the total amount of payments you make for the vendor’s services under the contract, or the number of payments in a given time period (e.g., one year or the term of the contract). These limitations are not uncommon, and they are not necessarily unreasonable. However, it’s not the kind of limitation you want to discover after you’ve encountered some significant financial harm and are expecting the other party to cover all the costs.  Similarly, it would be untenable to accept unlimited potential liability to your EHR vendor when they are putting fairly extensive limits on their liability to you.

Termination Provisions.   Now, back to where we started: what happens when you are attempting to terminate your practice or a relationship with an EHR vendor? As an initial matter, it’s worthwhile to consider your options to terminate the contract before the term is over. All too often, I’ve seen clients stuck in long-term contracts with little or no option to terminate. Obviously this is a matter of economics for the vendor. They have up-front investment costs that have to be recouped over the life of the contract, which hopefully (for them) is a long term. However, consider options to terminate the contract for “good cause.” It’s also worthwhile to consider including an illustrative list of items that constitute “good cause,” in an effort to avoid arguing about what “good cause” means when you elect to terminate the contract. In addition, consider a no-fault termination provision, which may be acceptable to both parties if there is a reasonable notice period before the contract can be terminated.

Lastly, consider what your options are to preserve the records or get them out of the EHR system upon termination of the contract. In the example above, you may be caught between a rock (continued EHR service fees for the required record retention period) and a hard place (a costly one-time fee to obtain a copy of the records). Again, these deal points can (and should) be negotiated on the front end of the arrangement with the EHR vendor, especially if you foresee a change in your practice (e.g., retirement) in the near future. An acceptable solution likely looks different for each individual physician or practice, and their respective vendors, and could vary based on the timing (early vs. end of contract term) and reasons (retiring vs. transferring to new vendor) for terminating services. Concepts like these should be considered to address this issue and other contractual issues on the front end of the agreement, rather than when the relationship has soured or ended.

Conclusion

The contracting process can be tedious, frustrating, and at times can seem unnecessary, especially if both parties “seem to be on the same page.” However, there are great benefits to a well-conceived contractual relationship. These may include robust and meaningful standards of performance. They may also include reasonable provisions and limitations on indemnification, liability, and damages, or even a plan for what happens when the relationship is terminated. At any rate, they should be tailored to meet the parties’ needs and should be a help, rather than a hindrance. They simply require some attention from the parties on the front end of the contract.Please note that the information provided in this article does not, and is not intended to, constitute legal advice; instead, all information, content, and materials contained herein are for general informational purposes only.  Readers are encouraged to contact their attorney to obtain advice with respect to contract negotiations or any other particular legal matter.

[1] Although there is no specific retention period, the Board of Medical Examiners suggests keeping patient records for at least 10 years or otherwise consulting with the malpractice liability carrier to determine an appropriate record retention period.

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Staff Retention Leads to a Successful Practice

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Staff Retention Leads to a Successful Practice

I visit many practices throughout the year performing medical practice assessments.  One of the first items to review is staffing levels, length of service and each staff member’s role.  The administrator is a key component to engaging the staff.  Increasing the level of staff engagement can raise productivity 20% and reduce the probability of a staff member leaving by 87%.

Administrators who hire an employee for a specific position which is detailed in a job description makes the first step to communicating effectively.  Proper preparation for onboarding is essential to adding value to the employee/employer relationship.  The first day should begin with orientation, discussion of the handbook, employment paperwork and the introduction of the training plan.  More than 5% of employees leave a new job due to a disastrous first day.  It is important to equip a new employee with the tools to learn the job, such as a mentor and a checklist of key tasks they should be able to perform within a 90-day probationary period.

Once an employee is past the probationary period, goals should be set for development.  Ongoing communication and training are essential to engaging the employee and creating buy-in within the organization.

Annual evaluations are useful in rewarding good performance, and also setting goals for development.  An evaluation should not be the first time an employee learns of a performance problem.  Problems should be addressed at regular intervals with specific directions for improvement.  The evaluation should only report the need for continued improvement or acknowledgment of success.

During an office review, I sometimes find the administrator has simply turned new staff members over to the most knowledgeable employee. If the seasoned employee was not trained effectively, how successful could he or she be at preparing the new employee? The better performing practices have an effective training program, regular staff meetings and incentive programs to engage the staff.  I recently assisted a practice that had lost several key employees; they were paralyzed.  They could not even generate financial reports to realize the extent of their problems.  Your staff is your most valuable asset and losing them can be costly. It can cost 150% to replace a valuable employee considering loss of production and training time.

Cross-training staff to perform multiple task is a good way to assure you can get through a short-term absence or the timeline to replace an employee. Documented best practice workflows should be obtained from your practice management vendor and EHR vendor to ensure you can train appropriately. We are assisting practices in changing their employee bonus structure to reward performance and buy-in. Take care of your best asset, the staff you have trained and who know your practice. Warren Averett can assist you with all your recruiting and staff management projects.

MBI Transition Ends This Month: WILL YOU BE PAID ON JANUARY 1?

The 21 month transition period will end on December 31; use Medicare Beneficiary identifiers (MBIs) now.

  • You are currently submitting 86% of claims with MBIs.
  • Get MBIs from your patients and through the MAC portals (sign up) now and after the transition period. You can also find the MBI on the remittance advice.
  • Protect your patients from identity theft – use MBIs.

Starting January 1, if you do not use the MBI (regardless of the date of service) for Medicare transactions:

  • We will reject your claims with a few exceptions
  • We will reject all eligibility transactions

See the MLN Matters Article for more information on getting and using MBIs.

Article contributed by Tammie Lunceford, Healthcare and Dental Consultant, Warren Averett Healthcare Consulting Group. Warren Averett is an official Gold Partner with the Medical Association.

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Better Together: Physician-Lead, Team-Based Care

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Better Together: Physician-Lead, Team-Based Care

Working as a team is unquestionably the best and most efficient way to maximize the skill sets of a specific group of people. In medicine and depending on the particular needs of the practice, a team-based approach can include various combinations of physicians, nurses, physician assistants, pharmacists, social workers, case managers and other health care professionals. The unique strengths and perspectives of each team member are an asset when providing the safest, best possible care to patients. The best place for physicians to learn how to work as a team is while they are still in training.

“So in a residency world, the team in a hospital setting is going to be the attending physician, usually one or two upper-level residents, and then usually two first-year residents. And in this setting, we have a couple of medical students. That’s our team,” explained Tom Kincer, M.D., Director for the Montgomery Family Medicine Residency Program. “The way that team works in the hospital setting is built on varying levels of responsibility so that as students and residents gain more knowledge and more skills, they’re given more independence yet have oversight of upper levels. So the first-year residents have oversight by the upper-level residents, and the upper-level residents have oversight by the faculty physicians.”

According to Dr. Kincer, the Montgomery Family Medicine Residency Program’s success has been built on this hierarchy of educational independence that has worked for many years and allows for a “symbiotic relationship” between a  mix of disciplines in health care that is patient-centric but always led by a physician. For Dr. Kincer, the ultimate goal of a physician-led team-based model of care will always be to affect change in the health of the population. To do this, there are numerous hurdles to overcome.

“So the team-based model for population health is the best model for patient care,” Dr. Kincer said. “When it comes to providing that one individual patient the best care possible because they can have a physician, right? They could have the physician, lead nurse practitioner, or the pharmacist, or the social worker, or the occupational therapist. All of that is part of the bigger team, but the problem comes in a fee-for-service model with MACRA. How do we pay for all that? Physicians can’t afford to pay for everything out of their pockets, because there’s no direct reimbursement. Once we tackle that, I don’t think we can move forward with a true team-lead model. But it doesn’t exist unless you’re in a health care facility that’s willing to sponsor this team-based model. There are too many competing forces against it.”

While it may appear that the deck is stacked against the physician-led team-based model, as Dr. Kincer noted, if there is a health care facility willing to sponsor it, the advantages to the community are overwhelming.

Perhaps the most frustrating stumbling block in modern medicine today is access to care. For patients who do not have a physician of their own, these patients will use a hospital’s emergency department for all the wrong reasons. Not only does this cause lengthy wait time for patients who need emergency services, but it creates billions in health care treatment costs over time for the hospital. Dr. Kincer’s solution? Spend some money to save not only money but also lives in the long run.

“It’s very difficult for a private practice, primary care physician to have a team-based approach in their office. Other than maybe the physician, a nurse practitioner and their staff. In that model, people need to work to their highest level. So the physician needs to be taking care of patients that require that expert level from the physician, and the nurse practitioner needs to be working at their level and so on to allow the physician to work at their highest level. All this allows the staff to do some of the things the staff needs to do, whether that’s teaching the staff how to apply for drug assistance programs, or to have patients come in and monitor without them actually having to see the nurse practitioner or their physician. If the physician or the nurse practitioner is not seeing the patient, they’re not generating income. There’s got to be enough volume going through the physician and the nurse practitioner over the PA to be able to generate an income to run the office,” Dr. Kincer said.

In an employed physician model, it begins by playing to the institution’s strengths and weaknesses. If the revenue in one department is higher than another, there needs to be a fundamental understanding that the institution can’t work without all departments at the top of their game, so it comes down to budgeting.

“After you find out what the goal of the organization is, you can utilize your resources better for a stronger team-based care model. Certain parts of that model are profit-creating and other parts are patient-oriented that don’t really make the profit, but you can still support the whole team. That’s how most residency programs function as part of the bigger system,” Dr. Kincer said.

The model he created for Baptist Health to use for the Family Medicine Residency Program in Montgomery is called the Care Advisor Program. By identifying a specific group of 250 patients from the tri-county area with chronic illnesses and no insurance who tend to use the emergency department instead of a regular physician to monitor their health issues, the program instituted a team-based model and brought them into their office. Here, patients have access to physicians, nurses, social workers, pharmacy, labs, x-rays, etc., at no cost.

“What we’ve been able to do in our Care Advisor Program in the past 10 years is to save our hospital system about $6 million a year by providing these patients with free medical care. However, it cost us about $4 million a year to take care of this population, but in return, it saves us $6 million a year because prior to the program, it cost the hospital $10 in ER visits to take care of this population that was uninsured. Now with our team-based approach out of the residency program, which is run very efficiently, we’ve taken the average number of ER visits and hospitalizations combined for each patient from 10 to 12 visits a year to less than one per year. The patients get their care in the office, their medications, and follow-up care. We’ve cut expenditures and improved the health of all these patients. The average patients stay in the program for about two years, and their health is improved. Now THAT is population health,” Dr. Kincer said.

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Outpatient Visit Evaluation & Management Changes for 2021

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Outpatient Visit Evaluation & Management Changes for 2021

For more than 25 years, the American Medical Association has utilized the 1995 or 1997 guidelines for Evaluation and Management (E/M) services in the Current Procedural Terminology (CPT).  The E/M codes have expanded over the years but until now, there has been no update to the elements, in which, we choose a level of service. The Centers for Medicare and Medicaid Services in partnership with the American Medical Association (AMA) collaborated on changes to reduce the administrative burden in documenting outpatient visits for new and established patients.  

The revised guidelines pertain to the new patient codes 99201-99205 and established patient codes 99211-99215.  The revision was announced as part of the 2020 Physician Fee Schedule but does not occur until 2021 due to the many preparations to support this endeavor. The AMA is actually updating the code description for the specified codes, which affects all carriers, not just CMS.  The 99201 code is eliminated for 2021; the remaining codes will retain reimbursement for each code, which is a change from the proposal to condense some codes to a combined rate.  

The inclusion of time has been an explicit factor in the definitions of E/M services in the CPT codebook since 1992.  Beginning in 2021, with the exception of 99211, time alone may be used to select the appropriate level of service. For coding purposes, total time includes both face-to-face and non-face-to-face time spent by the physician or other billable healthcare professional the day of the encounter.  Total time does not include staff preparation time.  

Physician or other provider professional time includes the following:

  • Preparing to see the patient (review test, past visits)
  • Obtaining or reviewing separately obtained history
  • Performing a medically appropriate exam
  • Counseling and education for the patient/family
  • Ordering medication, tests or procedures
  • Referring and communicating with other providers
  • Documenting clinical information 
  • Independently interpreting results (not separately reported) and communicating results
  • Care coordination

Another option for choosing the level of the new or established E/M in 2021 is medical decision-making.  Medical decision-making has always been an element in the level of each new and established visit but never as a standalone element.  The concept of MDM does not apply to CPT 99211. When using MDM in selecting the level of the visit, the documentation should reflect the number and complexity of diagnosis addressed in the encounter.  The amount and complexity of data reviewed or analyzed is also required. The risk of morbidity should be documented to support the level of medical decision-making.  

These changes will most likely reduce the administrative burden for all specialties, but it is also disruptive.  The implementation of electronic medical records has had a huge impact on workflow at the physician/provider level as well as the staff.  Large and small practices have spent time developing comprehensive templates, triage teams, scribe teams, etc. to reduce the physician burden and feed quality data to the EMR.  Each practice will need to analyze the process in which they prepare a patient and how they decide medical necessity of history obtained. Each provider has a different patient schedule; in the past time spent with the patient was explicit.  In 2021, billing on total time spent could send a message of compliance. If a provider sees 25 patients a day coding a level 4 visit, they would be stating they spent 49-60 minutes per patient or 20 hours on that date of service inpatient care.  I do not anticipate providers seeing a higher volume of patients will bill on total time, it is not a common practice for providers to assess time spent with each patient.  

Most providers will probably code using the medical decision-making component. In the past, providers could reach a level 4 established visit based solely on the history and exam, which is not so in 2021! There will be prolonged service codes available to bill in addition to a new or established visit in cases when extended direct patient time is spent with clinical staff and supervised by the physician. 

Managers will spend 2020 assessing the many facets to consider the 2021 changes.  How will they maintain quality data entry in the EMR without the many clicks feeding the data?  Providers may use voice recognition to transcribe the medical decision-making as they did before the EMR.  In a potentially massive cost rebalance, CMS also finalized the relative value units (RVU) for the group of oft-used E/M services, which will determine 2021 pay rates. The RVU changes, for example, would boost payments for code 99214 – the most-reported E/M code – from $109 to $136 per claim, a 25 percent increase. Rates for 99213 would jump nearly 30 percent.  

Changes could occur before 2021, but it’s not likely we will move totally away from the decisions already made by CMS and the AMA.

Article contributed by Tammie Lunceford, Healthcare and Dental Consultant, Warren Averett Healthcare Consulting Group. Warren Averett is an official Gold Partner with the Medical Association.

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What Are Some Common Challenges and Solutions for Medical Practices?

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What Are Some Common Challenges and Solutions for Medical Practices?

Regulatory compliance and technology are changing the landscape of the health care industry. New technologies, revenue cycles resolution and changes in leadership can all have a positive impact on your practice. Are you prepared to take on these new opportunities? In this article, Tammie Lunceford answers a few questions about how the landscape is changing and how facing these changes can help breathe new life into your practice.

Question: What are some of the common challenges you have seen in medical practices recently?

Answer: I often see revenue cycle problems. It is more difficult now than ever to get paid by the carriers and by the patient. As you know, we’ve had a shift from the carrier paying all of the health claims to now the patient has more responsibility over the costs, and it can be difficult to ask patients for money. Physicians are there to serve the patient and many feel uncomfortable asking the patient for money. I also see problems with adopting new technologies that are available, and problems where too much responsibility is on the front office…having them answer the phone and also deal face-to-face with the patient, which can be challenging. We also have seen a lot of highly qualified managers (Baby Boomers) leaving the market, which can lead to issues with changing leadership.

Question: Can you describe a couple of examples you’ve seen in medical practices where, with a few small changes, you saw a big impact.

Answer: I work with both large and small practices, and I have a couple of stories that I could share. One from this year was a Practice Assessment for a new client. The manager was overwhelmed because the practice had doubled in size over a four-year period. The physicians were overwhelmed because they were finding themselves making decisions for a large practice when they had been a small practice for so many years. Their revenue cycle manager, who had been very loyal to the practice, was not qualified to handle the new load, and were having some financial issues. MACRA was approaching as a big project and that they had no idea how to attempt that undertaking. Plus, throughout their growth, they had failed to build the appropriate infrastructure to adequately support the practice, like hiring a mid-level manager or supervisory staff to assist the manager in staying highly effective. So, after I identified these problems during the assessment, I worked closely with the group and over a short period of time we recruited and hired a revenue cycle manager who was effective and innovative. The practice’s profitability has increased, they relieved the front desk staff from answering the phones and allowed them to focus on the patients standing in front of them. Through coaching the group and the manager, they have been able to work more cohesively and make better decisions. They’ve identified some team leaders to lead other areas, and they are doing great. They are approaching projects more on their own now, but I’m still their advisor and have built a long-term relationship and I know we will continue working with that practice.

We also work with smaller practices. We received a call from a physician who was leaving a large practice and going out on her own to form a “boutique practice.” I assisted her early in her practice. She couldn’t afford a high-level manager to help her make decisions, so I became her advisor. I continued this over a five-year period and we have taken her from being too small to hire a manager to hiring a manager, to hiring to mid-level providers, and now we are about to hire a partner for her. I love forming these lasting relationships with managers and providers.

Question: What new changes are we seeing in healthcare as we move forward into the next few years?

Answer: Because we’ve seen a decline in reimbursement and collections over the last few years, it can be difficult for us to get physicians to invest in their practice because many are afraid. They want to hang on to their money rather than investing in their practice. They really don’t know where we are going in the future of healthcare, there are changes in the payment models, administrative burdens are at their highest, and manager and physician burnout is at its highest. There has never been a time where I’ve seen practices need advisory services more than now. I think with technology growing as quickly as it is, we will need to guide these physicians on what technologies they should incorporate and invest in to keep their practice vital.

Article contributed by Tammie Lunceford, Healthcare and Dental Consultant, Warren Averett Healthcare Consulting Group. Warren Averett is an official Gold Partner with the Medical Association.

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How Can You Use Financial Metrics to Improve Profitability?

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How Can You Use Financial Metrics to Improve Profitability?

There are many factors that can help your practice maintain financial profitability. It is especially important to review the structure of your financial statements to properly assess and optimize the health of your practice. Recently, we sat down with one of our healthcare experts, Miko Kulovitz, to discuss how important financial reporting can be to practice and what you can do to improve it.  We have outlined our conversation here:

Question: What are some of the common changes you recommend for a medical practice when you first look at its financial statements?

Answer: When we first look at the financial statements, we want to determine the health of the practice. Are they doing well? Are there areas we could improve? And those financial statements don’t always give us the information we need. A majority of practices use accounting software that is similar to QuickBooks, and that set-up isn’t always the best set-up that is going to show the medical practice how the financials need to be arranged. So when we come in, we’ll typically start with the construction of the financial statements and consider if the information is put together in a way that’s going to be useful to the physicians in making decisions and really driving the practice.

Question:  What does that generally look like?

Answer: We really want to be able to see what the operating net income is, aside from the physician expenses. We also want to be able to track by location how each division is doing. We want to see the profitability by provider. So there are a number of metrics that we need to make sure that we can track and have the financial statements divided in a way that presents that information to us.

Question: What are some of the financial metrics and practice profitability metrics that you like to monitor when you begin working with a practice?

Answer: There are a lot of key metrics that we review⁠—from the financials to the revenue cycle management. We want to look at the practice as a whole, see how it is doing and find out how it stacks up to peers on a state level and a national level. We really want to make sure that a practice’s metrics are in line with what other practices of a similar size and specialty are doing.

We also want to make sure that A/R aging is the youngest that it can be. We don’t want A/R to age into older categories because that makes it a lot harder to collect, and we want to see the days in A/R. We want to make sure that money is collected as fast as possible and that the cash flow cycle is healthy. We want to look at the financial statements and see what the overhead percentage is. We want to look at those individual expense categories and see if the larger items, such as the salary, benefits and medical supplies, are in line with what we are expecting to see. And because we work with financial statements of physician practices on a daily basis, we know what those parameters are; so, those anomalies will often stand out to us and help us pose the right questions so we can do the research and see if there are things that we need to explain further.

Question: When you work with medical practices, one of the key things that the physicians are focused on is the compensation formula. Could you make some comments about the common compensation formula structures that you see and what is effective in a practice?

Answer: There is no one-size-fits-all method to compensating the physician. Every practice is different, every specialty is different. So, we really want to take a look at what makes the most sense for that particular practice. The compensation model should be set up in a manner that incentivizes the behavior that’s best for the practice and also rewards the physicians for the work that they are doing. We want to make sure that the compensation model is compliant with Stark Law, that there are no issues that would be a detriment to the practice and that the compensation model is fair. A lot of times, there are issues in which the model is not achieving the goals that the practice wants to achieve, so we really want to take a look to see if this model is performing as we need it to perform and if it is accomplishing those goals.

Question: I would assume a single-physician practice compensation model is not really a big deal. When you get larger and larger, are there some creative ways you’ve seen practices compensate their physicians?

Answer: Again, there are many different ways to do that. The main thing is to focus on the revenues, allocate those appropriately and make sure that the practice is compliant. Also, with the overhead, it’s going to be a matter of the practice’s preferences and what makes the most sense. Some practices split overhead evenly, and some might allocate a percentage of variable or percentage of fixed. Again, there are many ways to slice that. It is really important that we talk to the physicians and get to know the practice to be able to help guide them in a direction for what plan is going to work best for them.

Article contributed by Miko Kulovitz, Healthcare Senior Manager, Warren Averett Healthcare Consulting Group. Warren Averett is an official Gold Partner with the Medical Association.

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The Delivery and Confidentiality Challenges in Rural Health Care Explained

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The Delivery and Confidentiality Challenges in Rural Health Care Explained

Medical practices in rural settings face a host of concerns, such as how emergency protocols may differ from urban areas, difficulty in finding nurses (according to a recent Friday Letter from the Alabama Hospital Association, registered nurses are the third most in-demand jobs), and difficulty in finding appropriate training for staff.

In small towns/rural settings, where “everyone knows everyone,” confidentiality is also at the forefront, especially where patients are known by staff members.

The Health Insurance Portability and Accountability Act of 1996 (HIPAA) requires employees to be trained so they understand privacy procedures. According to the “Questions and Answers” section of the U.S. Department of Health & Human Services website, http://answers.hhs.gov, “the training requirement may be satisfied by a small physician practice’s providing each new member of the workforce with a copy of its privacy policies and documenting that new members have reviewed the policies; whereas a large health plan may provide training through live instruction, video presentations, or interactive software programs.” For more information, please visit the Department of Health and Human Services’ website at https://www.hhs.gov/.

Below are some tips to lessen your risk recommended by risk management experts:

Confidentiality

Written policies and procedures will help reduce the risk of a breach in patient confidentiality. To help preserve patient confidentiality, it’s important for all staff members to:

  • Never discuss cases or patients where conversations may be overheard.
  • Never leave case files, consulting reports, or any other written material regarding patients in areas where other people may inadvertently see them.
  • Only allow medical records to leave the facility when absolutely necessary.
  • Keep all patient information confidential.
  • Sign a confidentiality statement as a condition of employment and annually at the time of their performance evaluations.

In general, the HIPAA Privacy Rule (“Rule”) prevents physicians and other health care providers from using or disclosing any protected health information unless they have obtained permission from the patient or the Rule allows disclosure without the patient’s permission. HIPAA rules are voluminous, complex and can be revised yearly; it’s prudent for practices to consult their corporate attorney to help ensure HIPAA
compliance. The following is a very brief overview of HIPAA with regard to the release of patient information.

Patient authorizations grant permission to release patient health information. To be considered valid, an authorization must be in plain language and include the following elements:

  • a description of the information to be released;
  • the name of the person or organization authorized to release the information (e.g., Dr. John Smith, Smallville Cardiology Clinic);
  • the name of the person or organization to receive the information (e.g., the patient’s attorney, the patient’s employer);
  • the purpose of the disclosure* (e.g., “at the request of the patient” is sufficient when the patient initiates the authorization);
  • the expiration date or event (e.g., “end of the research study,” or “at the conclusion of the subject litigation” is sufficient);
  • a statement of the patient’s right to revoke the authorization in writing;
  • a description of how the patient may revoke the authorization and exceptions to the right to revoke;
  • a statement that the physician may not condition treatment on whether the patient signs the authorization;
  • a statement acknowledging the information may be re-disclosed by the recipient and no longer protected by the Rule;
  • a signature by the patient and the date; and
  • if the authorization is signed by a personal representative, a description of the representative’s authority to act for the patient.

Patients can revoke authorizations at any time except when they have already been acted upon. Authorizations must be maintained for at least six years.

*This may be prohibited by state statute.

Access to Protected Health Information

With a few exceptions, HIPAA gives patients the right to inspect and make a copy of information maintained in their record. Practices must act on a patient’s request for access within 30 days of the request (60 days if the records are kept off-site).

A reasonable, cost-based fee is allowed for copy requests. This fee may only include the costs of copying (supplies and labor) and postage. Many states have rules limiting the amount a practice may charge for copying a medical record. Be sure to review Alabama’s state rules regularly as some are adjusted annually.

When an attorney makes a request for records, have the physician review the request and the patient’s records so that he or she can take the appropriate action and notify his or her ProAssurance Claims Specialist. It is prudent to establish a screening process to help ensure the physician is notified of requests for records from attorneys.

Resources

The United States Department of Health and Human Services Office for Civil Rights enforces HIPAA. Its website provides helpful HIPAA compliance information and a“frequently asked questions” page on HIPAA Privacy regulations. Access the website at hhs.gov/ocr/privacy.

State Patient Confidentiality Laws

HIPAA preempts state laws that are less stringent than HIPAA, but states may enact laws that are more stringent than HIPAA. Consult your corporate attorney to ensure compliance with HIPAA and any applicable state patient confidentiality laws.

Physicians insured by ProAssurance may contact our Risk Resource department for prompt answers to risk management questions by calling (844) 223-9648 or via e-mail at RiskAdvisor@ProAssurance.com.

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Don’t Forget Your Risk Assessments!

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Don’t Forget Your Risk Assessments!

Many medical practices are planning their Security Risk Assessments for the new year. Whether to better qualify for the 2019 Merit-based Incentive Payment System (MIPS) or to fulfill obligations to comply with the HIPAA Security Rule, a strong strategy now will reap benefits later. It’s a good time to remember what is required when conducting a Security Risk Assessment, as there tends to be confusion around what the Risk Assessment should include.

Here are some helpful reminders as we move through the first quarter of the year:

It’s Not Just a Checklist. A proper Security Risk Assessment is a thorough process where a covered entity under HIPAA should identify, prioritize and estimate the risks to practice operations resulting from the use of or implementation of a specific technology. Once the risks are identified, a plan of mitigation should be created that provides a roadmap for ongoing risk management.

Don’t Just Focus on EMR. While your EMR system, and the safeguards in place to protect EMR data, should absolutely be part of the Risk Assessment process, time should also be spent analyzing and assessing the risk to protected data that sits outside the EMR system. Identify the ePHI in the practice that resides outside the EMR application (e.g. files stored on users’ personal computers, data stored in ancillary systems, copiers and scanners, etc.) and assess the risk associated with this data as part of the assessment.

No Specific Methodology Required. While OCR has provided practices with guidance regarding the Security Risk Assessment Requirement, there is no mandatory process or method by which a practice must follow to comply with the requirement. However, most security professionals recommend following accepted industry frameworks, such as those provided by the National Institute of Standards and Technology (NIST).

Revisit Previous Risk Assessments to Show Progress. When conducting a new Security Risk Assessment, review past analysis and make an effort to document progress made with regards to risk mitigation. As the spirit of the Security Rule has always been to encourage covered entities to use the Risk Assessment as a starting point for ongoing Risk Management, documenting progress made will show the practice doesn’t simply consider the Assessment a rote exercise but a vital part of managing and mitigating risk on an ongoing basis.

You Don’t Have to Outsource Your Security Risk Assessment. OCR is very quick to point out there is no requirement, neither in the Security Rule nor under MIPS, for covered-entities to outsource their Security Risk Assessment. In fact, OCR has published a free, downloadable tool that practices can use to help with efforts to fulfill requirements (https://www.healthit.gov/topic/security-risk-assessment-tool). However, OCR does go out of its way to explain the time commitment and skillset required to adequately evaluate and utilize the tool, and encourages all covered-entities to seek professional assistance when considering using these resources to self-perform the Security Risk Assessment.

A thorough Security Risk Assessment must stand up to an auditor or investigator, especially in the event of a security incident. A lack of proper Risk Analysis is cited in many investigative findings that have also carried large financial penalties. Take the time to consider how your practice will approach the Security Risk Assessment in 2019, and consider it as an opportunity to genuinely look at where you might be vulnerable and how the Assessment can be used as a springboard for true Risk Management.

References:

https://www.healthit.gov/topic/privacy-security/security-risk-assessment-tool

https://www.cms.gov/Medicare/Quality-Payment-Program/Resource-Library/2018-Cost-Performance-Category-Fact-Sheet.pdf

https://www.healthit.gov/topic/privacy-security/top-10-myths-security-risk-analysis

Nic Cofield is Director of Client Services with Jackson Thornton Technologies LLC (JTT). JTT is one of the Southeast’s leading providers of managed IT services, cybersecurity services/consulting and IT Risk Assessments to health care providers. JTT is wholly owned by Jackson Thornton CPAs & Consultants, which is a partner with the Medical Association.

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The Tax Cuts and Jobs Act: How It Still Affects You

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The Tax Cuts and Jobs Act: How It Still Affects You

Editor’s Note: This article is a follow-up to The Tax Cuts and Jobs Act – How Will It Affect YOU? published in the Winter 2018 issue.

On Aug. 8, the IRS issued proposed regulations for the newly created Section 199A 20 Percent Qualified Business Income (QBI) deduction. 199A has been one of the most talked about aspects of the Tax Cuts and Jobs Act since its passage last December. This provision of the act was included in the tax reform bill in an attempt to give pass-through entities (such as partnerships, LLCs and S corporations) and sole proprietorships similar tax savings that were provided to C Corporations (C Corp tax rates were reduced from a high of 35 percent to a flat 21 percent). The new 20 percent QBI deduction is effective for the 2018 tax year through 2025.

Although the new tax deduction is generous, the structure of the deduction is complicated with many limits, phase-ins, and phase-outs. Whether or not you will be able to take the deduction depends upon many factors, the key being your personal taxable income. Other factors include wages paid by the practice, the value of business property, nature of income, etc.

Physicians are especially impacted by limits on the deduction since the income is earned from what the law labels as a “Specified Service Trade or Business” (SSTB).

What is a Specified Service Trade or Business (SSTB)?

Most unincorporated business owners, partners and S Corporation shareholders benefit from the 199A deduction. However, Congress precludes some higher-income business owners from taking the deduction if the income is earned from an SSTB.

An SSTB is a trade or business involving the performance of services in the fields of health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, investing and investment management, trading, dealing in certain assets or any trade or business where the principal asset is the reputation or skill of one or more of its employees. Per IRS regulations:

The term “performance of services in the field of health” means the provision of medical services by physicians, pharmacists, nurses, dentists, veterinarians, physical therapists, psychologists and other similar health care professionals who provide medical services directly to a patient. The performance of services in the field of health does not include the provision of services not directly related to a medical field, even though the services may purportedly relate to the health of the service recipient. For example, the performance of services in the field of health does not include the operation of health clubs or health spas that provide physical exercise or conditioning to their customers, payment processing, or research, testing and manufacture and/or sales of pharmaceuticals or medical devices.

Based on this definition, physician practices are considered SSTBs, and therefore, limits apply on the available deduction.

How does the deduction work?

The QBI deduction is based off “pass-through income,” income reported on a Schedule K-1 earned from partnerships, LLCs and S Corporations or if a sole proprietor, what is reported on Schedule C of Form 1040 individual income tax return. Wages reported on a W2 or guaranteed payments paid to partners do not qualify as QBI. It excludes any investment-related items, such as interest, dividends or capital gains or losses from the sale of property. The maximum deduction available is 20 percent of QBI.

Although the deduction is calculated based on income earned from a trade or business (i.e. – the physician practice), the actual amount of the deduction is dependent on the taxable income of the individual. Most physicians with taxable income over $415,000 filing a joint return will be hard-pressed to qualify for the deduction. As such, it is possible for a large group practice to have some physicians qualify for a QBI deduction and some not qualify when there is a large variation in income among the owners.

The deduction itself is claimed on Form 1040 individual income tax return. Form 1040 will include a new line for the deduction in arriving at taxable income.

How do I know if I qualify to take the deduction?

The deduction is fairly simple and straightforward for individuals with married filing joint taxable income of $315,000 or less ($157,500 or less if filing single). Those taxpayers receive the full 20 percent QBI deduction. Above those taxable income amounts, the 20 percent QBI deduction becomes subject to a tangled web of limitations, phase-ins, and phase-outs. Individuals with income from SSTBs (i.e. physician practices) are subject to even more limitations that, depending on the individual’s taxable income, quickly eliminate the 20 percent deduction altogether.

Let’s first examine the limits applicable to both service and non-service businesses alike once taxable income exceeds the limits noted above. The 20 percent qualified business income deduction is limited by the greater of:

  • 50 percent of W2 wages paid by the qualifying business or
  • 25 percent of W2 wages paid plus 2.5 percent of unadjusted basis of all qualified property.

These limits are phased in for joint filers with taxable income greater than $315,000 but less than $415,000 ($157,500 / $207,500 for non-joint filers) and result in a reduced 1991A QBI deduction.

In addition to the above limits, the ability to take the 199A QBI deduction for individuals with pass-through income from a SSTB is completely lost once individual taxable income exceeds $207,500 if filing single or $415,000 if filing joint. Phase out begins at $157,500 filing single and $315,000 filing joint.

The chart at the bottom of this section summarizes the various limitations, phase-ins and phase-outs for both SSTBs and non-SSTBs.

To illustrate, assume Dr. A is a sole practitioner who files a joint return. Her practice is organized as a single-member LLC. The qualified business income as reported on Schedule C of Dr. A’s 1040 is $240,000 after wages paid to staff of $195,000. Dr. A and her husband’s taxable income for the year is $295,000.

In this example, Dr. A’s tentative 20 percent deduction is $48,000 ($240,000 QBI* 20 percent). Since Dr. A’s overall taxable income is less than $315,000, she is able to take the full deduction of $48,000 since neither the W2 phase-in limit nor the SSTB phase-out limit applies.

But what if Dr. A’s taxable income is over the $415,000 limit noted above? Since the medical practice is considered a SSTB and income is over the allowed threshold, Dr. A is not allowed to take any amount as a QBI deduction.

It is important to note 199A generally requires taxpayers to identify QBI on a business-by-business basis. Physicians who own interests in other non-SSTB pass-through entities may still qualify for a 199A deduction for that trade or business.

IRS Anti-Abuse Regulations

Various planning strategies have been considered by physicians and their advisors on how to avoid the SSTB limitation. Some of these strategies became known as “crack and pack,” which involved splitting a practice into separate legal entities to isolate non-medical activities to qualify for some amount of deduction. One of the entities would provide the medical services and the other entity would lease office space, provide billing services, or various other administrative functions.

However, the regulations issued by the IRS contain various anti-abuse provisions – one of which significantly limits the ability to segregate activities among various entities when there is common ownership among the entities solely to qualify for the 199A QBI deduction. The proposed regulations state if any trade or business provides 80 percent or more of its property or services to an SSTB, and if that other trade or business and the SSTB share 50 percent or more common ownership, then that other business is considered an SSTB too. For purposes of this anti-abuse rule, ownership is both direct and indirect ownership by related parties.

It is a common practice for various components of a physician practice to be held in separate entities, often for legal protection and tax planning. One such example is real-estate held in a separate entity and rented to the practice. This is still acceptable; the anti-abuse regulations just prohibit taking a 199A QBI deduction in such circumstances.

The regs contain various other anti-abuse provisions, such as treating non-SSTB’s as an SSTB if they share expenses/overhead with a 50 percent commonly owned SSTB. In addition, there will be increased scrutiny over changes in classification between employee versus independent contractor or partner/shareholder status due to the impact on qualifying for the 199A QBI deductions. Physicians should consult with their attorney/tax advisor prior to making any such changes in an attempt to take a 199A QBI deduction.

Planning Opportunities

Although not every physician will be able to take advantage of the new 20 percent QBI deduction, the Tax Reform and Jobs Act still provides numerous other tax breaks, such as an overall reduction in individual income tax rates, elimination of some itemized deduction limitations, increased depreciation deductions, etc. For those physicians under the SSTB thresholds noted above, now is the time to time to consult with your tax advisor to ensure optimization of the 199A QBI deduction.

  • Physicians under the SSTB threshold should review and evaluate the following items and discuss with their tax advisor and attorney:
  • Whether he or she is operating the practice in the most appropriate entity form to qualify/maximize the 20 percent QBI deduction.
  • Partners in a partnership currently receiving guaranteed payments should consider revising their partnership agreements and taking draws instead to increase QBI and the corresponding 20 percent deduction.
  • For S Corporations, review compensation agreements and ensure a reasonable compensation is paid for services provided (not QBI), and pay the remainder of income as a distribution (does qualify for QBI).

In Summary

This summary merely scratches the surface of the 199A 20 percent QBI deduction and was written in the context of physician practices. Although the regulations are still in proposed form and not expected to be finalized until later this year, the Department of the Treasury has provided sufficient insight and interpretation of the law to plan for its implementation.

Executive Summary

  • The new 20 percent QBI deduction is based on pass-through income earned from partnerships, S-Corps, LLC’s or sole proprietorships.
  • W2 wages/guaranteed payments do not qualify as QBI.
  • Deduction will be claimed on Form 1040 individual tax return.
  • Claiming the deduction will be difficult, if not impossible to claim for physicians with taxable income over $207,500 if filing single or $415,000 if married filing joint unless there are sources of income from other non-SSTB pass-through entities.
  • Newly issued IRS anti-abuse regulations limit the ability to split apart practice into various entities to isolate non-medical activities in order to take the deduction.
  • Physicians earning under the above thresholds should meet with their tax advisor and attorney now to maximize potential deductions for 2018.

Mark Baker is a Principal with Jackson Thornton CPA’s and Consultants in Montgomery, Ala. He may be reached by calling (334) 834-7660 or email Mark.Baker@JacksonThornton.com. Jackson Thornton is an official partner with the Medical Association.

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