Joseph S. Eastern

Every medical office, even the smallest, should have a time clock, but a surprisingly large percentage of them do not. Although it is hardly a new innovation—the first commercial time clocks were built in the early 20th century by the company that later became IBM—the medical profession has been slow to adapt to this basic business practice.

There are two very good reasons why you should have a time clock. The first is obvious: to punch your employees' time cards. This is essential even if all your employees are paid weekly or semiweekly rather than by the hour.

The other (and possibly more important) reason, which we will come back to, is to punch in your patients.

In most states, any employee who works more than 40 hours in a given week must be paid overtime wages. Employees know this, and disgruntled ones have been known to file complaints stating that they worked hundreds of hours of unpaid overtime.

This may be completely untrue, but labor boards almost invariably side with employees in such disputes, unless the employer can produce time records that disprove the claim. A time clock is cheap insurance against a large, unexpected, and possibly unjustified payment to a former employee.

For part-time, hourly-wage employees, time records are even more important, as you obviously want to pay them only for the hours they work. If you are paying your part-timers for the number of hours they should be working without documenting how many hours they actually work, you could be paying for a lot of nonwork. Employees have little incentive to arrive on time, or to stay the entire length of their shifts, if they know they are being paid for a set number of hours anyway. And they certainly will balk at staying late if they can't count on being paid for the extra time.

Time clocks also work to the advantage of your employees: Since they will be paid only for the time they work, they will be paid for all the time they work. If any employees object to your installing a clock, point out that they will be assured of payment for fractional time worked past their usual hours—time which might have gone unpaid before.

As for your patients, a time clock is a great tool in the endless struggle to run on time, as I mentioned in a column addressing that subject 3 years ago. (If you missed “How to Run on Time,” go to www.skinandallergynews.com

As each patient arrives, have your receptionist time stamp the encounter form that goes to the back with the patient's chart. As you take each chart off the door and enter the room, one glance at the time stamp will tell you exactly how long that patient has been waiting.

Now you no longer have to guess how far behind you are—and you'll have an answer for the curmudgeon who insists he's been sitting there for 21/2 hours.

Time/attendance systems range from relatively simple to relatively complex.

My office has had an old-fashioned stamp-type time clock for 26 years, but nowadays you can get something far more sophisticated than that if you wish.

Many of the newer clocks will automatically calculate time between punches and add up total work time, and they can be configured for weekly, biweekly, semimonthly, or monthly pay periods. At least one will automatically deduct break time from the totals.

If you have a problem with “buddy punching” (employees punching in or out for each other), some clocks are equipped to recognize fingerprints or hand contours.

There are also electronic software systems, both Web based and in house, that can be deployed across a local computer network. They will print time sheets with employee hours and earnings calculated, and some will even interface with financial software such as QuickBooks and other third-party payroll services. (As always, I have no financial interest in any product or service discussed in this column.)

If you go the electronic route, make sure the software incorporates security measures to prevent time alterations by unauthorized employees. You can never be too careful.

Every medical office, even the smallest, should have a time clock, but a surprisingly large percentage of them do not. Although it is hardly a new innovation—the first commercial time clocks were built in the early 20th century by the company that later became IBM—the medical profession has been slow to adapt to this basic business practice.

There are two very good reasons why you should have a time clock. The first is obvious: to punch your employees' time cards. This is essential even if all your employees are paid weekly or semiweekly rather than by the hour.

The other (and possibly more important) reason, which we will come back to, is to punch in your patients.

In most states, any employee who works more than 40 hours in a given week must be paid overtime wages. Employees know this, and disgruntled ones have been known to file complaints stating that they worked hundreds of hours of unpaid overtime.

This may be completely untrue, but labor boards almost invariably side with employees in such disputes, unless the employer can produce time records that disprove the claim. A time clock is cheap insurance against a large, unexpected, and possibly unjustified payment to a former employee.

For part-time, hourly-wage employees, time records are even more important, as you obviously want to pay them only for the hours they work. If you are paying your part-timers for the number of hours they should be working without documenting how many hours they actually work, you could be paying for a lot of nonwork. Employees have little incentive to arrive on time, or to stay the entire length of their shifts, if they know they are being paid for a set number of hours anyway. And they certainly will balk at staying late if they can't count on being paid for the extra time.

Time clocks also work to the advantage of your employees: Since they will be paid only for the time they work, they will be paid for all the time they work. If any employees object to your installing a clock, point out that they will be assured of payment for fractional time worked past their usual hours—time which might have gone unpaid before.

As for your patients, a time clock is a great tool in the endless struggle to run on time, as I mentioned in a column addressing that subject 3 years ago. (If you missed “How to Run on Time,” go to www.skinandallergynews.com

As each patient arrives, have your receptionist time stamp the encounter form that goes to the back with the patient's chart. As you take each chart off the door and enter the room, one glance at the time stamp will tell you exactly how long that patient has been waiting.

Now you no longer have to guess how far behind you are—and you'll have an answer for the curmudgeon who insists he's been sitting there for 21/2 hours.

Time/attendance systems range from relatively simple to relatively complex.

My office has had an old-fashioned stamp-type time clock for 26 years, but nowadays you can get something far more sophisticated than that if you wish.

Many of the newer clocks will automatically calculate time between punches and add up total work time, and they can be configured for weekly, biweekly, semimonthly, or monthly pay periods. At least one will automatically deduct break time from the totals.

If you have a problem with “buddy punching” (employees punching in or out for each other), some clocks are equipped to recognize fingerprints or hand contours.

There are also electronic software systems, both Web based and in house, that can be deployed across a local computer network. They will print time sheets with employee hours and earnings calculated, and some will even interface with financial software such as QuickBooks and other third-party payroll services. (As always, I have no financial interest in any product or service discussed in this column.)

If you go the electronic route, make sure the software incorporates security measures to prevent time alterations by unauthorized employees. You can never be too careful.

Every medical office, even the smallest, should have a time clock, but a surprisingly large percentage of them do not. Although it is hardly a new innovation—the first commercial time clocks were built in the early 20th century by the company that later became IBM—the medical profession has been slow to adapt to this basic business practice.

There are two very good reasons why you should have a time clock. The first is obvious: to punch your employees' time cards. This is essential even if all your employees are paid weekly or semiweekly rather than by the hour.

The other (and possibly more important) reason, which we will come back to, is to punch in your patients.

In most states, any employee who works more than 40 hours in a given week must be paid overtime wages. Employees know this, and disgruntled ones have been known to file complaints stating that they worked hundreds of hours of unpaid overtime.

This may be completely untrue, but labor boards almost invariably side with employees in such disputes, unless the employer can produce time records that disprove the claim. A time clock is cheap insurance against a large, unexpected, and possibly unjustified payment to a former employee.

For part-time, hourly-wage employees, time records are even more important, as you obviously want to pay them only for the hours they work. If you are paying your part-timers for the number of hours they should be working without documenting how many hours they actually work, you could be paying for a lot of nonwork. Employees have little incentive to arrive on time, or to stay the entire length of their shifts, if they know they are being paid for a set number of hours anyway. And they certainly will balk at staying late if they can't count on being paid for the extra time.

Time clocks also work to the advantage of your employees: Since they will be paid only for the time they work, they will be paid for all the time they work. If any employees object to your installing a clock, point out that they will be assured of payment for fractional time worked past their usual hours—time which might have gone unpaid before.

As for your patients, a time clock is a great tool in the endless struggle to run on time, as I mentioned in a column addressing that subject 3 years ago. (If you missed “How to Run on Time,” go to www.skinandallergynews.com

As each patient arrives, have your receptionist time stamp the encounter form that goes to the back with the patient's chart. As you take each chart off the door and enter the room, one glance at the time stamp will tell you exactly how long that patient has been waiting.

Now you no longer have to guess how far behind you are—and you'll have an answer for the curmudgeon who insists he's been sitting there for 21/2 hours.

Time/attendance systems range from relatively simple to relatively complex.

My office has had an old-fashioned stamp-type time clock for 26 years, but nowadays you can get something far more sophisticated than that if you wish.

Many of the newer clocks will automatically calculate time between punches and add up total work time, and they can be configured for weekly, biweekly, semimonthly, or monthly pay periods. At least one will automatically deduct break time from the totals.

If you have a problem with “buddy punching” (employees punching in or out for each other), some clocks are equipped to recognize fingerprints or hand contours.

There are also electronic software systems, both Web based and in house, that can be deployed across a local computer network. They will print time sheets with employee hours and earnings calculated, and some will even interface with financial software such as QuickBooks and other third-party payroll services. (As always, I have no financial interest in any product or service discussed in this column.)

If you go the electronic route, make sure the software incorporates security measures to prevent time alterations by unauthorized employees. You can never be too careful.

After numerous assurances that there would be absolutely no extensions, the Centers for Medicare and Medicaid Services has extended the May 23 deadline and is now giving physicians and other entities an extra year to obtain a National Provider Identifier number. My advice, however, is that you get yours as soon as possible to avoid any last-minute disruptions to your practice.

Medicare has been accepting the National Provider Identifier (NPI) since October, but as of next year, that is all they will accept; your so-called Medicare legacy identifier will be history.

The NPI came into being as part of the 1996 Health Insurance Portability and Accountability Act (HIPAA).

The idea was to provide a single, unique health identifier for each physician, health plan, and employer, eliminating all the various PINs, UPINs, and other unique and incompatible identifier numbers used by various plans (SKIN & ALLERGY NEWS, March 2007, p. 10). The ultimate goal is to more efficiently coordinate claims filing and payment, a welcome improvement for us all, should it work.

A popular rumor—that only physicians who participate in Medicare would need an NPI—is not true. All physicians will have to have the number, because the NPI will replace all other identification numbers issued by all third-party payers that fall under HIPAA's jurisdiction.

Some plans, classified as “small” (under 1 million subscribers) by HIPAA, already had an extra year to become NPI compliant, and that is sure to create some confusion. I suggest you communicate individually with each of your payers, regardless of size, to ensure you will have no problems.

One poorly understood aspect of the NPI transition is the “taxonomies,” or “specialty types,” which are associated with the NPI application process. (Most of the questions I'm receiving concern these.) Taxonomies are supplemental codes that categorize the scope of your office's clinical services.

Most dermatology offices will select the taxonomy code for general dermatology—207N00000X—but if your office provides specialized services, there are additional codes that may be required. These include:

▸ Dermatologic Surgery (207NS0135X)

▸ Dermatopathology (207ND0900X)

▸ Mohs Surgery (207ND0101X)

▸ Pediatric Dermatology (207NP0225X)

▸ Dermatologic Immunology (207NI0002X)

Select all of the additional codes that apply to your particular practice situation. Be aware that others may apply as well. There is a Web site devoted to outlining and explaining the taxonomy codes: http://codelists.wpc-edi.com/mambo_taxonomy_2.asp

When applying, be sure to include in your application as many of the numbers to be replaced as possible, such as your Medicare and Medicaid numbers and all identifiers used by various plans to which you belong.

Until the deadline, you are supposed to use both numbers—your NPI and the identifier you are using now—on all claims, so that there will be as little confusion as possible when the deadline passes.

Even if you already have your NPI, you must make sure you have made all the necessary changes to your practice to ensure a smooth transition. CMS lists seven steps:

1. Apply for an NPI at https://nppes.cms.hhs.gov/

2. Update your practice software, including billing applications, to incorporate your NPI.

3. Share your NPI with other providers, health plans, clearinghouses, and any other entity that may need it for billing purposes.

4. Communicate with all of your health plans and clearinghouses; make sure they are all as prepared for the NPI transition as you are.

5. Test your systems to make sure they can process claims and any other HIPAA-related transactions with the NPI.

6. Educate your staff thoroughly on the NPI transition.

7. Implement use of your NPI in all your business practices.

Most importantly, if you have electronic medical records and/or billing software, contact your software vendors as soon as possible to ensure that upgrades incorporating your NPI into all electronic transactions are available and will be installed prior to next year's deadline.

Alert vendors will have already provided these updates automatically, but don't count on that: Some vendors, especially those with relatively few medical clients, may be unprepared for, or even unaware of, the necessary changes. Or if your guarantee or software support contract has expired, you may have to remind the vendor to install the upgrades—and pay for them.

If your vendor is no longer in business, you will have to find an independent consultant to make the changes.

After numerous assurances that there would be absolutely no extensions, the Centers for Medicare and Medicaid Services has extended the May 23 deadline and is now giving physicians and other entities an extra year to obtain a National Provider Identifier number. My advice, however, is that you get yours as soon as possible to avoid any last-minute disruptions to your practice.

Medicare has been accepting the National Provider Identifier (NPI) since October, but as of next year, that is all they will accept; your so-called Medicare legacy identifier will be history.

The NPI came into being as part of the 1996 Health Insurance Portability and Accountability Act (HIPAA).

The idea was to provide a single, unique health identifier for each physician, health plan, and employer, eliminating all the various PINs, UPINs, and other unique and incompatible identifier numbers used by various plans (SKIN & ALLERGY NEWS, March 2007, p. 10). The ultimate goal is to more efficiently coordinate claims filing and payment, a welcome improvement for us all, should it work.

A popular rumor—that only physicians who participate in Medicare would need an NPI—is not true. All physicians will have to have the number, because the NPI will replace all other identification numbers issued by all third-party payers that fall under HIPAA's jurisdiction.

Some plans, classified as “small” (under 1 million subscribers) by HIPAA, already had an extra year to become NPI compliant, and that is sure to create some confusion. I suggest you communicate individually with each of your payers, regardless of size, to ensure you will have no problems.

One poorly understood aspect of the NPI transition is the “taxonomies,” or “specialty types,” which are associated with the NPI application process. (Most of the questions I'm receiving concern these.) Taxonomies are supplemental codes that categorize the scope of your office's clinical services.

Most dermatology offices will select the taxonomy code for general dermatology—207N00000X—but if your office provides specialized services, there are additional codes that may be required. These include:

▸ Dermatologic Surgery (207NS0135X)

▸ Dermatopathology (207ND0900X)

▸ Mohs Surgery (207ND0101X)

▸ Pediatric Dermatology (207NP0225X)

▸ Dermatologic Immunology (207NI0002X)

Select all of the additional codes that apply to your particular practice situation. Be aware that others may apply as well. There is a Web site devoted to outlining and explaining the taxonomy codes: http://codelists.wpc-edi.com/mambo_taxonomy_2.asp

When applying, be sure to include in your application as many of the numbers to be replaced as possible, such as your Medicare and Medicaid numbers and all identifiers used by various plans to which you belong.

Until the deadline, you are supposed to use both numbers—your NPI and the identifier you are using now—on all claims, so that there will be as little confusion as possible when the deadline passes.

Even if you already have your NPI, you must make sure you have made all the necessary changes to your practice to ensure a smooth transition. CMS lists seven steps:

1. Apply for an NPI at https://nppes.cms.hhs.gov/

2. Update your practice software, including billing applications, to incorporate your NPI.

3. Share your NPI with other providers, health plans, clearinghouses, and any other entity that may need it for billing purposes.

4. Communicate with all of your health plans and clearinghouses; make sure they are all as prepared for the NPI transition as you are.

5. Test your systems to make sure they can process claims and any other HIPAA-related transactions with the NPI.

6. Educate your staff thoroughly on the NPI transition.

7. Implement use of your NPI in all your business practices.

Most importantly, if you have electronic medical records and/or billing software, contact your software vendors as soon as possible to ensure that upgrades incorporating your NPI into all electronic transactions are available and will be installed prior to next year's deadline.

Alert vendors will have already provided these updates automatically, but don't count on that: Some vendors, especially those with relatively few medical clients, may be unprepared for, or even unaware of, the necessary changes. Or if your guarantee or software support contract has expired, you may have to remind the vendor to install the upgrades—and pay for them.

If your vendor is no longer in business, you will have to find an independent consultant to make the changes.

After numerous assurances that there would be absolutely no extensions, the Centers for Medicare and Medicaid Services has extended the May 23 deadline and is now giving physicians and other entities an extra year to obtain a National Provider Identifier number. My advice, however, is that you get yours as soon as possible to avoid any last-minute disruptions to your practice.

Medicare has been accepting the National Provider Identifier (NPI) since October, but as of next year, that is all they will accept; your so-called Medicare legacy identifier will be history.

The NPI came into being as part of the 1996 Health Insurance Portability and Accountability Act (HIPAA).

The idea was to provide a single, unique health identifier for each physician, health plan, and employer, eliminating all the various PINs, UPINs, and other unique and incompatible identifier numbers used by various plans (SKIN & ALLERGY NEWS, March 2007, p. 10). The ultimate goal is to more efficiently coordinate claims filing and payment, a welcome improvement for us all, should it work.

A popular rumor—that only physicians who participate in Medicare would need an NPI—is not true. All physicians will have to have the number, because the NPI will replace all other identification numbers issued by all third-party payers that fall under HIPAA's jurisdiction.

Some plans, classified as “small” (under 1 million subscribers) by HIPAA, already had an extra year to become NPI compliant, and that is sure to create some confusion. I suggest you communicate individually with each of your payers, regardless of size, to ensure you will have no problems.

One poorly understood aspect of the NPI transition is the “taxonomies,” or “specialty types,” which are associated with the NPI application process. (Most of the questions I'm receiving concern these.) Taxonomies are supplemental codes that categorize the scope of your office's clinical services.

Most dermatology offices will select the taxonomy code for general dermatology—207N00000X—but if your office provides specialized services, there are additional codes that may be required. These include:

▸ Dermatologic Surgery (207NS0135X)

▸ Dermatopathology (207ND0900X)

▸ Mohs Surgery (207ND0101X)

▸ Pediatric Dermatology (207NP0225X)

▸ Dermatologic Immunology (207NI0002X)

Select all of the additional codes that apply to your particular practice situation. Be aware that others may apply as well. There is a Web site devoted to outlining and explaining the taxonomy codes: http://codelists.wpc-edi.com/mambo_taxonomy_2.asp

When applying, be sure to include in your application as many of the numbers to be replaced as possible, such as your Medicare and Medicaid numbers and all identifiers used by various plans to which you belong.

Until the deadline, you are supposed to use both numbers—your NPI and the identifier you are using now—on all claims, so that there will be as little confusion as possible when the deadline passes.

Even if you already have your NPI, you must make sure you have made all the necessary changes to your practice to ensure a smooth transition. CMS lists seven steps:

1. Apply for an NPI at https://nppes.cms.hhs.gov/

2. Update your practice software, including billing applications, to incorporate your NPI.

3. Share your NPI with other providers, health plans, clearinghouses, and any other entity that may need it for billing purposes.

4. Communicate with all of your health plans and clearinghouses; make sure they are all as prepared for the NPI transition as you are.

5. Test your systems to make sure they can process claims and any other HIPAA-related transactions with the NPI.

6. Educate your staff thoroughly on the NPI transition.

7. Implement use of your NPI in all your business practices.

Most importantly, if you have electronic medical records and/or billing software, contact your software vendors as soon as possible to ensure that upgrades incorporating your NPI into all electronic transactions are available and will be installed prior to next year's deadline.

Alert vendors will have already provided these updates automatically, but don't count on that: Some vendors, especially those with relatively few medical clients, may be unprepared for, or even unaware of, the necessary changes. Or if your guarantee or software support contract has expired, you may have to remind the vendor to install the upgrades—and pay for them.

If your vendor is no longer in business, you will have to find an independent consultant to make the changes.

Before I begin this month, let me take a paragraph to say how nice it is to receive so many excellent questions from readers. Please keep' em coming.

Several recent questions have concerned billing services: Are they a good idea, and are they worth the cost?

As with most things, it depends. To answer the question for your particular situation, you and your office manager should do a detailed analysis of how your billing is being handled now.

In reviews of this type that I've observed or participated in, it is common to find examples of missed charges, as well as failures to add modifiers and unbundle services (where that is legal and proper).

The most common errors made by in-house billing employees include the following: missing filing deadlines, writing off services that should be appealed, appealing issues that are not winnable, not responding to carrier requests for information, not working accounts receivable, and not sending out timely statements.

Engaging a good billing service will correct these problems.

Embezzlement is another serious concern, as I've discussed in the past. (If you missed that column, go to www.skinandallergynews.com

In addition, there are changes coming to the billing process that your staff needs to be aware of. Since the beginning of the year, there has been a new CMS-1500 form to fill out. Beginning in May, you'll need to have your National Practitioner Identification (NPI) number in use. Carriers are mandating in ever-increasing numbers that claims be filed electronically. The same goes for electronic fund transfer and automatic remittance—meaning no more checks or paper explanation of benefit forms. And, of course, electronic health records are adding their own wrinkles. If your office equipment is inadequate to meet these new demands, a billing service could be your best option.

So, should you outsource your billing or not? Inga Ellzey, the noted practice management consultant (and owner of several billing services), suggests you ask the following questions:

▸ How much are in-house billing and collections costing you?

▸ Is your staff writing off services unnecessarily?

▸ Are they following up on unpaid claims?

▸ Do you honestly know what percentage of your gross charges you are collecting?

▸ What is your accounts receivable after 90 days?

▸ Are you losing key employees and having problems finding good replacements?

▸ Are you adding associates, nurse practitioners, or physician assistants, and do you need the space now being occupied by your billing department?

▸ Are you facing expensive computer upgrades?

These are excellent questions, in particular the first. When calculating what billing is costing you now, be sure to factor in postage (the biggest expense); printing of statements; envelopes and return envelopes; computer time; ink and paper; and, of course, staff time (printing, stuffing, stamping, etc.).

The greatest cost to a practice from in-house billing, however, is revenue lost by underqualified employees performing this vital function in a suboptimal manner. So it is worth remembering that even if, on paper, in-house costs are the same as those of a billing service (or even a bit lower), outsourcing may still be preferable due to decreased staffing headaches and increased quality of billing.

If you are considering a billing service, Ms. Ellzey suggests looking for a company with organizational stability, sufficient staffing, knowledge and experience within your specialty, reasonable fees, acceptable contract length and penalties, efficient methods of communication with your office, and state-of-the-art technologic capabilities.

She also suggests you consider the following questions before making a final decision:

▸ Are you willing and ready to give up control of the day-to-day billing process?

▸ Can you accept that a billing service has its own ways of doing things, which may be different from yours?

▸ Is your entire staff willing to change the way billing is handled? (A stubborn holdout could be an embezzler.)

▸ Does outsourcing of billing make economic sense for your practice?

If the answer to all of these questions is an emphatic yes, outsourcing may be the way to go.

Then again, now that I have perhaps convinced you of the merits of billing services, there is another alternative you might consider—one that I've mentioned before.

Consider doing what a growing number of businesses—including every hotel, motel, and country inn on the planet (and my office)—already do: Ask each patient for a credit card, take an imprint, and bill balances to it as they accrue.

It takes time to implement such a system, but once in full swing, your billing needs could decrease by as much as 80%, as they have in my office.

The details of this system were spelled out in my columns of December 2005 and March 2006.

Before I begin this month, let me take a paragraph to say how nice it is to receive so many excellent questions from readers. Please keep' em coming.

Several recent questions have concerned billing services: Are they a good idea, and are they worth the cost?

As with most things, it depends. To answer the question for your particular situation, you and your office manager should do a detailed analysis of how your billing is being handled now.

In reviews of this type that I've observed or participated in, it is common to find examples of missed charges, as well as failures to add modifiers and unbundle services (where that is legal and proper).

The most common errors made by in-house billing employees include the following: missing filing deadlines, writing off services that should be appealed, appealing issues that are not winnable, not responding to carrier requests for information, not working accounts receivable, and not sending out timely statements.

Engaging a good billing service will correct these problems.

Embezzlement is another serious concern, as I've discussed in the past. (If you missed that column, go to www.skinandallergynews.com

In addition, there are changes coming to the billing process that your staff needs to be aware of. Since the beginning of the year, there has been a new CMS-1500 form to fill out. Beginning in May, you'll need to have your National Practitioner Identification (NPI) number in use. Carriers are mandating in ever-increasing numbers that claims be filed electronically. The same goes for electronic fund transfer and automatic remittance—meaning no more checks or paper explanation of benefit forms. And, of course, electronic health records are adding their own wrinkles. If your office equipment is inadequate to meet these new demands, a billing service could be your best option.

So, should you outsource your billing or not? Inga Ellzey, the noted practice management consultant (and owner of several billing services), suggests you ask the following questions:

▸ How much are in-house billing and collections costing you?

▸ Is your staff writing off services unnecessarily?

▸ Are they following up on unpaid claims?

▸ Do you honestly know what percentage of your gross charges you are collecting?

▸ What is your accounts receivable after 90 days?

▸ Are you losing key employees and having problems finding good replacements?

▸ Are you adding associates, nurse practitioners, or physician assistants, and do you need the space now being occupied by your billing department?

▸ Are you facing expensive computer upgrades?

These are excellent questions, in particular the first. When calculating what billing is costing you now, be sure to factor in postage (the biggest expense); printing of statements; envelopes and return envelopes; computer time; ink and paper; and, of course, staff time (printing, stuffing, stamping, etc.).

The greatest cost to a practice from in-house billing, however, is revenue lost by underqualified employees performing this vital function in a suboptimal manner. So it is worth remembering that even if, on paper, in-house costs are the same as those of a billing service (or even a bit lower), outsourcing may still be preferable due to decreased staffing headaches and increased quality of billing.

If you are considering a billing service, Ms. Ellzey suggests looking for a company with organizational stability, sufficient staffing, knowledge and experience within your specialty, reasonable fees, acceptable contract length and penalties, efficient methods of communication with your office, and state-of-the-art technologic capabilities.

She also suggests you consider the following questions before making a final decision:

▸ Are you willing and ready to give up control of the day-to-day billing process?

▸ Can you accept that a billing service has its own ways of doing things, which may be different from yours?

▸ Is your entire staff willing to change the way billing is handled? (A stubborn holdout could be an embezzler.)

▸ Does outsourcing of billing make economic sense for your practice?

If the answer to all of these questions is an emphatic yes, outsourcing may be the way to go.

Then again, now that I have perhaps convinced you of the merits of billing services, there is another alternative you might consider—one that I've mentioned before.

Consider doing what a growing number of businesses—including every hotel, motel, and country inn on the planet (and my office)—already do: Ask each patient for a credit card, take an imprint, and bill balances to it as they accrue.

It takes time to implement such a system, but once in full swing, your billing needs could decrease by as much as 80%, as they have in my office.

The details of this system were spelled out in my columns of December 2005 and March 2006.

Before I begin this month, let me take a paragraph to say how nice it is to receive so many excellent questions from readers. Please keep' em coming.

Several recent questions have concerned billing services: Are they a good idea, and are they worth the cost?

As with most things, it depends. To answer the question for your particular situation, you and your office manager should do a detailed analysis of how your billing is being handled now.

In reviews of this type that I've observed or participated in, it is common to find examples of missed charges, as well as failures to add modifiers and unbundle services (where that is legal and proper).

The most common errors made by in-house billing employees include the following: missing filing deadlines, writing off services that should be appealed, appealing issues that are not winnable, not responding to carrier requests for information, not working accounts receivable, and not sending out timely statements.

Engaging a good billing service will correct these problems.

Embezzlement is another serious concern, as I've discussed in the past. (If you missed that column, go to www.skinandallergynews.com

In addition, there are changes coming to the billing process that your staff needs to be aware of. Since the beginning of the year, there has been a new CMS-1500 form to fill out. Beginning in May, you'll need to have your National Practitioner Identification (NPI) number in use. Carriers are mandating in ever-increasing numbers that claims be filed electronically. The same goes for electronic fund transfer and automatic remittance—meaning no more checks or paper explanation of benefit forms. And, of course, electronic health records are adding their own wrinkles. If your office equipment is inadequate to meet these new demands, a billing service could be your best option.

So, should you outsource your billing or not? Inga Ellzey, the noted practice management consultant (and owner of several billing services), suggests you ask the following questions:

▸ How much are in-house billing and collections costing you?

▸ Is your staff writing off services unnecessarily?

▸ Are they following up on unpaid claims?

▸ Do you honestly know what percentage of your gross charges you are collecting?

▸ What is your accounts receivable after 90 days?

▸ Are you losing key employees and having problems finding good replacements?

▸ Are you adding associates, nurse practitioners, or physician assistants, and do you need the space now being occupied by your billing department?

▸ Are you facing expensive computer upgrades?

These are excellent questions, in particular the first. When calculating what billing is costing you now, be sure to factor in postage (the biggest expense); printing of statements; envelopes and return envelopes; computer time; ink and paper; and, of course, staff time (printing, stuffing, stamping, etc.).

The greatest cost to a practice from in-house billing, however, is revenue lost by underqualified employees performing this vital function in a suboptimal manner. So it is worth remembering that even if, on paper, in-house costs are the same as those of a billing service (or even a bit lower), outsourcing may still be preferable due to decreased staffing headaches and increased quality of billing.

If you are considering a billing service, Ms. Ellzey suggests looking for a company with organizational stability, sufficient staffing, knowledge and experience within your specialty, reasonable fees, acceptable contract length and penalties, efficient methods of communication with your office, and state-of-the-art technologic capabilities.

She also suggests you consider the following questions before making a final decision:

▸ Are you willing and ready to give up control of the day-to-day billing process?

▸ Can you accept that a billing service has its own ways of doing things, which may be different from yours?

▸ Is your entire staff willing to change the way billing is handled? (A stubborn holdout could be an embezzler.)

▸ Does outsourcing of billing make economic sense for your practice?

If the answer to all of these questions is an emphatic yes, outsourcing may be the way to go.

Then again, now that I have perhaps convinced you of the merits of billing services, there is another alternative you might consider—one that I've mentioned before.

Consider doing what a growing number of businesses—including every hotel, motel, and country inn on the planet (and my office)—already do: Ask each patient for a credit card, take an imprint, and bill balances to it as they accrue.

It takes time to implement such a system, but once in full swing, your billing needs could decrease by as much as 80%, as they have in my office.

The details of this system were spelled out in my columns of December 2005 and March 2006.

Last year's column on recruiting an associate continues to generate a lot of feedback. (If you missed that column, go to www.skinandallergynews.com

The most common question goes something like this: “If, after going through your checklist, I conclude I can't afford an associate—or the right associate simply isn't available—what about a physician assistant or nurse practitioner?”

Speaking at a recent dermatology conference, Dr. Roger Ceilly of the University of Iowa in Iowa City, past president of the American Academy of Dermatology, outlined the basics of incorporating physician extenders into a practice.

Dr. Ceilly began to explore that option when he had difficulty recruiting physicians. “Young doctors are reluctant to settle in a non-sun belt, medium-sized metro area, even though Cedar Rapids is a wonderful place to live,” he told me.

To those who are hesitant to go the extender route, Dr. Ceilly says, “Every non-MD in your office is a physician extender to some degree. Your receptionists do triage.”

There are many advantages to incorporating PAs or NPs, he says. “My PAs handle a lot of the medical dermatology, allowing me to devote more time to surgery. PAs do a more thorough total cutaneous examination than most physicians do.”

There are other advantages as well. “Patients have better access to my care. They get more face time with caregivers, and they like that. They also benefit from a team approach. And I benefit from a decreased workload and less burnout. It's an efficient and cost-effective solution to an expanding office.”

Recruiting good extenders requires careful planning. “Take the time to write a detailed job description,” Dr. Ceilly advised. “An office procedure training manual, detailing all practice protocols, is a must. Make sure adequate reference materials, for dermatology and general medicine as well as coding and documentation, are available. And put mechanisms in place to allow extenders to learn from existing clinical staff.”

As with any employee, careful hiring is essential. “Hire the best PA. Take your time; don't settle for less.” Dr. Ceilly recommends a tiered interview process, as do I: an immediate superior, followed by management, and then a physician. He also suggests having the best candidates spend some time in the office shadowing physicians before a final decision is made.

Dr. Ceilly says he prefers to recruit extenders who have had experience in a general medical office. “They will be better equipped to recognize underlying medical problems. Besides, when they have worked with sick people, they appreciate what a good deal dermatology is.

“Prior experience in a dermatology practice is not important,” he added. “You're going to have to retrain them anyway.”

Dr. Ceilly personally trains his extenders. Each procedure in the training manual must be covered, and signed off three times: the first time after the procedure is observed, the second after assisting with it, and third after performing it.

“The most important thing is to make them your clones,” he said. Train them to know your practice style inside and out, so that your patients will be comfortable with them. “My PAs function much the way a resident would, except they can charge for their services.”

Compensation will depend on the going rate in your area, plus other factors. Dr. Ceilly factors in how well each extender interacts with staff, and with patients, and how much more productive they make the office's physicians.

All of his extenders sign a 2-year commitment to stay with the practice; if they leave early, they must repay all salary received during their training period.

He discourages the use of an incentive system. “You don't want them cherry picking the lucrative procedures, because then you're right back where you started,” he said.

Exactly what duties you delegate to your extenders, and how closely you supervise them, should be discussed carefully and decided upon in advance. To a certain extent, it will depend on the laws in your particular state. However, the policy of the AAD is that at least one physician should be physically present in the office where extenders are working; that physicians see all new patients; and that physicians see all new problems in established patients.

Last year's column on recruiting an associate continues to generate a lot of feedback. (If you missed that column, go to www.skinandallergynews.com

The most common question goes something like this: “If, after going through your checklist, I conclude I can't afford an associate—or the right associate simply isn't available—what about a physician assistant or nurse practitioner?”

Speaking at a recent dermatology conference, Dr. Roger Ceilly of the University of Iowa in Iowa City, past president of the American Academy of Dermatology, outlined the basics of incorporating physician extenders into a practice.

Dr. Ceilly began to explore that option when he had difficulty recruiting physicians. “Young doctors are reluctant to settle in a non-sun belt, medium-sized metro area, even though Cedar Rapids is a wonderful place to live,” he told me.

To those who are hesitant to go the extender route, Dr. Ceilly says, “Every non-MD in your office is a physician extender to some degree. Your receptionists do triage.”

There are many advantages to incorporating PAs or NPs, he says. “My PAs handle a lot of the medical dermatology, allowing me to devote more time to surgery. PAs do a more thorough total cutaneous examination than most physicians do.”

There are other advantages as well. “Patients have better access to my care. They get more face time with caregivers, and they like that. They also benefit from a team approach. And I benefit from a decreased workload and less burnout. It's an efficient and cost-effective solution to an expanding office.”

Recruiting good extenders requires careful planning. “Take the time to write a detailed job description,” Dr. Ceilly advised. “An office procedure training manual, detailing all practice protocols, is a must. Make sure adequate reference materials, for dermatology and general medicine as well as coding and documentation, are available. And put mechanisms in place to allow extenders to learn from existing clinical staff.”

As with any employee, careful hiring is essential. “Hire the best PA. Take your time; don't settle for less.” Dr. Ceilly recommends a tiered interview process, as do I: an immediate superior, followed by management, and then a physician. He also suggests having the best candidates spend some time in the office shadowing physicians before a final decision is made.

Dr. Ceilly says he prefers to recruit extenders who have had experience in a general medical office. “They will be better equipped to recognize underlying medical problems. Besides, when they have worked with sick people, they appreciate what a good deal dermatology is.

“Prior experience in a dermatology practice is not important,” he added. “You're going to have to retrain them anyway.”

Dr. Ceilly personally trains his extenders. Each procedure in the training manual must be covered, and signed off three times: the first time after the procedure is observed, the second after assisting with it, and third after performing it.

“The most important thing is to make them your clones,” he said. Train them to know your practice style inside and out, so that your patients will be comfortable with them. “My PAs function much the way a resident would, except they can charge for their services.”

Compensation will depend on the going rate in your area, plus other factors. Dr. Ceilly factors in how well each extender interacts with staff, and with patients, and how much more productive they make the office's physicians.

All of his extenders sign a 2-year commitment to stay with the practice; if they leave early, they must repay all salary received during their training period.

He discourages the use of an incentive system. “You don't want them cherry picking the lucrative procedures, because then you're right back where you started,” he said.

Exactly what duties you delegate to your extenders, and how closely you supervise them, should be discussed carefully and decided upon in advance. To a certain extent, it will depend on the laws in your particular state. However, the policy of the AAD is that at least one physician should be physically present in the office where extenders are working; that physicians see all new patients; and that physicians see all new problems in established patients.

Last year's column on recruiting an associate continues to generate a lot of feedback. (If you missed that column, go to www.skinandallergynews.com

The most common question goes something like this: “If, after going through your checklist, I conclude I can't afford an associate—or the right associate simply isn't available—what about a physician assistant or nurse practitioner?”

Speaking at a recent dermatology conference, Dr. Roger Ceilly of the University of Iowa in Iowa City, past president of the American Academy of Dermatology, outlined the basics of incorporating physician extenders into a practice.

Dr. Ceilly began to explore that option when he had difficulty recruiting physicians. “Young doctors are reluctant to settle in a non-sun belt, medium-sized metro area, even though Cedar Rapids is a wonderful place to live,” he told me.

To those who are hesitant to go the extender route, Dr. Ceilly says, “Every non-MD in your office is a physician extender to some degree. Your receptionists do triage.”

There are many advantages to incorporating PAs or NPs, he says. “My PAs handle a lot of the medical dermatology, allowing me to devote more time to surgery. PAs do a more thorough total cutaneous examination than most physicians do.”

There are other advantages as well. “Patients have better access to my care. They get more face time with caregivers, and they like that. They also benefit from a team approach. And I benefit from a decreased workload and less burnout. It's an efficient and cost-effective solution to an expanding office.”

Recruiting good extenders requires careful planning. “Take the time to write a detailed job description,” Dr. Ceilly advised. “An office procedure training manual, detailing all practice protocols, is a must. Make sure adequate reference materials, for dermatology and general medicine as well as coding and documentation, are available. And put mechanisms in place to allow extenders to learn from existing clinical staff.”

As with any employee, careful hiring is essential. “Hire the best PA. Take your time; don't settle for less.” Dr. Ceilly recommends a tiered interview process, as do I: an immediate superior, followed by management, and then a physician. He also suggests having the best candidates spend some time in the office shadowing physicians before a final decision is made.

Dr. Ceilly says he prefers to recruit extenders who have had experience in a general medical office. “They will be better equipped to recognize underlying medical problems. Besides, when they have worked with sick people, they appreciate what a good deal dermatology is.

“Prior experience in a dermatology practice is not important,” he added. “You're going to have to retrain them anyway.”

Dr. Ceilly personally trains his extenders. Each procedure in the training manual must be covered, and signed off three times: the first time after the procedure is observed, the second after assisting with it, and third after performing it.

“The most important thing is to make them your clones,” he said. Train them to know your practice style inside and out, so that your patients will be comfortable with them. “My PAs function much the way a resident would, except they can charge for their services.”

Compensation will depend on the going rate in your area, plus other factors. Dr. Ceilly factors in how well each extender interacts with staff, and with patients, and how much more productive they make the office's physicians.

All of his extenders sign a 2-year commitment to stay with the practice; if they leave early, they must repay all salary received during their training period.

He discourages the use of an incentive system. “You don't want them cherry picking the lucrative procedures, because then you're right back where you started,” he said.

Exactly what duties you delegate to your extenders, and how closely you supervise them, should be discussed carefully and decided upon in advance. To a certain extent, it will depend on the laws in your particular state. However, the policy of the AAD is that at least one physician should be physically present in the office where extenders are working; that physicians see all new patients; and that physicians see all new problems in established patients.

Early in the year is a good time to get out your Occupational Safety and Health Administration logs, walk through your office, and confirm that you remain in compliance with all the applicable OSHA regulations. Even if you hold regular safety meetings (which all too often is not the case), the occasional comprehensive review is always a good idea, and could save you a bundle in fines.

Your review should include each of the six OSHA standards (seven if you have an x-ray machine) that apply to all physician offices, whatever their size.

Start with the official OSHA poster—enumerating employee rights and explaining how to file complaints—which must be displayed in a conspicuous place in your office. It's the first thing an OSHA inspector will look for. You can download it from OSHA's Web site (www.osha.gov/Publications/poster.html

Next, check out your building's exits. Everyone must be able to evacuate your office quickly in case of fire or other emergencies. At minimum, you (or the building's owner) are expected to establish exit routes to accommodate all employees and to post easily visible evacuation diagrams.

Examine all electrical devices and their power sources. All electrically powered equipment—medical, clerical, or anything else in the office—must operate safely. Pay particular attention to the way wall outlets are set up. Make sure each outlet has sufficient power to run the equipment plugged into it, and that circuit breakers are functioning. And beware the common situation of too many gadgets running off a single circuit.

Now, review your list of hazardous chemicals, which all employees have a right to know about. Keep in mind that OSHA's list contains many substances—alcohol, disinfectants, even hydrogen peroxide—that you might not consider to be particularly dangerous, but must nevertheless be on your written list of hazardous chemicals. For each of these substances, your employees must also have access to the manufacturer-supplied material safety data sheet, which outlines the proper procedures for working with a specific substance and for handling and containing it in a spill or other emergency.

The blood-borne pathogen rules are aimed at reducing occupational exposure to blood-borne diseases such as HIV, hepatitis B, and hepatitis C. In 2000, Congress added the Needlestick Safety and Prevention Act in an attempt to reduce the risk of needlestick and other sharps injuries.

The basic requirements include a written exposure control plan, updated annually to reflect changes in technology. You need not evaluate or purchase every new device on the market, but you should document which safety devices you are using, and why. Also, be sure to document the input of all employees involved in the selection process.

For example, you and your employees may decide not to purchase a newly available safety needle because you don't think it will improve safety, or because you think that it will be more trouble than it's worth, but you should document how you arrived at your decision and what you plan to use instead.

Your plan should document your use of such protective equipment as gloves, face and eye protection, and gowns, and your implementation of universal precautions.

You must provide all at-risk employees with hepatitis B vaccine at no cost to them. You also must provide and pay for appropriate medical treatment and follow-up after any exposure to a dangerous pathogen.

Other components of the rule include proper containment of regulated medical waste, identification of regulated-waste containers, sharps disposal boxes, and periodic employee training regarding all of those things.

Federal OSHA regulations do not require medical and dental offices to keep an injury and illness log, as other businesses must. However, your state may have such a regulation which supersedes the federal law. Check with your state or with your local OSHA office regarding any such requirements.

For x-ray therapy, there are separate rules regulating such equipment, including area restriction to minimize employee exposure, the use of film badges, and appropriate caution signs.

It is a mistake to take OSHA regulations lightly; failure to comply with them can result in stiff penalties that could total many thousands of dollars.

How can you be certain you are complying with all the rules? The easiest and cheapest way is to call your local OSHA office and request an inspection. Why would you want to do that? Because in return for agreeing to have your office inspected, OSHA will agree not to cite you for any violations—providing you correct them, of course.

Early in the year is a good time to get out your Occupational Safety and Health Administration logs, walk through your office, and confirm that you remain in compliance with all the applicable OSHA regulations. Even if you hold regular safety meetings (which all too often is not the case), the occasional comprehensive review is always a good idea, and could save you a bundle in fines.

Your review should include each of the six OSHA standards (seven if you have an x-ray machine) that apply to all physician offices, whatever their size.

Start with the official OSHA poster—enumerating employee rights and explaining how to file complaints—which must be displayed in a conspicuous place in your office. It's the first thing an OSHA inspector will look for. You can download it from OSHA's Web site (www.osha.gov/Publications/poster.html

Next, check out your building's exits. Everyone must be able to evacuate your office quickly in case of fire or other emergencies. At minimum, you (or the building's owner) are expected to establish exit routes to accommodate all employees and to post easily visible evacuation diagrams.

Examine all electrical devices and their power sources. All electrically powered equipment—medical, clerical, or anything else in the office—must operate safely. Pay particular attention to the way wall outlets are set up. Make sure each outlet has sufficient power to run the equipment plugged into it, and that circuit breakers are functioning. And beware the common situation of too many gadgets running off a single circuit.

Now, review your list of hazardous chemicals, which all employees have a right to know about. Keep in mind that OSHA's list contains many substances—alcohol, disinfectants, even hydrogen peroxide—that you might not consider to be particularly dangerous, but must nevertheless be on your written list of hazardous chemicals. For each of these substances, your employees must also have access to the manufacturer-supplied material safety data sheet, which outlines the proper procedures for working with a specific substance and for handling and containing it in a spill or other emergency.

The blood-borne pathogen rules are aimed at reducing occupational exposure to blood-borne diseases such as HIV, hepatitis B, and hepatitis C. In 2000, Congress added the Needlestick Safety and Prevention Act in an attempt to reduce the risk of needlestick and other sharps injuries.

The basic requirements include a written exposure control plan, updated annually to reflect changes in technology. You need not evaluate or purchase every new device on the market, but you should document which safety devices you are using, and why. Also, be sure to document the input of all employees involved in the selection process.

For example, you and your employees may decide not to purchase a newly available safety needle because you don't think it will improve safety, or because you think that it will be more trouble than it's worth, but you should document how you arrived at your decision and what you plan to use instead.

Your plan should document your use of such protective equipment as gloves, face and eye protection, and gowns, and your implementation of universal precautions.

You must provide all at-risk employees with hepatitis B vaccine at no cost to them. You also must provide and pay for appropriate medical treatment and follow-up after any exposure to a dangerous pathogen.

Other components of the rule include proper containment of regulated medical waste, identification of regulated-waste containers, sharps disposal boxes, and periodic employee training regarding all of those things.

Federal OSHA regulations do not require medical and dental offices to keep an injury and illness log, as other businesses must. However, your state may have such a regulation which supersedes the federal law. Check with your state or with your local OSHA office regarding any such requirements.

For x-ray therapy, there are separate rules regulating such equipment, including area restriction to minimize employee exposure, the use of film badges, and appropriate caution signs.

It is a mistake to take OSHA regulations lightly; failure to comply with them can result in stiff penalties that could total many thousands of dollars.

How can you be certain you are complying with all the rules? The easiest and cheapest way is to call your local OSHA office and request an inspection. Why would you want to do that? Because in return for agreeing to have your office inspected, OSHA will agree not to cite you for any violations—providing you correct them, of course.

Early in the year is a good time to get out your Occupational Safety and Health Administration logs, walk through your office, and confirm that you remain in compliance with all the applicable OSHA regulations. Even if you hold regular safety meetings (which all too often is not the case), the occasional comprehensive review is always a good idea, and could save you a bundle in fines.

Your review should include each of the six OSHA standards (seven if you have an x-ray machine) that apply to all physician offices, whatever their size.

Start with the official OSHA poster—enumerating employee rights and explaining how to file complaints—which must be displayed in a conspicuous place in your office. It's the first thing an OSHA inspector will look for. You can download it from OSHA's Web site (www.osha.gov/Publications/poster.html

Next, check out your building's exits. Everyone must be able to evacuate your office quickly in case of fire or other emergencies. At minimum, you (or the building's owner) are expected to establish exit routes to accommodate all employees and to post easily visible evacuation diagrams.

Examine all electrical devices and their power sources. All electrically powered equipment—medical, clerical, or anything else in the office—must operate safely. Pay particular attention to the way wall outlets are set up. Make sure each outlet has sufficient power to run the equipment plugged into it, and that circuit breakers are functioning. And beware the common situation of too many gadgets running off a single circuit.

Now, review your list of hazardous chemicals, which all employees have a right to know about. Keep in mind that OSHA's list contains many substances—alcohol, disinfectants, even hydrogen peroxide—that you might not consider to be particularly dangerous, but must nevertheless be on your written list of hazardous chemicals. For each of these substances, your employees must also have access to the manufacturer-supplied material safety data sheet, which outlines the proper procedures for working with a specific substance and for handling and containing it in a spill or other emergency.

The blood-borne pathogen rules are aimed at reducing occupational exposure to blood-borne diseases such as HIV, hepatitis B, and hepatitis C. In 2000, Congress added the Needlestick Safety and Prevention Act in an attempt to reduce the risk of needlestick and other sharps injuries.

The basic requirements include a written exposure control plan, updated annually to reflect changes in technology. You need not evaluate or purchase every new device on the market, but you should document which safety devices you are using, and why. Also, be sure to document the input of all employees involved in the selection process.

For example, you and your employees may decide not to purchase a newly available safety needle because you don't think it will improve safety, or because you think that it will be more trouble than it's worth, but you should document how you arrived at your decision and what you plan to use instead.

Your plan should document your use of such protective equipment as gloves, face and eye protection, and gowns, and your implementation of universal precautions.

You must provide all at-risk employees with hepatitis B vaccine at no cost to them. You also must provide and pay for appropriate medical treatment and follow-up after any exposure to a dangerous pathogen.

Other components of the rule include proper containment of regulated medical waste, identification of regulated-waste containers, sharps disposal boxes, and periodic employee training regarding all of those things.

Federal OSHA regulations do not require medical and dental offices to keep an injury and illness log, as other businesses must. However, your state may have such a regulation which supersedes the federal law. Check with your state or with your local OSHA office regarding any such requirements.

For x-ray therapy, there are separate rules regulating such equipment, including area restriction to minimize employee exposure, the use of film badges, and appropriate caution signs.

It is a mistake to take OSHA regulations lightly; failure to comply with them can result in stiff penalties that could total many thousands of dollars.

How can you be certain you are complying with all the rules? The easiest and cheapest way is to call your local OSHA office and request an inspection. Why would you want to do that? Because in return for agreeing to have your office inspected, OSHA will agree not to cite you for any violations—providing you correct them, of course.

Unfortunately, every practice has its share of deadbeats, whom I define not as patients who fall on hard times and are unable to pay, but those who are able to pay and do not.

The worst kinds of deadbeats are the ones who not only don't pay you, but accept checks from insurance companies and then spend the money themselves. Such crooks must be pursued aggressively, with all the means at your disposal.

The best way to deal with them, however, is to prevent them from owing you money in the first place.

Photo turner890/iStockphoto.com

Whenever possible, require all payments at the time of service. In the case of elective surgeries, require a substantial deposit in advance, with balance due at the time of service. When that is impossible, maximize the chances you will be paid by ensuring all available payment mechanisms are in place.

In two previous columns I've described how hotels, rental car companies, and other businesses record credit card information to ensure that they will be paid, and I've shown you how to do the same thing. (If you missed those columns, go to www.skinandallergynews.com

For big-ticket cosmetic procedures where you anticipate the fees will exceed credit card limits, arrange a realistic payment schedule in advance, and have the patient complete a credit application. You can find forms for this online at allbusiness.comlawdog.com

In some cases, it may be worth the trouble to run a background check. There are easy and affordable ways to do this. Dunn & Bradstreet, for example, will furnish a report containing payment records and details of any lawsuits, liens, and other legal actions for as little as $30. The more financial information you have on file, the more leverage you have if a patient later balks at paying his or her balance.

Always take before and after photos, and have all patients sign a written consent giving permission for the procedure, assuming full financial responsibility, and acknowledging that no guarantees have been given or implied. This defuses the common deadbeat tactics of professing ignorance of personal financial obligation and/or dissatisfaction with results.

Despite all your precautions, deadbeats inevitably will slip through on occasion. However, even then you have options in dealing with them.

Collection agencies are the traditional first line of attack for most medical practices. Ideally, your agency should specialize in handling medical accounts, so it will know exactly how much pressure to exert to avoid charges of harassment. Delinquent accounts should be submitted earlier rather than later to maximize the chances of success; my manager never allows accounts to age more than 90 days, and, if circumstances dictate, she refers them sooner than that.

When collection agencies fail, think about small claims court. You'll need to learn the rules for filing in your state, but most charge a nominal fee and place a limit of $5,000 or so on claims. No attorneys are involved. If your paperwork is in order the court will nearly always rule in your favor, but it will not provide the means for collection. In other words, you'll still have to persuade the deadbeat to pay up. However, in many states a court order will give you the authority to attach a lien to property, or garnish wages, which often provides enough leverage to force payment.

What about the deadbeats who rip you off twice—by refusing to pay and then stealing the insurance check, too? First, check your third-party contract; sometimes the insurance company or HMO will be compelled to pay you directly and then go after the patient to get back its money. (They won't volunteer this service, however. You'll have to ask for it.)

If that's not an option, consider reporting the misdirected payment to the Internal Revenue Service as income to the patient, by submitting a 1099-miscellaneous income form. Be sure to notify the deadbeat that you will be doing this. More often than not, the threat of such action will persuade the patient to pay up; but if not, at least you'll have the satisfaction of knowing he or she will have to pay taxes on the money.

Unfortunately, every practice has its share of deadbeats, whom I define not as patients who fall on hard times and are unable to pay, but those who are able to pay and do not.

The worst kinds of deadbeats are the ones who not only don't pay you, but accept checks from insurance companies and then spend the money themselves. Such crooks must be pursued aggressively, with all the means at your disposal.

The best way to deal with them, however, is to prevent them from owing you money in the first place.

Photo turner890/iStockphoto.com

Whenever possible, require all payments at the time of service. In the case of elective surgeries, require a substantial deposit in advance, with balance due at the time of service. When that is impossible, maximize the chances you will be paid by ensuring all available payment mechanisms are in place.

In two previous columns I've described how hotels, rental car companies, and other businesses record credit card information to ensure that they will be paid, and I've shown you how to do the same thing. (If you missed those columns, go to www.skinandallergynews.com

For big-ticket cosmetic procedures where you anticipate the fees will exceed credit card limits, arrange a realistic payment schedule in advance, and have the patient complete a credit application. You can find forms for this online at allbusiness.comlawdog.com

In some cases, it may be worth the trouble to run a background check. There are easy and affordable ways to do this. Dunn & Bradstreet, for example, will furnish a report containing payment records and details of any lawsuits, liens, and other legal actions for as little as $30. The more financial information you have on file, the more leverage you have if a patient later balks at paying his or her balance.

Always take before and after photos, and have all patients sign a written consent giving permission for the procedure, assuming full financial responsibility, and acknowledging that no guarantees have been given or implied. This defuses the common deadbeat tactics of professing ignorance of personal financial obligation and/or dissatisfaction with results.

Despite all your precautions, deadbeats inevitably will slip through on occasion. However, even then you have options in dealing with them.

Collection agencies are the traditional first line of attack for most medical practices. Ideally, your agency should specialize in handling medical accounts, so it will know exactly how much pressure to exert to avoid charges of harassment. Delinquent accounts should be submitted earlier rather than later to maximize the chances of success; my manager never allows accounts to age more than 90 days, and, if circumstances dictate, she refers them sooner than that.

When collection agencies fail, think about small claims court. You'll need to learn the rules for filing in your state, but most charge a nominal fee and place a limit of $5,000 or so on claims. No attorneys are involved. If your paperwork is in order the court will nearly always rule in your favor, but it will not provide the means for collection. In other words, you'll still have to persuade the deadbeat to pay up. However, in many states a court order will give you the authority to attach a lien to property, or garnish wages, which often provides enough leverage to force payment.

What about the deadbeats who rip you off twice—by refusing to pay and then stealing the insurance check, too? First, check your third-party contract; sometimes the insurance company or HMO will be compelled to pay you directly and then go after the patient to get back its money. (They won't volunteer this service, however. You'll have to ask for it.)

If that's not an option, consider reporting the misdirected payment to the Internal Revenue Service as income to the patient, by submitting a 1099-miscellaneous income form. Be sure to notify the deadbeat that you will be doing this. More often than not, the threat of such action will persuade the patient to pay up; but if not, at least you'll have the satisfaction of knowing he or she will have to pay taxes on the money.

Unfortunately, every practice has its share of deadbeats, whom I define not as patients who fall on hard times and are unable to pay, but those who are able to pay and do not.

The worst kinds of deadbeats are the ones who not only don't pay you, but accept checks from insurance companies and then spend the money themselves. Such crooks must be pursued aggressively, with all the means at your disposal.

The best way to deal with them, however, is to prevent them from owing you money in the first place.

Photo turner890/iStockphoto.com

Whenever possible, require all payments at the time of service. In the case of elective surgeries, require a substantial deposit in advance, with balance due at the time of service. When that is impossible, maximize the chances you will be paid by ensuring all available payment mechanisms are in place.

In two previous columns I've described how hotels, rental car companies, and other businesses record credit card information to ensure that they will be paid, and I've shown you how to do the same thing. (If you missed those columns, go to www.skinandallergynews.com

For big-ticket cosmetic procedures where you anticipate the fees will exceed credit card limits, arrange a realistic payment schedule in advance, and have the patient complete a credit application. You can find forms for this online at allbusiness.comlawdog.com

In some cases, it may be worth the trouble to run a background check. There are easy and affordable ways to do this. Dunn & Bradstreet, for example, will furnish a report containing payment records and details of any lawsuits, liens, and other legal actions for as little as $30. The more financial information you have on file, the more leverage you have if a patient later balks at paying his or her balance.

Always take before and after photos, and have all patients sign a written consent giving permission for the procedure, assuming full financial responsibility, and acknowledging that no guarantees have been given or implied. This defuses the common deadbeat tactics of professing ignorance of personal financial obligation and/or dissatisfaction with results.

Despite all your precautions, deadbeats inevitably will slip through on occasion. However, even then you have options in dealing with them.

Collection agencies are the traditional first line of attack for most medical practices. Ideally, your agency should specialize in handling medical accounts, so it will know exactly how much pressure to exert to avoid charges of harassment. Delinquent accounts should be submitted earlier rather than later to maximize the chances of success; my manager never allows accounts to age more than 90 days, and, if circumstances dictate, she refers them sooner than that.

When collection agencies fail, think about small claims court. You'll need to learn the rules for filing in your state, but most charge a nominal fee and place a limit of $5,000 or so on claims. No attorneys are involved. If your paperwork is in order the court will nearly always rule in your favor, but it will not provide the means for collection. In other words, you'll still have to persuade the deadbeat to pay up. However, in many states a court order will give you the authority to attach a lien to property, or garnish wages, which often provides enough leverage to force payment.

What about the deadbeats who rip you off twice—by refusing to pay and then stealing the insurance check, too? First, check your third-party contract; sometimes the insurance company or HMO will be compelled to pay you directly and then go after the patient to get back its money. (They won't volunteer this service, however. You'll have to ask for it.)

If that's not an option, consider reporting the misdirected payment to the Internal Revenue Service as income to the patient, by submitting a 1099-miscellaneous income form. Be sure to notify the deadbeat that you will be doing this. More often than not, the threat of such action will persuade the patient to pay up; but if not, at least you'll have the satisfaction of knowing he or she will have to pay taxes on the money.

Last year I wrote a column on guidelines for hiring employees, and I've been receiving questions on that subject ever since. (If you missed that column, go to www.skinandallergynews.com

Many questions concern checking potential employees' references. One industry publication estimates that 40% of resumes contain false or “tweaked” information; my opinion, based on more than 25 years of hiring, is that estimate is wildly optimistic. After all, many applicants are convinced padding is necessary to get the job they want. As a young performing arts student once told me in my office, “Show me an actor who hasn't padded his resume, and I'll show you a waiter.”

Given that so many resumes are less than completely accurate, it is astonishing how many employers do not bother to check them, and the applicants who submit them, thoroughly. Physicians are particularly remiss in that department. And those physicians who do check at all often do far less than they should.

If you don't think it's worth the trouble, know that “negligent hiring” litigation is on the rise. If the actions of one of your employees hurts someone, and it can be shown that you knew or should have known that said employee had similar problems in the past, you could be liable—and such lawsuits, of course, fall outside the protection of your malpractice insurance.

As an aside, I have mentioned before the advisability of obtaining Employee Practices Liability Insurance (EPLI). It is inexpensive and covers your legal expenses in the event of negligent hiring charges, as well as wrongful termination and sexual misconduct or harassment suits.

A background check should never be limited to simply calling the two or three most recent employers. In this era of universal litigation, employers are often unwilling to be candid with you regarding a former employee.

This doesn't mean you should not call them anyway, of course. With reluctant former employers, my favorite question is, “Would you hire this employee back?” Even if the answer is “yes,” he or she will often give you good clues, with hesitations, voice inflections, and other intangibles, of how enthusiastic they truly are about that prospect.

Other information is available to you when considering applicants, and you should take advantage of it. In addition to interviews of former employers, a background check should verify the applicant's Social Security number. It should also include an analysis of his or her complete work history and a full credit report. It can also include credit payment records, driving records, and any criminal history. This is all a matter of public record and is often easily accessible via the Internet.

Bankruptcy information also is a public record and can be helpful, although you cannot discriminate against an applicant solely because he or she has filed for bankruptcy. The military can disclose a veteran's name, rank, salary, assignments, and awards without consent. Driving records are not confidential and can be released without consent.

The inquiries should be related to the job. For example, if the applicant will be handling money, it would be reasonable to find out if he or she has a history of embezzlement or theft.

Some information cannot be included in a background check, however. Education records are confidential and cannot be released without the consent of the student. Laws vary on checking criminal history. Federal guidelines permit disclosure of criminal convictions indefinitely, but some states don't allow questions about arrests or convictions beyond a certain point (usually 7 years). Others only allow consideration of criminal history for certain positions.

Employers cannot request medical records and may not make hiring decisions based on an applicant's disability. The same holds true for workers' compensation records. However, you may inquire about an applicant's ability to perform a certain job.

If you have a large practice and hire many employees, it may pay to have an outside company perform background checks. However, such outsourcing brings you under the jurisdiction of the federal Fair Credit Reporting Act, which sets national standards for employment screening. This means the outside agency must notify applicants in writing and get their written authorization to do the background check (not true if you're doing the checks yourself).

And if you decide not to hire specifically because of an outside report's findings, you must disclose this to the applicant, along with the name of the agency which did the investigating, and information on his or her right to dispute the report.

Last year I wrote a column on guidelines for hiring employees, and I've been receiving questions on that subject ever since. (If you missed that column, go to www.skinandallergynews.com

Many questions concern checking potential employees' references. One industry publication estimates that 40% of resumes contain false or “tweaked” information; my opinion, based on more than 25 years of hiring, is that estimate is wildly optimistic. After all, many applicants are convinced padding is necessary to get the job they want. As a young performing arts student once told me in my office, “Show me an actor who hasn't padded his resume, and I'll show you a waiter.”

Given that so many resumes are less than completely accurate, it is astonishing how many employers do not bother to check them, and the applicants who submit them, thoroughly. Physicians are particularly remiss in that department. And those physicians who do check at all often do far less than they should.

If you don't think it's worth the trouble, know that “negligent hiring” litigation is on the rise. If the actions of one of your employees hurts someone, and it can be shown that you knew or should have known that said employee had similar problems in the past, you could be liable—and such lawsuits, of course, fall outside the protection of your malpractice insurance.

As an aside, I have mentioned before the advisability of obtaining Employee Practices Liability Insurance (EPLI). It is inexpensive and covers your legal expenses in the event of negligent hiring charges, as well as wrongful termination and sexual misconduct or harassment suits.

A background check should never be limited to simply calling the two or three most recent employers. In this era of universal litigation, employers are often unwilling to be candid with you regarding a former employee.

This doesn't mean you should not call them anyway, of course. With reluctant former employers, my favorite question is, “Would you hire this employee back?” Even if the answer is “yes,” he or she will often give you good clues, with hesitations, voice inflections, and other intangibles, of how enthusiastic they truly are about that prospect.

Other information is available to you when considering applicants, and you should take advantage of it. In addition to interviews of former employers, a background check should verify the applicant's Social Security number. It should also include an analysis of his or her complete work history and a full credit report. It can also include credit payment records, driving records, and any criminal history. This is all a matter of public record and is often easily accessible via the Internet.

Bankruptcy information also is a public record and can be helpful, although you cannot discriminate against an applicant solely because he or she has filed for bankruptcy. The military can disclose a veteran's name, rank, salary, assignments, and awards without consent. Driving records are not confidential and can be released without consent.

The inquiries should be related to the job. For example, if the applicant will be handling money, it would be reasonable to find out if he or she has a history of embezzlement or theft.

Some information cannot be included in a background check, however. Education records are confidential and cannot be released without the consent of the student. Laws vary on checking criminal history. Federal guidelines permit disclosure of criminal convictions indefinitely, but some states don't allow questions about arrests or convictions beyond a certain point (usually 7 years). Others only allow consideration of criminal history for certain positions.

Employers cannot request medical records and may not make hiring decisions based on an applicant's disability. The same holds true for workers' compensation records. However, you may inquire about an applicant's ability to perform a certain job.

If you have a large practice and hire many employees, it may pay to have an outside company perform background checks. However, such outsourcing brings you under the jurisdiction of the federal Fair Credit Reporting Act, which sets national standards for employment screening. This means the outside agency must notify applicants in writing and get their written authorization to do the background check (not true if you're doing the checks yourself).

And if you decide not to hire specifically because of an outside report's findings, you must disclose this to the applicant, along with the name of the agency which did the investigating, and information on his or her right to dispute the report.

Last year I wrote a column on guidelines for hiring employees, and I've been receiving questions on that subject ever since. (If you missed that column, go to www.skinandallergynews.com

Many questions concern checking potential employees' references. One industry publication estimates that 40% of resumes contain false or “tweaked” information; my opinion, based on more than 25 years of hiring, is that estimate is wildly optimistic. After all, many applicants are convinced padding is necessary to get the job they want. As a young performing arts student once told me in my office, “Show me an actor who hasn't padded his resume, and I'll show you a waiter.”

Given that so many resumes are less than completely accurate, it is astonishing how many employers do not bother to check them, and the applicants who submit them, thoroughly. Physicians are particularly remiss in that department. And those physicians who do check at all often do far less than they should.

If you don't think it's worth the trouble, know that “negligent hiring” litigation is on the rise. If the actions of one of your employees hurts someone, and it can be shown that you knew or should have known that said employee had similar problems in the past, you could be liable—and such lawsuits, of course, fall outside the protection of your malpractice insurance.

As an aside, I have mentioned before the advisability of obtaining Employee Practices Liability Insurance (EPLI). It is inexpensive and covers your legal expenses in the event of negligent hiring charges, as well as wrongful termination and sexual misconduct or harassment suits.

A background check should never be limited to simply calling the two or three most recent employers. In this era of universal litigation, employers are often unwilling to be candid with you regarding a former employee.

This doesn't mean you should not call them anyway, of course. With reluctant former employers, my favorite question is, “Would you hire this employee back?” Even if the answer is “yes,” he or she will often give you good clues, with hesitations, voice inflections, and other intangibles, of how enthusiastic they truly are about that prospect.

Other information is available to you when considering applicants, and you should take advantage of it. In addition to interviews of former employers, a background check should verify the applicant's Social Security number. It should also include an analysis of his or her complete work history and a full credit report. It can also include credit payment records, driving records, and any criminal history. This is all a matter of public record and is often easily accessible via the Internet.

Bankruptcy information also is a public record and can be helpful, although you cannot discriminate against an applicant solely because he or she has filed for bankruptcy. The military can disclose a veteran's name, rank, salary, assignments, and awards without consent. Driving records are not confidential and can be released without consent.

The inquiries should be related to the job. For example, if the applicant will be handling money, it would be reasonable to find out if he or she has a history of embezzlement or theft.

Some information cannot be included in a background check, however. Education records are confidential and cannot be released without the consent of the student. Laws vary on checking criminal history. Federal guidelines permit disclosure of criminal convictions indefinitely, but some states don't allow questions about arrests or convictions beyond a certain point (usually 7 years). Others only allow consideration of criminal history for certain positions.

Employers cannot request medical records and may not make hiring decisions based on an applicant's disability. The same holds true for workers' compensation records. However, you may inquire about an applicant's ability to perform a certain job.

If you have a large practice and hire many employees, it may pay to have an outside company perform background checks. However, such outsourcing brings you under the jurisdiction of the federal Fair Credit Reporting Act, which sets national standards for employment screening. This means the outside agency must notify applicants in writing and get their written authorization to do the background check (not true if you're doing the checks yourself).

And if you decide not to hire specifically because of an outside report's findings, you must disclose this to the applicant, along with the name of the agency which did the investigating, and information on his or her right to dispute the report.

A generation ago, the sale of a medical practice was much like the sale of any other business: A retiring physician would sell his or her practice to a young doctor and the practice would continue on as before. Occasionally that still happens, but changes in the business of medicine—most significantly the growth of managed care—have made a big impact on the way medical practices are bought and sold.

For one thing, there are far fewer solo practitioners these days, and polls indicate most young physicians will continue that trend. The buyer of a medical practice today is more likely to be an institution—such as a hospital, an HMO, or a large practice group—than an individual.

For another, because the rules governing such sales have become so numbingly complex, the services of expert (and expensive) third parties are essential.

While these issues may complicate matters, there is still a market for medical practices. However, you must do everything possible to ensure you identify the best possible buyer and structure the best deal.

The first hurdle is the accurate valuation of your practice, which was covered last month. (If you missed that column, go to www.skinandallergynews.com

Keep in mind that the valuation will not necessarily equal the purchase price; other factors may need to be considered before a final price can be agreed upon. Keep in mind, too, that there may be legal constraints on the purchase price. For example, if the buyer is a nonprofit corporation such as a hospital or HMO, by law it cannot pay in excess of fair market value for the practice.

Once a value has been agreed upon, you must consider how the transaction will be structured. The most popular structures include purchase of assets, purchase of corporate stock, or merger.

Buyers, especially institutional buyers, prefer to purchase assets because it allows them to pick and choose only those items of value to them. This can leave the seller with several “odd lots” to dispose of. But depending on the circumstances, an asset sale may still be to both parties' advantage.

Sellers typically prefer to sell stock because it allows them to sell their entire practice, which is often worth more than the sum of its parts, and often provides tax advantages as described below.

The third option, merger, continues to grow in popularity. Usually this takes the form of a sale (actually a stock trade) of the medical practice to a publicly traded HMO, which issues its own stock in payment. Because these types of purchasers are exempt from the restrictions that apply to not-for-profit organizations, they can pay higher prices, and pay for goodwill, and the stock issued in payment offers the seller an opportunity to participate in future profits and appreciation of value. Stock ownership is not without risk, of course.

Tax issues must always be considered. Most private practices are corporations, and the sale of corporate stock will result in a long-term capital gain that will be taxed by law at 28%. As the saying goes, it's not what you earn, it's what you keep; so it may benefit the seller to accept a slightly lower price if the sale can be structured to provide significantly lower tax treatment. However, any gain that does not qualify as a long-term capital gain will be taxed as regular income—around 40%, plus a Social Security tax of about 15%.

Payment in installments is a popular way to defer taxes, since they are incurred on each installment as it is paid. However, such payments may also be mistaken by the IRS for payments for referrals, which is illegal. And there is always the problem of making certain all the payments eventually are made.

The seller may wish to continue working at the practice as an employee, and this is often to the buyer's advantage as well. Transitioning to new ownership in stages often maximizes the value of the business by improving patient retention, and allows patients to become accustomed to the transition. However, care must be taken, with the aid of good legal advice, to structure such an arrangement in a way that minimizes concerns of fraud and abuse. Congress has created a “safe harbor” to allow continuing employment, but its scope is narrow and does not cover many common arrangements. To qualify, the sale of the practice, including any installment payments, must be completed within a year after an agreement is reached, and the seller cannot be in a position to make referrals to the buyer after a year.

A generation ago, the sale of a medical practice was much like the sale of any other business: A retiring physician would sell his or her practice to a young doctor and the practice would continue on as before. Occasionally that still happens, but changes in the business of medicine—most significantly the growth of managed care—have made a big impact on the way medical practices are bought and sold.

For one thing, there are far fewer solo practitioners these days, and polls indicate most young physicians will continue that trend. The buyer of a medical practice today is more likely to be an institution—such as a hospital, an HMO, or a large practice group—than an individual.

For another, because the rules governing such sales have become so numbingly complex, the services of expert (and expensive) third parties are essential.

While these issues may complicate matters, there is still a market for medical practices. However, you must do everything possible to ensure you identify the best possible buyer and structure the best deal.

The first hurdle is the accurate valuation of your practice, which was covered last month. (If you missed that column, go to www.skinandallergynews.com

Keep in mind that the valuation will not necessarily equal the purchase price; other factors may need to be considered before a final price can be agreed upon. Keep in mind, too, that there may be legal constraints on the purchase price. For example, if the buyer is a nonprofit corporation such as a hospital or HMO, by law it cannot pay in excess of fair market value for the practice.

Once a value has been agreed upon, you must consider how the transaction will be structured. The most popular structures include purchase of assets, purchase of corporate stock, or merger.

Buyers, especially institutional buyers, prefer to purchase assets because it allows them to pick and choose only those items of value to them. This can leave the seller with several “odd lots” to dispose of. But depending on the circumstances, an asset sale may still be to both parties' advantage.

Sellers typically prefer to sell stock because it allows them to sell their entire practice, which is often worth more than the sum of its parts, and often provides tax advantages as described below.

The third option, merger, continues to grow in popularity. Usually this takes the form of a sale (actually a stock trade) of the medical practice to a publicly traded HMO, which issues its own stock in payment. Because these types of purchasers are exempt from the restrictions that apply to not-for-profit organizations, they can pay higher prices, and pay for goodwill, and the stock issued in payment offers the seller an opportunity to participate in future profits and appreciation of value. Stock ownership is not without risk, of course.

Tax issues must always be considered. Most private practices are corporations, and the sale of corporate stock will result in a long-term capital gain that will be taxed by law at 28%. As the saying goes, it's not what you earn, it's what you keep; so it may benefit the seller to accept a slightly lower price if the sale can be structured to provide significantly lower tax treatment. However, any gain that does not qualify as a long-term capital gain will be taxed as regular income—around 40%, plus a Social Security tax of about 15%.

Payment in installments is a popular way to defer taxes, since they are incurred on each installment as it is paid. However, such payments may also be mistaken by the IRS for payments for referrals, which is illegal. And there is always the problem of making certain all the payments eventually are made.

The seller may wish to continue working at the practice as an employee, and this is often to the buyer's advantage as well. Transitioning to new ownership in stages often maximizes the value of the business by improving patient retention, and allows patients to become accustomed to the transition. However, care must be taken, with the aid of good legal advice, to structure such an arrangement in a way that minimizes concerns of fraud and abuse. Congress has created a “safe harbor” to allow continuing employment, but its scope is narrow and does not cover many common arrangements. To qualify, the sale of the practice, including any installment payments, must be completed within a year after an agreement is reached, and the seller cannot be in a position to make referrals to the buyer after a year.

A generation ago, the sale of a medical practice was much like the sale of any other business: A retiring physician would sell his or her practice to a young doctor and the practice would continue on as before. Occasionally that still happens, but changes in the business of medicine—most significantly the growth of managed care—have made a big impact on the way medical practices are bought and sold.

For one thing, there are far fewer solo practitioners these days, and polls indicate most young physicians will continue that trend. The buyer of a medical practice today is more likely to be an institution—such as a hospital, an HMO, or a large practice group—than an individual.

For another, because the rules governing such sales have become so numbingly complex, the services of expert (and expensive) third parties are essential.

While these issues may complicate matters, there is still a market for medical practices. However, you must do everything possible to ensure you identify the best possible buyer and structure the best deal.

The first hurdle is the accurate valuation of your practice, which was covered last month. (If you missed that column, go to www.skinandallergynews.com

Keep in mind that the valuation will not necessarily equal the purchase price; other factors may need to be considered before a final price can be agreed upon. Keep in mind, too, that there may be legal constraints on the purchase price. For example, if the buyer is a nonprofit corporation such as a hospital or HMO, by law it cannot pay in excess of fair market value for the practice.

Once a value has been agreed upon, you must consider how the transaction will be structured. The most popular structures include purchase of assets, purchase of corporate stock, or merger.

Buyers, especially institutional buyers, prefer to purchase assets because it allows them to pick and choose only those items of value to them. This can leave the seller with several “odd lots” to dispose of. But depending on the circumstances, an asset sale may still be to both parties' advantage.

Sellers typically prefer to sell stock because it allows them to sell their entire practice, which is often worth more than the sum of its parts, and often provides tax advantages as described below.

The third option, merger, continues to grow in popularity. Usually this takes the form of a sale (actually a stock trade) of the medical practice to a publicly traded HMO, which issues its own stock in payment. Because these types of purchasers are exempt from the restrictions that apply to not-for-profit organizations, they can pay higher prices, and pay for goodwill, and the stock issued in payment offers the seller an opportunity to participate in future profits and appreciation of value. Stock ownership is not without risk, of course.

Tax issues must always be considered. Most private practices are corporations, and the sale of corporate stock will result in a long-term capital gain that will be taxed by law at 28%. As the saying goes, it's not what you earn, it's what you keep; so it may benefit the seller to accept a slightly lower price if the sale can be structured to provide significantly lower tax treatment. However, any gain that does not qualify as a long-term capital gain will be taxed as regular income—around 40%, plus a Social Security tax of about 15%.

Payment in installments is a popular way to defer taxes, since they are incurred on each installment as it is paid. However, such payments may also be mistaken by the IRS for payments for referrals, which is illegal. And there is always the problem of making certain all the payments eventually are made.

The seller may wish to continue working at the practice as an employee, and this is often to the buyer's advantage as well. Transitioning to new ownership in stages often maximizes the value of the business by improving patient retention, and allows patients to become accustomed to the transition. However, care must be taken, with the aid of good legal advice, to structure such an arrangement in a way that minimizes concerns of fraud and abuse. Congress has created a “safe harbor” to allow continuing employment, but its scope is narrow and does not cover many common arrangements. To qualify, the sale of the practice, including any installment payments, must be completed within a year after an agreement is reached, and the seller cannot be in a position to make referrals to the buyer after a year.

At least once during your career, you will probably have to put a value on your practice. The need arises more often than you might think—if you sell it, of course; but also for estate planning, preparation of financial statements, and, unfortunately, during divorce negotiations; when an associate joins or leaves your office; or if you have occasion to combine or partner your practice with one or more others.

As you might guess, a medical practice is trickier to value than an ordinary business, and usually requires the services of an experienced professional appraiser. Entire books have been written on how to do it so I can't hope to cover the entire subject in 750 words, but there are three basic components to a practice appraisal:

▸ Tangible assets. Equipment, cash, accounts receivable, and other property owned by the practice.

▸ Liabilities. Accounts payable and outstanding loans.

▸ Intangible assets/“goodwill.” The reputation of the physicians, the location and name recognition of the practice, the loyalty and volume of patients, etc.

Using these components, there are three traditional approaches to determining value:

▸ Asset-based valuation. This approach uses a balance sheet to determine equity, the difference between what a practice owns (its assets) and what it owes (liabilities). (I covered balance sheets in the January 2006 column. If you missed it, you can go to www.skinandallergynews.com

▸ Income-based valuation. This looks at the source and strength of a practice's income stream as a creator of value, and whether that income stream under a different owner would mirror its present one. This, in turn, becomes the basis for an understanding of the fair market value of both tangible and intangible assets.

▸ Market valuation. This combines the previous two approaches and attempts to determine what the practice is worth in the local market by analyzing sales and mergers of comparable practices in the community.

Valuing tangible assets is comparatively straightforward, but there are several ways to do it, and when reviewing a practice appraisal you should ask which of them was used. Depreciated value is the book value of equipment and supplies as determined by their purchase price, less the amount their value has decreased since purchase. Remaining useful life value estimates how long the equipment can be expected to last. Market (or replacement) value is the amount it would cost on the open market to replace all equipment and supplies.

Intangible assets are more difficult to value. Many components are analyzed, including location, interior and exterior decor, accessibility to patients, age and functional status of equipment, systems in place to promote efficiency, reasons why patients come back (if in fact they do), and the overall reputation of the practice in the community. Other important factors include the payer mix (what percentage pays cash, how many third-party contracts are in place and how well they pay, etc.), and the extent and strength of the referral base.

It also is important to determine to what extent intangible assets can be transferred to another owner. Although such qualities as unique skill with a laser or filler substances and extraordinary personal charisma may increase your practice's value to you, they will be of little use to the next owner and he or she will be unwilling to pay for them.

Professional appraisers use a variety of techniques to estimate intangible asset value, and once again you should ask which were used. Cash flow analysis works on the assumption that cash flow is a measure of intangible value. Capitalization of earnings puts a value, or capitalization, on the practice's income streams using a variety of assumptions. Guideline comparison uses various publications, databases, and other records of transactions to compare your practice with other, similar ones that have changed hands in the past.

Two newer techniques that some believe provide a better estimate of intangible assets are the replacement method, which estimates the costs of starting the practice over again in the current market, and the excess earnings method, which determines the average earnings of a practice within your specialty and then measures how far above average your practice's earnings are. The theory behind the latter method is that a practice with above-average earnings is more valuable than an average one.

Whatever methods are used, it is important that the appraisal be done by an experienced financial consultant, that all techniques used in the valuation be divulged and explained, and that documentation is supplied to support the conclusions reached. This is especially important if the appraisal will be relied upon in the sale of the practice. We'll talk about that next month.

At least once during your career, you will probably have to put a value on your practice. The need arises more often than you might think—if you sell it, of course; but also for estate planning, preparation of financial statements, and, unfortunately, during divorce negotiations; when an associate joins or leaves your office; or if you have occasion to combine or partner your practice with one or more others.

As you might guess, a medical practice is trickier to value than an ordinary business, and usually requires the services of an experienced professional appraiser. Entire books have been written on how to do it so I can't hope to cover the entire subject in 750 words, but there are three basic components to a practice appraisal:

▸ Tangible assets. Equipment, cash, accounts receivable, and other property owned by the practice.

▸ Liabilities. Accounts payable and outstanding loans.

▸ Intangible assets/“goodwill.” The reputation of the physicians, the location and name recognition of the practice, the loyalty and volume of patients, etc.

Using these components, there are three traditional approaches to determining value:

▸ Asset-based valuation. This approach uses a balance sheet to determine equity, the difference between what a practice owns (its assets) and what it owes (liabilities). (I covered balance sheets in the January 2006 column. If you missed it, you can go to www.skinandallergynews.com

▸ Income-based valuation. This looks at the source and strength of a practice's income stream as a creator of value, and whether that income stream under a different owner would mirror its present one. This, in turn, becomes the basis for an understanding of the fair market value of both tangible and intangible assets.

▸ Market valuation. This combines the previous two approaches and attempts to determine what the practice is worth in the local market by analyzing sales and mergers of comparable practices in the community.

Valuing tangible assets is comparatively straightforward, but there are several ways to do it, and when reviewing a practice appraisal you should ask which of them was used. Depreciated value is the book value of equipment and supplies as determined by their purchase price, less the amount their value has decreased since purchase. Remaining useful life value estimates how long the equipment can be expected to last. Market (or replacement) value is the amount it would cost on the open market to replace all equipment and supplies.

Intangible assets are more difficult to value. Many components are analyzed, including location, interior and exterior decor, accessibility to patients, age and functional status of equipment, systems in place to promote efficiency, reasons why patients come back (if in fact they do), and the overall reputation of the practice in the community. Other important factors include the payer mix (what percentage pays cash, how many third-party contracts are in place and how well they pay, etc.), and the extent and strength of the referral base.

It also is important to determine to what extent intangible assets can be transferred to another owner. Although such qualities as unique skill with a laser or filler substances and extraordinary personal charisma may increase your practice's value to you, they will be of little use to the next owner and he or she will be unwilling to pay for them.

Professional appraisers use a variety of techniques to estimate intangible asset value, and once again you should ask which were used. Cash flow analysis works on the assumption that cash flow is a measure of intangible value. Capitalization of earnings puts a value, or capitalization, on the practice's income streams using a variety of assumptions. Guideline comparison uses various publications, databases, and other records of transactions to compare your practice with other, similar ones that have changed hands in the past.

Two newer techniques that some believe provide a better estimate of intangible assets are the replacement method, which estimates the costs of starting the practice over again in the current market, and the excess earnings method, which determines the average earnings of a practice within your specialty and then measures how far above average your practice's earnings are. The theory behind the latter method is that a practice with above-average earnings is more valuable than an average one.

Whatever methods are used, it is important that the appraisal be done by an experienced financial consultant, that all techniques used in the valuation be divulged and explained, and that documentation is supplied to support the conclusions reached. This is especially important if the appraisal will be relied upon in the sale of the practice. We'll talk about that next month.

At least once during your career, you will probably have to put a value on your practice. The need arises more often than you might think—if you sell it, of course; but also for estate planning, preparation of financial statements, and, unfortunately, during divorce negotiations; when an associate joins or leaves your office; or if you have occasion to combine or partner your practice with one or more others.

As you might guess, a medical practice is trickier to value than an ordinary business, and usually requires the services of an experienced professional appraiser. Entire books have been written on how to do it so I can't hope to cover the entire subject in 750 words, but there are three basic components to a practice appraisal:

▸ Tangible assets. Equipment, cash, accounts receivable, and other property owned by the practice.

▸ Liabilities. Accounts payable and outstanding loans.

▸ Intangible assets/“goodwill.” The reputation of the physicians, the location and name recognition of the practice, the loyalty and volume of patients, etc.

Using these components, there are three traditional approaches to determining value:

▸ Asset-based valuation. This approach uses a balance sheet to determine equity, the difference between what a practice owns (its assets) and what it owes (liabilities). (I covered balance sheets in the January 2006 column. If you missed it, you can go to www.skinandallergynews.com

▸ Income-based valuation. This looks at the source and strength of a practice's income stream as a creator of value, and whether that income stream under a different owner would mirror its present one. This, in turn, becomes the basis for an understanding of the fair market value of both tangible and intangible assets.

▸ Market valuation. This combines the previous two approaches and attempts to determine what the practice is worth in the local market by analyzing sales and mergers of comparable practices in the community.

Valuing tangible assets is comparatively straightforward, but there are several ways to do it, and when reviewing a practice appraisal you should ask which of them was used. Depreciated value is the book value of equipment and supplies as determined by their purchase price, less the amount their value has decreased since purchase. Remaining useful life value estimates how long the equipment can be expected to last. Market (or replacement) value is the amount it would cost on the open market to replace all equipment and supplies.

Intangible assets are more difficult to value. Many components are analyzed, including location, interior and exterior decor, accessibility to patients, age and functional status of equipment, systems in place to promote efficiency, reasons why patients come back (if in fact they do), and the overall reputation of the practice in the community. Other important factors include the payer mix (what percentage pays cash, how many third-party contracts are in place and how well they pay, etc.), and the extent and strength of the referral base.

It also is important to determine to what extent intangible assets can be transferred to another owner. Although such qualities as unique skill with a laser or filler substances and extraordinary personal charisma may increase your practice's value to you, they will be of little use to the next owner and he or she will be unwilling to pay for them.

Professional appraisers use a variety of techniques to estimate intangible asset value, and once again you should ask which were used. Cash flow analysis works on the assumption that cash flow is a measure of intangible value. Capitalization of earnings puts a value, or capitalization, on the practice's income streams using a variety of assumptions. Guideline comparison uses various publications, databases, and other records of transactions to compare your practice with other, similar ones that have changed hands in the past.

Two newer techniques that some believe provide a better estimate of intangible assets are the replacement method, which estimates the costs of starting the practice over again in the current market, and the excess earnings method, which determines the average earnings of a practice within your specialty and then measures how far above average your practice's earnings are. The theory behind the latter method is that a practice with above-average earnings is more valuable than an average one.

Whatever methods are used, it is important that the appraisal be done by an experienced financial consultant, that all techniques used in the valuation be divulged and explained, and that documentation is supplied to support the conclusions reached. This is especially important if the appraisal will be relied upon in the sale of the practice. We'll talk about that next month.

Last year I discussed the basic rules to keep in mind when shopping for an electronic medical record system, and last month's column included a discussion of the advantages of adding Web-based messaging to your EMR system. (If you missed those columns, you can find them on the SKIN & ALLERGY NEWS Web site at www.skinandallergynews.com

First, the difference: You have a choice of where you want the software hosted. If it is to be run on hardware within your office, that is a server-based, or client-server, system. If you rely on a vendor to run the software on its hardware via the Internet, that is a Web-based system, or, in industry jargon, an application service provider (ASP) system. Both options provide distinct advantages and disadvantages.

Client-server systems run and store data on hardware you own and keep on your premises. You pay up front for hardware, software, and setup, and usually a monthly maintenance fee thereafter.

Such a system gives you greater control and fewer worries about interrupted access or breach of confidentiality, but up-front equipment costs are high and the responsibility of maintaining and securing your database is entirely yours. Obviously, regular backups are essential. You can either create backup tapes or disks yourself and physically store them elsewhere, or—a far better option, in my view—you can hire a service that regularly and automatically copies your data to off-site computers. A growing number of remote backup services are available at reasonable prices. (As always, I have no financial interest in any product or enterprise discussed in this column.)

In an ASP system, both the application and data reside on the vendor's servers, and your office accesses them through a Web browser or other specialized software. The up-front setup fee is comparatively small, and ongoing monthly payments are based on frequency of usage and the complexity of your data.

The main advantage of an ASP is that your data are maintained by computing professionals at the vendor's facility.

As one vendor explained, you would consider it foolish to keep your money under a mattress at home. Instead, you entrust it to a bank that is staffed by security professionals. So why not do the same with your medical records? You also typically get access to far more sophisticated hardware and software features than you could afford to buy yourself.

The glaring disadvantage of the ASP is the active Internet connection it requires. No Internet connection works 100% of the time; your Internet service provider or internal network may fail, or a virus, worm, Trojan horse, or hacker can wreak havoc with your records.

If you go this route, there are several essential features to ask about. These include multiple layers of security, uninterruptible power sources, instant switchover to backup hardware in case of a crash, and frequent, reliable backups. In short, you need reliable assurances that your records will always be secure and available.

So which is right for you? If you have a multiphysician practice and you are an expert with computers (or have ready access to one), client-server may be your best option. Smaller offices with little to no computer expertise are probably better off choosing an ASP, at least to start.

An ASP has more sophisticated equipment, additional layers of security, and larger, specialized staffs than your office does. In smaller practices, the ASP is often easier to customize than an internal system. In a large practice with numerous and diverse subspecializations, client-server systems often provide more flexibility. You will pay a premium for the extra customization work, however.

In the end, it may come down to which of the potential downsides you fear more: being unable to access your records while your Internet connection is down, or losing data and time (or worse) if your hardware crashes or gets damaged in a fire or other calamity. One option to consider is starting with a hosted ASP service, then moving in-house if that becomes necessary or advantageous.

Last year I discussed the basic rules to keep in mind when shopping for an electronic medical record system, and last month's column included a discussion of the advantages of adding Web-based messaging to your EMR system. (If you missed those columns, you can find them on the SKIN & ALLERGY NEWS Web site at www.skinandallergynews.com

First, the difference: You have a choice of where you want the software hosted. If it is to be run on hardware within your office, that is a server-based, or client-server, system. If you rely on a vendor to run the software on its hardware via the Internet, that is a Web-based system, or, in industry jargon, an application service provider (ASP) system. Both options provide distinct advantages and disadvantages.

Client-server systems run and store data on hardware you own and keep on your premises. You pay up front for hardware, software, and setup, and usually a monthly maintenance fee thereafter.

Such a system gives you greater control and fewer worries about interrupted access or breach of confidentiality, but up-front equipment costs are high and the responsibility of maintaining and securing your database is entirely yours. Obviously, regular backups are essential. You can either create backup tapes or disks yourself and physically store them elsewhere, or—a far better option, in my view—you can hire a service that regularly and automatically copies your data to off-site computers. A growing number of remote backup services are available at reasonable prices. (As always, I have no financial interest in any product or enterprise discussed in this column.)

In an ASP system, both the application and data reside on the vendor's servers, and your office accesses them through a Web browser or other specialized software. The up-front setup fee is comparatively small, and ongoing monthly payments are based on frequency of usage and the complexity of your data.

The main advantage of an ASP is that your data are maintained by computing professionals at the vendor's facility.

As one vendor explained, you would consider it foolish to keep your money under a mattress at home. Instead, you entrust it to a bank that is staffed by security professionals. So why not do the same with your medical records? You also typically get access to far more sophisticated hardware and software features than you could afford to buy yourself.

The glaring disadvantage of the ASP is the active Internet connection it requires. No Internet connection works 100% of the time; your Internet service provider or internal network may fail, or a virus, worm, Trojan horse, or hacker can wreak havoc with your records.

If you go this route, there are several essential features to ask about. These include multiple layers of security, uninterruptible power sources, instant switchover to backup hardware in case of a crash, and frequent, reliable backups. In short, you need reliable assurances that your records will always be secure and available.

So which is right for you? If you have a multiphysician practice and you are an expert with computers (or have ready access to one), client-server may be your best option. Smaller offices with little to no computer expertise are probably better off choosing an ASP, at least to start.

An ASP has more sophisticated equipment, additional layers of security, and larger, specialized staffs than your office does. In smaller practices, the ASP is often easier to customize than an internal system. In a large practice with numerous and diverse subspecializations, client-server systems often provide more flexibility. You will pay a premium for the extra customization work, however.

In the end, it may come down to which of the potential downsides you fear more: being unable to access your records while your Internet connection is down, or losing data and time (or worse) if your hardware crashes or gets damaged in a fire or other calamity. One option to consider is starting with a hosted ASP service, then moving in-house if that becomes necessary or advantageous.

Last year I discussed the basic rules to keep in mind when shopping for an electronic medical record system, and last month's column included a discussion of the advantages of adding Web-based messaging to your EMR system. (If you missed those columns, you can find them on the SKIN & ALLERGY NEWS Web site at www.skinandallergynews.com

First, the difference: You have a choice of where you want the software hosted. If it is to be run on hardware within your office, that is a server-based, or client-server, system. If you rely on a vendor to run the software on its hardware via the Internet, that is a Web-based system, or, in industry jargon, an application service provider (ASP) system. Both options provide distinct advantages and disadvantages.

Client-server systems run and store data on hardware you own and keep on your premises. You pay up front for hardware, software, and setup, and usually a monthly maintenance fee thereafter.

Such a system gives you greater control and fewer worries about interrupted access or breach of confidentiality, but up-front equipment costs are high and the responsibility of maintaining and securing your database is entirely yours. Obviously, regular backups are essential. You can either create backup tapes or disks yourself and physically store them elsewhere, or—a far better option, in my view—you can hire a service that regularly and automatically copies your data to off-site computers. A growing number of remote backup services are available at reasonable prices. (As always, I have no financial interest in any product or enterprise discussed in this column.)

In an ASP system, both the application and data reside on the vendor's servers, and your office accesses them through a Web browser or other specialized software. The up-front setup fee is comparatively small, and ongoing monthly payments are based on frequency of usage and the complexity of your data.

The main advantage of an ASP is that your data are maintained by computing professionals at the vendor's facility.

As one vendor explained, you would consider it foolish to keep your money under a mattress at home. Instead, you entrust it to a bank that is staffed by security professionals. So why not do the same with your medical records? You also typically get access to far more sophisticated hardware and software features than you could afford to buy yourself.

The glaring disadvantage of the ASP is the active Internet connection it requires. No Internet connection works 100% of the time; your Internet service provider or internal network may fail, or a virus, worm, Trojan horse, or hacker can wreak havoc with your records.

If you go this route, there are several essential features to ask about. These include multiple layers of security, uninterruptible power sources, instant switchover to backup hardware in case of a crash, and frequent, reliable backups. In short, you need reliable assurances that your records will always be secure and available.

So which is right for you? If you have a multiphysician practice and you are an expert with computers (or have ready access to one), client-server may be your best option. Smaller offices with little to no computer expertise are probably better off choosing an ASP, at least to start.

An ASP has more sophisticated equipment, additional layers of security, and larger, specialized staffs than your office does. In smaller practices, the ASP is often easier to customize than an internal system. In a large practice with numerous and diverse subspecializations, client-server systems often provide more flexibility. You will pay a premium for the extra customization work, however.

In the end, it may come down to which of the potential downsides you fear more: being unable to access your records while your Internet connection is down, or losing data and time (or worse) if your hardware crashes or gets damaged in a fire or other calamity. One option to consider is starting with a hosted ASP service, then moving in-house if that becomes necessary or advantageous.