Boosting your healthcare practice’s cash flow during a pandemic

Many medical and dental practice owners were surprised to find their offices closed by statewide shutdown orders preventing non-essential medical and dental services.  Even as states reopen elective healthcare, practices may find a drastically different market for services.   That demand uncertainty for medical and dental services, coupled with the threat of future intermittent care stoppages, makes this a good time for physicians and dentists to focus on boosting their practice’s cash flows in order to better prepare for the short- and long-term future of healthcare during a pandemic:

Telehealth

Telehealth is a great ancillary service to add to your practice. More than ever, it should be incorporated to boost your practice’s revenue stream.

Centers for Medicare & Medicaid Services (CMS) has issued temporary measures to facilitate the use of telehealth services during the COVID-19 Public Health Emergency. Included in these changes is the ability to bill for telehealth services as if they were provided in person. Another temporary change allows providers to deliver care to both established and new patients through telehealth.

In addition, CMS has also expanded the list of covered telehealth services that can be provided in Medicare through telehealth.

Providers may provide telehealth services to patients through commonly used apps that normally would not fully comply with HIPAA rules. Some of the more popular examples of these apps include FaceTime, Zoom, or Skype. However, the platforms should not be public-facing, such as Facebook Live.

Healthcare providers may also reduce or waive cost-sharing for telehealth visits during the COVID-19 Public Health Emergency.

Coverage for telehealth services may differ throughout the various commercial payors as well as from state to state.

Chronic Care Management

The popularity of Chronic Care Management (CCM) services has been increasing in recent years, especially as providers are realizing that they may bill for services they would regularly provide free of charge.

Chronic Care Management is defined as the non-face-to-face services provided to Medicare beneficiaries who have multiple (two or more), significant chronic conditions. Rather than being exclusive to physicians, other clinicians, such as Nurse Practitioners and Physician’s Assistants, may also provide CCM services; however only one clinician can furnish and bill for any particular patient during a calendar month.

The practice must have the patient’s written or oral consent and use a certified EHR to bill CCM codes. The creation and revision of comprehensive electronic care plans is a key component of CCM.

CCM incentivizes a higher standard of care for patients with multiple chronic conditions and offers an additional $42 to $139 per patient per month based on time and complexity.

U.S. Department of Human & Health Services (HHS) Provider Relief Fund

The Provider Relief Fund is provided to support healthcare providers fighting the COVID-19 pandemic. The funding supports healthcare-related lost revenue attributable to COVID-19.

Providers must accept the HHS Terms and Conditions and submit revenue information by June 3, 2020 to be considered for an additional General Allocation payment.  All facilities and health care professionals that billed Medicare FFS in 2019 are eligible for the funds. It is important to note that these are grants, not loans.

A physician can estimate his or her payment by dividing 2019 Medicare FFS (not including Medicare Advantage) payments received by $484 billion, and multiplying that ratio by $30 billion.

Paycheck Protection Program Loan Forgiveness

The Paycheck Protection Program (PPP) is a loan designed to provide a direct incentive for small businesses to keep their workers on payroll. The main attractive feature of this program is the ability to have some if not all of the loan proceeds forgiven. Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels. If a laid-off employee declines an offer to be re-hired, the forgiveness amount will not be reduced, however it is advised to get written confirmation of the fact.

The forgiveness portion of the loan consists of money used for payroll, rent, mortgage interest, or utilities. A reduction in payroll may reduce the amount that may be forgiven; 75% of the potential forgiveness amount should be used for payroll.

It may be in your best interest to review the PPP Loan Forgiveness Application to help you understand how the forgiveness portion will be calculated. We advise you to review with your accountant and/or legal counsel before submission to the U.S Small Business Administration.

Creative solutions and persistent actions to boost cash flow may help your practice overcome the COVID-19 crisis.  Contact a CIG Capital Advisors Business Advisory Services professional to look for ways your practice might be able to increase cash flow amid the pandemic.

Sources

Planning for a Rebound: Preparing to Buy a Medical Practice

For some time, you have thought about expanding your practice. However, you haven’t taken things much further because the right opportunity hasn’t appeared. Now, the micro-economic climate in your market is rapidly changing and a nearby practice may be put on the market soon. It looks like it would fit in perfectly with your plans for expansion, but before you make an offer, you need to proceed with care.

Consider the Big Picture

Review the financial projections for the practice you plan on buying. Revisit your assumptions about patient numbers. Determine how long it will be before the practice begins paying for itself. Look into potential staffing issues.

Clarify What You Are Buying

Before considering what may be an appropriate purchase price, other important aspects of the sale — structure, payment terms, tax allocation, collateral, and post-sale employment of the seller — must be discussed. Be sure that such items as accounts receivable, deposits on equipment, and property leases are discussed as part of the negotiations. Determining exactly what’s included in the sale will minimize potentially costly future disputes.

Benchmark the Asking Price

Work with a professional advisor to determine whether the asking price is in line with recent sales of similar-sized medical practices in your region. You have more room to negotiate on the asking price if you have recent sales data for comparison purposes.

Determine the Type of Sale

Will it be an asset sale or stock sale? If it’s a stock sale, you generally will not get a tax deduction for any of the purchase price since stock is not a depreciable asset. The seller is, however, able to pay tax at capital gains rates. An asset sale may be more advantageous for the buyer from a tax perspective, as assets can be depreciated. Depending on the tax allocation of the purchase price among the assets acquired, you may be able to dramatically reduce the after-tax cost of your purchase by taking all the available write-offs from depreciating the assets included in the sale. In addition, an asset sale excludes the practice’s liabilities.

Select the Method of Financing

Some lenders are more aggressive in seeking out business, so you should be willing to work with out-of-state and out-of-region lenders to get the best terms.

Have the seller finance part of the sale because it creates an incentive for him or her to cooperate on any of the many issues that may arise after the sale is completed. Just be aware that the seller may expect a security interest in the practice, including its future receivables.

Use an Escrow

The typical sales agreement contains numerous assurances, known as “seller representations and warranties,” promises from the seller that all statements about debts, assets, and tax liabilities are true. However, if the sale is for cash, it may be wise to negotiate to hold back part of the purchase payments in an escrow fund to protect your interest in case any representations turn out to be untrue.

Be Aware of Pre-sale Practice Expenses

All of the practice’s bills should be paid off before the transfer occurs, if practical. Adjustments can be made at the time the sale is closed.

Use a Covenant Not to Compete

If retirement is not the motivation for the sale, it is generally advisable to negotiate a covenant not to compete. The covenant should be reasonable as to the duration of the covenant and any geographic restrictions.

We Can Help

If you are planning the purchase of another medical practice, either now or in the future, we strongly recommend that you talk to us first. We can help you review the financials and help protect your interests throughout the process.  To schedule a complimentary consultation with a CIG Capital Advisors professional, click here.

Important Client Announcement Related to COVID-19

CIG Asset Management Update February 2020: The Unknown Unknowns and Our Thoughts on COVID-19

Market volatility spiked starting at the end of February and continues today at extreme levels. Long time readers of our updates know that we have been warning about asset bubble and Central Banks’ recent actions since last year. On March 3rd, The Federal Open Market Committee (FOMC) cut the federal funds rate by 0.5 percentage points to a 1 to 1.25% range. An emergency interest rate cut between regular meetings is very rare. The last such cut was during the Great Financial Crisis (GFC) in October 2008. In fact, there have only been 7 emergency actions since October 1998. Interestingly, the FOMC took this action after only a -8.2% decline in February for the S&P 500 Total Return Index(1). Similarly other markets around the world showed “orderly” selling – the MSCI EAFE Net index of Developed Markets was down only -9.0% while Emerging Markets, as measured by the MSCI Emerging Markets Net Index, lost only -5.3% during the month(2). How have stocks performed in the past after the FOMC cuts rates unexpectedly? The answer in the table below(3) is that they tend to go lower the following 12 months. The average one year return on the S&P 500 following an emergency cut is -7.3%. The October 15, 1998 emergency cut was in reaction to a hedge fund, Long Term Capital Management (LTCM), imploding. Excluding the LTCM cut, the average one year return after the other six actions was much worse, -12.5%. On February 20 and 21, FOMC speakers were cheerleading the market and saying that no rate cuts were necessary. We must ask ourselves, why did the Federal Reserve deem it necessary to act so suddenly? Ultimately, fears intensified over the new coronavirus (COVID-19) turning into a pandemic given that the number of new cases appearing outside of China were outpacing those within China, all this without adequate testing in many places. However, we remain skeptical that monetary policy can solve the global economic issues. Amazon, Google, Facebook and Microsoft are now pushing working from home(6). All, in addition to Apple, JP Morgan, Proctor & Gamble and others, have limited employee travel(6). Major events such as the St. Patrick’s Day Parade in Dublin have been cancelled, and forthcoming cancellations will be likely, too. Corporate management teams know that they will be forgiven if they lump as much bad news as possible into the first half of 2020 whether it is COVID-19-related or not. The bad news is likely to keep coming and the economic damage may be significant. It is possible that that Central Banks can regain control as Central Banks have managed to restrain volatility for the six previous times issues arose since the GFC. However, with the VIX at 60+, they appear to be more challenged than ever post-2008. Already, Treasury yields have reached record lows in February. Accordingly, the Barclays U.S. Long Treasury Index increased 6.7% during the month(4). Market participants are now anticipating three interest rate cuts to occur in 2020(5) and in March, Treasury yields have reached unprecedented low levels! The 30-year Treasury is below 1% as we write(1). In this high volatility environment, anything is possible and we are watching the markets and economy like a hawk. The CIG-managed portfolios have benefited from being positioned for late cycle volatility since October, with the Dynamic portfolios even more so since late February. There is massive risk to the downside as well as the upside. On the plus side, we may get a global fiscal stimulus package which would in turn boost markets. In that case, markets are very oversold, meaning assets that have traded lower/ gotten cheaper have the potential for a price bounce. On the other hand, the constant subsidy of the markets and the economy has led us to a large bond and stock market bubble and very high debt levels while the Federal Reserve has left themselves with way fewer tools. We have plans for both scenarios. CIG has a robust business continuity plan to lessen any interruption to service and allow us to remain fully operational at all times. We can accommodate a fully remote staff if necessary. We believe the communication procedures that we have in place will help ensure that there is no disruption to your service. We remain committed to meeting your expectations regarding meeting attendance and recognize that some clients may prefer conference calls or videoconferencing in lieu of in-person gatherings. Finally, we are persistently following the investment markets and repercussions of COVID-19 and will continue to communicate with you when appropriate about the portfolio impact and opportunities that are created. Until then, please stay well and support your friends and neighbors. The elderly who are deeply concerned now and neighbors without alternative childcare will need our help. As long as it is advisable, please visit your service vendors like restaurants and tip generously. We also ask that you generously give to local organizations who support the needs of lower-income families who might rely on travel, retail and hospitality sources of income. They will suffer disproportionately. Even if COVID-19 burns out in the coming months, as we hope it will, the economic issues could possibly linger for some time. This report was prepared by CIG Asset Management and reflects the current opinion of the authors. It is based upon sources and data believed to be accurate and reliable. Opinions and forward-looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security. SOURCES:  1.  Calculated from data obtained from Yahoo Finance, as of February 28, 2020. 2. MSCI, as of February 28, 2020 3.  Deutsche Bank report using Bloomberg Data 4.  NEPC 5.  https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html as of March 9, 2020. 6.  https://www.businessinsider.com/companies-asking-employees-to-work-from-home-due-to-coronavirus-2020

Understanding Medical or Dental Practice Financial Statements

Financial statements are to accounting what CT scans and X-rays are to the medical profession: the financial health of a business or medical practice can be assessed by analyzing its financial statements. While most dentists would prefer to focus on dentistry rather than the business of dentistry, it can be beneficial for dentists (or any physician-owner) to familiarize himself or herself with the basics of financial statements.

Learning how to read financial statements allows a physician or dentist to see where the practice’s money came from, where it went, and where it is now. Dentists and physicians will want to be aware of the following three basic financial statements:

1. Balance Sheet. The balance sheet provides detailed information about your practice’s assets, liabilities, and shareholder’s equity. It is a snapshot of the financial status of your practice as of a certain date.   Assets are things the practice owns that have value. Assets may include physical property, such as office buildings and equipment, cash and investments, receivables, and intangibles, such as goodwill.   Liabilities are amounts the practice owes to others. Liabilities can include items such as taxes owed to the government, bank loans, and money owed to vendors. Shareholders’ equity is the amount the practice would have left over if it sold all its assets for the amount appearing on the balance sheet and paid off its outstanding liabilities. This equity belongs to the practice owners.
2. Income Statement. An income statement shows how much revenue your dental or medical practice generated over a specific period, usually a year. It also shows the costs and expenses that went into earning that revenue. The bottom line is the practice’s profit or loss for the reporting period. Pay close attention to the practice’s operating expenses, such as rent, utilities, and supplies. A practice that experiences a net loss may look to reduce its operating expenses in an attempt to return to the black.
3. Cash Flow Statement. The cash flow statement reports the dental or medical practice’s inflows and outflows of cash during the reporting period. A cash flow statement tells you the net increase or decrease in cash. Cash flow statements are generally divided into three parts: cash flow from operating activities, cash flow from investing activities, and cash flow from financing activities.

As experienced advisors, we can help you dig deeper into your numbers and show you where you can make changes that will improve your practice’s bottom line. Contact a CIG Capital Advisors medical practice management professional today for a complimentary initial consultation.

The act of adding medical practice value through an administrator’s eyes