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Now is the time to start focusing and planning for 2005, from a corporate, financial, and operational standpoint.
It's hard to believe that it is already November. At this time of year, it's common for people to reflect back on what the year has brought them and how they've progressed since those early days of January. But all businesses, particularly medical practices, should also consider this as a time to look ahead. Now is the time to start focusing and planning for 2005, from a corporate, financial, and operational standpoint. Here are my suggestions to help you get started.
Consider the corporation
Most medical practices are organized as professional corporations - and as such there are certain activities that need to take place. When was the last time you reviewed your corporate minute book? Did you know, for example, that some states require corporations to hold annual meetings to remain in good standing? And if you have been incorporated for more than 10 years, you may have to satisfy a state filing requirement. Failure to adhere to state-mandated corporate formalities could subject you to a legal liability if a plaintiff in an action establishes that your corporation is not properly organized. If this challenge is successful, it could potentially increase your financial exposure in the suit.
For those medical practices organized as limited liability companies or partnerships, an annual meeting is not required under state law, but they should still try to hold one as a good business practice. An end-of-year corporate meeting does not have to follow any particular guidelines. Consider including the following on your meeting agenda: the election of corporate officers (even if you are the sole shareholder of your corporation), approval of actions taken since the last meeting, and approval of bonus distributions and retirement plan contributions. Actions taken at the year-end meeting should be documented in minutes that are signed by the secretary or other officer of your corporation and placed in your minute book. It's a good idea to keep these minutes on file indefinitely.
Before the meeting, you should review your corporate agreements. These documents, which outline the company's valuation and organizational structure, have different names for different types of corporate structures. Corporations have shareholders' agreements and bylaws; for limited liability companies it's an operating agreement; partnerships, a partnership agreement.
The shareholders' agreement should specify the manner in which your shares may be sold and the price for such shares; it should be updated if it does not accurately and fairly value your practice. You should discuss this with your practice's professional advisers.
The bylaws should reflect your current organizational structure, outlining the procedure for holding corporate meetings, the voting procedure, the election of directors, and the appointment of corporate officers. Similar items are included in operating and partnership agreements. Do not rely on the template forms provided in many incorporation kits; your bylaws should be tailored to your practice's needs.
Finally, each year, you should carefully review all of the employment agreements of your practice. For co-owners, the agreement should describe the buy-out entitlement (sometimes referred to as deferred compensation). For all employees, including co-owners, you should carefully review the employment agreement to determine if your practice is adequately protected in such matters as the length of termination notice, the causes of termination, and the language of any restrictive or nonsolicitation covenants. (For more information, visit www.PhysiciansPractice.com and search for my article, "Understanding Noncompetes" in the July/August 2004 issue.) Are the practice and the employees in compliance with the agreement? If not, determine the ramifications to the practice and implement needed changes.
Bring finances to the fore
For most individuals and businesses, the end of the year is an opportune time for a financial review. Depending on your organizational structure, additional tax planning may be required. Start by reviewing this year's finances, comparing this year to last year. If possible, you should perform a side-by-side analysis of the two years so you can clearly see where changes occurred in your practice. Look at every category of expense separately - including accounts receivable, total charges to total collections, number of days in collections, and payer mix - to differentiate the changes in your practice. Most accountants will perform this type of financial analysis as part of their regular accounting duties. It may be helpful to do a periodic analysis, perhaps quarterly, to make year-end comparisons less daunting. (Visit the Tools section of www.PhysiciansPractice.com and click on the calculator called "Measure the Financial Health of Your Practice.")
This comparison will help you consider what changes you should be implementing at your practice to improve next year's cash flow, which may include additional staffing, upgrading your billing software or computer system, or possibly changing outsourced billing companies. Your analysis may also lead you to decide to change your third-party payer participation if you determine that some are no longer advantageous.
Review your accounts receivable with an eye toward estimating how much cash your practice is likely to receive in January. If necessary, consider a line of credit to meet your cash flow needs for the beginning of the year.
Once you have completed your retrospective review of your practice finances, you should begin budgeting next year's finances. Make sure to include any major purchases and staffing changes in your next year's budget.
Year-end operational planning can include items like compliance plans and personnel.
All practices should be performing some form of compliance assessment. Begin by reading the guidance published by the Office of Inspector General, available at http://oig.hhs.gov/fraud/complianceguidance.html. If your practice does not have a compliance plan in place, add it to your end-of-year planning agenda items.
It is essential that you comply with your own compliance plan. If you discover that your practice is unable to do so, figure out why, and amend your compliance plan to meet the capabilities of your practice. (For more information on developing a compliance plan, visit www.PhysiciansPractice.com , and search for the article "Are You in Compliance?" in the October 2004 issue.)
Another important part of your end-of-year planning is an assessment of your personnel management. Review your personnel policy manual and make sure that it is up-to-date with current legal issues. As with your practice's compliance manual, you should verify that your practice complies with its personnel policy manual. Changes in technology, HIPAA, and overtime regulations may warrant updating your policy manual.
You should also use the end of year, rather than anniversary dates, to perform employee evaluations. It is easier to perform evaluations all at once and you decrease the likelihood of missing an employee. Use written job descriptions (if available) and a standard form to evaluate all employees with consistency. Base end-of-year bonuses and raises on employee performance.
Effective end-of-year planning does take time. It is, however, a valuable tool that will help your practice in the long run.
Joan M. Roediger, JD, LLM, is a partner with Obermayer Rebmann Maxwell & Hippel LLP of Philadelphia. She is a member of the firm's health law department. She can be reached at (215) 665-3216 or via e-mail at email@example.com via firstname.lastname@example.org.
This article originally appeared in the November/December 2004 issue of Physicians Practice.