Three changes went into effect on January 1, 2013 and each could lead to painful financial results for doctors in the next eight to twelve months.

Cut in Medicare Reimbursement

The 2% cut in Medicare reimbursements is one change most in the healthcare industry know about, but few realize where it will be felt. If a healthcare practice’s patient base is half Medicare, then the sequestration cuts of 2% will cause a 1% reduction in overall practice collections. That may sound inconsequential until you consider that if the practice’s overhead is 50% of collections, and the doctors take most of the profits in the form of salary, retirement plan contributions and other fringe benefits, their bonuses may amount to only 10% of the total collections. In that instance, the 2% cuts will cause a 10% reduction in the doctors’ bonuses.

Many doctors use their bonuses to accomplish major financial goals and this bonus reduction must be anticipated. Since these overhead, doctor salaries and Medicare payer mix numbers vary from practice to practice, the exact impact must be calculated for each practice.

Higher Tax Rate

With all the debate about increasing taxes on high income earners and fiscal cliff legislative debate, some people are not aware that a higher tax rate (39.6%) became effective on January 1, 2013 for persons with taxable incomes of more than $400,000 or $450,000 for single and married filing status. If your practice is processing your payroll internally or you are using a payroll service where you have directed the amounts you want withheld from your gross pay, you are probably not withholding the correct amount of tax each pay period. Continuing to under withhold until June 30, 2013 will mean that your total annual tax increase will have to be withheld in the last six months of 2013 or be paid with your 2013 tax return.

Benefit Limits of Personal Exemptions and Itemized Deductions

The least known of the financial pain trifecta, is that the January 1, 2013 tax law will also limit the benefit of personal exemptions and itemized deductions for those whose adjusted gross incomes are greater than $250,000 or $300,000, depending on filing status. A married couple with $750,000 of AGI, could lose the deductibility of $13,500 of itemized deductions ($750,000‐$300,000=$450,000 X 3%= $13,500). For high income earners who also have substantial itemized deductions, this provision could be more painful than the increased tax rate on taxable income.

In view of these and other healthcare and tax issues, it is better to anticipate than to react in a few months. Warren Averett can help you plan for your best outcome.