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Essentials of end of year planning

By Joan M. Roediger, JD, LLM

It is hard to believe that it is already November. Last year, at this time, fears of Y2K were sweeping the nation. Now those fears seem a distant memory. I am sure all of you are relieved that you do not have to plan for Y3K for another 99 years. This year, however, the one thing all practices cannot avoid is planning for next year. Now is the time to start your end of year preparations. By beginning to focus on these issues now, hopefully, your practice will sail into 2001 with little fuss.

There are a number of issues each medical practice must consider at year’s end. These issues are corporate planning, financial planning and operational planning.

Corporate Planning

Most medical practices are organized as professional corporations. Consider the last time you reviewed your corporate minute book. Did you know that Pennsylvania law requires corporations to hold annual meetings to remain in good standing? Additionally, if you have been incorporated for longer than ten years, you may have to satisfy a state filing requirement. Failure to adhere to the state-required corporate formalities could subject you to a legal challenge in a malpractice case regarding the validity of your corporation. If this challenge is successful, this could potentially increase your financial exposure in the suit.

An end of year meeting does not have to follow any particular guidelines. Issues you should consider adding to your meeting agenda include 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. Your actions taken at the year-end meeting should be documented in minutes that are signed and placed in your minute book.

Medical practices organized as limited liability companies or partnerships, while not required under state law, should still hold an annual meeting. This meeting is extremely useful in reviewing current agreements and planning for the upcoming year.

Prior to the meeting, you should review your corporate agreements. Particularly, if your practice is a corporation, you should review your Shareholders’ Agreement, Bylaws, and Employment Agreements. The Shareholders’ Agreement should specify the manner in which your shares may be sold and the price for such shares and should be updated if it does not accurately value your practice. You should discuss this with your practice advisors.

The Bylaws should reflect your current organizational structure. The Bylaws should detail the procedure for holding corporate meetings, the voting procedure, the election of Directors and the appointment of Corporate officers. While often a standard looking document, your Bylaws should be tailored to the day-to-day needs of your practice.

In lieu of Shareholders’ Agreements and Bylaws, limited liability companies document their company’s valuation and organizational structure in an Operating Agreement. Partnerships document these matters in a Partnership Agreement. Regardless of your practice’s corporate structure, your practice agreements should be reviewed annually.

Finally, each year, you should carefully review all of the Employment Agreements of your practice. For co-owners, the Employment 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. Consider such matters as the length of termination notice, the causes of termination and the language of any restrictive or non-solicitation covenants. Also, consider whether or not the practice and the employees are in compliance with the agreement. If not, consider the ramifications to the practice and implement needed changes.

Financial Planning

The end of year provides an opportune time to review your practice finances. Depending on your organizational structure, additional tax planning may be required.

You should start by reviewing this year’s finances. Compare 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 within your practice. Look at every category of expense separately to differentiate the changes in your practice. Many accountants will perform this type of financial analysis for your practice as part of their regular accounting duties. Contact your accountant to see if this service is available.

Look carefully at your accounts receivable and again, compare them to the prior year’s receivables. Look at the difference in total charges to total collections during this time period. Also consider the average number of days in collection and your payor mix.

Consider what changes you should be implementing at your practice before year-end to improve next year’s cash flow. This may include additional staffing, upgrading your billing software or computer system, or if your billing is performed by an outside company, possibly changing billing companies. Your analysis may also lead you to decide to change your third party payor participation if you determine that your practice’s participation in certain plan(s) is no longer advantageous.

You should also review your accounts receivable to estimate how much cash your practice is likely to receive in January. You may wish to consider obtaining 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.

Operational Planning

The end of year is also an excellent time to perform operational planning. Operational planning includes compliance planning and personnel planning.

All practices should be performing some form of compliance assessment. You should read the recently issued final guidance published by the Office of Inspector General. This guidance is available at no charge on the internet under the “Compliance Guidance” section located at http://www.os.dhhs.gov/progorg/oig/. If your practice does not have a compliance plan in place, consider implementing a compliance plan as part of your end of year planning.

If your practice has a compliance plan, review the plan and make sure your practice is complying with the requirements of your plan. It is essential that you comply with your own plan. If you discover that your practice is unable to comply with the plan, figure out why. Amend your compliance plan, if needed, to meet the capabilities of your practice.

Also an important part of your end of year planning is an assessment of your personnel management. You should 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 is in compliance with its personnel policy manual.

You should also use the end of year to perform employee evaluations. Use the employee’s job descriptions (if available) to evenly evaluate all employees. It is preferable if you use a standard evaluation form for all employees. End of year bonuses and raises should be based upon employee performance.

Effective end of year planning does take time. It is, however, a valuable tool which will greatly benefit your practice. By reviewing the prior year and planning for the next year, your practice should be better prepared to face the upcoming year.

Joan M. Roediger, J.D., L.L.M. is Of Counsel to the law firm Obermayer Rebmann Maxwell & Hippel LLP in Philadelphia and is a Member of Obermayer’s Health Law Department.

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