How the New Tax Law Will Affect Your Practice—And Your E/M Coding

Discover what the law does and what you should do about coding as a result.

What’s more complicated: the E/M coding guidelines or the U.S. tax code? You and the other time-strapped physicians in your practice, focused on caring for as many patients as possible and simply wanting your hard work to be appropriately valued and reimbursed, might find that question a tough call!

E&M CodingHere at MDCodePro, we’re experts in E/M coding, not Federal tax law. But we do know plenty of doctors and healthcare professionals are talking about the Tax Cuts and Jobs Act, which President Trump signed into law on December 22, 2017. Like all U.S. taxpayers, physicians are thinking about how the new law may change their individual returns. But they’re also asking, “What does this new law mean for my medical practice?”

We’d like to offer you some information about two major ways we see the new tax law immediately affecting physicians’ practices. We are not tax experts, accountants or attorneys and do not intend for you rely on us for tax, accounting, or other legal advice. You already know you should always consult a financial professional for specific answers to questions about your tax situation, as a medical practice and as an individual taxpayer. But this backgrounder may help you take a more informed part in the medical community’s current conversations about the new tax law.

Major Effect #1—A 20% Income Deduction for Practice-Owning Physicians

The new law creates a 20% qualified business income deduction (QBI) for pass-through businesses. Pass-through businesses are sole proprietorships, partnerships, S corporations, and other businesses not subject to corporate income tax.

As Modern Healthcare senior reporter Harris Meyer writes, “most physician and dental practices are organized” as pass-through businesses. So physicians who own their own practice will, when filing their 2018 returns next year, potentially see their maximum effective tax rate drop “from the current 39.6% (or 37% under the bill) to about 29.6%.” At the highest 2018 individual tax rate, that’s a $7400 savings.

Some income limitations that don’t apply to other high-income professionals (specifically, architects and engineers) do apply to physicians. The new 20% QBI deduction is available to single filers who earn up to $207,500 annually (it phases out at $157,500 in taxable income) and married couples filing jointly who earn $415,000 annually (the phase-out point here is $315,000).

Again, only physicians who own their own practice can claim the deduction. Employed doctors cannot and, as Meyer notes, “lower-paid employees of medical practices, such as nurses, medical assistants and billing clerks, will not benefit from the tax break.” But David Moseley of Navigant Consulting, told Meyer he hopes the break will help “small-town doctors who are struggling so they can invest more into the business, grow it and pay their lower-level folks more.”

The law firm Kaufman Rossin notes, “As a result of this tax law change, some owners of pass-through entities may consider changing their business tax structure from a pass-through to a subchapter C corporation.” And the law firm Murtha Cullina points out some physicians may consider “splitting up a medical practice into more than one pass-through entity” so that a new entity, such as a medical billing service, would qualify for the deduction. (Is E/M coding starting to look simpler compared to the ins and outs of organizational restructuring?)

All such changes carry potential advantages and disadvantages, and physicians should consult their legal and financial advisors before making changes.

Major Effect #2—Effective Repeal of the ACA Individual Mandate

The Affordable Care Act (ACA) established a requirement that U.S. taxpayers “maintain minimum essential [health insurance] coverage” or pay a fine. As Timothy Jost explained for Health Affairs, the new tax law “does not repeal the individual mandate as such. Rather it zeros out both the dollar amount and percentage of income penalties imposed by the mandate,” beginning in 2019. Arguably, this zeroed-out penalty is an effective repeal of the individual mandate.

Analysts have forecasted the lack of the mandate will lead fewer Americans to purchase health insurance. Estimates range from the Congressional Budget Office’s figure of 13 million uninsured by 2027 to S&P’s figure of 4 to 5 million by the same year. Whatever the final number, the loss of the mandate “will almost certainly have a negative effect on provider margins,” according to Yulan Egan of Advisory Board.

Writing for the KevinMD blog, Dr. Cory Fawcett agrees: “If everyone is not required to have insurance, and insurance companies must pay for pre-existing diseases, premium costs will rise. They are already too high. This rule will hurt your bottom line in two places, higher insurance premium costs, and more uninsured patients.”

Hospitals “may end up bearing the brunt of the financial impact of uncompensated care,” according to Kaufman Rossin, but “physician practices will also be affected,” having “to make some tough decisions regarding payment models.” Egan encourages practices to cope with the change to the mandate by maximizing patient enrollment in health insurance, developing proactive strategies for managing uninsured or underinsured patients, and working to contain costs.

What the Tax Code Means for Your Practice’s E/M Coding

There is one more area in which the new tax law should affect your practice: the way you code office visits and hospital visits.

What do we mean? The CPT® codes you assign patient visits determine how much Medicare will reimburse you for the services you provide. And while Congress has prevented the Medicare cuts the new law might have otherwise triggered, the legislation will still affect how much money Medicare has to spend.

“The tax law does not explicitly affect Medicare,” policy analyst Mary Johnson told Fox Business, “but it takes an enormous amount of revenue out of the system — an estimated $1.5 trillion that’s needed to fund Medicare and Medicaid benefits.”

Medicare payments have received increased scrutiny in recent years. As the program’s purse strings tighten, that trend seems likely to continue. It will be even more important for physicians in your practice to document visits thoroughly and code them accurately. Only diligent coding will ensure your practice gets reimbursed fully and appropriately for the work you do.

If you’re looking for an easy and dramatically effective way to train your practice in optimal medical coding, we urge you to contact us here at MDCodePro. Call us at 219-301-7265, or request more information using this form.

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