Paul Naden, the Original Dental CPA

On July 26, 2013 Paul Naden, CPA, JD, decided to join the great dixieland band in the sky. While he was with us, he touched many lives with his humor, wisdom, practical advice and most importantly, his friendship. We have created a page to honor his memory as well as celebrate his life, Remembering Paul Naden.

Trust Dental Practice Valuations to a Certified Valuation Analyst (CVA), or else...

Recently, a wide variety of folks posted information about how to value a dental practice on Dentaltown. I can only say my perspective comes from hundreds (if not thousands) of valuations of practices for purchase.

You can get some really good information from P&Ls, do not ignore them. Always begin with tax returns and support with P&Ls and PM reports. Many tax preparers will lump expenses together for tax preparation - P&Ls will likely show the details.

A quick example: tax returns had office supplies & expenses of around $60k on revenue of around $900k. The broker who was selling eliminated $50k stating "normal" office supplies & expenses should be 1.5%. P&Ls showed dental supplies of $50k and broker missed it. The tax preparer had combined them into one item on the return.

Who wants to tell me how $50k less in profit impacted the asking price?

Production directly impacts overhead, not cash flow. Cash flow is simply the result of collections minus expenses.

Do not ignore production information/reports, they should support tax return collections and provide soooo much more information about how the collections are generated as well as provide clues on unusual overhead stats.

Another quick example: assessing a practice tax return collections were $100k higher than PM reports. As we inquired about the difference we learned seller was earning $100k/year as an independent contractor, in someone else’s practice, an hour away! That income was not related to the practice being sold.

Who wants to tell me how $100k less in profit impacted the asking price?

You see, in both cases the tax returns were truthful, nothing wrong with them, however, they were used to "price" the practice and nothing else was looked at.

Gather your data, analyze it, verify it, support it, verify it again - then confirm it. 

It’s called due diligence!

Tim Lott, CPA, CVA - Equity Member Dental CPAs 

tlott@dentalcpas.com 
www.dentalcpas.com 
www.indcpa.org 
www.twitter.com/dentalcpas 
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Tim Lott, Dental CPA, Writes about the Importance of a Webmaster When Hiking

(As Tim Lott was rambling through the woods - as he often does - he thought of this blog post).

I was enjoying my morning hike today and this question came to me out of nowhere. First let me state unequivocally I have very little knowledge of the intricacies of websites, how they operate and how to maintain them and you’ll learn very quickly that this post has nothing to do with that!

One of the downsides of hiking in the woods on less-traveled trails or deer trails during the summertime are the spider webs. For those that hike a lot, you know what I’m talking about. Sure you can swing your hands out in front of you like you’re power-hiking, however, the feel of webs all over my arms isn’t something I enjoy. Worse, you can simply use your face as your detection device, just keep your mouth closed or you’ll be getting plenty of protein during your hike. What’s the alternative you ask? A webmaster. Whether you’re the first one to hike that morning or blazing your own trail, a good webmaster is a must have when hiking in the woods during the summertime.

I found mine a little over a year ago. It appeared to be recently built and placed near the banks of the Gunpowder River in some shallow water… maybe it was supposed to be there to cure from the manufacturing process. I could tell right away that mine was built by a beaver as it had a mark (think Antiques Roadshow) or marks on the base of the device… and all over it really. It was the perfect weight, had the perfect thickness from base to end and several cleverly placed “knobs” spread along the shaft to allow for better gripping.

The really cool thing about my webmaster is it’s actually multi-functional, it has many other uses. Here’s a list of some of the other uses during your hike:

weed-whacker, bug repellent, defense against the mildly aggressive critter\varmint or pet, frog & snake chaser, brush poker and of course, hiking stick. I would even venture a guess that if you found a sunny spot & you knew your directions (east\west\north\south) you could even tell time with it!

So I encourage all you hikers out there… if you don’t have a webmaster you really need to consider getting one.

Happy Hiking!

For more information, please contact info@dentalcpas.com

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Mistakes Made, Lessons Learned about Dental Office Staff Meetings

This is another guest post from our client Dr. Donald Lurie.

It seems to me that staff meetings and office planning are difficult and at best, one of the areas that I disliked the most.  To carry it a step further, this same planning and meeting is necessary while contemplating retirement, finances, future activities and endeavors and the like.  Again, as I have said before in some of my earlier blogs, the Team of Retirement is an important part of the process. 

I found it difficult to enjoy staff meetings due to the varied personalities that were present on my staff.  It was difficult for them to talk openly in front of their peers and in front of "the boss."  My staff was not large, but extremely qualified and trained - 2 RNs, 1 CRNA, Office Manager, and a secretary.  They were all female and really good people. However, when it came time to verbalize, critique the practice, correct our errors or attitudes or seek ways to "make it better", the room would get quiet and everyone was looking at the floor.  It seems to me that this situation is also carried out many times when having these open and introspective gut-wrenching discussions with the accountants - especially when getting ready for major decisions such as projections, practice evaluation, insurance issues (to join or not),  and even retirement.

I noticed in our staff meetings that it was difficult to be constructive.  The folks felt that there was a criticism of their work or their personality or even their effort.  I sometimes felt, that I was walking on eggs.  Who was working for whom.  How many hours, days, weeks etc... was enough for sickness, vacation, retirement funding and all the mundane aspects of "running the business" of a practice that had nothing to do with that which I signed up for----treating patients. 

Introspective discussion must be had with our advisors.  It is necessary to be open and receptive to ideas and suggestions that might not be what we want to hear.  The timing of retirement may dictate other strategies that were not planned for in the earlier years of practice.  As noted, other priorities (health, money, wife etc.) may have changed.  It is difficult to be criticized in these meetings or to perceive that you are being looked down on.  However, the really good Team of Retirement will not make it a personal attack.  The point is that we must be ready and available to look at our total work and life situation -  tweak it, shape it, and finally own it.  As I have stated in other blogs, this sharing of attitudes, this true meaning of creation of the next profession (Retirement), will  then be filled with anticipation, will be fruitful, and there will be calm and peace. These are just some thoughts, it seems to me.

More Mistakes made and lessons learned next time.

Dr. Donald B. Lurie, DDS

donald.lurie@att.net 

Phone:       717-235-0764

Cell:           410-218-2228

For more information, please contact info@dentalcpas.com

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Dentists Should be Aware of a Potential New Healthcare Fee Due July 31, 2013

Our friends at Group Benefit Services (GBS) have alerted us to a new fee generated through the new healthcare act. For more information, contact Kelly Ann Dixon-Nachodsky and/or your CPA.

As part of the Healthcare Affordability Act, sponsors of insurance plans are required to pay a fee each year for the next couple of years for each covered participant.  This is known as the “Patient-Centered Outcomes Research Fee” aka PCORI fee. For employers that offer insurance through a traditional insurance company, the insurance company pays the fee so the employer does not need to do anything.

For employers that offer an HRA (Health Reimbursement Account) plan as a compliment to their high deductible traditional insurance plan , the employer must also pay the fee because the HRA is also treated as an insurance plan.

The Internal Revenue Service (IRS) Releases Revised IRS Form 720 for Reporting PCORI Information

The IRS has released the revised Form 720 to the public and the form is available on the IRS website.

Form 720 now includes a place for the employer to report the number of covered lives. The new section of the form is on the second page and is IRS No. 133 at the very beginning of Part II. The section is labeled Patient-Centered Outcomes Research Fee.

Please click on the links below to access information on the IRS website.

Form 720 as revised April 2013.

Instructions manual for completing Form 720.

For your benefit we are attaching a previous Compliance Alerts and a Chart that were distributed back in May regarding the detail of the PCORI fees.

What Are PCORI (Patient Centered Outcomes Research Institute) Fees and Who Has to Pay?

On December 6, 2012 the IRS issued final regulations regarding the ‘temporary’ annual payment of the PCORI Fees by fully-insured carriers and self-insured plan sponsors of ‘applicable’ health plans, including those covering retirees and COBRA individuals. (Internal Revenue Code Sections 4375 and 4376) Beginning July 2013, the fully insured carriers and most plan sponsors of self-insured health plans will be responsible for paying the annual fees directly to the IRS and are required to report the same on Form 720 as an excise tax.

A few important notes regarding this new Fee:

• ‘Temporary’ as quoted above means this excise tax is to be paid and is applicable for plan years ending on or after October 1, 2012 but stops for plan years ending on or after October 1, 2019.
• ‘Applicable’ health plans as quoted above are defined as a self-insured health plan that provides for accident and health coverage but there are exceptions for excepted benefits.
  • Excepted benefits are defined as separate dental and vision plans, health flexible spending arrangements, hospital indemnity plans, disability income insurance for example.
• HRAs that are integrated with another self-insured health plan are considered part of a single plan and duplication of fees are avoided. However, if the employer sponsors an HRA that is integrated with a fully-insured medical plan, the employer must submit payment for members in the HRA, even though the insurer (carrier) will also be submitting fees for the same individuals enrolled in the associated insured plan.
• Health FSAs are not subject to the PCORI Fee if it meets the requirements of an ‘excepted benefit’ under Code §9832(c). A health FSA is an excepted benefit if:

1. The maximum benefit that is available to a participant in any given year is not more than twice his or her contribution (or, if greater, his or her contribution plus $500) and
2. Major medical coverage is made available that same year.

What are the Fees?

• For Plan Years ending on or after October 1, 2012 and before October 1, 2013 the PCORI fee is $1.00 per covered life.
• For Plan Years ending on or after October 1, 2013 and before October 1, 2014 the PCORI fee is $2.00 per covered life.
• For Plan Years ending on or after October 1, 2014 and before October 1, 2019 the PCORI fee is indexed each Federal fiscal year per covered life (based on the increases of projected per capita amount of National Health Expenditures).
• For Plan Years ending on or after October 1, 2019, there is no fee.

How are Covered Lives Calculated? There are three (j) different ways the covered lives can be counted for the reporting period in order to determine the Fee amount to be paid.

• Actual Count Method – the plan sponsor must add the total number of lives covered (this includes all covered lives, not just enrolled employees) for each day of the plan year and divide that total by the number of days in the plan year.
• Snapshot Method – the plan sponsor must add the total number of lives covered on a specified date (see Snapshot Factor Method and Snapshot Count Method below) during the first, second or third month of each quarter of the plan year and divide the total by the number of dates on which the count was made. Each date used for the second, third or fourth quarter must be within three days of the date used in the first quarter.
  • Snapshot Factor Method – under this method the number of lives covered on a date is equal to the total of:
    • The number of participants with self-only coverage on that date plus
    • The number of participants with coverage other than self-only coverage on that date.
    • The total of the two above is then multiplied by 2.35
  • Snapshot Count Method – under this method the number of lives covered on a date equals the actual number of lives covered on the designated date.
• Form 5500 Method – this method is based on the number of participants reported on the Form 5500. This method can be used only if the Form 5500 is filed no later than the due date of the PCORI Fee (July 31). If an extension is used resulting in Form 5500 being filed later than July 31, this method cannot be used to calculate the average number of covered lives.
  • If the plan sponsor is offering self-only coverage they must add the total participants covered at the beginning and the end of the plan year, as reported on Form 5500, and divide by two.
  • If the plan sponsor is offering more than self-only coverage they must add the total participants covered at the beginning and the end of the plan year as reported on Form 5500 (and do not divide by two).

Transition Rule for the First Year When Calculating the Number of Covered Lives

There is a special transition rule for the first year the fee is required. For a plan year beginning before July 11, 2012 and ending after October 1, 2012, a plan sponsor may determine the average number of lives covered using any reasonable method.

In Summary:

• Fees are paid annually
• Fees are reported and paid by July 31 of the calendar year immediately following the last day of the plan year
• Total due each year is calculated by multiplying the average number of covered lives by the dollar amount for the Federal fiscal year in effect on the last day of the plan year
• Fees are paid using IRS Form 720 – Quarterly Federal Excise Return > Three allowed methods for determining the number of covered lives > The PCORI Fee cannot be paid from Plan Assets
• The PCORI Fee cannot be submitted by a third party on a plan sponsor’s behalf > The PCORI Fee is not tax deductible

PCORI Fees and Reporting Are Due Based on Plan Year

Plan years that end between October 1, 2012 and December 31, 2012	Initial reporting and payment of the PCORI fees must be made by July 31, 2013
Plan years that end January 1, 2013 through December 31, 2013	Report and pay PCORI fees by July 31, 2014

Important Notes Regarding the Fees

1. Final regulations confirm that third parties cannot report or remit the fees on behalf of the plan sponsors.
2. Fully Insured carriers are responsible for paying the PCORI fees and reporting for fully insured health plans.
3. Self Insured plan sponsors are responsible for paying the PCORI fees and reporting on IRS Form 720.
4. Plan Sponsors offering an HRA benefit with their Fully Insured health plan are responsible for paying the PCORI fees and reporting on IRS Form 720 for members enrolled (and their dependents) in the HRA.

Examples of deadlines for paying fees and reporting

Plan year started November 1, 2011 and ends October 31, 2012	Reporting and payment due July 31, 2013
Plan year is a Calendar Year starting January 1, 2013 and ends December 31, 2013	Reporting and payment due July 31, 2014
Plan year started February 1, 2012 and ends January 31, 2013	Reporting and payment due July 31, 2014

Applicable Dollar Amounts for Plan Years Ending

Plan year ending on or after October 1, 2012 and before October 1, 2013	Fee is $1.00 per each covered member (employee and dependents)
Plan year ending on or after October 1, 2013 and before October 1, 2014	Fee is $2.00 per each covered member (employee and dependents)
Plan year ending on or after October 1, 2014 and before October 1, 2019	Fee will be an indexed amount determined each Federal fiscal year
Plan year ending on or after October 1, 2019	No fee