Financial Stress of COVID Continues to Cripple Medical Practices

Monday, January 25, 2021

A survey by the Physicians Foundation estimated that 8% of all physician practices nationally — around 16,000 — have closed under the stress of the pandemic. Many physicians are leaving medicine entirely because of the pandemic. According to a survey from Medscape, almost 25% of doctors are considering retiring early.

Practices operating with thin margins, especially primary care practices, are bearing the brunt of patients staying away due to pandemic fears. As revenues drop, overhead remained the same, and the cost of PPE has been added on top of it all. Telehealth services have not been able to completely replace dollars that were lost.

According to the AMA the average physician has experienced a 32% drop in revenue since February of 2020. Some who had emergency reserves to weather the storm has seen those reserves depleted. Many eligible for government loans have little or nothing left moving into 2021. More worrisome is that the fear of catching COVID is preventing folks from getting the care they need for chronic conditions.

Even dental practices are feeling the squeeze. Patient visits are halved, and staggered. Now air purifiers and sneeze guards are de rigueur, as is PPE for staff. Rent and utility bills still come due, but PPP money is mostly gone. Some patients that need treatment are nervous about finances and out of work so they are looking for lower cost alternatives to expensive implants and dental work.

Burnout is taking even more of a toll on healthcare providers than before the pandemic, and financial stress is certainly a contributor.

The COVID crisis has affected short term revenue, but if your financial position is solid, chances are you will emerge stronger in the long term. There are strategies physician practices can pursue to weather the financial storm associated with the coronavirus pandemic.

1. Avoid spending right now, personally and professionally. You can probably do without that new car for the time being, and you probably don’t really need that Peloton bike no matter how much you want it. There may come a time when those dollars that you spent will be greatly needed. Physician practices should limit new spending to practice enhancements. Patient traffic is unpredictable, so it’s better to save for the unknown and wait for more stability. There are expenses required during COVID-19 pandemic, but do not go beyond special air purifiers, sneeze guards, PPE, and required expenses.

2. Speak with your Fuoco Group accountant about taxes. Believe it or not, there are opportunities that can arise during economic crises. Find out if you fall into a lower tax bracket due to reduced income. Is this the year you look at a Roth Conversion to take advantage of lower tax rates? The partnership model creates more control for physicians over their taxable income, individually they can expense a lot more than their corporate counterparts. If you consider the likelihood of future tax increases, the new Secure Act permits physician partners to really reduce their tax savings during retirement with Mega Backdoor Roth 401(k). Beyond those opportunities, partnerships permit highly paid partners to incorporate and implement additional tax savings options.

3. Don't rush to pay down debt. Medical professionals should be careful about taking cash and paying down debt for the next 90 to 180 days. If there is a vaccine in the fall, your practice business is good, and you have saved a lot of money by being ultraconservative, then look at paying debt down. The Federal Reserve System has been taking actions to promote lending, but medical practices cannot count on finding a lender if they experience a cash crunch.

4. Take advantage of the second round of the Paycheck Protection Program (PPP). You have an interest-free period for 24 weeks, and if you follow the rules, such as spending 60% of your funds on payroll, and you get the loan forgiven at the end of 24 weeks, it is a home run. Even if a medical practice cannot get a PPP loan forgiven, remember it is a 1% interest rate loan. So, it may make sense to do the 30-month payback and carry the loan if you can't financially afford to bring your staff back. If you have gotten PPP assistance, keep the funds in a dedicated account to pay for expenses such as payroll and rent. When the practice pays for insurance or for payroll, reimburse out of the separate PPP account for the exact, specific payments to have the proof for the bank and for SBA that the PPP funds were used for the purposes outlined.

Keep in mind The Consolidated Appropriations Act, 2021, has made additional PPP Loan money available, streamlined forgiveness, and extended many tax breaks for medical groups. Let us help guide you if you missed round one, or would like to dip into the well a second time.

5. Develop a new financial plan for your practice. While you are working on a new budget, expense evaluation, cash flow projection, tax estimate etc., don’t forget to do your personal tax planning as well. You may wish to review your retirement plan contributions, and review asset allocations and rebalance your portfolio too.

6. Take the long view. The pandemic has shown that reimbursement for primary care services must be reformed, and fee-for-service is a failure. It is a system that is based on face-to-face visits, which obviously does not work in a pandemic. During the pandemic, the CMS as well as private health plans have moved in the right direction on advance payments which will help primary care practices keep their doors open. This could be a step forward on the road to prospective payments, but that conversation has been a long time coming. In addition, government and private payers need to provide appropriate reimbursement for innovative care delivery models like telemedicine.

REACH OUT TO US: You have to have a passion for caring for your patients but don’t be ashamed to run a profitable business. Money should not be your primary motivator, but you have to run a profitable business so you can practice great medicine. Talk to us about your viable options for 2021. A new financial action plan or restructuring may help you and your practice weather the economic pressures on the medical field right now. Call us toll free at 855-666-4201 or email charless@harlessandassociates.com.