- A friend told me that he reduces the taxation of his solo internal medicine practice by paying himself for his administrative work. Is this legit?
It all depends on how much he is paying himself.
He is basing this on the fact that “ordinary and necessary expenses” including a “reasonable allowance for salaries or other compensation for personal services actually rendered” are tax deductible.
However, if this were ever a case, the Tax Court would apply two tests to determine if the compensation was appropriate for the work that was done, which is necessary for that deductibility to apply:
- Would a potential investor looking at the work done and the amount paid for it find that payment to be objectively reasonable?
- How does the compensation compare to what someone doing comparable work would earn?
That what your friend is doing was couched as primarily a tax avoidance scheme rather than to just fairly reimburse himself for the work he does suggests that he is likely overpaying himself substantially and, if challenged, that the deductions that he is claiming would fail to qualify as legitimate.
He would be advised to consider as a cautionary tale the ophthalmologist who took bonuses of three times his salary under the claim that it was compensation for being the president, medical director, CEO, COO and CFO of a practice that he was also the only shareholder in. In other words, for doing what he would do anyway as a sole proprietor he was awarding himself millions that he would never have paid an employee for doing the same work. The Tax Court therefore not only disallowed the deductions, which now had to be paid plus interest, but levied an additional penalty of 20%.
If you want to assess an additional compensation rate for yourself in your practice, work it out with your accountant first to make sure that it will pass muster.
- I recently heard about a case that has me confused. A pathologist evaluated the biopsy of a skin lesion and was uncertain as to whether it was malignant. He therefore sent it to a dermatopathologist who had been his mentor in residency for a more expert opinion. The consultant determined that it was not melanoma and that wider excision was not necessary and conveyed that to the pathologist verbally. The referring pathologist then followed that opinion and included it in his own report. It turned out to be melanoma, though, and they were both sued after it was found to have advanced in the interim. The dermatopathologist’s defense was that the referring pathologist was under no obligation to listen to him and was actually the one who “decided that no melanoma existed.” I don’t understand this – isn’t this why we get consults? Am I supposed to ignore advice that I specifically sought? If I didn’t need the advice I wouldn’t have asked in the first place!
The dermatopathologist was correct that the ultimate call as to whether to listen to advice is the recipient’s. No one has to take advice that does not come from a reputable source or that does not appear to be clinically reasonable. In this case, however, the referring doctor listened to a doctor whom he personally knew and respected because he had actually been his own mentor during training, and who had the specific skills to fulfill the evaluational task that was required, which was to clarify a difficult diagnostic call.
However, that is not the relevant matter as to whether the dermatopathologist was properly in the case.
The actual pivotal point is whether the dermatopathologist know that the pathologist was going to rely on what he said in making decisions about the patient because that is what would create a doctor-patient relationship with the patient, and so a duty of care to them.
The dermatopathologist therefore wanted to treat his assessment as just some input but not what would be dispositive in the case, with the referrer making the actual decision of how to proceed.
That that was actually his perception when he rendered his opinion is unlikely, though, since he was being contacted by his own ex-trainee who could not come to a conclusion without his assistance. Even though he was not asked for a written report, when he said that there was definitely no melanoma and that further excision was not needed he had to know that that would alter the case management. So yes, the pathologist could have ignored him…but he knew that he would not and would, instead, base the case outcome on what he said.
The actual takeaway point is that it is not the formality of the consultation setting but the element of reliance that matters. An opinion rendered in an office can be a mere curbside, to which no duty attaches, while one offered while walking down a hall can be a consultation if it will alter a patient’s management.
With those elements in place – a questioning practitioner who sought help from a reliable source and an answering practitioner who had to know that they would be relied on in the patient’s care – the dermatopathologist was properly brought into the case as potentially liable to the patient.
The issue to apply in your own practice is that if, even in the course of what may start as an off-hand request, you become aware that your opinion will be essential in determining the care of the patient, that you make sure that you have adequate information, including actually seeing the patient if necessary, and that you document what you say because you will be held to it.
- Our pulmonary medicine group was just bought out by a corporate facility and they sent in a new COO who wants us to start referring to patients by their first names not just during the examination but in the notes in the actual medical records. He says that it will show that we have warm doctor-patient relationships and that that will be to our advantage if we are sued. Does this make any sense?
None at all, and it is actually an excellent example of how B-school “suits” can be disconnected from the reality of med school “scrubs”.
Let’s first differentiate this issue from actually maintaining a good relationship with the patient. A patient who feels respected, informed and well-cared for is more likely to be compliant with treatment and less likely to seek to sue when there is a problem outcome than one who feels that their doctor was patronizing or evasive or off-hand.
Within that context, you may call the patient by their first name when actually dealing with them, but only with their permission. That requirement would particularly be the case here because, given your group’s specialty, it is likely that many of your patients are older than you are and come from a more formal generation in which it was expected that a senior individual would be addressed respectfully.
A medical record, however, is a professional document and must read as such, and if it crosses the desk of a plaintiff’s attorney determining if they will take a case it will be your only chance to “speak” for yourself in that context.
Do you really want that lawyer to see you as someone who treats patients in a diminutive way? Remember that the jurors they will be pleading their case to are lay people who refer to their doctors with a title and would likely bristle at a doctor who writes a medical record about “Joe” rather than “Mr. Jones”.
That you could be shown to be the stereotype of a condescending doctor would then just be a litigation gift to the plaintiff.
Also remember that malpractice litigation is not the only way that your records may come under scrutiny. A peer review panel or a disciplinary board would likely regard this conduct as unprofessional, and in an insurance audit the question of whether you were perhaps involved in billing shenanigans with a personal friend would certainly be piqued.
This enthusiastic newbie COO probably never talked to the practice’s counsel about this brainstorm. He really should do so.