Terri Stecher, Director in KPMG’s Washington National Tax Compensation and Benefits Group, interviews Cynthia Wisner, Associate Counsel at Trinity Health, about her presentation at AHLA’s Tax Issues for Health Care Organizations conference in Arlington, VA, on hot tax issues regarding physicians and employees. Sponsored by KPMG LLP.
To learn more about AHLA and the educational resources available to the health law community, visit americanhealthlaw.org.
Terri Stecher, Director in KPMG’s Washington National Tax Compensation and Benefits Group, interviews Cynthia Wisner, Associate Counsel at Trinity Health, about her presentation at AHLA’s Tax Issues for Health Care Organizations conference in Arlington, VA, on hot tax issues regarding physicians and employees. Sponsored by KPMG LLP.
To learn more about AHLA and the educational resources available to the health law community, visit americanhealthlaw.org.
Support for A H L A and the following message comes from KPMG's Healthcare and life Sciences practice helping clients comply with regulatory change, adopt effective tax strategies, improve outcomes through data analytics and advanced technologies and more. For more information, visit kpmg.us.
Speaker 2:Hello, my name's Terry Stecker. I'm a director with KPMG's Compensation and Benefits Group in their Washington National tax practice. And I'm here today with Cindy Wisner, um, who had a presentation on reoccurring hot topic issues for physicians and employees. And so I've just got a few questions for you today, Cindy. Um, first of all, I heard you talking about one of the hot topics is, um, physicians wanting to have their tail coverage paid for. Could you speak on that
Speaker 3:For sure. So, uh, physicians are frequently, uh, recruited to join hospitals and they have, uh, insurance obligations for their past practices and the insurer that, uh, they are leaving once them to pay for a tail to cover any claims made after they become a hospital employee, but related to events that occurred when they were in private practice. So one of the dilemmas for hospitals is giving that money to the physician is really taxable wages most of the time to a physician. One of the, uh, opportunities that you can explore is if the physician is in the same market with the hospital and there is potential successor liability and there is potential to offer nose coverage through a captive, then you may make that a condition of their employment that they get nose coverage through the captive as opposed to paying for tail coverage from their prior insurer. So there are some opportunities to negotiate over whether you are going to pay the, uh, tail coverage, you're going to provide notes coverage, and whether there is a benefit to the employer of paying for the tail coverage that, uh, the captive requires that kind of tail coverage. The one thing that we emphasize today during our session was that it does not matter if the hospital writes the check to the insurance company or the hospital gives the money to the physician. Although that's always a myth that if you aren't giving the money to the physician, it's not taxable income even if it benefits the physician. So that was one of the myths that we talked about during our session today.
Speaker 2:Yeah, and that's I think, a common one for employees think, well, I didn't get the money directly then. Maybe it's not compensation, but it's still their expense that's being paid for. Correct.
Speaker 3:Yes. The other thing we talked about with that is that, uh, you have to have operational, uh, control because you might be writing a check out of your account's payable department and you are providing their taxable income through the payroll department. So payroll needs to know that that check has been written in order to include it in the tax accounting at the end of the year.
Speaker 2:Oh, that's a great point. Yes. Um, another issue, and this comes up um, kind of in all industries, not just medical, is how expensive education is getting and people are offering, leaving, um, graduate programs, medical pros with significant student loans. Um, I suspect that's something that, you know, doctors may be interested in having<laugh> paid for by their employers.
Speaker 3:Absolutely. So one of the, one of the benefits that doctors are always looking for is some relief with their student loans. And, uh, in researching for our session, we learned that the Congress has been considering doing something about student loans. So, uh, this year there is a bill pending that would allow an employer to pay for a student loan up to a little bit over$5,000. And that$5,000 would be excluded. It wouldn't be taxable income to the employee. Unfortunately, the uh, uh, experts say that the bill has only a 4% chance of passage. So I'm not sure we're gonna have relief on payment of student loans, but still a big recruiting package. And as you look at what is commercially reasonable to attractive a physician, if others in your community are paying, giving money for student loans, then it may be a, a good part of a compensation package that you would pay for student loans.
Speaker 2:Is it becoming more common? Are you seeing that at least maybe discussed?
Speaker 3:It is becoming more common. It's really typically, uh, accounted for in signing bonuses more than as spelled out as an actual student loan repayment.
Speaker 2:Um, and another topic you had mentioned was stacked compensation. I must say that's something I'm not generally familiar with or work with, but could you talk a little bit about that and the issues involved?
Speaker 3:Sure. So, uh, a lot of the physicians are employed in large hospital systems now. So our system has over 4,000 employed physicians at, uh, large Catholic health system. And one of the concerns you have is where the physicians are performing services for more than one hospital in your system. So you need to look at their aggregate comp. You may be, uh, issuing two W two s, but from a perspective of fraud and abuse in compliance, you have to look at how much they are deriving from the system as a whole. And so the uh, uh, industry of fair market value, appraisers is always looking at stacking compensation. So the physician, uh, is able to be on call at three different hospitals and they are getting, uh, money for that same hour of service from three different sources. Uh, while for tax purposes the IRS is happy that they're getting that money and paying taxes on it. Uh, the fraud and abuse folks are not as happy as to whether that is reasonable compensation to pay the physician for three times, uh, the service when the physician could only respond to one call.
Speaker 2:Is there anything, um, people do to kind kind of substantiate that, you know, it is reasonable that
Speaker 3:Instruction? Yeah, great question. So, um, what many systems do is they reduce the second and third call and they require that there be a backup. So the physician doesn't get the full call amount at each hospital, uh, but there is shared call and then, uh, the total amount the physician get is more reasonable than, uh, as if the physician were three physicians and on call at three locations.
Speaker 2:So Cindy, um, can you tell me what's new in the regulations with, uh, fair market valuations?
Speaker 3:Sure. So we were just talking about how the appraisal industry is looking at the fair market value of stack compensation. And earlier this month in October, October 8th, we received some new proposed regulations. They would be proposed regulations from CMS and from the DOJ for updating the anti Kickback law and the Stark Law. And what they will be doing is providing some new definitions of fair market value, new definitions of value or volume of referrals, and most importantly the new definition of commercial reasonableness. And that's a term that is used for both tax purposes and for fraud and abuse purposes. So we're looking forward to, uh, those new regulations. The comment period doesn't end until New Year's Eve and then, uh, they will have final regulations that will be taking effect in 2020. And we will be looking at those definitions as we determine what actions we have to take, uh, to protect ourselves, uh, in the event of a inquiry into whether the amount we're paying a physician is commercially reasonable.
Speaker 2:Great. Well thank you. I'll have to keep an eye out for the additional guidance. Um, and thank you so much for joining me on this podcast.
Speaker 3:Thank you.