08/26/2022 Larry Lloyd, DPM
Challenges Facing Podiatry
If you are a private practice podiatrist who relies
on the bulk of your take home pay from fee-for-
service Medicare or commercial insurance, your
viable days of sustained private practice have just
shortened. Start writing your obituary now.
According to Becker's ASC Review, CMS seeks a 4.42%
physician pay cut in 2023. In my opinion, for
decades, and with malice aforethought, CMS has
planned the destruction of private practice
medicine. This has been to consolidate private
practice medicine into larger entities such as
hospital employed models, or direct employees of
large health insurance entities, such as Optum.
Most recently, we see Wall Street private equity
groups taking a piece of the action with the likely
intent to sell to a larger managing entity, such as
Optum.
Optum will, in turn, will contract directly with
CMS for nationwide health delivery. Why? Vertical
integration of medical care and economy of scale
controls costs...or so they pander. Think of
turning the entire country into one big HMO, like
Kaiser-Permanente. Now, if you enjoy being an
employed physician instead of an independent
entrepreneur, you won't be threatened immediately.
But, if your income is tethered in any way to your
production, you are only a coefficient away from
suffering the adverse effects as well.
But how does a 4.42% physician fee cut affect
private practice taxable income? Remember that
your Revenue minus Expenses equals Gross Taxable
Income. Let's take a look with a thought
experiment with a hypothetical example. Let's
attribute this 4.42% fee reduction to 2022.
Suppose on December 31, 2021, newly minted and
recently married private practice podiatrist, Dr.
Iwanta B. Free collected 100% of his fees from
Medicare-approved CPT codes. He has no ancillary
income streams, such as revenue from surgery center
investments, intellectual property rights, cosmetic
procedures, selling lotions and potions, shock wave
or shoe stores, lasers and quasars, etc. He lives
in a "eat what you kill" world, and he can only
hunt CPT codes. Ignoring the billed amount, and
realizing only the collected amount, Dr. Free
collected $1,000.00. This is his revenue. On that
day, he spent $500.00 on his overhead costs, e.g.
rent, staff salaries, malpractice insurance,
supplies, phone, accounting fees, advertising, etc.
This $500 are his expenses. Thus, Revenue minus
Expenses equals Gross income (Taxable Income).
Therefore, $1,000-$500 = $500 taxable gross income.
Because there are many variables on taxes, for the
sake of discussion, let's say that Dr. Iwanta B.
Free brings home this $500 to his wife and family
on Dec. 31, 2021
On Jan. 1, 2022, Dr. Iwanta B. Free experiences a
'5% cut in his collected fees. With all billed
services and expenses being equal as the day
before, Dr. Free's Revenue decreases from $1,000 to
$950. 5% of $1,000 = $50.00. Now, his expenses of
$500 are the same, so his taxable gross is now
$950- $500 in expenses =$450 in taxable gross. His
taxable gross decreased from $500 to $450. This
means that his taxable gross income decreased 10%.
All things being equal throughout the year, Dr.
Iwanta B. Free will experience a 10% drop in his
gross taxable income. Or will he? If only life
were so kind!
During the next 364 days ending Dec. 31, 2022, Dr.
Iwanta B. Free's billed services remained the same.
He is working at 100% of capacity. He used the
same staff and worked identical hours and used an
identical amount of materials. Furthermore, he did
not feel comfortable investing in new capital
expenditures, such as waiting room furniture, etc.
But, because the Producer (not Consumer) Price
Index was at 11%, Dr. Iwanta B. Free's expenses
increased 11%. After all, his employees and
vendors demanded raises. So, by Dec. 31 he had a
yearly increase in expenses.
$500 in expenses X 1.11 = $555.00 Recall that on
Jan. 1st the Expenses were $500.00, and his Revenue
was $950. Now, on Dec. 31, his Revenue is $950,
but his expenses ballooned to $555.00. Thus, $950
- $555.00 = $395 which represents his Gross Taxable
Income.
So, between Dec. 31, 2021, and Dec. 31, 2022 Dr.
Iwanta B. Free's Gross Taxable Income has dropped
from $500 to $395, or a staggering 21%!
Now, for the sake of discussion, let's assume that
Dr. Free did not have to pay any taxes on that
money. Let's call this $395, "Money Home to Mama".
After all, for most of us, isn't our income
intended to support and sustain our families? With
his hat in his hand and feeling contrite that he is
not much of a breadwinner, Dr. Free sheepishly
brings this money home to his wife, Dr. Wegona
Makit. With some embarrassment, Dr. Free gives his
wife the $395 that will hopefully go for their
household bills, make a payment on their
educational loans, and save for their first home
with money left over. They are planning their first
child!
At first despondent, Dr. Free brightens when he
recalls that this evening is their New Year's Eve
celebration party. Last year, it cost exactly $395
for the party expenses, so now they have ample
funds to again enjoy the celebration. With a
knowing, sympathetic smile, Dr. Makit, who has PhD
in economics, gently reminds her husband that due
to the CPI at 10%, the purchasing power of their
cash has decreased 10%. So, the $395 brought home
today is 10% less in purchasing power than one year
earlier. In other words $395 one year ago is worth
only $355.50 in today’S purchasing power. Dr.
Wegona Makit has a keen eye when managing her
household, but it looks like they will need to keep
renting and to postpone their American dream of
owning their own home and having children. She is
saddened with the prospect of delaying their
family, but Dr. Free tries to cheer her disposition
telling her that members in his profession are
assiduously working to obtain parity with their M.D
colleagues. With a deep sigh, and a knowing tilt
of her head, Mrs. Free says, "Iwanta, the Irish
fiddlers traveling in steerage on the Titanic
petitioned to become part of the orchestra. How
did that work out for them?" She continues, "Like
us Iwanta, podiatry is filled with 1st and 2nd
generation Americans whose parents and grandparents
left servitude, desperation, and despair in foreign
lands to make it in America. We are going to make
it as well, but we need to forge a new way. This
old paradigm is not working."
Iwanta responds, "Yes, I've read about the new way
from world leaders who are telling us that in the
future, 'we will own nothing, and we will still be
happy."'
"No way!", snaps Wegona. "This will not stand, This
is not the American way. Our families did not come
to this country to be treated like the chattel of
the ruling elites. This is why our parents and
grandparents left the old country." "Tomorrow is
another day, and we are going to figure out a
better way, or we will perish."
Until we follow the numbers, we have trouble
comprehending the staggering downstream
consequences of government policy on our lives. One
year earlier, Drs. Iwanta and Wegona had $500 in
purchasing power compared to $355 today (29%
DECREASE in purchasing power). How long will Dr.
and Mrs. Free survive? How long will our
profession survive if we chase seashells and
balloons (being conferred an in kind M.D. degree,
begging for less of a cut in fees, or being in a
Medicaid program that does not pay a living wage)
instead of focusing on sustainable, enduring
productive income, even if we have to jettison
accepting health insurance? As difficult as it is
to imagine, before Medicare, there were many
wealthy and happy podiatrists...and there still
are! To paraphrase a campaign question from 1980,
except for education and training, is the quality
of a podiatrist's life better off now than a
podiatrist of 40 years ago?
Larry Lloyd, DPM, Fishers, IN
