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Which Business Structure is Best for my Medical Practice?

Which Business Structure is Best for my Medical Practice?

Over the years many providers have come to my office expressing an interest in owning a medical practice, healthcare facility, or healthcare business. During these meetings, it is important to obtain pertinent background information about the healthcare entity followed by a discussion about some of the regulatory and licensing issues that may arise. Equally important is determining how the healthcare entity should be structured for asset protection and tax purposes. A corporate healthcare attorney like myself can determine whether it is best for you to create a corporation, LLC, or an LLP. Admittedly, some of the more complex tax issues should be discussed with an attorney that specializes in tax law. Here is an overview of some of the basic differences between the different business entities.

Sole Proprietorship

An individual who does not create an entity.

  • No taxes are imposed on the entity. Instead, the individual owner reports the income and pays the income taxes.

Professional Corporation (a/k/a “P.A.”):

A corporation in which one or more shareholders must be licensed professionals (or entities that themselves are wholly-owned by licensed professionals). The P.A. can be taxed either as an S Corporation or as a C Corporation.

 

Corporation:

A corporation whose owner is not limited solely to licensed professionals. The corporation can be taxed either as an S Corporation or as a C Corporation.

  • C Corporation: Unless it elects otherwise, a corporation must report its own income and pay its own income taxes, under Subchapter C of the Internal Revenue Code.
    • A C Corporation is also subject to Florida’s state corporate income tax at a rate of 5.5%. Any distributions of its earnings to its shareholders requires the shareholders to recognize dividend income, resulting in a second layer or taxation.
    • Many professional C Corporations attempt to avoid distributing dividends by paying all income as compensation (because although it is still taxable to the recipient employee/shareholder, the C corporation gets a deduction for such compensation, resulting in one-layer of taxation).
    • If a C corporation pays excessive compensation, the IRS may try to treat some of the compensation as a dividend distribution and deny the deduction to the corporation with respect to such imputed dividend.

LLLP

A limited liability limited partnership comprised of at least one general partner and at least one limited partner, which is created by filing a Certificate of Limited Partnership and indicated LLLP status in such certificate. The status provides a general liability shield for all of the general partners.

S Corporation

No tax generally imposed on a corporation that elects to be treated as an “S Corporation” under Subchapter S of the Code. Rather, the tax consequences flow-through to the shareholder(s).

  • Each shareholder reports his or her pro rata share of the tax consequences based on his or her ownership in the S corporation and pays the income tax at his or her effective personal income tax rate.
  • Any distribution to the shareholder(s) is not treated as a dividend, but rather first is a return of basis and then excess is capital gain: provided, however, if the S corporation was formerly a C corporation within the past 10 years and had earnings and profits, then a portion of the distributions of the S corporation could be subject to tax as a dividend (Rather than a return of basis).
  • Shareholder distributions:
    • must be made in the ratio or ownership;
    • can be abused to “save” payroll taxes applicable to compensation; and
    • lack the asset protection potential of compensation payable to the head of a family under Florida law.
    • A P.A. generally should elect to be taxed as an S corporation, preferably from inception.
    • If a corporation has already been taxed as a C corporation, then conversion to S Corporation status must be carefully considered to ensure that the “built-in gains” tax on unrealized receivables can be handled through proper accrual and payment of accounts payable and compensation.

Professional Limited Liability Company (a/k/a “P.L.”)

A limited liability company in which one or more members must be licensed professionals (or entities that themselves are wholly-owned by licensed professionals). The P.L. can be taxed either as a disregarded entity (if there is only one member), as a partnership (if there is more than one member), or an S Corporation (whether it has one or more members.)

LLC

A limited liability company whose ownership is not limited solely to licensed professionals. The LLC can be taxed either as a disregarded entity, a partnership or an S corporation.

General Partnership

An entity that is comprised of two or more general partners. No written document is necessary to create a general partnership.

LLP

A limited liability partnership is comprised of two or more general partners, which registers with the state by filing a Statement of Qualification. The registration provides a general liability shield for all of the partners.

Limited Partnership

An entity comprised of at least one general partner and at least one limited partner, which is created upon the filing of a Certificate of Limited Partnership with the state.

There are many factors to consider when deciding how to structure your medical practice or healthcare entity. You should obtain an in-depth analysis of the various business structures so that you can choose the best one suited for your needs. While it is not impossible to change from one business entity type to another, it is always best to choose the best structure from the very beginning. A capable attorney at Jones Health Law, P.A. would be happy to guide you through this process.

***This blog post does not constitute legal advice and is only intended for educational purposes. You should consult a licensed attorney in the State of Florida that specializes in healthcare law.***

Annual Meeting of The Florida Society of Anesthesiologists

Jamaal R. Jones recently attended the Annual Meeting of the Florida Society of Anesthesiologists at the Breakers Hotel in Palm Beach, Florida.

The end goal of the meeting was for participants to:

1. Assess the potential application of emerging issues and advances that affect the practice of anesthesia; and

2. Apply contemporary practice management skills and knowledge of regulatory issues to the efficient and safe delivery of patient care.

If you are an Anesthesiologist, Anesthesiologist Assistant, or Nurse Anesthetist and would like to find out the various ways in which Jones Health Law can be of assistance to please contact us!

What Are My Options If I’ve Been Wrongfully Terminated From My Hospital Residency Program?

If you are discharged from a medical residency program it is important to examine the language contained in the hospital policies and procedure manual. In the manual it will explain the procedure for internal disciplinary action taken against hospital staff, which may require a mandatory board hearing depending on the alleged infraction. Prior to the board hearing, a neutral intermediary may be utilized so that direct communication between the hospital and the resident is limited. The disciplinary board may be comprised of a three-person panel where you can choose to present your defense. I would advise against signing any documents presented to you by the hospital after you have received written notice of the disciplinary hearing until you have spoken to an attorney with experience in health and employment law.

Lighting Up Florida’s Medical Marijuana Industry

On November 8, 2016, Florida voters approved the use of Medical Marijuana in a constitutional ballot initiative called Amendment 2. This Amendment approved the use of Medical Marijuana in treatment for patients who suffer from specific debilitating medical conditions. These debilitating medical conditions include, but, are not limited to, cancer, AIDS, PTSD, glaucoma, Parkinson’s Disease, epilepsy, and Crohn’s disease. Physicians may also prescribe Medical Marijuana for “other debilitating medical conditions of the same kind or class” as those mentioned above and “for which a physician believes that the medical use of marijuana would likely outweigh the potential health risks for a patient.” Those looking to do business in the medical marijuana industry must proceed with some caution because even with the passage of Amendment 2 marijuana is still considered a controlled substance consumption of which is illegal under federal law creating several barriers to entry into the industry.

Seeing Through the Smoke of Florida’s Medical Marijuana Industry

As you may be aware, On November 8, 2016, Florida voters approved the use of Medical Marijuana in a constitutional ballot initiative called Amendment 2. This Amendment approved the use of Medical Marijuana in treatment for patients who suffer from specific debilitating medical conditions. These debilitating medical conditions include, but, are not limited to, cancer, AIDS, PTSD, glaucoma, Parkinson’s Disease, epilepsy, and Crohn’s disease. Physicians may also prescribe Medical Marijuana for “other debilitating medical conditions of the same kind or class” as those mentioned above and “for which a physician believes that the medical use of marijuana would likely outweigh the potential health risks for a patient.” Those looking to do business in the medical marijuana industry must proceed with some caution because even with the passage of Amendment 2 marijuana is still considered a controlled substance consumption of which is illegal under federal law.

Who Can Prescribe Medical Marijuana

Believe it or not, medical marijuana is a Schedule I drug and is regulated by the Florida Department of Health’s Office of Compassionate Use. In order to prescribe Medical Marijuana to a patient a physician must be licensed to practice medicine in Florida and certified by the Department of Health (“DOH”). Further, the physician must complete an 8-hour course and exam offered by either the Florida Medical Association (“FMA”) or Florida Osteopathic Medical Association (“FMOA”). Additionally, if the physician is a medical director of a Medical Marijuana Treatment Centers (“MMTC”) they are required to take a 2-hour course.

Restrictions on Use

Currently, Marijuana is only supposed to be used for the treatment of medical conditions and any recreational use is prohibited. Medical Marijuana may only be consumed in the form of food, tinctures, aerosols, oils, ointments, or related products. Notably missing is the permissibility to consume or use Medical Marijuana in a plant form that can be smoked.

Further, medical marijuana may only be prescribed to eligible patients as defined in Fla. Stat. §499.0295 as having a “terminal condition”. Patients will be classified as terminally ill only if two physicians designate them as such.

Additionally, Amendment 2 makes no accommodations for the use of medical marijuana at the workplace, public places, or school settings. Currently, federal and private program payors are not required to reimburse patients for medical marijuana treatment.

The DOH must register and regulate MMTCs that produce and distribute medical marijuana. Identification cards must be issued to patients and caregivers. In order to receive medical marijuana a patient must be: (1) a permanent Florida resident; (2) a patient of the ordering physician for at least three months; and (3) diagnosed with a debilitating medical condition.

Reaction to the Legalization of Medical Marijuana

The Trump Administration has stated that it intends to enforce federal law that prohibits the use of recreational marijuana, but they are unlikely to prohibit the legitimate use of medical marijuana for treatment purposes.

However, in some cities and counties throughout Florida, legislators and local officials are still trying to determine whether medical marijuana is even legal despite its overwhelming support by voters in Amendment 2. Throughout Florida, many cities are ill-prepared to regulate various aspects of the medical marijuana industry prior to the September deadline requiring its statewide availability. Even after the Trump Administration has made a public statement regarding medical marijuana officials are weary about implementing regulations because it is still federally prohibited. However, at least twenty-eight states have operated without significant intervention from the federal government after they have legalized either recreational or medical marijuana.

Many physicians welcome Amendment 2 and feel that it’s long overdue. Physicians are educating themselves on administering medical marijuana to their patients. For example, they are learning about the various strains of Cannabis and how certain illnesses may respond differently to a particularly strain and dosage. Many doctors prefer to prescribe medical marijuana rather than narcotics, which can be highly addictive to the patient. As a country, we are facing an opioid epidemic and by using medical marijuana as an alternative when appropriate may help to curb the addiction.

Medical Marijuana is Big Business

According to reports, there might be as many as 450,000 patients throughout Florida who may be eligible to receive medical marijuana treatment. That number is expected to rise as the types of illnesses that are treatable by marijuana becomes less narrow and not limited to debilitating medical conditions or terminal conditions. According to New Frontier’s projections, medical marijuana users in Florida will spend an estimated $200 million annually, and by 2020 Florida will account for 14% of the permissible marijuana use in the country.

There will likely be an expansion of dispensing organizations but it will not be easy. Currently, there are seven approved dispensing organizations in Florida. The following is a non-exhaustive list that the DOH considers when dispensing organizations apply:

  • The technical and technological ability to cultivate, process, and dispense low-THC cannabis;
  • The ability to secure the premises, resources, and personnel necessary to operate as a Dispensing Organization;
  • The ability to maintain accountability of all raw materials, finished products, and any byproducts to prevent diversion or unlawful access to or possession of these substances;
  • The financial ability to maintain operations for the duration of the 2-year approval cycle;
  • Passing a background check; and
  • Posting a performance bond.

Individuals seeking to enter the medical marijuana industry face several challenges due to federal laws that prohibit its manufacture, distribution, and use. Banks, insurance companies, and real estate brokers are hesitant to contract with medical marijuana companies due to the existing federal laws. Since it is illegal to operate a medical marijuana company on the federal level banks can’t or are unwilling to loan them money out of fear that there will be retribution  for funding an illicit enterprise. This will only change if Congress passes a measure to legalize the medical marijuana industry.

Conclusion

Legislators must quickly determine the ongoing medical marijuana education requirements for physicians and how it will be regulated. Providers will increasingly enter into the business because the law effectively shields them from civil or criminal actions that arise from their prescribing of medical marijuana. However, physicians may face discipline for wrongfully prescribing low-THC marijuana or medical marijuana. Physicians must ensure that they receive the requisite informed consent prior to prescribing medical marijuana. It’s still uncertain if Amendment 2 will expand the number of dispensaries and by how many. Also, if you are a non-physician looking to enter into the medical marijuana business it is not clear what role one can legally play in the medical marijuana industry other than owning a dispensing organization.

The Business of Healthcare: Post-Election

Jamaal R. Jones, Esq. attended a conference hosted by the University of Miami’s Center for Health Sector Management and Policy on March 3, 2017. It was headlined by leaders from across the country.

Panelists shared ideas on how the U.S. health care system will continue to evolve and how the anticipated changes will impact consumers, businesses and government over the next four years and beyond.

Guest speakers participated in several discussions including:

(A) A Conversation on the Election and Global Health Care Issues;

(B) Election Impact on Health Care Sectors;

(C) Health Care Policies Under the Trump Administration;

(D) Election Impact on South Florida Health Care Sectors;

(E) Election Impact on the Business of Healthcare; and

(F) A Conversation with Secretaries of Health and Human Services.

Guest speakers from both sides of the aisle provided their perspective on a range of topics, programs, and laws including, but, not limited to, Medicaid, Block Grants for Medicaid MACRA, PETFAR funding, tax credits for healthcare, the debt ceiling, and Certificate of Need.

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