Vol. 1, No. 4


How Much to Distribute: Guidance for Making Smart Decisions


By Stephanie Leventis


Distributions are a key consideration when developing an ASC’s financial forecast. Some centers choose to start the distribution


process early in the life of the center (while still paying off debt). Others choose to hold off until they are free of debt. Some centers will distribute monthly, while others will do it on a quarterly or even annual basis.


Facility administrators are typically instrumental in preparing the center’s financial picture prior to doing a distribution. If the center is run by a management company, it may be involved and provide recommendations on the amount to distribute.


Key Considerations Here are a few important items to take into account when preparing a distribution: • Fixed costs: This includes items such as loan payments, rent, personnel/payroll costs, leases and utilities and is especially important if planning monthly distributions. Center management will need to know the payment due dates for these expenses so there is sufficient cash available to cover the costs.


• Current accounts receivable: If the center has managed care contracts


in place, the billing team should be able to view claims that were processed recently and know when payment is set to arrive.


• Large expenses on the horizon: Examples of this include a capital equipment purchase or a large payment for property taxes or re- accreditation fees.


Finding the Right Balance While the governing body, physician owners and any corporate partners should agree on the timing of distributions, there are a few additional factors to consider: • Consistency with distributions: This is particularly important if the center will distribute monthly or quarterly. There may be months or seasons when cash flow is higher. The fourth quarter of the year for ASCs is often very busy volume-wise as patients are electing to undergo surgery since deductibles/out-of- pocket maximums are met. This will typically set up an increased cash flow early in the first quarter. While it may be tempting to issue a larger distribution, the center may want to consider retaining cash to account for possible unplanned expenses and so distributions in the following months (or quarter) can remain generous.


• Center financial goals: As some facilities will choose to bypass


distributions until all the facility’s debt is paid, it is important that this topic is discussed among the governing body, owners and any corporate partners. The debt schedule should be monitored closely, especially if pre-payment of the debt will occur.


Keep Priorities in Order There are no hard-and-fast rules for how much money should go into distributions and when they should occur. It’s important that any return on investment for the partnership does not prevent the ASC from delivering the highest quality care, covering expenses and making investments critical to the success of the center.


A successful center—in patient safety, satisfaction and profitability—is the best tool for attracting prospective investors and growing the facility. Keeping distributions consistent and in- line with the center’s financial goals will help achieve these objectives.


Stephanie Leventis, RN, BSN, CNOR, is the executive vice president of development for SurgCenter Development, an ASC developer. Write her at sleventis@surgcenter.com.


The advice and opinions expressed in this column are those of the author and do not represent official Ambulatory Surgery Center Association policy or opinion.


Tax Reform Analysis: Qualified Business Income Deduction By Kara Newbury


One key change to the individual tax code, overhauled by the “Tax Cut and Jobs Act of 2017” passed late last year, is the qualified business income (QBI) deduction for pass- thru entities. A summary of ASCA’s current understanding of the statutory language and its potential limitations for ASC


physicians follows. Look for additional analysis of tax reform’s effect on the ASC industry in future ASCA publications.


QBI represents business net income from ownership in pass-thru entities, including partnerships, S corporations and sole proprietorships. In general, pass-thru entities may claim a 20 percent deduction on the owner’s personal tax return. However, there are limitations on pass-thru entities that fall under “specified service businesses,” which include


the performance of services in most professional fields, such as health, law and accounting, but excludes architects and engineers.


Doctors with personal taxable income less than $157,550 (single) or $315,000 (married) are still generally eligible for the deduction, while those with personal taxable income greater than $207,500 (single) or $415,000 (married) are not eligible. Those that fall in between these categories are generally eligible for the deduction but subject to reductions.


Consult an accountant or tax attorney to determine how this provision impacts your bottom line.


Kara Newbury is ASCA’s regulatory counsel. Write her at knewbury@ascassociation.org.


ASC PHYSICIAN FOCUS 3


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