For my Insights advisory article dedicated to the Healthcare sector, I wanted to speak specifically about the challenges many medical and allied health practices currently face.
AI issues – good or bad
Last year I touched on telehealth as the technology topic, fast forward 12 months, I thought I would touch on Artificial Intelligence (AI).
I am no expert in AI, or even profess to know how much good or bad AI can play in the medical or allied health industries at this early stage, but certainly with any service industry it is having an impact on people’s thoughts and strategies.
What are the major pain points for health practitioners - burn out, income ceilings, staff shortages – just to mention some?
Supporters and developers of AI believe that technology is there to assist and solve these issues.
At a recent conference in Florida, technology companies were discussing how their solutions will help reduce doctor’s administrative workload and allow greater time to be spent with patients.
As an example, software is available that transforms conversation with patients into clinical notes. Practitioners spend less time writing notes, and instead review and edit notes, which saves time. The work does not completely disappear, but admin time is reduced. Allowing more time to be spent with their patients or family members.
Income ceilings – only so many hours in a day, so many arms and legs available – results in an income ceiling. Some practitioners feel that taking on more associates will burden the business with overheads and management time that is not recoverable at the profit line. The end result, practices stay the same size or reduce over time.
Digital online courses create the ability for practitioners to reach multiple people in geographic regions all over the country or the world, whilst developing a passive income stream on top of their normal clinical roles. Instead of being limited to a single place of business with a one-on-one conversation, those practitioners that want to continue to help as many people as they can with the knowledge they have built up over the years can now do so. Creating the correct course with the correct content (following AHPRA guidelines) is now possible with technology assisting 24/7 to get your course in front of the world. Certainly, there is hard work in getting the course up and functioning but great results for those who persist.
Staff shortages – is always a topic of conversation. Technology and AI are trying to bridge this gap by freeing up time for practitioners and creating simple processes that allow administrative team members to do more meaningful work whilst the mundane simple process orientated work is completed by AI.
For general tips surrounding how to protect yourself and your practice against cyber threats, please refer to our previous Insight article – Protecting Yourself and Your Business against Cyber Fraud.
Payroll tax issues
The Queensland Revenue Office (QRO) has released a new public ruling PTAQ000.6.3 on 21 February 2024. This public ruling replaces the previous ruling that was issued in September 2023.
This public ruling explains the application of relevant contract provisions to an entity that conducts a medical centre business (including a wider definition encompassing healthcare providers) who engage healthcare practitioners or their entities to provide patients with access to the services of practitioners.
The public ruling goes into details and examples on what is a relevant contract and depending on how patient’s fees are collected and paid to healthcare practitioners, explains when deemed wages will apply and consequently payroll tax being paid.
The public ruling continues along the vein that if Medicare benefits and patient out-of-pocket fees are paid directly to a practitioner then no deemed wages will occur.
If the medical centre collects patient’s fees and keeps an administrative service fee and then directs the remaining payment to a practitioner, then deemed wages will apply to that payment.
Deemed wages will also apply if the Medicare benefit fee and patients out-of-pocket fee is paid directly to the healthcare practitioner’s entity, who then pays the individual practitioner performing the service. Even if the individual practitioner owns and controls the entity.
The ruling describes some of the factors involved in determining whether a medical centre business is being conducted and describes factors and terms indicating a contract is more likely to be a relevant contract.
There is clarity in the examples on what will be deemed wages, so medical centres and healthcare practitioners will be able to formulate strategies on how they wish to operate and what business strategies will be needed to either avoid the payroll tax issues or if payroll tax applies, how to maintain sufficient margins to provide quality healthcare services to the general public. For more details on the ruling and to review the examples you can visit the QRO website.
Personal Services Income
Personal Services Income, or PSI, is the income derived by an individual mainly as a result of their personal work or exertion, rather than the sale of goods or use of assets. The individual may operate as a sole trader or through a trust, partnership, or company structure. You can receive PSI in almost any industry or profession, but it is commonly seen with accountants, lawyers, consultants, engineers, and of course, medical practitioners.
A medical practitioner is deemed to derive their income from personal exertion, by seeing patients – because of this definition, the practitioner’s income is required to be declared in their individual name even if operating through a structure like a company or trust.
One of the more common methods of distributing income from a medical practitioner is to pay a wage to a family member or a service fee to an entity that could be paying tax at a lower marginal rate. This activity can still occur, just remember that the ATO has a strict set of rules that need to be adhered to ensure fairness.
To pay a spouse or family member a wage, the medical practitioner must ensure that they do not receive all their income from one source and to satisfy the personal services income tests. The family member must also complete work for the practitioner to justify the wage such as invoicing or bookkeeping, and the remuneration must reflect industry benchmarks as amounts paid to an unrelated party completing the same work.
Service Fee Arrangements
When the medical income of a group is from the operation of practices, there is the option of using a service fee model for the use of business assets. In this instance, the income is completely a PSI or PSB based business model that attracts the rules regarding profit distribution and tax payments.
If there is a practitioner that also completes chargeable work for the use of their personal professional skills, there needs to be thought to ensure they are properly remunerated for their expertise. The ATO has increased their scrutiny on these arrangements to ensure that the distribution of group profits correctly correlates with the types of incomes earned.
The ATO has produced many documents on how service fees can be calculated between practitioners and the service entity. The ATO has released rulings on how they will structure their compliance activity based on income distribution at the group level and how much tax is paid across a family group.
As FY24 year end planning will commence shortly, it is important to have a conversation with your advisor to ensure compliance in these areas.
For More Information
For more information on any of the above topics or an initial consultation, please contact Ian Walker (Executive Chairman) or Aisha Thomas (Manager) on (07) 3002 2699 | info@agredshaw.com.au.
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