What happens to buy-in equity if we lose hospital contract?

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
Topic Author
financial.freedom
Posts: 565
Joined: Fri Oct 03, 2014 1:18 am

What happens to buy-in equity if we lose hospital contract?

Post by financial.freedom »

Our hospital has a new CEO who is making a lot of changes. Sounds like they're getting rid of the current ER group and some specialty groups, and bringing in new groups. My specialty group is okay so far, but we've been adding on a lot of additional work without more pay to appease the CEO/ admin. Some of the partners are now talking about leaving the hospital and dissolving the contract next year.

The problem is, I made partner not too long ago and spent the past year buying into the hospital contract (the professional services agreement, PSA). If we lose the contract, or other partners decide to leave the hospital what happens to that money? It's about 70k total for that contract buy-in under C Corp to have equal shares with the other partners.

Can I claim this as a loss against other investments?

We have another entity (S Corp) for other PSA contracts separate from the hospital, which is a separate buy in. So I would still plan to be a part of the group and finish buying into those contracts.

Thank you in advance!
Topic Author
financial.freedom
Posts: 565
Joined: Fri Oct 03, 2014 1:18 am

Re: What happens to buy-in equity if we lose hospital contract?

Post by financial.freedom »

Bump — any advice appreciated
MiddleOfTheRoad
Posts: 307
Joined: Fri Jul 21, 2017 11:19 am

Re: What happens to buy-in equity if we lose hospital contract?

Post by MiddleOfTheRoad »

I believe it will be itemized on your K-1 at the end of the year. Depending on how it is categorized on the K-1 you may be able to deduct $3k every year as capital loss (or against any cap gains). Check with your accountant.
Tachyon
Posts: 90
Joined: Wed Nov 08, 2017 9:03 pm

Re: What happens to buy-in equity if we lose hospital contract?

Post by Tachyon »

You don't really provide enough detail. But it doesn't sound any different then if you bought into a Corp, and now that Corp is worthless. Yes you would be able to claim the losses against other capital gains.
Topic Author
financial.freedom
Posts: 565
Joined: Fri Oct 03, 2014 1:18 am

Re: What happens to buy-in equity if we lose hospital contract?

Post by financial.freedom »

Thank you both, appreciate it. I’ll reach out to CPA.
Best,

FF
toofache32
Posts: 2170
Joined: Sun Mar 04, 2012 6:30 pm

Re: What happens to buy-in equity if we lose hospital contract?

Post by toofache32 »

I'm trying to understand this one part...you paid $70k to a hospital to give you a job?? If not, where is that money now?
Topic Author
financial.freedom
Posts: 565
Joined: Fri Oct 03, 2014 1:18 am

Re: What happens to buy-in equity if we lose hospital contract?

Post by financial.freedom »

toofache32 wrote: Sat Nov 14, 2020 9:36 pm I'm trying to understand this one part...you paid $70k to a hospital to give you a job?? If not, where is that money now?
Thank you for your reply. In my area, hospitals are not allowed to employ physicians directly. Rather, there are contracts given to specialty groups (or a foundation) that then pay the physicians.

In my case, it's a private group. So the buy-in to share profit from the hospital work is buying into that contract (professional services agreement, PSA). The money from that contract accounts receivable goes to a C Corp. After buying in (70k), I receive equal shares of the C Corp and split profits with the other partners. There are also W2 non-partners who are paid from the C Corp. They do not receive profit distributions.

The 70k is paid to the partners (purchasing an equal cut of the shares). So they are selling part of the profit split by giving me shares in the C Corp.
User avatar
ram
Posts: 1698
Joined: Tue Jan 01, 2008 10:47 pm
Location: Midwest

Re: What happens to buy-in equity if we lose hospital contract?

Post by ram »

To me it seems that you will end up at a loss on an investment and that can be offset against other gains or 3K/yr of earned income.

I am a direct employee of a hospital but do understand that 4-5 states do not allow it.

Under normal circumstances over how many years were you expecting to recoup your initial investment of 70K.

When you refer to "profit" for the group are you referring to:

(Dollar amount of contract with hospital) - ( Total of all salaries paid to the doctors in the group)


You mention that "some" of the partners want out. Barring those that want to go is there enough of a core group to service the hospital.
If there is and additionally if there is no alternate group for the CEO to go to then that enhances your bargaining power with the hospital. You may even want to give the non partners an equity in the group for $1 ( instead of $70K) to make the remaining group more tightly bound. If the new group has some younger hungrier partners then a smaller group can still service the hospital.
Ram
Topic Author
financial.freedom
Posts: 565
Joined: Fri Oct 03, 2014 1:18 am

Re: What happens to buy-in equity if we lose hospital contract?

Post by financial.freedom »

ram wrote: Mon Nov 16, 2020 10:52 pm To me it seems that you will end up at a loss on an investment and that can be offset against other gains or 3K/yr of earned income.

I am a direct employee of a hospital but do understand that 4-5 states do not allow it.

Under normal circumstances over how many years were you expecting to recoup your initial investment of 70K.

When you refer to "profit" for the group are you referring to:

(Dollar amount of contract with hospital) - ( Total of all salaries paid to the doctors in the group)


You mention that "some" of the partners want out. Barring those that want to go is there enough of a core group to service the hospital.
If there is and additionally if there is no alternate group for the CEO to go to then that enhances your bargaining power with the hospital. You may even want to give the non partners an equity in the group for $1 ( instead of $70K) to make the remaining group more tightly bound. If the new group has some younger hungrier partners then a smaller group can still service the hospital.
Thank you for the reply.

I expect to receive about 10-15k per month from the hospital contract as partner. Yes, that is what I mean by "profit."
There is an alternate group for the CEO, and that competing group has taken a few other contracts for hospitals nearby. Still a good thought though if the younger partners want to stay on.
Thank you again.
Times-three
Posts: 4
Joined: Fri Oct 30, 2020 5:53 pm

Re: What happens to buy-in equity if we lose hospital contract?

Post by Times-three »

Sorry if I’m misunderstanding the part about profit. Is the 10-15k your draw, or is the 10-15k above and beyond your draw.
Topic Author
financial.freedom
Posts: 565
Joined: Fri Oct 03, 2014 1:18 am

Re: What happens to buy-in equity if we lose hospital contract?

Post by financial.freedom »

Times-three wrote: Fri Nov 20, 2020 2:36 pm Sorry if I’m misunderstanding the part about profit. Is the 10-15k your draw, or is the 10-15k above and beyond your draw.
Sorry, I probably shouldn't have called it "profit." That's my draw from that contract.
Wricha
Posts: 666
Joined: Sun Mar 25, 2012 10:33 am

Re: What happens to buy-in equity if we lose hospital contract?

Post by Wricha »

There is not nearly enough information to begin to provide you with a meaningful course of action. Big picture advice maybe it’s time to call out the partners in an open format on what their position really is and start counting noses. You might want to discuss being sold to the devil or merge with another group.

The buy in maybe the least of your problems if the group disbands in a disorganized manner.
Topic Author
financial.freedom
Posts: 565
Joined: Fri Oct 03, 2014 1:18 am

Re: What happens to buy-in equity if we lose hospital contract?

Post by financial.freedom »

Wricha wrote: Fri Nov 20, 2020 2:47 pm There is not nearly enough information to begin to provide you with a meaningful course of action. Big picture advice maybe it’s time to call out the partners in an open format on what their position really is and start counting noses. You might want to discuss being sold to the devil or merge with another group.

The buy in maybe the least of your problems if the group disbands in a disorganized manner.
We are growing a lot on the outpatient side with several centers. Those are separate from the hospital contract. As the revenue from those contracts has recently become greater than revenue from the hospital, I think partners are less concerned with losing the hospital contract.

Outpatient centers are closed on major holidays, the amount of coverage on weekends is minimal. And no need for us to cover at night like the hospital. Also, much more efficient than hospital and less bureaucratic / admin issues.

My main focus for this post is if I can claim the 70k as a loss somehow if the partners decide not to continue covering the hospital.
niceguy7376
Posts: 2786
Joined: Wed Jul 10, 2013 2:59 pm
Location: Metro ATL

Re: What happens to buy-in equity if we lose hospital contract?

Post by niceguy7376 »

ram wrote: Mon Nov 16, 2020 10:52 pm I am a direct employee of a hospital but do understand that 4-5 states do not allow it.
As a consumer, I would be interested if those 4 to 5 states names can be shared.
In these states, if I am going in for a surgery, should the hospital and this group of doctors be both considered "In-network" to get the lower rates?
bubbadog
Posts: 933
Joined: Wed Mar 26, 2014 9:17 pm
Location: Cincinnati,Ohio

Re: What happens to buy-in equity if we lose hospital contract?

Post by bubbadog »

My understanding, and I may be wrong, is that the value of the ED contract upon termination, is the value of the accounts receivable.

If your group left, wouldn't you be entitled to your share of the accounts receivable?
Topic Author
financial.freedom
Posts: 565
Joined: Fri Oct 03, 2014 1:18 am

Re: What happens to buy-in equity if we lose hospital contract?

Post by financial.freedom »

bubbadog wrote: Fri Nov 20, 2020 4:57 pm My understanding, and I may be wrong, is that the value of the ED contract upon termination, is the value of the accounts receivable.

If your group left, wouldn't you be entitled to your share of the accounts receivable?
Yes, I would.

My question is what happens to the 70k buy in for shares as part of the C Corp?
User avatar
Pete12
Posts: 388
Joined: Tue Jun 28, 2016 3:17 pm

Re: What happens to buy-in equity if we lose hospital contract?

Post by Pete12 »

financial.freedom wrote: Fri Nov 20, 2020 5:05 pm My question is what happens to the 70k buy in for shares as part of the C Corp?
It sounds to me as if the shares purchased would be treated as "worthless stock". You would then claim a capital loss of the amount not recovered.
https://taxmap.irs.gov/taxmap2018/pub17 ... MP58ca0215
Topic Author
financial.freedom
Posts: 565
Joined: Fri Oct 03, 2014 1:18 am

Re: What happens to buy-in equity if we lose hospital contract?

Post by financial.freedom »

Pete12 wrote: Fri Nov 20, 2020 5:11 pm
financial.freedom wrote: Fri Nov 20, 2020 5:05 pm My question is what happens to the 70k buy in for shares as part of the C Corp?
It sounds to me as if the shares purchased would be treated as "worthless stock". You would then claim a capital loss of the amount not recovered.
https://taxmap.irs.gov/taxmap2018/pub17 ... MP58ca0215
Wow, never heard of that term before. Very helpful, thank you!
Xrayman69
Posts: 642
Joined: Fri Jun 01, 2018 8:52 pm

Re: What happens to buy-in equity if we lose hospital contract?

Post by Xrayman69 »

Usually when someone “buys into a partnership “ they are buying a share of the assets. What are the assets? (Ie chairs, computers, accounts receivable .....)

What are the assets if the partnership had to be liquidated?
toofache32
Posts: 2170
Joined: Sun Mar 04, 2012 6:30 pm

Re: What happens to buy-in equity if we lose hospital contract?

Post by toofache32 »

niceguy7376 wrote: Fri Nov 20, 2020 4:19 pm
ram wrote: Mon Nov 16, 2020 10:52 pm I am a direct employee of a hospital but do understand that 4-5 states do not allow it.
As a consumer, I would be interested if those 4 to 5 states names can be shared.
In these states, if I am going in for a surgery, should the hospital and this group of doctors be both considered "In-network" to get the lower rates?
Not necessarily. Many hospitals have a separate entity that hires the doctors so they can say the docs are not directly employed by the hospital. But the admins are the same.
User avatar
ram
Posts: 1698
Joined: Tue Jan 01, 2008 10:47 pm
Location: Midwest

Re: What happens to buy-in equity if we lose hospital contract?

Post by ram »

niceguy7376 wrote: Fri Nov 20, 2020 4:19 pm
ram wrote: Mon Nov 16, 2020 10:52 pm I am a direct employee of a hospital but do understand that 4-5 states do not allow it.
As a consumer, I would be interested if those 4 to 5 states names can be shared.
In these states, if I am going in for a surgery, should the hospital and this group of doctors be both considered "In-network" to get the lower rates?
Google is your friend.

https://oig.hhs.gov/oei/reports/oei-01-91-00770.pdf
Ram
Times-three
Posts: 4
Joined: Fri Oct 30, 2020 5:53 pm

Re: What happens to buy-in equity if we lose hospital contract?

Post by Times-three »

Edited. I reread the OP and it answered my question.
User avatar
White Coat Investor
Posts: 14952
Joined: Fri Mar 02, 2007 9:11 pm
Location: Greatest Snow On Earth

Re: What happens to buy-in equity if we lose hospital contract?

Post by White Coat Investor »

financial.freedom wrote: Fri Nov 13, 2020 11:46 am Our hospital has a new CEO who is making a lot of changes. Sounds like they're getting rid of the current ER group and some specialty groups, and bringing in new groups. My specialty group is okay so far, but we've been adding on a lot of additional work without more pay to appease the CEO/ admin. Some of the partners are now talking about leaving the hospital and dissolving the contract next year.

The problem is, I made partner not too long ago and spent the past year buying into the hospital contract (the professional services agreement, PSA). If we lose the contract, or other partners decide to leave the hospital what happens to that money? It's about 70k total for that contract buy-in under C Corp to have equal shares with the other partners.

Can I claim this as a loss against other investments?

We have another entity (S Corp) for other PSA contracts separate from the hospital, which is a separate buy in. So I would still plan to be a part of the group and finish buying into those contracts.

Thank you in advance!
Sometimes you get a sweet buyout from the incoming contract management group. Sometimes you don't get squat for the practice. You should still get a bit of a "buyout" though, probably just your shares of accounts receivable for the partnership.

I think you could claim a loss though. I don't see why you couldn't.

Interesting business structure. Very different from ours (sweat equity buy in).
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
Topic Author
financial.freedom
Posts: 565
Joined: Fri Oct 03, 2014 1:18 am

Re: What happens to buy-in equity if we lose hospital contract?

Post by financial.freedom »

Xrayman69 wrote: Fri Nov 20, 2020 7:35 pm Usually when someone “buys into a partnership “ they are buying a share of the assets. What are the assets? (Ie chairs, computers, accounts receivable .....)

What are the assets if the partnership had to be liquidated?
only accounts receivable (AR).
Topic Author
financial.freedom
Posts: 565
Joined: Fri Oct 03, 2014 1:18 am

Re: What happens to buy-in equity if we lose hospital contract?

Post by financial.freedom »

White Coat Investor wrote: Sat Nov 21, 2020 12:04 am
financial.freedom wrote: Fri Nov 13, 2020 11:46 am Our hospital has a new CEO who is making a lot of changes. Sounds like they're getting rid of the current ER group and some specialty groups, and bringing in new groups. My specialty group is okay so far, but we've been adding on a lot of additional work without more pay to appease the CEO/ admin. Some of the partners are now talking about leaving the hospital and dissolving the contract next year.

The problem is, I made partner not too long ago and spent the past year buying into the hospital contract (the professional services agreement, PSA). If we lose the contract, or other partners decide to leave the hospital what happens to that money? It's about 70k total for that contract buy-in under C Corp to have equal shares with the other partners.

Can I claim this as a loss against other investments?

We have another entity (S Corp) for other PSA contracts separate from the hospital, which is a separate buy in. So I would still plan to be a part of the group and finish buying into those contracts.

Thank you in advance!
Sometimes you get a sweet buyout from the incoming contract management group. Sometimes you don't get squat for the practice. You should still get a bit of a "buyout" though, probably just your shares of accounts receivable for the partnership.

I think you could claim a loss though. I don't see why you couldn't.

Interesting business structure. Very different from ours (sweat equity buy in).
There's a component of sweat equity as well (low pay the first 3 years as associate and less vacation). Agree, buying in to accounts receivable (AR) is kind of an interesting concept. If I had structured the group from the ground up would not do it this way -- but it is what it is.

Unfortunately, I don't think we would get a buyout from an incoming contract management group but that's something I can suggest to the partners. From what I've seen, the contract management groups will buy you out over the course of 5 years but make you work very hard and ensure they profit over that time period. Any associates at that point leave the group so staffing becomes an issue. Partners only stay on because they want to complete the buy out but it takes a toll on them.

I think most likely, would get my share of AR and claim loss (which sounds like I can do). Then focus on outpatient centers only, which are separate professional service agreements (PSAs) under S Corp paid to us as 1099 income. We have a few centers now that are PSA only, but hoping to open more in the next couple years through joint venture (JV) and have partial ownership (so more than just PSA source of income). Assuming that income would be paid via K-1.
User avatar
White Coat Investor
Posts: 14952
Joined: Fri Mar 02, 2007 9:11 pm
Location: Greatest Snow On Earth

Re: What happens to buy-in equity if we lose hospital contract?

Post by White Coat Investor »

financial.freedom wrote: Sat Nov 21, 2020 1:10 am
White Coat Investor wrote: Sat Nov 21, 2020 12:04 am
financial.freedom wrote: Fri Nov 13, 2020 11:46 am Our hospital has a new CEO who is making a lot of changes. Sounds like they're getting rid of the current ER group and some specialty groups, and bringing in new groups. My specialty group is okay so far, but we've been adding on a lot of additional work without more pay to appease the CEO/ admin. Some of the partners are now talking about leaving the hospital and dissolving the contract next year.

The problem is, I made partner not too long ago and spent the past year buying into the hospital contract (the professional services agreement, PSA). If we lose the contract, or other partners decide to leave the hospital what happens to that money? It's about 70k total for that contract buy-in under C Corp to have equal shares with the other partners.

Can I claim this as a loss against other investments?

We have another entity (S Corp) for other PSA contracts separate from the hospital, which is a separate buy in. So I would still plan to be a part of the group and finish buying into those contracts.

Thank you in advance!
Sometimes you get a sweet buyout from the incoming contract management group. Sometimes you don't get squat for the practice. You should still get a bit of a "buyout" though, probably just your shares of accounts receivable for the partnership.

I think you could claim a loss though. I don't see why you couldn't.

Interesting business structure. Very different from ours (sweat equity buy in).
There's a component of sweat equity as well (low pay the first 3 years as associate and less vacation). Agree, buying in to accounts receivable (AR) is kind of an interesting concept. If I had structured the group from the ground up would not do it this way -- but it is what it is.

Unfortunately, I don't think we would get a buyout from an incoming contract management group but that's something I can suggest to the partners. From what I've seen, the contract management groups will buy you out over the course of 5 years but make you work very hard and ensure they profit over that time period. Any associates at that point leave the group so staffing becomes an issue. Partners only stay on because they want to complete the buy out but it takes a toll on them.

I think most likely, would get my share of AR and claim loss (which sounds like I can do). Then focus on outpatient centers only, which are separate professional service agreements (PSAs) under S Corp paid to us as 1099 income. We have a few centers now that are PSA only, but hoping to open more in the next couple years through joint venture (JV) and have partial ownership (so more than just PSA source of income). Assuming that income would be paid via K-1.
When you get a buyout from a CMG, they're basically buying your business (merging) in order to get your sweet ED contract.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
Post Reply