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

[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!

[financial.freedom]

Bump — any advice appreciated

[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]

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.

[financial.freedom]

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

FF

[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?

[financial.freedom]

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.

[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.

[financial.freedom]

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]

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.

[financial.freedom]

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]

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.

[financial.freedom]

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]

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]

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?

[financial.freedom]

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?

[Pete12]

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

[financial.freedom]

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]

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]

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.

[ram]

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

[Times-three]

Edited. I reread the OP and it answered my question.

[White Coat Investor]

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).

[financial.freedom]

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).

[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!

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.

[White Coat Investor]

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.