By Adam Decker, CPA, CVA
Here are five things we learned last year, and what you need to know about them to help you and your company succeed this year.
Lesson 1 — Healthcare Act
The much-anticipated Healthcare Act was passed in 2010. The Healthcare Act doesn't include provisions that will directly and immediately impact most dental practices. However, it will eventually impact the industry. Provisions that will impact the industry include:
• A requirement that essential benefits plans in the future include pediatric health care services for children through age 21. The essential benefits must be included in the new Qualified Health Plans that will be set up through government-run exchanges.
• The annual limit for contributions to pretax flexible spending accounts will be reduced to $2,500 starting in 2013.
• There won't be any improvements to dental coverage through Medicaid, but Medicaid coverage will be expanded to include 16 million additional people.
• Dental education and preventive programs will be established.
In addition, most practices won't be impacted by the mandate that employers provide health care coverage since this will apply only to those practices with more than 50 employees.
Practices can profit from the Healthcare Act in 2011 in many ways. First, those practices that are built on Medicaid patients will have a larger available patient base. Those practices should begin preparing in 2011 to market to this new base of patients. Second, practices can build goodwill with patients by understanding the key components to the law that will impact their patients. As trusted health-care providers, practices can continue to strengthen their relationship with patients through education and resources. Third, continue (or begin) to strategize and plan how your practice will participate in the insurance and where it will be positioned.
Lesson 2 — Quantitative easing and the impact on your investments
The buzzword in the financial markets throughout 2010 has been Quantitative Easing (QE). QE is simply a monetary policy used by the Federal Reserve to increase the supply of money by buying government securities from the market. The goal of QE is to flood financial institutions with capital in an effort to promote increased lending and liquidly. In the financial markets, QE has helped promote a weak dollar and historically low rates. The United States is currently supporting a weak dollar (regardless of what they say, actions speak louder than words) for the following reasons:
• U.S. exports will be cheaper on the global markets, which should lead to improved economic growth.
• Imports will become more expensive and this could help stimulate inflation and remove the dreaded deflationary fears.
• If the U.S. dollar declines at the same time the U.S. Treasuries offer ultra low yields, each becomes unattractive to hold in relation to riskier-based investment options that should help lift the equity markets and create a wealth effect for equity investors.
As an investor how do you profit from the weak dollar trade and build a portfolio that takes advantage of the current market environment? Four key areas to consider for 2011:
• Maintain or increase commodity exposure. Commodities provide an excellent hedge against inflation and are an attractive asset class as investors look to invest away from the dollar and into hard assets.
• Approach domestic bonds and investments pegged to U.S. Treasuries with caution. With the flight to safety trade that occurred through 2008 and 2009, combined with the Fed's QE policy, there has been a significant run-up in fixed income prices coupled with historically low yields. As inflation increases and investors return to riskier asset classes, you could see a significant decrease in bond prices.
• Maintain a diversified portfolio of various asset classes and investment strategies that have low return correlations and provide your portfolio with some measure of downside protection. While the current global economic recovery is likely to continue, continued weakness in the dollar could escalate economic tensions globally.
• Consider an advisor who offers active portfolio management. The modern portfolio theory of "buy and hold" has been severely challenged by the impact of economic globalization over the last decade. Expect this trend to continue, thus it is important to create an investment plan that allows one to be flexible and take advantage of the current market environment.
Lesson 3 — Technology
The movement (and government and insurance company push) to maintain electronic dental records (EDR) is not going away. Right now, the federal mandate is for patient records, including dental patient records, to be electronic by 2014. Whether this will change is not known, but preparation should begin now. In addition, paperless or "less paper" practices continue to be the trend, not only from the patient records side, but also back office recordkeeping.
Planning now to move to electronic dental records and a less paper practice during 2011 can put your practice ahead of the curve in complying with the 2014 mandate, create efficiencies in patient service, and provide a more streamlined and organized back office filing system.
On the less paper front, some exciting document management tools exist that can organize your back office. For instance, SmartVault integrates with QuickBooks® software to provide a paperless recordkeeping system for your accounting records. Cabinet NG is a document management software that can be used to maintain accounting records, but also has more robust capabilities to maintain other back office records (such as HR) and can even be used as your EDR tool.
Lesson 4 — Lending environment
The credit crunch is easing. In recent consecutive quarterly Federal Reserve surveys, the data shows banks have been easing standards on commercial loans for the first time since 2007. This only provides more options for the dental practice. Even through the credit crunch, dental practices have had more lending opportunities available to them. Because of their historically low default rate, banks with experience in dental practice lending have continued to make loans available. The ease in the credit crunch will create new options for practices to consider.
While the opinion regarding what will happen with interest rates during 2011 varies, it's fairly safe to say rates cannot go much lower. A suggestion to add profit to your bottom line during 2011 and for years to come is to have your debt structure and terms reviewed by your lender or CPA, especially if your debt was originated more than two or three years ago. There may be substantial opportunities to improve terms and interest cost over the remaining life of the debt.
Lesson 5 — Into the great unknown
We learned that impactful tax legislation is not going to become permanent this year. Many of the Bush era tax laws set to expire at the end of 2010 haven't been addressed as of November 23, 2010. While it's likely temporary provisions will be made by the end of the year, the clear path to long-term tax policy change is not known.
Planning and profiting from tax law change is somewhat speculative, but it's reasonable to devise a strategy that assumes tax rates will not be going down and will likely be going up, especially for those in higher tax brackets. To profit from tax law changes in 2011, keep apprised of new tax legislation and where it is headed, and be sure to stay in contact with your CPA or tax advisor. It may actually make sense to plan to have a higher taxable income in 2011 and less in 2012, depending on the outcome of any 2011 legislation.
As co-founder of Veros Dental, Adam Decker, CPA, CVA, works with dentists to manage and bridge their business and personal financial picture. Veros Dental's team provides comprehensive and insightful financial services for dentists from investment and practice strategy to tax compliance and bookkeeping. Contact Adam at [email protected] or see www.verosdental.com.