Locating incentives: Thinking of your practice as a small business

Physician practices may be able to tap into local and state tax breaks and other enticements available to larger businesses. It doesn't hurt to ask.

By Bob Cook — Posted Jan. 29, 2007

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Matthew Johnson, MD, and major manufacturers have something in common. When they looked for a new place to locate, they asked local governments if they could offer any sort of incentive or tax break in exchange for setting up shop in their city. And they both received an answer of yes.

It might seem strange, and rather brassy, to hear of a solo family physician asking a municipality for financial breaks. It's not as if Dr. Johnson were opening a plant with 500 employees. But there are state and local tax breaks physician practices could get and don't because they don't know they're eligible, and they haven't asked how they can.

Even if they aren't relocating, physician practices could be eligible for property tax breaks based on their location, or tax relief based on the equipment they buy, or the employees they hire, or even the light bulbs they install. But the breaks can go beyond what might be written into state law or local ordinance. Physicians might find local officials willing to come up with something special to make sure the doctors come in or stay put.

"It's just their very presence," said Martin Moll, director of the health care division at the Portland, Ore., accounting firm of Aldrich Kilbride & Tatone. He has assisted doctors in negotiating with local economic leaders to get financial incentives. "They're acting as a catalyst for economic development by having people on the payroll, by renting a building," he said. "It's amazing what a vibrant physician practice can do to a community."

Local economic development leaders see doctors and health care as not only economically important by themselves but also as a lure to get bigger fish, such as major manufacturers, into cities or neighborhoods. After all, nobody wants to be in an area where it's hard to find a doctor.

"Physicians provide such a valuable service to the community and the public at large that I think most local officials would be willing to sit down and hear some doctor's story," said Bruce Levis, managing director at McQueen, Ball & Associates, a financial planning firm in Bethlehem, Pa., whose services include finding tax breaks for doctors. "I know they're not Honda. They're not GE. They're not a megacorporation. But they provide something that is a very valuable service to the community -- they help people feel better. That's important to any community."

The available breaks aren't going to put a practice on easy street, but Moll said they can have a noticeable impact on the bottom line. Moll has seen physicians shave, at least in the first year they get their incentives, anywhere from 3% to 10% off their expenses. And those cost cuts, unlike others a practice might make, are invisible to patients.

Dr. Johnson, in searching for a place to practice in the Chicago area when he was leaving academic medicine in 2003, was able to get incentives from south suburban Park Forest. By opening an office in a former outdoor mall the city owned that had gone into decline, he got assistance on rent and office space construction. He said he saved about 25% on facility costs. He also got a 50% discount from the village on his signage and greatly reduced advertising rates in the local newspaper, a perk available to any downtown business.

The relationship has been mutually beneficial. Dr. Johnson has added another physician to the practice and nearly doubled his office space.

"The point [I] want to convey is, I asked for help, and they gave me help," Dr. Johnson said. "Other MDs should do the same by asking local hospitals or municipalities if they would benefit from having a new physician in the area ... and if so, ask for their help."

Ask, and ye might receive

Experts say that before asking local officials for help, physicians should ask their accountants and lawyers to check for any incentives and breaks they might be missing. "Every state has its own collection of credits or incentives," Moll said. "What's amazing is oftentimes we'll work with a physician who is prime for credits, but they haven't thought to apply."

A practice should also check with whatever government agency is responsible for economic development in the practice's city, county or neighborhood. While rural and small-town doctors, particularly those in federally designated underserved areas, are prime candidates to be eligible for incentives, even doctors in large cities can find benefits they might have missed.

Sometimes the person the practice needs to talk to is at city hall.

When a consortium of 20 ophthalmologists in the Cleveland area looked at building an eye surgery center, it talked to the leaders of Fairview Park, a suburb near the Cleveland airport.

The consortium presented its plans to the appropriate city boards, and ended up getting a seven-year property tax exemption on the building it plans to open as Cleveland Eye & Laser Surgery in the spring. The exemption, which does not include the land, will save the practice about $100,000 a year, said Warren Laurita, the group's executive director.

Often, the practice needs to talk to a local economic development council. Even before talking about any special breaks, the organization at least can help doctors identify what they might be able to get without having to relocate or expand.

For example, it can tell a practice if it sits in an enterprise zone, a state-designated area in which businesses can get local and state tax breaks on anything from equipment to labor costs, and perhaps even get low-interest loans for development. The zones are widely used -- about 30% of the whole state of Texas sits in them.

In the Redding, Calif., enterprise zone, practices can get a tax credit for hiring employees from eligible groups, such as those who live in an economically disadvantaged area or were on public assistance. These credits can reach $30,000 per employee over five years, said Jim Zauher, director of the Economic Development Corp. of Shasta County, Calif. His group found that 29% of businesses in the Redding enterprise zone didn't know they were in it -- and that was before California designated a new, larger zone last year. So doctors aren't the only ones not asking and not receiving.

"For whatever reason -- and somebody else can make that observation as it pertains to health care professionals -- it's like sometimes getting to hit somebody in the head with a hammer to get them to take advantage of potentially thousands of dollars annually in tax credits," Zauher said. "We send out fliers, we send out newsletters, we put ads in the local paper, we have seminars."

Experts say that if a physician, as is likely, doesn't have the time himself or herself to lead the research on what is available, that might be a task to give to a motivated office manager. Moll said he has seen physician practices discover loads of potential incentives after promising to share with the office manager, say, one-quarter of what he or she saves the practice.

Relocation and expansion

While plenty of credits are available for doctors staying put, the examples of Dr. Johnson and Cleveland Eye & Laser Surgery show even more might be available if you move to a new location -- including starting a first practice out of residency -- or expand an existing practice.

It's not that towns and economic development groups actively woo doctors. They save their time and energy for big manufacturers and employers. But they listen to doctors who ask for help.

For example, any small business, including a physician's office, in Tipton County, Ind., that does a project worth at least $50,000 and adds at least two to four jobs (depending on the project) is eligible for property tax abatement. "It's a nice thing to have, and we're quite willing to provide it," said William Keir, executive director of the Tipton County Economic Development Corp.

Keir, even though he is busy wooing a 1,200-employee DaimlerChrysler auto plant, said he would be willing to meet with any physician who wanted to talk to him. But in 20 years in local economic development in Ohio, Maryland and Indiana, Keir has gotten zero calls from physician practices.

A reason local groups and governments are willing to work with doctors is that they know big manufacturers and employers see health care, particularly the physician-to-population ratio, as one big factor in their location decisions.

"You need to extol the virtues of better quality of life," Zauher said. "Health care, especially today, is a real important factor. That's important to companies because they want to make sure they're going to provide good medical services for their employees. And it's also important for executives who are going to live here -- that it's available for themselves and their families."

Hospitals tend to be involved with local economic development efforts, but Zauher said physicians are not, because they are busy. But doctors don't have to be involved in the local chamber of commerce or economic development group to benefit from incentives. All they need to do is ask.

In answering the question, local officials might want some details on the practice's size, employment and future plans. They might ask about a practice's long-term commitment to a community. But they are willing to listen, experts say.

"You never know what you find out until you ask," Levis said. "It's not an area where I'd be shy."

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Common incentives

The kind of financial incentives you might find will vary depending on the specific city and state in which you're located. But here are a few common kinds of breaks:

Enterprise zone: This state-designated area allows any business to receive benefits such as tax breaks on property, employee salaries, equipment and other costs of business.

Tax abatement: This is an exemption or reduction in property taxes, usually for a temporary period (such as 7 to 10 years). It's usually confined to new construction or expansion that results in more jobs.

Energy tax credits: A state and federal tax credit is given to practices that replace older lighting, heating and air conditioning or electrical systems with newer, more efficient systems.

Rural incentives: An array of tax breaks is available in many states and localities for physicians who agree to practice in rural, underserved areas. For example, in Montana, doing so can get physicians up to a $5,000 annual credit on personal income taxes for the first four years they practice in an area that does not have a 60-or-more-bed hospital within a 30-mile radius.

Employer tax credits: Practices hiring eligible employees, such as those from areas designated economically distressed or those who have recently received public assistance; or paying employees a certain minimum wage (for example, $9.01, plus health benefits, in Louisiana) might be eligible for tax breaks.

SOURCES: Martin Moll; Tipton County (Ind.) Economic Development Corp.; Montana Dept. of Revenue; Louisiana Dept. of Economic Development

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Thinking of moving? It doesn't hurt to shop around

Knowing where to locate isn't just about incentives. It's also about knowing where you will succeed. Thanks to his MBA degree in health industry management, family physician Matthew Johnson, MD, knew something about how to know where to locate his new practice.

Here, Dr. Johnson explains the basics of doing a health care market analysis, and how that led him to open a practice in Park Forest, Ill., a south Chicago suburb seven miles from the nearest hospital. At the time of his arrival, the area had one part-time physician. Now it has two full-time physicians -- Dr. Johnson and another family physician he recently hired.

Question How did you go about doing a market analysis?

Health care market analysis is data collection and data analysis from multiple sources. Obviously, the federal government keeps the most basic of all data collection and market analysis, and that is census, local and regional demographics. The easiest part is starting with that. But also almost every local health center and local hospital in any area will keep databases of their own regional demographics. I just needed to get the data that was already out there and make sense of it.

How did hospitals respond to your request for data?

They were very supportive in sharing their data. It's in their best interest to have more doctors come out their way.

What did the data show?

The data showed that there was enough of an interest and demand, and perhaps arguably more importantly, a payer mix capable of sustaining at least two primary care physicians in Park Forest.

What's a good payer mix?

That is the question every physician has to ask, and [the answer] differs by region and type of practice. Suffice it to say that we found the right mix.

Is it worth it for doctors to hire a company to conduct a market analysis?

There are many health care and practice consulting firm that will do the analysis. Price ranges vary widely from a few hundred dollars for a simple survey to several thousand for a complete business development plan.

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