Trading for treatment: Bartering makes a comeback

When Brian Lewis, DO, and Brent Wakefield, MD, opened a family practice in Jenks, Okla., right out of residency three years ago, the two new doctors turned to a centuries-old practice to help build their business.

They let patients pay through barter.

Like a growing number of other physicians, Drs. Lewis and Wakefield are trading their medical services for office supplies, staff meals, plumbing work and other goods and services. Dr. Lewis said bartering not only saved them from having to spend cash for necessities in the lean early years, but also helped build their patient base.

"We saw this as a business opportunity, and it has worked very well," Dr. Lewis said.

There are no government statistics on bartering, the practice of exchanging goods and services without cash. However, government officials and economists agree bartering is experiencing a revival in the medical community as physicians and their patients look for creative ways to pay their bills in a struggling economy.

"Historically, evidence shows that when the economy is not doing well, people look for alternate sources of income. Bartering makes sense," said Jaishankar Raman, PhD, an associate professor of economics at Valparaiso University in Indiana.

However, bartering has grown more sophisticated from the days when country doctors traded livestock for medical care on a handshake basis. Physicians today need to follow Internal Revenue Service regulations and Medicare accounting rules. Also, experts say that to ensure they get the most from bartering, physicians need to make sure they have the right kind and number of bartering partners. And, as with any transaction, they need to have everything documented.

Two types of bartering

Some physicians barter directly with their patients, setting a value on goods and services on a case-by-case basis. Others, such as Drs. Lewis and Wakefield, join barter exchange companies, which set up an equivalent cash value for goods and services, and have members who list what they can contribute to a trade.

No one tracks the amount of direct bartering being done, but barter exchanges have seen an 8% to 12% growth in activity and membership over the last two years, according to Tom McDowell, executive director of the Mentor, Ohio-based National Assn. of Trade Exchanges, a national organization representing private barter exchange companies.

McDowell said about 400,000 U.S. companies barter each year. One exchange, International Monetary Systems Ltd., of New Berlin, Wis., has 780 members in medical and health services out of 18,000 total members, spokeswoman Krista Vardabash said. A competitor, Bellevue, Wash.-based Itex Corp., lists hundreds of doctor members on its Web site. They include primary care physicians, specialists, dentists and other health professionals.

With direct bartering, the physician usually is approached by a patient wanting to pay for a medical service with goods or services. Karen Wendt, an office manager at an orthopedics practice in Beaver Dam, Wis., said one of the physicians received a full cow's worth of beef as reimbursement for surgery.

In the Medical Group Management Assn.'s publication, MGMA Connexion, office managers told of working for physicians who bartered for landscaping, printing, and work by an airplane mechanic.

An alternative to direct bartering, barter exchange companies actively promote and recruit members, McDowell said. Each member gets credits for the value of the trade that can be redeemed for any goods or service offered by any other member.

McDowell said both parties pay a fee of about 6% of the value of each transacted amount to the barter exchange company. The money pays for marketing and record-keeping.

A doctor who provides medical services for credits can then use those credits for any goods or services offered by any other member. Credits can be banked for larger expenses.

McDowell said each member has a revolving account with no time limit. Members get monthly statements that, like bank statemenst, lists transactions made and credit accrued.

Making bartering work

While physicians said they have had positive results with bartering, economists and even those in the barter exchange trade warn that certain guidelines should be followed to get the maximum benefit.

• Have a willing business partner. While those with solo practices can opt to trade whatever they want whenever they want, those with partners need to make sure everyone else is on board. With partners, it is best to trade for office expenses or for something that can be easily divided. Accepting an armoire, for instance, unless it is used for the office, could cause dissension, trade experts say.
• Find the right trade partner. "You need to find the right kind of person who is willing to barter what you want," Raman said. "That's been the hard sell for direct barter." He noted, however, that the Internet has made it easier to find these willing partners, as many sites such as craigslist now have active bartering sections.
• Keep your percentage of barter patients low. Itex advises its clients to accept only 5% to 10% of its gross annual sales in trade, company spokesman Alan Zimmelman said. He said businesses still need cash to operate and have to make sure there is enough on hand.
• Have an agreement in writing. Make sure services will be completed if they are not completed at the time medical treatment is given.
• Understand that newer practices fare better from bartering than more established ones. "Established practices that are closed to new patients won't get as much value from bartering as new ones with open slots that need to be filled," McDowell said.
• Make sure values are equal on both sides of the trade. Product literature, charity guidelines or other comparative pricing can help determine the value, experts say.
• Follow Medicare rules. If the amount of the item traded by a Medicare or Medicaid patient is worth more than the amount of money that patient actually owes the physician, then the physician would be in violation of his or her participation agreement, said Ellen Griffith, a spokeswoman for the Centers for Medicare & Medicaid Services. She said CMS would not have a problem if the valued amount were equal to the cash amount owed the physician.
• Follow IRS rules. No bartered transaction worth less than $600 needs to be reported to the agency, according to Elaine Johnson, tax analyst with the small business and self-employed division of the IRS. "A small-scale sale, an occasional barter transaction, is nothing the IRS will put the hammer on." She added that the IRS recognizes that bartering is becoming more prevalent, and has added more information on the topic on its Web site as a result. Johnson said transactions worth more than $600 are treated as cash and the fair market value of the item needs to be reported for tax purposes. Johnson said you can use similar items on the Web, product literature or Salvation Army guidelines, to determine fair market value. This documentation needs to be provided to the IRS in the event you are audited, she added.
• Keep good records. While barter exchange companies keep records of transaction for each of its members, Johnson advises physicians to keep their own records. "At the end of the day, it is the business' responsibility to make sure all records are reflective of the transactions made."

Growing through bartering

Three years after they opened their practice and started working with Itex, Dr. Lewis said he and Dr. Wakefield are doing very well professionally and will soon add another physician. He said an average of 5% of the 100 patients seen at the office per week are Itex members. Several of the others are referrals from Itex members.

Heidi Priddy, a graphics company owner, is one of Dr. Lewis' bartering patients. She chose Dr. Lewis as her primary care physician both through word-of-mouth referrals and because he is an Itex member. She prints brochures and other materials for the practice. "Barter was a big part of it. I am good at piling barter bucks up, but not as good at spending them. I don't take vacations, so I have to use them for practical things, like doctor appointments," she said.

Dr. Lewis said bartering not only allows you to pay for something without taking money out of the office account, but it can also help cash-strapped patients as well.

"It's one neighbor in the community taking care of another neighbor in the community," he said.