Regulations proposed by IRS could affect physicians

The Internal Revenue Service (IRS) issued a notice of proposed rulemaking related to withholding under section 3402(t) of the Internal Revenue Code (Code) on December 5, 2008. The proposed regulations reflect changes in the law made by the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA), which requires federal, state and local government entities to withhold 3 percent of all payments made for services or property after December 31, 2010, or six months after the publication of the final rules. You can view the proposed rules by clicking here.

The proposed regulations have generated concerns in the health care community for a number of reasons; a few examples of these concerns are noted below.

• Withholding 3 percent of Medicare payments for services furnished by physician practices will create a difficult cash flow problem for physician practices as small businesses.
• The 3 percent withholding comes on top of projected drastic cuts in Medicare physician payment rates over the next decade.
• The pending access crisis for Medicare beneficiaries will only be made worse for Medicare beneficiaries if physicians face serious cash flow interruption due to the 3 percent withhold on top of the steep cuts to Medicare physician payments rates projected for 2011 and beyond.
• The rule unfairly and disproportionately places a burden on physicians who participate in Medicare because Medicare’s payment formula establishes specific payment amounts that physicians are paid for each medical service—as a result, physicians cannot simply increase their contract bids, like other government contractors can, to absorb the 3 percent withhold.
• Physician group practices and solo practitioners are not set up to track and ensure the appropriateness of the withhold—this will become particularly difficult to administer if the 3 percent withhold needs to be retroactively tracked and adjusted because the payment of a claim is adjusted by a Medicare contractor (e.g., successful appeal of claim, corrected claim).

The IRS received a significant number of submissions during the comment period for the proposed regulations, which ended on March 5. A number of these submissions were from the health care industry, including the American Medical Association (AMA). The AMA’s comments provide detailed information on the concerns outlined above and on a number of other issues important to physicians.

To view a copy of the AMA’s comments click here.

To view all comments submitted to the IRS regarding the proposed regulations click here.

On March 19, the IRS published notice that a public hearing on the proposed regulations will be held on April 16 in Washington D.C. The Society will continue to monitor this issue and provide updates to physicians in future Society publications.