Updated: Apr 15
Physicians, dentists, and other healthcare businesses are typically in the daily process of innovation, even if we haven’t been trained to designate our processes that way. The very name of our business methodology – a healthcare practice – indicates that there is a component of development inherent to the delivery of healthcare services.
Let’s break it down:
1. Healthcare treatments require constant innovation to adapt to new diseases and illnesses.
2. The delivery of healthcare must continually improve to counteract rising healthcare costs.
This last year has shown nothing more than that the world of healthcare is changing rapidly and in drastic ways due to technology and innovation. How many of you suddenly faced the challenge of remote care and patient evaluation through the integration of telemedicine into your practices? The answer is that most private practice healthcare providers enhanced their remote care to some degree.
Telemedicine is an easy example to illustrate how the R&D tax credit works for healthcare professionals. Tax Code IRC Section 41 describes this credit, which requires the satisfaction of a four-part test to qualify. Take a look at how it works:
1. The goal: integrate this new (or improved) care component to positively impact the quality of care.
This step is called the permitted purpose step in the four-part test and is satisfied when your activity brings a new or improved process for the purpose of enhancing function, reliability, performance, or quality. Translated into healthcare language: The component should be undertaken in an effort to improve patient outcomes.
2. Science is integral: the addition of telemedicine is designed to be technologically stable and medically useful.
Part two in the four-part test is the easiest to satisfy. It merely states that the component has to be based in the hard sciences, specifically computer, biological, medical, and/or engineering. Telemedicine qualifies under the principles of computer science and biological science.
3. Nothing is 100%: you started your telemedicine project recognizing that there was a chance it could fail – especially if you tried to integrate EHR into the process, train staff, or patients in this new access to care modality.
Part three demands that your activity must be intended to reduce uncertainty. You can do this by addressing the method of implementation or the appropriateness of the final design. For our example, you could do either. There is uncertainty in the combination of software, hardware, and humans – especially what products to use and how to go about the implementation. There is also uncertainty in what a final product should look like – whether you are talking about the focused system of digital connection or a more holistic question of what your practice guidelines should be for patients who connect with you through telemedicine.
4. You probably didn’t get it quite right on the first go. Most of our doctors tried – or at least investigated – a few different providers before settling on one. They definitely had to try a few different methods of getting the word out there, training staff, and educating patients.
The final step in the four-part test requires that you complete a process of experimentation. Specifically, simulation; evaluation of alternatives; confirmation of hypotheses through trial and error; testing and/or modeling; or refining or discarding of hypotheses.
The Benefits of the R&D Tax Credit
Depending on the size of your practice and your Qualified Research Activities (QRAs), we have seen federal benefits ranging from $30,000 to nearly $400,000 for practices with between 1 and 4 practicing providers. This is a dollar-for-dollar benefit – meaning that when your corporate taxes come due, you can pay them with credit dollars, keeping your hard-earned money in the bank.
There is a federal tax benefit between 6% and 10% per dollar of Qualified Research Expenditures (QREs). Additionally, many states have complementary R&D tax credit programs.
Calculation of your tax credit is somewhat complex; however, a quick estimation of the federal tax credit is around 10% of the amount of money that you spent in wages and supplies towards the development of a QRA.
We work with many doctors and are constantly amazed by the commitment to care that we see. There are so many innovative processes at play. Whether it is a computer science-based database management or EHR conversion with patient contact components (email and text outreach) or medical procedures, we have been able to help our doctors see substantial benefits.
Some procedural medical examples: developing stem cell delivery protocols, 3D printing of clear dental orthodontic aligners, novel approaches to high-definition liposculpture, and so many more.
The first step is identifying your QRAs. That’s where we come in. Our interviews are designed to suss out those procedures most likely to qualify. From there, our team requests payroll and other substantiating documents. The accounting team dives into the numbers and calculations while the legal team develops the supporting documents. Most of our doctors give us 2-3 hours in interview time and we take it from there.
Sign up on our calendar for additional information and a free evaluation. There’s no reason to put this valuable tax credit off any longer.