What followed the RE was a direct quote from news item they were responding to, its hard to be clearer…
News 12/15/23
Top News
HHS and ONC approve the final HTI-1 rule that addresses:
- Algorithm transparency.
- Designation of USCDI v3 as the baseline certification standard.
- An enhanced information blocking requirement.
- A requirement that developers of certified health IT report interoperability-focused metrics.
Reader Comments
From Tax Bro: “Re: tech and health IT layoffs. Check out IRS Section 174 changes and ask executives if this has changed their company’s business.” An IRS change that took effect for the 2022 tax year no longer allows employers to expense their R&D costs in the same year in which they were incurred. Instead, companies must now amortize those expenses over five years, which triggers an immediately higher tax liability. Example: previously, a tech-heavy startup with $1 million in revenue and $750,000 in R&D costs (which is everything related to software development, including allocated overhead such as rent) would have paid taxes that year on $250,000. Now, that company will face an immediate IRS bill for taxes owed on $850,000, which creates a cash flow squeeze and a suddenly ugly balance sheet. It’s worse when paying offshore costs, where the deduction is spread over 15 years instead of five. In addition, companies must also amortize the capitalized cost of retiring or cancelling a software project over that same period. Folks in the know, how has that change affected your business, and has it triggered layoffs or hiring cutbacks?
HIStalk Announcements and Requests
Dear CEOs whose companies are laying people off right before Christmas. You speak confidently of right-sizing, becoming more corporately nimble, offsetting slowing growth, focusing on what matters to customers, and creating synergy from financial cuts. My question: shouldn’t you also lay off your executives, and perhaps yourself, for failing to predict and fix these problems back when you were wrong-sizing? Why drop a lump of coal into the stockings of your previously valued “associates” by pink-slipping them home for a miserable holiday? November and December layoffs are a strong indicator of executive incompetence or poorly masked corporate desperation.
Ah, the cliché but slightly seasonally fun hospital door decorating contest. It’s too late to vote, unfortunately, for the “Welcome to Whoville” door of the IT department of 171-bed McAlester Regional Health Center (OK), as requested by Interface Specialist Anthony Master who asked nicely on LinkedIn. Still, I wish them luck in the vote tally, although my inner teen also likes the lab department’s “12 Days of Christmas: Lab Edition” that includes five golden pees, seven swimmers swimming (snicker), and eight stools a-stinking. You will probably not understand the sentimentality of such a competition unless you’ve spent a lot of years working for a small, non-profit hospital, where the money isn’t great, but your patients are your neighbors, someone’s always bringing in food, and random employees give you a hug without being asked when they sense you need one.
Webinars
None scheduled soon. Previous webinars are on our YouTube channel. Contact Lorre to present or promote your own.
Acquisitions, Funding, Business, and Stock
The hearings panel of Nasdaq extends the continued listing of Veradigm shares until February 27, 2024. The company blames an accounting software problem for missing its annual SEC filing for 2022 and three quarterly filings so far in 2023.
AI-powered cancer imaging analysis system vendor Lunit will acquire New Zealand-based Volpara, which offers breast cancer detection software, for $198 million in cash. Volpara’s CEO and managing director is industry long-timer Teri Thomas, RN, MSN, who spent 21 years as an Epic VP through 2016.
Telemedicine addiction treatment provider PursueCare raises $20 million in a Series B funding round and acquire the software-based therapeutic for substance use disorder that were developed by the now-defunct Pear Therapeutics.
An 86-year-old woman and another plaintiff file a class action lawsuit against for Humana, claiming that the insurer used AI to deny care to Medicare Advantage patients. The lawsuit says that Humana uses the same NaviHealth algorithm as UnitedHealth Group, which owns the algorithm and was named in a similar lawsuit last month.
Smartcare Software, which sells EHR and ERP systems for mobile care in the home, renames itself to Aaniie, a name it calls “unique and forward-thinking” that better represents its vision (and, it adds, is “a brand we could trademark.”) The company says it’s easy to remember the name and spelling because it stands for “An All-inclusive Network for Improving Insights & Engagement,” which creates a race to aabsurditiie between the chicken and the egg.
People
Clinical trials technology company Slope hires Terry Edwards (PerfectServe) as COO.
Industry long-timer Jerry McKenzie — whose 40-year health IT career included executive roles with Accu-Med, Apex, QuadraMed, T-System, and MedAssist — died December 9. He was 73.
Announcements and Implementations
An AMA survey of physicians finds that two-thirds believe AI offers advantage, especially for documentation and prior authorization, but worry about its potential impact on the patient-physician relationship and patient privacy. One-third of them are using AI in practice, most commonly for documentation, translation, or diagnosis assistance. Their five-year plans include using AI to generate summaries of patient messages and chart information and predicting patient demand to support employee scheduling.
Lucem Health releases Reveal for Stroke, which analyzes ECG and clinical data to identify patients who have undocumented atrial fibrillation. The solution was developed with ECG diagnostic company AccurKardia.
Government and Politics
The Illinois Supreme Court rules that hospitals can collect the biometric information of their workers, specifically their fingerprints for accessing drug dispensing machines, without being held accountable to the state’s Biometric Information Privacy Act (BIPA) that requires that the individual be notified in advance and prevents disclosure of their information without their consent. The court ruled that employing fingerprint access to retrieve patient drugs and supplies falls under HIPAA, but warns that its decision does not broadly excuse hospitals from compliance with BIPA.
The White House announces that 28 provider and payer organizations have pledged their commitment to the safe, secure , and trustworthy purchase and use of AI in healthcare based on the principle of FAVES – seeking outcomes that are fair, appropriate, valid, effective, and safe.
Privacy and Security
In China, a hospital employee is fired and faces legal charges after sharing screen shots on social media of the hospital electronic medical records of a 57-year-old actress who died in the ED this week.
Other
Houston Methodist Cypress Hospital CEO Trent Fulin lays out his “future bets” on becoming a smart hospital.
A jury awards a former Kaiser NICU charge nurse $41 million in her lawsuit over being fired for placing her bare feet in a NICU isolette. She claimed that Kaiser’s real reason for terminating her as a 30-year employee of the hospital was that she had raised repeated concerns about understaffing.
Awell Health Partnership Manager Rik Renard describes the company’s hiring of a highly credentialed account executive who they fired three weeks later after his poor performance led them to dig deeper into his background, where he was found to be holding another similar full-time job. He similarly held two full-time jobs at same time on three previous occasions, claiming that he was such a superstar that he only needed to work half-time to deliver full-time results. The company’s lessons learned:
- Don’t skip calling the current employer for references. It turns out that his claimed six-year stint at another vendor was actually two since they fired him in 2020.
- Trust your instincts if something seems off.
- A slow start is a major red flag.
- Sales pros are good at selling themselves.
A liquidation trustee sues the former board chair, CEO, and CFO of Watsonville Community Hospital (CA), claiming that they forced the hospital into bankruptcy by pocketing $4 million of its dwindling reserves. The executives were appointed by the hospital’s for-profit acquirer as its only executives and board members, after which they allegedly paid $2 million to themselves and family members in consulting fees and reimbursed themselves for cars, restaurant expenses, and a beach house. They hired out IT management to a company with no experience that was owned by an executive’s friend, which the lawsuit says caused billing and medical records problems due to poor Internet access and the implementation of a problematic and “untested” cloud-based EHR. The executives amended their employment contracts just before the hospital filed bankruptcy to pay themselves $3 million in severance if the hospital changed hands. The local health district bought the hospital’s assets out of bankruptcy in September 2022, where it continues to struggle.
Sponsor Updates
- Healthcare IT Leaders hosts its annual Christmas tree giveaway that benefits families at Cristo Rey Atlanta Jesuit High School.
- The “Interop Now” podcast features Ellkay VP of Interoperability Solutions G.P. Singh.
- NCPDP’s Raising the Standard Podcast features First Databank VP of Editorial Content Julie Suko.
- Meditech announces that Healthcare Policy Program Manager Philip Alcaidinho has been named co-chair of TechNation’s Health Advocacy Committee.
Blog Posts
- Social Care Without Stigma: How Findhelp Supports People Living with HIV/AIDS (Findhelp)
- How Does AI Transform Business Customer Experiences? (Five9)
- Healthcare cybersecurity threats: November 2023 (Fortified Health Security)
- Leading the way in data-driven healthcare innovation (Inovalon)
- A Christmas Miracle: The Story of Lakeland Community Hospital (Medhost)
- How Sault Area Hospital uses technology to improve care by engaging patients before, during, and after their stay (Meditech)
Contacts
Mr. H, Lorre, Jenn, Dr. Jayne.
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I’ve spent my 20+ year career in finance in software and SaaS companies, the past 15 in healthcare.
The changes to Section 174 are simply not meaningful to anybody outside of the outraged ignoramus influencers pushing the content. Why not?
The change impacts only companies that: (1) are profitable and have exhausted NOL carryforwards; (2) are currently expensing their software development (SRE); AND (3) have a meaningful percentage of their expenses in SRE. I’m not saying such a company couldn’t or doesn’t exist…but I’ve never seen one.
Going in reverse order:
The example often given (including above) is the profitable “software” company with $1M in revenue and $750K in SRE, and $250K in profit, which now makes $850,000 in taxable profit (.2*$750,000 + $250,000). This hypothetical software company has…as its *only* expenses…software development costs? They have no sales costs, no marketing costs, no accountants, nobody billing or collecting invoices, no human resource, no leadership, no AWS costs, no bugs (because debugging and maintenance are not SRE)…this company is just folx designing and writing code? In my experience, profitable SaaS companies are spending 15 – 25% of revenue in cash on R+D activities. So our $1M revenue busiess is likely spending <$250K in CASH R&D.
Next, it is borderline finance malpractice to be expensing SRE vs. capitalizing (though there are some reasons that you might have different policies for book and tax purposes). Businesses continue to be valued on EBITDA multiples, and capitalizing everything you can pushes that EBITDA number up (since capitalizing it increases earnings AND you're adding back the amortization). Any company with an institutional shareholder (PE/VC) is going to optimize for AS MUCH capitalization as they can get away with, which generally lands at 30 – 50% of cash costs. So our $1M software company with $250K of cash R&D is likely going to be capitalizing maybe $100K of this number moving forward. It's true that this will boost their "profit" by $80K this year. Which at a 25% corporate tax rate, is a $20,000 impact.
Lastly, this all assumes that this software company is a profitable taxpayer to begin with (or the extra $80K of income would make them such)…I'm not saying it couldn't happen, but this would be a better definition of a "unicorn" than any valuation metric is.
Reality is most software companies already do this in their internal and investor financial presentations to show higher profitability, but expense R&D as much as they can on their tax submission to minimize current taxes. All the IRS is doing is telling software firms they can’t get away with it anymore. The simple fact is software development is no different than a widget company developing a new tool. It’s all R&D and should be amortized.
The other side of the issue is it will actually help a firm if tax rates increase because there will be more amortization in future years.
I seem to recall this rule was put in place to goose the economy and encourage the Tech sector. It was always an outlier in IRS policy. It was heavily and successfully lobbied for.
Am I mis-remembering things?
If true though, this is mostly the IRS deciding Tech isn’t going to be treated any differently than any other industrial sector.
Second attempt at posting this, pertaining to Watsonville Community Hospital (CA).
Whenever I see a corporate management claim they are “Shocked! Shocked we say!”, At corporate mismanagement, I admit to feeling immense scepticism.
OK, the situation at Watsonville sounds pretty bad (allegedly). Yet those managers were clearly empowered to do all that. And the “for-profit health corporation” was entirely missing in action.
Where was the oversight? It was for-profit’s choice of managers. It was their auditors. It was their P&P. It was their Board. It was their business model. It was their HR and Finance Departments.
So you’re “shocked” are you? I’m shocked you are still in business and have the remnants of a reputation.