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Who's the Employer?

Answers are provided by S. Derrin Watson, JD, APM

Billing Corporation as B-Org?

(Posted February 14, 2001)

Question 80: XYZ, a corporation, is owned by 10 equal physician shareholders. All 10 are employees of XYZ, as are several nurses. Two of the doctors of XYZ and one unrelated doctor start Corporation ABC as equal shareholders, strictly to provide billing services for XYZ and the unrelated doctor's private practice. Does this constitute an affiliated service group?

Answer: Almost surely yes. XYZ is a First Service Organization (because it is in the health field). ABC is a B-Org because:

More than 10% of the stock of ABC is owned by highly compensated employees of XYZ.
A significant portion of ABC's work consists of providing services to XYZ historically performed by employees.

What's "significant"? According to the proposed regulations, if payments from XYZ account for 10% of its income, that's significant. On the facts given, it's difficult to imagine that XYZ would provide less than 10% of the billing corporation's income. If payments from XYZ account for less than 5%, that's insignificant. Between 5% and 10%, the proposed regs say, the decision is based on those ever-helpful "all facts and circumstances."

By the same reasoning, and with the same qualification, the unrelated doctor would be in an affiliated service group with ABC.

Important notice:

Answers are provided as general guidance on the subjects covered in the question and are not provided as legal advice to the questioner or to readers. Any legal issues should be reviewed by your legal counsel to apply the law to the particular facts of this and similar situations.

The law in this area changes frequently. Answers are believed to be correct as of the posting dates shown. The completeness or accuracy of a particular answer may be affected by changes in the law (statutes, regulations, rulings, court decisions, etc.) that occur after the date on which a particular Q&A is posted.