Regulation Archives - Page 2 of 2

Clocking in: Small Business and Overtime Regulation

What is the New Overtime Regulation?

On December 1, 2016, the Labor Department will officially institute new regulations on overtime eligibility for workers. Announced on May 17, the new rules require business owners to pay salary workers earning up to $47,476 a year time-and-a-half overtime pay when they work more than 40 hours during the week. This new regulation will be updated every three years to adjust for average pay in the United States.

Federal employment law stipulates two different ways for employees to receive overtime pay. First, if the employee is not an executive or a professional with decision-making authority they are eligible. Second, if the salary of an employee is below a certain amount, that employee can receive overtime pay.

Who is Affected?

While the Labor Department calculated that the new law will affect 4.2 million workers, the Economic Policy Institute estimates that this new regulation will affect 12.5 million employees. That is 23% of salaried workers. The institute expects these new rules to affect over one million Texans.

The new overtime rule will apply to any business that is subject to the Fair Labor Standards Act. This includes any business with sales of at least $500,000, or employers involved in interstate commerce. The National Federation of Independent Businesses says that the requirements will affect around 44% of US business with fewer than 500 employees.

History of Overtime Pay Regulations

The 1938 law that began federal minimum wage also started the overtime rule. While the government has raised the overtime pay salary cut-off several times over the years, the current cut-off is at $23,660. Vice President Biden noted that that more than 60 percent of salaried workers qualified for overtime in 1975 based on their salaries, but only 7 percent do today.

Complying with Regulations

To comply with these new regulations, employers will have to track employees work hours, even those of salaried employees. This change can involve costly adjustments as employers may have to buy new systems and spend time on regulatory compliance. Additionally, employers may have to change the way they manage their labor budget. Failure to comply can result in lawsuits or penalties.

Employers will most likely respond in a couple of ways. Some employers will choose to limit their employees’ work hours to avoid paying overtime. Others may hire additional workers and divide up existing jobs. Additionally, employers could raise the pay of employees whose salaries are close to the cutoff to avoid paying overtime work. Or employers could cut salaries of workers with the hope that overtime will make up the difference in income.

Oxford Economics predicted that a “disproportionate number[s] of workers” [that] became eligible for overtime and worked more than 40 hours would see their hourly rates decreased by an equal amount, leaving their total annual earnings unchanged.” On the other hand, the Institute for the Study of Labor, said that base wages would fall somewhat over time, but that the higher overtime payments would more than offset any loss in regular salary levels.

Positive Aspects of the New Regulations

The new regulations could potentially have positive effects on the labor force. Goldman Sachs and the Economic Policy Institute estimate that the new regulations will create about 120,000 jobs.

The main argument, however, it is only right for employees to earn overtime for working over 40 hours. Vice President Biden and other supporters of the change present the idea of fairness as the main positive aspect of the new regulation. The Obama Administration hopes that the rule change will give middle-class families additional income.

Negative Aspects of the New Regulations

Despite the potential for positive effects, the new regulations could bring numerous negative consequences for employers.

The new regulations will immediately require employers to keep track of employee attendance and hours. This tracking will impose implementation and operation expenses, which may be prohibitively high for smaller and less profitable firms. Payroll reclassification for small businesses can also be time consuming and expensive. Business owners must also figure out whether their workers are exempt from the new requirements. Misclassification can result in lawsuits and penalties. And, of course, small businesses may face increased payroll expense.

All of these changes can be costly for small businesses to implement. A study by the National Retail Federation estimated employers could end up having to pay as much as $874 million to update payroll systems, convert salaried employees to hourly wages and track their hours. The potential costs have not gone unnoticed; the National Federation of Independent Businesses filed a petition to delay the implementation of these new rules. Otherwise, the new regulation may drive some small firms out of business.

Hurting Workers

This new measure could even hurt employees by giving workers less flexibility, hour cuts and decreased morale. Salaried employees often enjoy flexibility in working hours that can allow them a certain amount of freedom. This flexibility is about to become more expensive as employees are required to record every hour of their work. Being a salaried employee, rather than per-hour labor, also has positive psychological benefits. Employee morale may therefore drop. Finally, employees will soon run the risk that their employers will cut their hours to avoid paying overtime.

Jobs may be created by this regulation. However, most of those new jobs could come from cutting a full-time job in half to avoid paying overtime. Coordinating two people to do one person’s job will make America’s workforce less productive.

Room for Improvement

These new regulations disproportionately hurt small businesses. It may be important to respect the rights of workers to earn more money for overtime. However, the government must find a solution to help low-income workers without imposing a burden on small business owners.

A step in the right direction would be to institute this new regulation in phases. The overtime income cutoff change from $23,660 to $47,476 is a huge difference. But unless government offsets these costs, perhaps by lowering taxes on small businesses, this new policy will discriminate against the 28 million small businesses that provide more than 8 million American jobs.

Big Problems for Small Practices: Examining the Effect of the Affordable Care Act on Entrepreneurship in the Healthcare Field

The doctor-patient relationship is an important aspect of healthcare. Small physician practices, offices with no more than a couple doctors, have been the long-standing foundation of this relationship. Unfortunately, legislative changes disincentivize doctors from being small business owners.

The Health Information Technology for Economic and Clinical Health Act (HITECH) and the Affordable Care Act (ACA) have discouraged physicians from starting their own businesses. They have done so by differing reimbursement rates and requiring unreasonable electronic medical record requirements. These conditions have decreased entrepreneurship in the healthcare field. A 2014 Physicians Foundation study found that among 20,000 U.S. doctors, only 35% described themselves as independent, not employed by a hospital or large group. This is a change from the 49% in 2012 and the 62% in 2008. Doctors now overwhelmingly choose employment at hospitals where they have less overhead, less administrative responsibilities, and better pay.

Reimbursement Rates

Reimbursement rates for Medicare actively discourage private practices. The government pays hospitals at a higher rate than independent offices for the same services. For example, the government reimburses hospitals $749 for heart scans but only gives small practices $503. Additionally, hospitals receive $876 but independent practices only get $402 for colonoscopies.

Electronic Medical Records

The required use of electronic medical records (EMR) increases administrative burdens and may decrease the quality of patient care.

Introduced as part of HITECH in 2009, EMRs were intended to increase efficiency, care coordination, and quality of patient care. Despite the apparent positive effects of EMRs, installation, maintenance, and training costs all serve as barriers to use.

The National Ambulatory Medical Care Survey found that quality of care was no different with the use of an EMR. The required system comes with an average cost of $163,765 for a single practice. For small practices this cost may be prohibitively expensive. As this is a fixed cost, it is cheaper to share the costs across multiple physicians, which incentivizes doctors to work at hospitals or large practices.

Meaningful Use and Quality of Care

Also introduced in HITECH, and further encouraged in the Affordable Care Act are “meaningful use” and “quality of care” measures. Meaningful use involves inputting specific codes that correspond with patient diagnosis into the EMR system. Many doctors find this a tedious process. However, they often have to spend a lot of time on it or risk losing a percentage of their reimbursements.

Quality of care involves the EMR system picking out documented points that are entered in a patient’s exam. It then calculates an improvement percentage that it requires doctors to meet. This is measured through filtering for certain code words or confirming that patient results are as good as the quality measure requires. For example, a month after cataract surgery, unless the patient has a previous condition, the patient should have achieved 20/40 vision.

The government instituted quality of care measures to help standardize patient care. However, this comes at the loss of human interaction between doctor and patient. Furthermore, all patients and their cases are different. Requiring certain points of improvement can be an impractical or impossible for doctors to meet. Quality of care should involve talking to patients and tailoring treatments to their needs, not a pre-defined set of instructions.

Penalties

Filing patient bills and participating in meaningful use or quality of care measures improperly can result in penalties. If a doctor cannot prove “meaningful use” of their EMR, they will receive a 2% deduction in medicare reimbursement. In 2017 the 2% will become a 3% deduction. If a physician even forgets to note that they sent a letter to the patient’s primary care doctor about a diagnosis of diabetes, the doctor can be penalized.

The quality of care requirement may seem beneficial. However, it is difficult for small practices to ensure that they meet the “meaningful use” and “quality of care” requirements. Reductions in reimbursement rates for hard to meet requirements further disincentivize doctors from owning their own offices. Independent doctors do not make as much money by seeing patients but still have to shoulder costs of running a business that hospital workers do not need to pay.

Time Wasted

Due to these new measures, physicians spend just 27% of their time in their offices seeing patients and 49.2% of time completing EMR paperwork. Even in the exam room, doctors spend 52.9% talking or examining patient and 37% of their time doing paperwork. A JAMA Internal Medicine survey stated that family practice physicians reported an EMR-associated loss of 48 minutes of free time per clinic day.

Some doctors who want to meet the regulatory burden while maintaining patient interaction choose to spend money to hire scribes or other technicians. However, this may pose too high of a cost for some small practices.

Benefits of Independent Practices

The close relationship that small practices can build between doctors and patients has shown to be helpful. The CommonWealth Fund found that small primary care practices have a lower rates of preventable hospital admissions. Hospitals or bigger practices may seem better or more efficient. However, the decrease in private practice can lower quality of patient care, increase the cost of health care, and harm the doctor-patient relationship.

Patients do want personal care. In fact, using a concierge health care service, is becoming more popular for those who can afford it. According to the American Academy of Private Physicians, in 2012, there were around 4,400 private doctors. This was a 25% increase from the previous year. This quality time, both in private practices and in concierge services, translates to being able to tailor treatments to patients needs individually.

Hospital Monopolies

The government must remedy the lack of incentive to operate a private practice. When hospitals get together, they can charge higher costs to patients for treatment. This raises the cost to the government for reimbursement rates. Reduced competition and the monopoly power of hospitals is bad for both patients and the government. The Journal of the American Medical Association found that patient costs are 19.8% higher for physician groups in multi-hospital systems compared with physician-owned organizations.

Policy Changes

The U.S. government should find a way to preserve the entrepreneurial spirit of the health profession. Without changes, doctors will lose the ability to start their own businesses as the system is rigged against them. Changing the reimbursement rates to be equal between hospitals and private practices would an important first step. Additionally, improving the requirements of meaningful use and quality of care measures so that they are less difficult to complete would alleviate the burden on private practices.

Overall, the requirements of the Affordable Care Act and other recent health laws should be changed to foster entrepreneurship in the healthcare community, not destroy it.