Going not-for-profit saved this doctor's practice

September 1, 2006

How one determined doctor found relief when she turned to-of all places-the IRS.

If you had spoken to Regina Benjamin more than five years ago, the words "tax-exempt" and "not-for-profit" would probably never have come up in conversation. But she became familiar with those terms out of necessity, as she sought to keep her clinic doors open in a poor underserved community. Now, she's able to teach other physicians how they can use the tax code to earn a decent salary and help patients who might not otherwise get proper care. But her knowledge was hard-earned.

In 1990, after fulfilling her obligations to the National Health Service Corps, Benjamin opened a medical office in the small shrimping village of Bayou La Batre on the Gulf Coast of Alabama. She'd grown up just 30 miles away, east of Mobile, but the fishermen and the tiny bayou town featured in the film Forrest Gump might as well have been a world away. Her patients are the working poor, the ones who fall through the cracks, earning too much to receive Medicaid but not enough to have private insurance. A proud people, they don't have the money to pay for her services, but Benjamin doesn't let that stand in the way of providing their care.

One of the few links to medical care in Bayou La Batre, Benjamin got by on the little she earned moonlighting in emergency departments and nursing homes, amassing an enormous amount of credit card debt along the way.

She decided to form an S corporation. "I'm entrepreneurial and wanted to grow my business. I went back to school on weekends to get my MBA through Tulane University's executive program because I wanted to learn how to provide efficient and cost-effective quality healthcare to a poor population. As an S corp, I was able to get credit lines and other financing. It helped me function more professionally."

After completing her MBA, she converted her practice to a rural health clinic, a recognized HHS designation that would allow her to bill Medicare on a modified cost-based reimbursement basis. "The disadvantage," she found, "was that the per-encounter reimbursement rate is the same no matter how much time you spend with a patient or what services you perform." And, as she knew from experience, a lot of her elderly patients needed comprehensive, time-consuming care. (Her reimbursement rate, which was approximately $62 at the time she converted her practice, is now about $73.)

She was still struggling to pay the bills when, in 1998, Hurricane Georges destroyed her office. Benjamin hit the road-literally-seeing patients out of her 1988 Ford pickup truck for two years until a new building was completed.

Benjamin turns tax-exempt: "I did the paperwork myself"

If the practice had been tax-exempt, Benjamin learned, it could've solicited donations to help make it through the crisis. She therefore came to see tax-deductibility as the key that would unlock personal and corporate charitable giving, and in 2000 she applied for 501(c)(3) status, one of the IRS designations for tax-exempt corporations.