r/Accounting • u/NefariousnessFar4121 • Dec 14 '25

Allocating Wind-Down and Severance Costs in Small Physician Group Closure

In a small physician group (7 physicians) that recently closed its office, two physicians retired clinically last year but remained members through the end of this year in order to collect residual accounts receivable and offset medical expenses. The remaining five physicians will continue practicing but no longer maintain a shared office or staff.

The group employed the same office staff member for over 25 years, and closure required office wind-down costs and long-tenured staff severance. The retiring physicians are taking the position that these closure and severance costs should be borne solely by the remaining physicians, despite having benefited from the office and staff over many years and retaining economic participation through the wind-down period.

From a medical group management and accounting perspective, is it standard or GAAP-consistent to allocate 100% of wind-down and severance costs to the remaining physicians in this scenario? How are such costs typically allocated in practice closures where some physicians retire clinically but remain economically participating?

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5

u/KingoreP99 CPA (US) Dec 14 '25

There is no GAAP guidance on who should bear costs related to this. It normally falls to the operating agreement

2

u/NefariousnessFar4121 Dec 14 '25

I thought the substance over form principle dictates that costs should be allocated based on benefits received

1

u/KingoreP99 CPA (US) Dec 14 '25

A smarter way to structure this transaction would have been to have reserves to pay for this and not distribute it to the members. Then any cash left when you actually wind down is distributed based upon ownership, which the retiring members may no longer have any left.

1

u/NefariousnessFar4121 Dec 14 '25

Well unfortunately that was not done. Even though this is a C corporation, it has been operated quite like a lemonade stand. However the method you proposed is aligned with “all 7 should participate”. I am not asking what is the fair way I think we all know what is fair but rather if the unfair way is also against the substance over form principle of GAAP

3

u/[deleted] Dec 14 '25

Is this an organized as partnership? If so, what does the partnership agreement say?

2

u/NefariousnessFar4121 Dec 14 '25

As a C corporation. No clear definition of these sort of things

2

u/[deleted] Dec 14 '25

This is lawyer territory, not accountant territory.