Riding out Nevada's long battle over malpractice-related tort reform gave Kenneth Misch some perspective on risk management.
He nearly had to close his pediatrics practice a decade ago when malpractice insurance premiums surged, even though pediatrics is considered a relatively low-risk specialty. Those spikes subsided after his state put caps on certain damages, but still drove home the need for protecting himself against all kinds of threats.
Beyond malpractice insurance, Misch has created separate trusts for certain types of property, purchased umbrella insurance, and done basic estate planning in addition to buying life and disability insurance.
"We know and try to educate our residents that they have to do all those things, in addition to practicing very good medicine and spending the appropriate time with patients," he says.
Given declining reimbursements, practice buyouts by hospitals, and lower salaries, it might be tempting to put asset protection on the back burner, but experts argue it's even more important today. "Because doctors are earning less, keeping every dollar is a bigger part of planning than ever before," says Ike Devji, a Phoenix attorney with Lodmell & Lodmell P.C., who is also executive vice president of the Wealthy 100, a wealth management firm. "If you are earning less you must keep more, so you need a defense against active threats like a lawsuit and passive threats like investment losses and taxes."
Proper asset protection begins with malpractice insurance, but it doesn't just end there. In fact, just getting malpractice insurance and doing nothing else exposes physicians to a higher than normal rate of lawsuits and other risks coming from all directions. And given today's practice economics, mitigating those risks is more important than ever.
Start with good insurance
Speaking to a group of physicians at a conference recently, Devji says an attendee, who is an ENT surgeon, mentioned he's had the same $1 million malpractice insurance policy for 32 years.
However, it's important to keep in mind that "everything has been adjusted for inflation except malpractice coverage," says Devji. So a $1 million policy might not be enough. As malpractice awards have risen substantially, few physicians have the resources to come up with them out of pocket. That's why it's so important to carry plenty of malpractice coverage, in addition to other asset protection strategies, he says.
Be sure to know the difference between the two major types of malpractice coverage: occurrence-based and claims-made: With occurrence-based policies, you are covered for work while the policy was in effect, no matter when the claim is made. Claims-made policies — far more common today — cover only claims made during the term of the policy, so you need additional tail coverage when the policy ends.
And if you need it, be sure you have tail coverage when you leave a practice.
Where to begin on the other types of protection? Start small, experts say, with a few low-cost and relatively simple extras.
In addition to adequate malpractice coverage, make sure you have an adequate umbrella insurance policy, which covers assets above and beyond the traditional limits of personal home and auto policies, says Marc Lion, managing partner with Lion & Company CPA's LLC in Syosset, N.Y.
"Everyone assumes physicians have money, so at least do the simple stuff," he says. An annual policy that includes up to $5 million in coverage can be found for a few hundred dollars, well worth the investment, he says.