Philip Garrett Panitz, Esq.

We know from first-hand experience that it is all too easy to slip into a daily "scramble mode" in medical practice. Schedules are packed full, waiting rooms are bustling, and it is an effort to not fall behind. Little or no time is set aside to evaluate whether a medical practice is at risk of an audit.

Before getting into granular details, there are some general principles of medical practice management that it behooves a physician to think about, to reduce 

, but also that of a malpractice claim. These suggestions may appear to be common sense - a "duh" if you will - but we encourage you to evaluate carefully how you run your practice against each of these points, to ensure at least some freedom from hassle.

1. Beef Up Your Business Management Smarts

It's surprising, but not uncommon that physicians fail to recognize that not only are they in medical practice, but they are indeed business owners. As Michael Gerber writes in "The E-Myth Physician: Why Most Medical Practices Don't Work and What to Do about It,"


…every enterprise in the world that really matters is organized into 3 distinct work levels: (1) the work of the Entrepreneur, (2) the work of the Manager, and (3) the work of the Technician

Most physicians would rather be left alone to be the Technician - the "producer" person trained to deliver patient care to the best of his or her ability. The word "Entrepreneur" seems to smack of corporate greed or excessive profit-grabbing, and the idea of being a "Manager" is antithetical to why they went into medicine in the first place.

It's time to face the truth: Your medical practice is a business, in serious need of leadership, business acumen, and managerial oversight in order to survive in the modern world. Not only does medical care need to be delivered, but employees need to be supervised, insurance companies need to be communicated with, bank deposits need to be made, medical records need to be organized and maintained, technology needs to be overseen,  etc. And if you are not willing to do all these tasks, you need to ensure that you have someone else in place with the skills and passion to perform your business owner duties.

2. Draw Up a Risk Management Plan for Your Office

When did you last sit down, with or without your office manager/staff, and commit to paper or a computer screen your organized thoughts about 1.) record keeping; 2.) policy and procedures for documentation by staff; 3.) handling missed appointments and recalls; 4.) coding and documentation; and 5.) discharging a patient from your practice, to name just a few topics?

Do you have a plan to manage potential malpractice risk and potential audit risk?

If you were working in the corporate world, you would expect your performance to be evaluated annually, correct? At the same time, you’d likely expect that there would be standards set, by which you could measure your own performance and against which you would strive for improvement.

In order to perform well in a business, employees, and even employers need clearly-articulated standards to help guide their performance. These standards might be policies, procedures, stated expectations, or simply "how we do things here," if you're averse to corporate language. Too often, assumptions, and "how it's always been done" rule, leading to confusion, sloppy work, and errors. The perfect storm for an unsuccessful audit or a successful malpractice suit.

4. Give Authority, Provide Training, and Then Delegate

Since you are the highest per-hour earner in your practice, it does not make sense for you to be performing tasks that a lesser paid employee could do. As business owners, we know from personal experience that it's often easier to just do the task yourself than to take the time to train someone else to do it for you. Think of it this way:Every time you perform a task someone else could do, you are incurring an opportunity cost, i.e., you are missing the opportunity to perform the work that only you can do, namely practice medicine.

Unless you have a teeny concierge or ideal medical practice in which you are the "chief cook and bottle-washer," you owe it to your mental well-being and business success to authorize the right people, train them according to your practice vision and its policies and procedures, and then remember to delegate.

One of the main reasons that airplanes don't often crash is that flying a commercial airliner is largely governed by a routine, systemized series of checklists. We've all heard stories about pre-flight, in-flight, and landing checklists, and you may even have heard how hospitals and health systems are beginning to adapt similar approaches to ensuring patient safety and error reduction.

What about your practice? How many checklists do you have in place to ensure a satisfying patient experience in your office, that no lab or imaging study reports fall between the cracks, or that your patient visit documentation is coded correctly?

The upshot of all of this is: Know what you are good at and what you are not. You might be the best heart surgeon in your state, but you may be very weak at running a medical practice and performing the day-to-day chores that are required to do so. Yes, an office manager is an integral part of that, but it is our experience that most office managers have almost no training in tax and record keeping, but instead mostly pay bills and book appointments. Hiring outside specialists who can assist physicians in creating an audit-proof business environment might actually lead to you keeping more of your money.

, is president of The Entrepreneurial MD. She is a board-certified family physician who left her own private practice in 1996 to embark on an administrative career as first medical director and then CEO of UCLA-Santa Monica Medical Center. 

She now works as a business coach with physicians who are striving to be entrepreneurial or businesslike. She is a member of the American College of Physician Executives, the American Academy of Family Physicians, and the California Academy of Family Physicians.

Philip Garrett Panitz, JD, LL.M (Taxation)

 is a certified tax specialist and has a doctorate of law and a Masters degree in taxation. He has successfully litigated hundreds of tax cases and represented physicians in cases with the IRS. He argued and won the case of Williams v. United States before the United States Supreme Court. E-mail him 

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Here are six steps your medical practice can take to avoid being the target of a tax audit or a malpractice suit.

Minimizing the Risks of Audits, Malpractice Suits at Medical Practices

Just mention the word "audit" to any physician audience, and you can almost see the collective shiver run down their spines. Their feelings of dread match those when encountering the word "sue!" Unfortunately, the Internal Revenue Service is stepping up their audit enforcement against doctors, based on their perception that doctors make easy targets due to poor record-keeping practices.

Most physicians in medical practice have received some training in reducing their malpractice risk, but little or nothing is taught about how to minimize the risk or impact of a tax audit on your psyche and your practice.

Recently, many physicians have received letters from the IRS informing them that they are being audited. This notification is frequently accompanied by a laundry list of document requests that goes on for three pages. After overcoming the initial stage of panic, most physicians go to their CPA, who assists them in putting together the documentation requested.

Some potential audit issues can be avoided with more dialogue between the CPA and the physician during the initial return preparation stage. Many CPAs unfortunately take information from their doctor clients and put it on a tax return without enough "questioning." CPAs frequently complain that physicians do not make the time to meet and thoroughly discuss the material provided, or that the physician has dumped all their records on the CPA just before tax filing is due. "Being too busy" is sometimes just a disguised excuse for procrastination.

One of the areas that the IRS is focusing on is deductions related to business travel for physicians. It is the belief of the IRS that doctors routinely over-deduct for education-related travel; staying at hotels that are beyond the level and price point of the hotel where a seminar is provided is just one example.

Another hot button item is the notorious lack of doctors’ record keeping, resulting in office expense estimating ("guesstimating" as the IRS would call it). A good business manager who works hand-in-hand with physicians can assist in this initial organization phase and nip that problem in the bud.

If an audit is not going well, the CPA will typically recommend bringing in a tax attorney to interface with the IRS. Tax attorneys litigate cases with the IRS in the United States Tax Court, and typically can obtain settlements with the IRS that may save the physician a tremendous amount of money. However, the authors are of the opinion that the entire audit can be avoided or handled very smoothly without any repercussions if the physician had taken some preliminary steps.

Nor is it only the IRS that can come knocking. One of the authors’ clients, a busy family physician with both a private practice and a large nursing home practice, was confronted several years ago with the prospect of a Medicare audit evaluating potential over-coding. This soul-destroying experience involved hundreds of hours of copying and submitting medical records, hiring both an attorney and a coding expert to help defend her case, and a lingering terror of coding too high, such that her resultant under-coding was costing her practice thousands of dollars. She was a good doctor, she was a good person, yet she was a disorganized, stretched-too-thin and ill-prepared business owner. Sound familiar?

In 2010, President Obama set three goals for reducing improper Medicare payments, to be achieved by this year:

1. Reduce overall payment errors by $50 billion

2. Cut the Medicare fee-for-service error rate in half

3. Recover $2 billion in improper payments

To begin achieving these goals, CMS focused particularly on number three: improper payments. It's important to recognize that while all falsified claims are improper payments, not all improper payments are falsified claims. In fact, most are due to ignorance - errors in documentation and not intentional fraud.

six steps to minimize the risk of a tax audits and malpractice suits

It's tax season and with the IRS notifying more physicians of tax audits, there are some steps you can take today to avoid being included in this group.