Crisis Management and Business Continuation Planning For Doctors

August 28, 2012
Ike Devji, JD

It's time to start thinking about what would happen if a key member of your medical practice were no longer there.

The fairer sister of asset protection has always been risk management: dealing with issues and eliminating risks before they happen, when they are more effectively and economically dealt with. Our last two discussions here involved two different kinds of risk you unfortunately must be prepared for as business owners and leaders.

In our first discussion we discussed the importance of being able to react to an incidence of violence or some other threat to life and safety in the workplace. Our second discussion dealt with incidences of public exposure and negative media attention. This week, we examine the importance of business succession and business continuation planning for medical practices and the loss of a primary physician in particular.

In contrast to a “scheduled” incidence of business succession, like the sale or transition of a practice from one doctor or owner to another, the crisis management side of this particular planning is in regards to the unexpected loss of a primary-care provider, executive, or earner. I work with successful practice owners all over the country and am continually surprised that their businesses - despite its revenues, value, and complexity - often have no real succession/continuation plan in place. This is especially true of sole or closely held practice owners, other than a brief mention in their estate plan calling for the practice, “to be valued and sold at the highest possible commercially reasonable price.” There is no one left holding the keys, designated with any real authority or capable of making up the financial loss sure to be incurred by the practice, the owner’s (or employee-doctor’s) family, or the staff.

There are a variety of issues that may cause the “loss” of a primary physician other than the obvious one: death. Whether through an accident, illness, or act of violence, the event is traumatic for all involved including the patients and is even scarier when no one knows who is in charge. Other common factors that may cause a vacuum of leadership include resignation, illness, arrest, or implication in a serious crime that makes continuing in practice or patient contact inappropriate, leads to sudden retirement, and even simply being recruited away to a competitor. Financially, the last of these can be the most financially devastating: Not only are you losing your “key man” (or woman), but they are going to the competition.

How Big Is the Risk?

One (general business) report I reviewed said that nearly 50 percent of America’s Fortune 500 companies' senior managers will retire in the next five years and only half of those who responded have a succession plan for senior leaders; and for non-executive level staff, that number drops to just 10 percent. How likely an issue is this? Nearly one in three individuals dies during their working life and the likelihood of this happening is 10 times to 20 times greater than a fire, increasing with the age of the individual. Which one of these risks have you actually insured yourself against in any way?

Next week, we will provide a series of simple steps to begin with at your practice, an outline to develop with the help of your advisors, and links to very specific plans and educational materials. Until then, start thinking about your practice and who does and even knows what; especially if that person is key to your operations and revenue or is the only person capable of performing those tasks. It will help you plug your specific facts into a generally applicable evaluation and help you identify and eliminate this risk as much as possible.

Find out more about Ike Devji and our other Practice Notes bloggers.