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This week we take a large-scale view of essential legal and business issues for physicians, updated for 2013.
This week we pull back from our usual detailed focus on specific asset-protection and business strategies for doctors and medical practices. Instead we take a 10,000-foot view of some essential legal, business, and management issues that apply to the widest possible range of practices. No list like this can ever be complete but it can be a good starting point and self exam.
We’ve updated the previous list for the realities of 2013 and have covered may of the issues presented here in detail, in some cases over several installments, in the past. Please see this author’s entire “business and law for doctors” archive of more than 100 articles here. And now, here’s the list:
1. A Business plan. We’ve covered this in greater detail before, but many medical practices lack a formal business plan that outlines goals, budgets, and revenue requirements. You’d expect the same from any other business you were asked to invest in, so don’t sell yourself short at your medical practice. Get professional help if required so you have a blueprint to follow to profitability.
2. Proper corporate formation. Is your corporate formation or lack of it exposing you to liability and taxes? Will it hinder you in the case of a sale? Do you have too many eggs in one basket? For example, if your practice owns the building from which it operates, you are needlessly exposing the real estate asset to professional liability. Simple fixes can save you millions if something bad happens. Running your practice as a sole proprietor is almost always the wrong choice and C-Corps can be onerous and complex. Make sure you understand the difference and get help picking the best one.
3. A risk-management plan, not just “insurance.” Most practices focus only on medical malpractice and general liability insurance; that’s a fatal mistake. Insurance is increasingly specialized and business specific. In addition to the two types listed above, nearly every medical practice should examine RAC audit, EPLI, data breach, and D&O insurance as well as worker’s comp. No, your general liability policy will not adequately protect you against any of these exposures.
4. A professionally drafted employment manual or employee handbook. One of the largest exposures all American businesses, including medical practices, face on a recurring basis is the risk of employee lawsuits, by a factor of five to one. As one example, the average sexual harassment verdict is $530K and employees are suing more often and winning more often. We continually find that many practices have either no manual at all, or perhaps worse, a manual borrowed from another doctor and tinkered with, from a kit or from another state. If you don’t clearly define and legally enforce employment polices that come into question the courts (or worse, your employee’s attorneys) will define them for you. This is one of the highest-ROI investments you can make in your business in my opinion and is the most essential line of defense against this exposure.
5. Long-term care AND (not OR) disability insurance. I lumped these together because for some reason many doctors have only one of these two essential types of coverage. Long-term care (LTC) insurance is a shrinking target. Fewer LTC carriers and higher costs are on the horizon as millions of aging, ailing baby boomers make the field less profitable for insurance companies. The lesson from the pros? Get it while you can and never let it go. The costs of this kind of care are soaring and you risk your retirement savings and family’s legacy by not having LTC insurance. Medicare has a five-year look back and requires that you are nearly destitute before it covers essential daily care. According to some reports if you self-insure against these future costs you will spend more than 10 dollars in the future for every dollar you save on insurance today. Finally, don’t make the mistake of thinking that LTC is just about getting old; it’s also about getting hurt or sick if you have the right policy.
Disability insurance (DI) protects your personal cash flow against injury and illness, the times you need it the most. Large amounts of coverage with lots of sophisticated bells and whistles are available. Also, make sure that your cross-purchase or buy-sell agreements are properly funded with DI coverage, most call for it and it is routinely overlooked. If your partner has a stroke or some other debilitating illness, how long will you (or he) be willing and able to make large monthly payments to a non-productive partner?