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Minimizing the Risks of Audits, Malpractice Suits at Medical Practices


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

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 not only the risk of an audit, 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?

3. Set Your Standards

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.

5. Systemize, Systemize

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?

6. The Team Approach

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.

Philippa Kennealy, MD MPH CPCC PCC, 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. E-mail her here.

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 here.

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