Regulatory violations can lead to substantial fines which severely impact a practice’s financial stability.
Risk management is crucial for protecting a practice against the fallout from potential lawsuits and malpractice claims. By proactively mitigating these risks, private practices can gain operational efficiencies and minimize vulnerabilities.
In today’s rapidly evolving healthcare landscape, private practices face an unprecedented challenge from corporate entities. McKinsey's 2020 report shed light on the striking disparity between the financial resilience of corporatized practices and hospitals compared to their private counterparts during the pandemic. There’s an urgency for private practices to empower themselves to thrive in this competitive environment—and addressing regulatory risk is at the top of the list.
In this article, we will delve into innovative strategies designed to bolster the efficiency, cash flow, and overall resilience of your private practice. By exploring these approaches, you can safeguard your practice against unforeseen adversities, such as regulatory penalties or lawsuits, and gain the tools necessary to navigate these turbulent times and emerge stronger than ever.
Financial strain on doctors
Private medical practices have traditionally been an attractive option for physicians looking to operate independently and build their own brand. However, a recent report from the Physicians Advocacy Institute indicates that the landscape is changing. Corporate-owned practices have grown by 25% as independent private practices are bought out or abandoned in favor of hospital or corporately owned practices.
The pandemic has accelerated the consolidation of medical practices, with around 83,000 doctors becoming employees of hospitals or larger corporate entities. This shift is driven by the financial strain posed by the pandemic, as both hospitals and corporate entities provide guaranteed salaries and hours, whereas private practices cannot. For those who own and operate a private practice, bankruptcy is a real threat, given the previously incurred debts, tough regulatory compliance, administrative costs, and the external squeeze of hospitals and big insurers.Top of FormBottom of Form
Staying aware of regulatory changes is a must considering that penalties for noncompliance with HIPPA carry with them $100 - $50,000 in penalties per violation along with a maximum penalty of $1.5 million per year for violations of the same regulation/provision. If a private practice were to have just one tier 4 violation, that would mean a minimum fine of $50,000. Additionally, the American Medical Association noted that more than 30% of physicians have at least one medical liability suit brought against them within their careers. While most plaintiff’s cases were dismissed, an average of $30,000 were spent on legal defenses by physicians in those cases, which can be a hefty sum for those not prepared for it.
Know your unique risks
Strategizing solutions for challenges your private practice is facing and understanding your practice’s weak points and areas of potential vulnerability are essential. Along with this, knowing what coverages your private practice needs from traditional insurance as well how captive insurance can help are necessary considerations.
Beginning with internal audits, this is an excellent means to evaluate where potential crises may arise. From a dollar value, internal audits can tell you both the risks your practice faces along with the areas that may be bleeding you of capital.
By not conducting internal audits and risk assessments, practices become more likely to encounter unexpected crises or expenses outside their insurance coverage. Evaluating the effects of major crises and disasters, FEMA’s data states that 90% of companies close within two years after a major crisis or disaster. Through a proactive approach to risk planning and having a solid understanding of the insurance your practice needs, your practice can navigate the treacherous waters of a potentially devastating event and return stronger than before.
Stay aware of the coverages you need
From an insurance standpoint, this means looking into what coverages your private practice needs so you don’t end up paying out of pocket for something you weren’t covered for by your current policies. There are the obvious health insurance, liability/malpractice insurance, renters insurance, and disability insurance that your practice needs, but also consider other coverages your business may need such as business interruption insurance should another pandemic happen. Cybersecurity is also essential as leaked customer/patient data can result in major fines that could turn the lights out.
Much like the internal audit, knowing potential risks and threats to your practice is the first step to proactively mitigating those risks. Identifying weak points and coverage vulnerabilities, you can take steps to ensure that any potential risks don't become realized or, if they do, that your practice is insured and battle-tested to survive and thrive after a crisis.
What about captive insurance?
Another great strategy for private practices seeking to insure against potential regulatory and litigation risks is captive insurance. Captive insurance is a form of self-insurance that would allow a private practice to create its own insurance company to cover its specific risks and any gaps in coverage it may have from its traditional insurance policies. Should a crisis or financially catastrophic event such as a violation of medical regulations, medical malpractice suit or unexpected closure of your business due to disaster or crisis, captive insurance will keep you afloat.
Through captive insurance, the parent company retains greater control over its insurance coverage and reduces its overall insurance costs by extending coverage for risks outside of traditional insurance policies. Captive insurance is also be structured to provide coverage specifically tailored to the risks that are unique to each practice and business. With ever changing regulations and civil suits climbing by around 24% in 2021 and continuing to increase, physicians and private practices need to be prepared.
In the event of a malpractice suit coinciding with an electrical fire at the private practice, a captive insurance company would provide complete coverage for losses resulting from physical damage to the practice or patients’ properties/data. A captive insurance company also provides coverage for business interruption losses and other related expenses.
Additionally, premiums paid to traditional insurance providers act essentially as sunk costs as those monthly premiums aren’t seen again once they’re paid to the insurer. Whereas a significant benefit of captive insurance is that captives accumulate profits over time by retaining the premiums paid. This of course can be used to fund future claims or provide a source of funding to help cover losses resulting from a realized risk or crisis, but also build over time and act as a reservoir of cash and huge aid in improving the liquidity of your private practice.
COVID-19 accelerated the consolidation of medicine, particularly in private practices going corporate or selling off while physicians rejoined hospitals in droves. By reviewing internal expenses and potential risks to your private practice, improved coverage and liquidity and help your practice stay ahead of the competition and grow in a marketplace where patients are left with fewer choices. Utilize these strategies to stand above the rest and remain an invaluable option and medical destination for your patients.
Randy Sadler started his career in risk management as an officer in the U.S. Army, where he was responsible for the training and safety of hundreds of soldiers and over 150 wheeled and tracked vehicles. He graduated from the U.S. Military Academy at West Point with a B.S. degree in International and Strategic History with a focus on U.S.–China relations in the 20th century. He has been a principal with CIC Services, LLC for seven years. In this role, he consults directly with business owners, CEOs, and CFOs on the formation of captive insurance programs for their businesses. CIC Services manages more than 100 captives.