What Have You Got to Lose?

Too many medical practices have inadequate office insurance or none at all

What would you do if you drove to your office one morning and found the building was a smoking ruin? Or discovered that burglars had made off with your computers or medical equipment? Would you be able to recover from the losses quickly and continue seeing patients?

When doctors think of insurance, malpractice coverage is often what first comes to mind. But insurance industry and loss prevention experts warn that damage to a facility or its equipment -- even minor water damage from a flood, sprinkler system, or broken water pipe -- can force you to relocate for days or weeks while your office is dried out, rewired, and refurnished. If you share a building, one tenant's fire can result in smoke or water damage, even if the fire doesn't reach your space.

Insurance coverage can help your practice to get up and running quickly after a disaster. It also can provide the funds to rent a new space while your building is repaired, buy or rent new equipment, and possibly arrange transportation for your staff and patients.

Or it might not.

Basic insurance does not typically cover floods and certain other catastrophes, and it may not cover the cost of relocating and replacing expensive medical equipment. That's why coverage for business interruptions, replacement of special equipment, and loss of critical information should be part of your practice's insurance portfolio.

Still, too many medical practices have inadequate office insurance or none at all, says Thomas H. Stearns, vice president of medical practice services for State Volunteer Mutual Insurance Company, a physician-owned malpractice company in Brentwood, Tenn. "We find doctors focus most of their risk assessments on patient safety and quality patient care and trying to stay in compliance with all the regulations they have to deal with. They don't spend a lot of time looking at other types of risk," Stearns says.

Survey your property

So where do you begin to protect yourself? "Start by looking at your office contents," suggests Larry Hansard, senior vice president of healthcare practice at McQueary Henry Bowles Troy LLP, a Dallas-based insurance broker. "The replacement cost of computers, phones, [and office] machines is a good starting point. If you're a specialist  --  say, a cardiologist -- remember to get coverage for more expensive machines, like EKG and stress test equipment. There are practices that don't even have this bare minimum of replacement coverage, but it's a must."

Protecting your office against theft means more than replacing lost or damaged equipment, drugs, and medical supplies. Think about your patient records, both paper and electronic (see sidebar, below). Do you have coverage to meet your legal liability if any files containing patient credit cards, insurance accounts, or Social Security numbers are used in an identity theft scheme? Adding a fidelity bond to your insurance coverage will protect you from theft committed by your own employees.

Next, says Hansard, think about coverage for losses to the premises. "If you're pushed out [because of physical damage], you need the coverage to pay for moving," Hansard says. "It's a good idea to start by talking to the owner of your building and find out if they cover anything for you. Owners are primarily concerned about general liability, and probably won't cover any of their tenants' relocation or equipment replacement costs. They insure the building, not the tenant or the tenant's belongings."

Boost security

The front line of defense to deter break-ins is an alarm system. Ask your building's owner about the facility's alarm systems, but don't stop there. Your offices should have a separate security system to detect any intruders who evade the main building's security system. Keypad systems, photo IDs, and "smart cards" with unique identifiers for each holder are common solutions. Some insurers offer premium discounts to businesses that use security systems.

How you use or -- misuse -- the security system is important, too. "Err on the side of caution and always remain vigilant," says Christine Mary Maggio, publisher and editor-in-chief of PrepareRespondRecover.com, an Albany, N.Y., company that provides safety planning and disaster response and recovery support to small to midsize businesses. "For example, you might have office doors that require an ID card to be scanned before they open; however, this safeguard is completely bypassed when people 'helpfully' hold open the door for others," says Maggio. "A thief posing as a delivery person -- or even as a patient -- can easily slip into a building this way. Simple but regularly reinforced practice policies can go a long way toward reducing the likelihood and consequences of theft."

Prepare for interruptions

A break-in, flood, fire, or other catastrophe can make your facility unusable. That's why business interruption insurance is a valuable addition to your coverage portfolio. "If a tornado comes through and destroys your building, business interruption insurance protects against lost revenue from not being able to practice for some period of time," says Hansard. "It covers the expense of setting up business elsewhere and replacing your equipment."

Business interruption insurance is usually included in a business owner's policy (BOP), according to Mike Kraus, an underwriter with Russell Bond & Co. in Buffalo, N.Y. "Normally the BOP includes business interruption along with property and liability coverage, but only for 12 months," says Kraus. "It covers the actual loss sustained -- there's basically no limit on coverage for that period."

Talk with your insurer about whether you should extend your business interruption coverage past the initial 12 months. "If you don't have a lot of specialized equipment, you might be covered well enough by the property insurance," says Kraus.

Cash flow is another issue. Does the practice have enough cash on hand to keep employees on the payroll and pay vendors in the event of an extended interruption? "The practitioner should also discuss with their financial and legal advisers a plan for using (or not using) business credit cards and lines of credit that were opened for the purpose of addressing normal operating expenses," says Maggio. While it may be tempting to use these resources during a period of business interruption, doing so over an extended period when the practice is not generating income can cause some significant problems down the road, she says.

Shop around

When searching for the right insurance agency for your practice's needs, "It's very important to get input from trusted financial, legal, and asset management advisers," says Maggio. "That includes the practice's accountant or CPA, attorney, and others."

What are the costs involved? According to Hansard's firm, you can include business interruption insurance for roughly the same price as your property coverage. That means that if you pay 15 cents per $100 of replacement value property insurance, for example, you'll pay close to the same rate for the business interruption coverage.

"Business interruption coverage is a relatively small premium," agrees Kraus. "If you think that your loss due to fire or theft or whatever happens may run into tens or hundreds of thousands of dollars, business interruption coverage is pretty affordable in comparison."

"The overall cost of catastrophic coverage may be not too much more than basic coverage if the policy is well-crafted and customized to address the specific needs of the practice," says Maggio. "The key here is to shop well for insurance. The physician needs to do some homework on the insurance companies that are being considered. Look for evidence that the company has a reputation for offering well-designed policies and being fair and reasonable when evaluating and settling claims. They may not be found in the local phone directory and it may take some initiative to find them, but the Internet, practitioners' professional organizations, and referrals from colleagues can help in this phase of the process."

If you own your building, look for insurance that includes the replacement value of the building and automatically reimburses you for possible required building code upgrades when rebuilding. And remember to request coverage for specific features of the building if necessary -- for example, architecturally significant windows or doors.

Get with the plan

Once you've got adequate insurance coverage in place, it's wise to have a plan for dealing with possible future damage or loss.

Emergency preparedness plans should include how you will contact your staff to let them know the office has been damaged, where you will meet if you can't meet at the office itself, and how you will contact your patients. Each staff member should have a specific task or tasks to take care of, whether it's calling patients, retrieving files, or overseeing the move of salvageable material and equipment to storage or a new facility. Review the plan at least quarterly to make sure that the lists of staff assignments and telephone numbers remain up-to-date.

You should also have a plan in place to address paying salaries when your practice is losing income. This might include letting temporary staff go, temporarily laying off some of your regular staff, or instituting temporary pay cuts. Ideally, you will avoid these measures by getting insurance that covers employee compensation.

The take-away message is this: don't take your practice facility for granted. Prepare for disasters before they occur by beefing up insurance coverage, facility security, and emergency planning. It will be a lot easier to pick up the pieces after a catastrophe if you already have the money and the blueprint for getting back on your feet in place before trouble strikes.

Lori Rogers-Stokes can be reached via editor@physicianspractice.com.

This article originally appeared in the January 2004 issue of Physicians Practice.