What is the Best Insurance Coverage for Your Practice?
Larry Sophian, CPA
All medical practices carry insurance policies to protect them against risk. Foremost among these in many physicians’ minds is medical malpractice insurance coverage. While important, this is not the only insurance you need to protect your practice. It is key to assess where your practice lacks coverage and whether your current coverage is worth the price.
What You Should Have
Every practice should carry policies that cover general liability — for equipment, furnishings, autos and so forth. In addition, your practice should have insurance policies for non-owned auto, workers’ compensation and bond for ERISA fiduciary liability, as many of these coverages may be required by law. It is important to carry employment practices liability insurance to cover management decisions related to employees and you will need policies for directors and officers’ liability to cover decisions by board members. Last, but not least, your practice should carry professional liability insurance for various forms of medical malpractice.
You also may want to consider other coverage, including:
- Life insurance for your key officers or as an employee benefit;
- Long-term care;
- Short- and long-term disability;
- Privacy violations coverage; and
- Umbrella insurance for both personal injury and property damage.
Whether you choose one or all, each of the above is designed to protect your practice and its key physicians.
First, take inventory of current coverage and compare your desired coverage with the list above. Identify where your practice has too much, or too little, protection.
Ask yourself: What are the policy deductibles? What share of a claim would the practice be willing to pay? Do current policy limits fit the potential for loss? Are policies keeping up with the practice’s evolving technologies? Lastly, do any policies have overlapping coverage for the same risk?
Prepare a Matrix
Once you understand the coverage you have, work with your financial consultant to prepare a matrix of coverage tailored to your practice’s current and future needs and its owners’ wants. Pay special attention to what is essential for the practice, what is required by law or contract and what should be offered as a benefit to employees or owners.
Describe what is covered by each policy, the term of coverage, dollar limits and deductibles and current carriers and potential alternatives.
Evaluate the Most Cost-Effective Coverage
With an idea of the protection needed, solicit bids from highly rated insurance carriers. Evaluate the bids that offer the most cost-effective coverage.
If your practice cannot afford the entire package of policies at one time, rank them according to the level of risk that they manage. Then, purchase the highest priority packages first and other types of policies as you can afford them.
It’s easy to put insurance coverage on the back burner, allowing it to lapse or become outdated. Although this might not appear dangerous, a lapsed policy can cause severe damage in the event a claim is not covered. Do not take the risk of losing your practice because your insurance policies have not evolved with your business. Cover all the bases — assess your practice’s insurance needs with the help of a financial consultant on an ongoing basis and make adjustments as needed.
Prescription for an Ailing Practice
Larry Sophian, CPA
Managed care, Medicare and Medicaid reimbursements, and the Affordable Care Act (ACA), all present challenges for a medical practice. These challenges may become more complex if/when the incoming president and new Congress pass health care legislation. On the other hand, many problems that arise are self-inflicted. Is your medical practice not performing as well as expected? Are revenues dropping? Are you having problems covering costs? Take a hard look at your practice and diagnose the problem. To help put you on the road to recovery:
- Improve Cash Flow. Follow three basic steps to improve cash flow: First, make sure you’re collecting outstanding accounts receivable. Second, prioritize your disbursements, with mandatory expenses first, such as payroll and payroll taxes. Third, ensure your cash reimbursement projections are realistic.
- Cut Costs and Control Expenses. It’s time to be tough. Are there unreasonable overhead expenses or unnecessary luxuries? Can you renegotiate leases?
- Discharge Unprofitable Patients. Review your pricing strategy. Do you have an unusual number of unprofitable, nonpaying or “pro bono” patients? If possible, it might be time to let them go.
- Turn Around Debt/Cash Flow. Make sure your practice has the necessary cash to finance a turnaround. This can be a combination of “turnaround debt” and equity capital. Clearly define requests for turnaround funding in terms of amount, what it will be used for and the repayment plan.
- Work with Creditors. If you are bleeding cash, stop it as quickly as possible. If you have unpaid debts to creditors that will hurt the practice, deal with it. Work with creditors — they also want customers to be solvent rather than declare bankruptcy. Share a comprehensive turnaround plan and reschedule payments.
- Find Partners. You might need to hire a turnaround professional. He or she will be able to unemotionally assess the problems and spot issues that you may not see.
- Measure the Turnaround. Early turnaround is usually about correcting problems. The later stages are about profitability and restoring equity. It is imperative that you evaluate each of these steps to determine how well it worked, or is working.
- Rebuild Credit. Pay bills promptly. Make sure creditors consistently report your practice’s payment history to the credit bureaus. Contribute to your practice’s credit profile.
- Work with Your Local Bank. Your local bank — the one that receives your deposits from patients and insurance companies — is a good resource. They want to help.
- Develop a New Plan. Think about the old saying: The definition of insanity is doing the same thing over and over again and expecting a different result. The best prescription for an ailing practice is to take a look at your business plan, identify the processes that got you into trouble in the first place and try something new.