Develop a More Secure and Efficient Practice

Physician's Money Digest, February 2007, Volume 14, Issue 2

Hard-working physicians devote a great deal of their time to running their practices, yet they often fail to plan ahead and take simple steps to properly protect and structure their practices for maximum efficiency. A well-designed practice can reduce professional liability and help shield the physician from threats such as squabbling with medical partners, predatory claims, untimely deaths, taxes, and lawsuits.

Professional Corporation

While the professional corporation (PC) does not protect the individual physician from malpractice liability, there are some structures that may help lower insurance costs. In a typical group practice, the PC owns all the practice assets and employs the physician and nonphysician employees. Everything is at risk to any physician-employee's malpractice, staff negligence, and real estate liability claims, as well as every claim a lawyer can bring against doctors, employees, practice equipment, or real estate for injury.

Another drawback of a PC is that all decisions must be made at a PC level, meaning each physician's needs are subject to the vote of the medical partners

From an asset protection and decision-making point of view, this structure lacks flexibility for tax purposes. Thus, considerable improvements can be made in the design of the practice entities.

While a PC will not shield the physician from negligence claims, it is useful in protecting the physician from liability from other claims, such as employment practices and claims made by staff.

An improved practice structure allows each individual doctor to decide at their individual PC level their own advanced planning options and compensation arrangements without having to get group approval. By allowing individual physicians to make their own decisions, the frustration of having to always obtain group approval is alleviated, and should a split in the practice occur, the circumstances are greatly mitigated.

Opportunity-enabling

Many physicians do not think about the details of the configuration of their individual or group practice until they encounter a major problem. At that point it is usually too late. Consider consulting a practice management professional and discussing these issues and solutions with your medical partners to make sure your practice design best protects your interests and is operating efficiently.

Strategies for Restructuring

  • Consider the doctor's professional corporation (PC); it shields each individual doctor from the acts and omissions of other doctors and other employees.
  • Run your practice more efficiently by dividing practice functions between your PC and management service organization (MSO). The MSO is the employer for all nonphysician employees and provides them with the services (eg, billing, collection, front office, etc) they need. This can eliminate wasted time in managing your practice and allow the physician to concentrate on medicine. The MSO protects a considerable amount of practice income from malpractice claims and may allow you to do more efficient retirement planning by limiting the number of eligible employees in your PC.
  • Many practices require expensive equipment. If the equipment is owned by the practice or worse, individually, the equity in the equipment is exposed to creditors. An equipment leasing entity (eg, family limited partnership/limited liability company or trust) can hold equipment used in the practice, which it then leases to the practice.
  • Lease your property. Many physicians own the building where they practice. By separating the building from the practice, you strip assets away from potential creditors' hands.
  • Factoring entities can protect accounts receivable (AR). This is important because AR is typically one of the largest practice assets exposed to creditors.
  • If the group is large enough, you may save on malpractice premiums by selfinsuring through a captive insurance company (CIC). The CIC can shield assets from creditors while substantially reducing malpractice insurance needs.

Alan R. Eber, LLM, is a pioneer in asset protection. He practices law in the fields of asset protection, estate planning, trusts, and business structuring. To get a free copy of a new booklet by Alan Eber, How Physicians Can Protect Their Assets, call 800-800-9191 or visit www.assetprotectionlaw.com/physicians.htm.