By David B. Mandell, JD, MBA & Jason M. O’Dell

Published August 2008

You are probably all too familiar with the facts that lawsuits are on the rise, jury awards are out of control and malpractice premiums are escalating to the point of being unaffordable for various specialties in numerous states. When you combine these financial threats of a medical malpractice crisis with decreased reimbursements, it is obvious that the golden age of medicine is forever gone. As a result, doctors have to learn new methods of practice just to stay afloat.

If you want to get ahead, you have to completely change the way you think and the way you practice medicine. Many physicians have a false sense of security and believe that malpractice insurance will protect them from lawsuits. If you go to trial and lose, you could be in a serious financial trouble. According to Current Award Trends in Personal Injury (Copyright 2007), half of all jury awards for medical malpractice claims in 2005 exceeded $1,184,000. The average medical malpractice jury award in 2005 was $3,830,000. If you consider that most doctors carry $1 million of per occurrence medical malpractice liability insurance, half the doctors who lose a judgment will be out at least $200,000 and the average personal loss from a judgment will exceed $2.8 million of the doctor’s own money (after insurance has paid its limits). These statistics have caused increased premiums and have demanded that doctors make a serious commitment to protecting personal and practice assets through wealth preservation strategies.

To best judge the alternatives, you need to understand the pros and cons as well as the costs and benefits of each alternative. We receive a great deal of feedback from physicians just like you who are fed up with what is going on today. Let’s try and help you better understand what you can do to improve your situation so you can make an intelligent decision, take action, stop worrying and get back to the practice of medicine. With that said, what are your options?

Ah! A sigh of relief. Now, pinch yourself as the dream isn’t over just yet. Unless you are certain that you have:

· Saved enough to support your desired quality of life in retirement.

· Built an ample safety net to handle any unforeseen expenses.

· Purchased an adequate long term care insurance policy to protect you against an unforeseen medical expense that could cost your family hundreds of thousands of dollars and potentially force you or your spouse into a nursing home.

· Have designed an estate plan that will avoid the hidden 75 percent tax trap of retirement plans, protected your heirs against lawsuits and divorce, and provided for children and grandchildren the way you see fit.

When you work with the right multi-disciplinary team of advisors, all of these goals can be accomplished. If you are like 99 percent of doctors who call us, you aren’t there just yet. Until you are – and you can be if you hire the right team and you implement their plan – you need to keep practicing. Let’s look at the options you have, assuming you still want (or need) to work.

The easiest alternative is to just pay the premiums your medical malpractice insurance carrier has quoted. If you have been non-renewed or cancelled, that doesn’t mean that the party is over. We recently attended a conference in San Diego that was devoted solely to the "hard to place" medical malpractice market. As a result of the contacts we have made, we have helped quite a few doctors find malpractice coverage after they were cancelled or non-renewed. One of the organizations we met actually has the capability to help doctors in 30 states. The key point is that, even if you think you aren’t insurable, there might be a carrier out there willing to write a policy for you – thus preserving your privileges at the hospital and your relationships with your insurance payers.

Many large groups are considering self insurance. You can join an existing Risk Retention Group (RRG) or set up your own Captive Insurance Company (CIC). We have assisted hundreds of medical groups analyze the benefits of CICs over the years. Though most medical groups find alternative means of protecting themselves from medical malpractice, a growing number of medical practices are utilizing the risk management, asset protection and tax-favored benefits of self insuring with CICs. Typically, medical groups use CICs to self insure for risks other than traditional medical malpractice. These risks might include: legal defense (med mal), HIPAA violations, Medicare fraud, insurance fraud, loss of medical license and other similar risks. For the most profitable practices, CICs can receive tax-deductible insurance premiums of $1,200,000 per year! If you have favorable loss experience, you could theoretically save hundreds of thousands of dollars each year by self-insuring risks of your practice. In addition, recent developments in this industry have made it possible to create captives for medical practices in the United States (without having to create insurance companies offshore). This has been very well-received by many medical groups and profitable practices.

Though many doctors are considering this (especially in Florida and other high-risk states), there are many pitfalls to going bare. The main benefit of going bare is that you will be a less attractive lawsuit target if you don’t have insurance. This is true if and only if you have implemented a comprehensive asset protection plan prior to any action that could potentially result in a lawsuit. Placing assets in a spouse’s name or into a living trust does not provide asset protection. Though some states offer tenancy by the entirety, some homestead protection and some protection of insurance or annuities, it is imperative that you have an attorney research the recent case law in your state as the statutes often do not match the actual results in the courtroom. Further, your brokerage accounts and rental real estate are not protected in any state! Lastly, your practice assets (like equipment, real estate and accounts receivable) may be at risk to lawsuits from the actions of you or any of your partners. Are you the worst doctor in your group? If not, then there is someone out there whose potential liability may cost you dearly.

We believe knowledge of asset protection is the single most important thing a physician can have – next to clinical expertise and a good bedside manner – and that is never taught during training.

David B. Mandell, JD, MBA, is an attorney, lecturer, and author of five books for physicians. Jason M. O’Dell, CWM, is a financial consultant, lecturer and author of two books for physicians. They are both co-founders of the financial consulting firm O’Dell Jarvis Mandell.