Navigating insurance and risk management for your medical practice

Many U.S. businesses may be underinsured and medical offices are no exception, with their specialized office space, equipment and records. For doctors, dentists, ophthalmologists, optometrists, podiatrists or any other medical practitioner, it’s critical to have the right insurance coverage. If the practice is underinsured and a loss occurs, it could be difficult or impossible to stay in business.

Insurance, such as a commercial multi-peril (CMP) policy, which covers property and general liability, is an important foundation. Most practices should add other essential coverage, such as workers’ compensation and increased levels of professional liability insurance. But there are still other important coverage areas to consider that are often overlooked, or in some cases simply underappreciated.

The six questions that follow can help a medical practice manager put in place the right combination of risk management strategies and insurance coverages that medical practices must have: property, general liability, business income, business continuity and HIPAA safeguards. 

1. Are you protected if your facility experiences a fire or other physical disruption? Property insurance is one of the most basic and essential coverages for medical offices. There are two important points to keep in mind.

First, has specialized equipment, such as MRI, X-ray and lab equipment, been inventoried and valued accurately? Medical practices often undervalue their essential equipment. They may use the depreciated value assessed for tax purposes, or simply guess low. Those valuations could be far off the mark when it comes to current replacement costs. 

Property insurance should also include coverage for patient files and other important documents. This “valuable papers” coverage is essential if patient accounts, insurance billing information and other essential files are damaged or inaccessible. Cloud or offsite electronic records storage can help mitigate losses.  

Flood insurance, while typically not part of a standard CMP policy, is something that a practice should strongly consider even if it’s not located in a typical flood zone. Consider the impact a pipe breaking may have on expensive medical equipment, for instance. Discussing how to manage those risks with flood coverage is a valuable step.

2. Is your practice protected if someone is injured and files a lawsuit? There are two types of liability insurance your practice needs: General and professional.  While keeping patients and staff safe is an obvious part of running a sound business, accidents do happen. For instance, while some patients may be in good health, others may be impaired because of age, injury or any other reason. Potholes in the parking lot, dim lighting in the hallways or stairwells, wet or uneven floors, or rugs that aren’t secured properly are all potential hazards that need to be eliminated. If and when an accident such as a trip and fall does happen, general liability insurance transfers to the insurer the burden of investigating and defending a lawsuit and/or negotiating a settlement. This will make sure doctors and staff can remain focused on patient care. 

No professional executes flawlessly every day and with every client. This is where professional liability coverage is essential. Without it, doctors and their staff open themselves up to financial and reputational damage. In addition to providing legal support, other things to look for when it comes to professional liability are network and security coverage as, increasingly, businesses are facing legal issues related to privacy and data breaches. Proper records retention and document shredding procedures are important in this day of identity theft. Protecting records may require vetting backup record providers or having a plan to secure or move physical records if an office or building is damaged and no longer secure.

3. Do you have replacement income to keep your business running if your income stream is disrupted? This may seem simple, but a surprising number of professionals haven’t analyzed their income stream. For example, what percentage comes from insurance reimbursements and how long does payment take? Are co-pays a significant contributor? How much would it cost to keep the business running if the income stream were disrupted? Many practice owners underestimate the cost to maintain their business or the amount of time it takes to get back up and running following a disruption. 

An insurance policy should include replacement income coverage, which typically (but not always) covers up to 12 months of replacement income. To trigger the payment, however, practice owners must document how much they’ve earned over a period of time, referred to as the “actual loss sustained basis.” Records documenting past income should be stored offsite for immediate access.

Replacement income also enables the practice to continue paying staff during the interim period.

4. Do you have a business continuity plan in place if there’s a serious disruption? Having a business continuity plan (a plan that outlines contingencies in case normal business operations are disrupted) coupled with good insurance could mean the difference between reopening and having to shut down. With their reliance on custom office space and specialized equipment, medical practices can’t easily relocate to temporary space. They also need to have a way to quickly access and restore records.
A business continuity plan will vary from practice to practice, but it should include: backup records for patients, employees, insurance companies and vendors (such as medical equipment IT and payroll providers); a written plan detailing each employee’s responsibilities; and a protocol for communications if people are displaced. It should also account for the possibility that key employees will be unavailable for a period of time.

5. Does the practice have adequate workers’ compensation insurance? Workers’ compensation is typically a mandatory coverage that a practice must obtain – but simply checking the box may not be enough. It’s important to make sure the practice has the right levels of coverage. Virtually any employee can sustain an injury on the job, and medical personnel may face additional risks if they are involved in lifting or helping to move patients, activity which could lead to back or wrist injuries, among others. This is another area where good risk management can help to avoid or reduce problems.

6. Does the practice have precautions to ensure it meets HIPAA requirements? HIPAA regulations require that medical offices and facilities take steps to ensure that patient records remain private. Medical practices are specifically required to put in place physical and technical safeguards, protect access and transmission, perform risk analysis and utilize risk management practices. Any issues that violate HIPAA regulations could result in penalties or lawsuits.

This added layer of responsibility means medical practices have to anticipate and address privacy issues in advance. They may need to vet the backup record provider in advance, for example, or have a way to secure or move physical records if their building is damaged and no longer secure.

Medical practices play an important role in helping people protect their health and treat injuries, diseases and infirmities. With the right risk management and insurance in place, they can be assured of their ability to continue to take care of patients and maintain their financial health and viability. Talking to an experienced insurance professional is a key first step in ensuring a medical facility is properly and adequately covered.

Photo attributed to Robert Broadie via Creative Commons license.