Perhaps one of the biggest sources of stress to a physician is
liability. Malpractice, Medicare overpayments, employment practices and general
liability all prompt anxiety. Many solo practitioners remain on their own in
part because of fear of becoming responsible for a colleagues liability.
While it is impossible to totally eliminate the risk of liability, there are
two actions you can take to greatly limit the risk. The first and most obvious
option is insurance. In addition to malpractice insurance, it is possible to
obtain insurance to, at a minimum, cover the defense costs associated with
audits and investigations. Employment practices and general liability insurance
is readily available. I encourage physicians to carefully consider obtaining
coverage for all four.
But for physicians who practice with colleagues, there is a second step
you can take to lower your risk. Each physician can agree to indemnify other
physicians if the first physician causes the other physicians to incur
liability. In other words, each physicians says if you lose money because
of my actions, I will make you whole.
Obviously, such an agreement depends on the promising physicians
financial solvency. If the practice faces a liability that exceeds the
responsible physicians ability to pay, the agreement is useless. But for
most routine debts, this is a good mechanism to place risk where it belongs. An
agreement can be simple. Our firm has drawn up numerous agreements, and the
cost is usually under $2,000.
If you are considering an indemnification agreement, there are a few
cautions you should consider.
First, your corporate bylaws (or state law) may limit your ability to
enter such an agreement. Before drafting the agreement, make sure counsel
considers your corporate documents.
Second, there are some situations where you may wish to spread risk
among the physicians. For example, imagine that the practice has a particular
income distribution method used for all partners, but the IRS audits only one
partner. In such a case, it seems fair for all physicians to bear the cost of
the audit, since any one of them may have been audited.
Because it is nearly impossible to anticipate every type of liability,
I favor agreements that establish basic principles (i.e., physicians agree to
indemnify colleagues for any liability over which they have control,
specifically including poor documentation, relationships with device companies,
etc.) but that leave the final determination of whether indemnification is
trigged to the board.
An indemnification agreement doesnt eliminate all risk of
practicing with other physicians, but it certainly lowers it. And given the
very real benefits associated with a group practice, it is an wonderful tool to
improve upon a well-proven practice model.
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