Insurance for medical practices: Protecting your business and assets

Welcome to Dr. John Scala's "The Business of Medicine" column — a monthly resource for mastering the business side of independent practice. Having owned 3 solo practices, Dr. Scala offers insights, advice, and actionable strategies to help you steer yours toward lasting success.

Running a medical practice involves more than just providing exceptional patient care — it also requires mitigating risks. Whether it’s safeguarding your business from unforeseen lawsuits, shielding your assets from liability claims, or ensuring your employees are covered in the event of workplace injuries, the right insurance coverage is essential for your peace of mind and professional success.

In this article, I delve into the critical types of insurance every medical practice needs to consider — from general liability and workers’ compensation to professional coverage like medical malpractice and personal umbrella policies. I also touch on asset protection strategies, such as setting up trusts, to help you navigate the complexities of safeguarding your practice and personal assets.

Every medical practice faces unique risks, making business insurance essential for protecting against potential financial losses. From general liability coverage required for leases and permits to specific policies tailored to safeguard your property, employees, and operations, understanding the types of business insurance available ensures you're prepared for unexpected challenges.

This is also known as commercial general liability (CGL) or business general liability, which protects a business from financial losses due to claims of bodily injury, property damage, or other risks. This insurance is required for all commercial leases. Some states or municipalities require this insurance for a business permit. 

Here are the various issues this insurance covers: 

This is frequently bundled into the general liability insurance. For an office or medical practice with high-value equipment, medicines, or other therapeutics, it may be valuable to insure those items separately under property insurance. 

If the medical practice owns the building, then this would be essential. Excluded from property insurance are floods and earthquakes (although burst pipes and plumbing are usually included), employee dishonesty, and DMV-registered vehicle exposure. 

This is required in every state. This insurance provides benefits to employees who are injured or become ill while working. It includes medical care, lost wages, disability benefits, and death benefits. 

The employer is responsible for paying the full cost, and employees are not required to contribute. Employers are liable for all work-related injuries and workers' compensation benefits are the sole remedy for injured workers. This is very important, as your highest liabilities in terms of lawsuits are your patients and your employees. Most states have a Workers Compensation Board that mediates workplace injuries. 

For medical providers, professional insurance is not just a safeguard — it's a necessity. From protecting against patient lawsuits to navigating the complexities of malpractice coverage, understanding the nuances of professional liability insurance will help you manage risks and ensure peace of mind.

This is a type of professional liability insurance that protects medical providers from patient lawsuits. Costs and coverage amounts vary greatly depending on specialty and location. OB/GYN, ER docs, and surgeons have the highest rates. 

There are 2 types of medical malpractice insurance: 

The statute of limitation for lawsuits after discovery of a medical error is 2 years for most states. Some states have a statute of limitation up to 10 years depending on the injury. In pediatrics and OB/GYN, the statute of limitation is up to the age of majority (18 years old) plus another 2-7 years depending on the state. 

A frequent concern arises when changing employment. Is it cost-effective to pay the tail insurance of a claims-made policy before changing jobs? Often, a new policy can be purchased with a "prior-acts endorsement."  This is usually stated as a "retroactive" coverage date, and is usually more cost effective than paying for tail coverage. 

Protecting your personal and family assets is likely just as critical as securing your professional liabilities. Physicians are often perceived as higher-value targets in liability disputes, increasing their personal risk exposure. Taking proactive steps to mitigate these risks helps ensure long-term financial security.

While standard home and auto insurance policies provide essential coverage, an umbrella policy offers an additional layer of protection. The umbrella policy provides liability coverage that goes beyond the limits of your home and auto coverage. It can help protect from large liability claims or judgements that exceed your regular insurance policies. With an umbrella policy, however, other policies like home and auto need to carry higher coverages, making everything more expensive. 

Finally, certain malpractice settlements could exceed your medical malpractice coverage, which is usually $1,000,000 per occurrence and $3,000,000 per year. It's important to know that providers can be sued for the value of their house, savings, future earnings, and other amounts beyond their malpractice coverage.

As a disclaimer, I am not a legal expert and I recommend consulting an expert in this field for more information. Years ago, estate lawyers and other financial specialists advised me about the importance of protecting medical professionals from liability. The first step is to set up some sort of trust. There are many different types — living trusts, revocable, irrevocable, and others.   

Your assets may receive protection from creditors depending on what state you live in. For example, when I started my career after residency, I was advised to open a living trust in Illinois where I was living. Under the law at the time, if I was sued beyond my malpractice coverage, creditors could only take half of my house value and half of my assets, with the other half remaining in my wife’s name. Moving much later to Colorado, the trust still stands, but there is no creditor protection under the state's law for a living trust. 

In summary, there are many required and optional insurance products available for the self-employed medical provider. For the more complex products, like trusts, it is essential to consult with an expert in the field. 

Living a regular middle-class lifestyle, with a functional but not fancy house, driving regular cars, and generally not showing off can help reduce the likelihood of personal lawsuits outside of your medical practice. Additionally, primary care physicians typically do not have the financial profile that would make them common targets for non-medical legal actions.