Managing risk avoidance

In the previous articles in this series, the focus of lowering your practice’s financial risk was through maximizing cash flow and retaining key employees. Risk avoidance and risk mitigation may seem like common sense, but sometimes are not always intuitive when your day-to-day concentration is on patient care and running a practice. Identifying your practice’s risk should be a disciplined and creative process that includes brainstorming and creating lists of negative financial implications. All thoughts and ideas are welcomed during this evaluation, and the more thorough your checklists and evaluations are, the easier it is to make decisions to accept the risks of each activity.

Part 1: Lower your financial risk 

Risk avoidance is completely avoiding certain business activities that could pose potential harm to your practice. Typically, this conclusion is made based upon an informed decision in which you decide to no longer to engage in a risky activity. This seems easy when explained, but do you evaluate your practice’s activities for risk? Do you know which activities pose the most financial risk to your practice? Everyday activities, like hiring an additional associate, adding additional medical eye care services, accepting more vision care plans (MVC), and changing office hours all carry some financial risk if you decided to engage in them. To simply avoid all the risks, you would also forfeit all gains-nothing ventured, nothing gained. As clinicians and practice owners, learning to recognize ways to reduce and evaluate risks influences better-informed decisions.

Protecting your assets

Now that your research has concluded that you have decided to accept certain risky activities, called risk retention, how do you reduce the negative financial implications? There are two ways to lower your risk, transferring or mitigating the risk. Risk transfer is exactly what is means; transfer the risk from one party to another. As practitioners we already do this by acquiring malpractice insurance. There are risks for assuming care of a patient, and clinicians protect themselves from financial losses due to an accidental error with a malpractice policy. This shifts, or transfers, the medical risk to the insurance company by paying annual premiums.

For small practices, other insurance should be obtained to transfer risk such as: business owner’s insurance, property insurance, worker’s compensation insurance, and umbrella liability insurance. These are the three most common type of policies that new and existing practice owners obtain, but there are two big policies I would recommend if you are not well versed in employment law and you’re conforming your practice to new healthcare reform with electronic health records (EHR), employment liability insurance (EPLI), and cyber liability insurance. This may seem excessive, but remember, these policies transfer risk to the insurer and to protect your practice financially in a catastrophic event.

Business owner’s insurance protects your practice if a patient or employee is injured on your premises. Most business owner’s insurance policies will also cover if you or one of your employees cause injury to a patient or a patient’s property. For example, your optical staff accidentally breaks an expensive frame while trying to adjust it for a patient. It is imperative to understand your lease, regardless if your practice is located in a strip center, stand-alone property, or sub-leased from retailer. There can be many grey areas-such as outside steps, atrium, or other common areas-where you may be responsible for any injury of a patient or employee. Make sure your business owner’s insurance covers all areas of your practice.

Part 2: Hire and manage key employees

Property insurance should be obtained immediately when you first start building and purchasing inventory and equipment for your practice. This type of policy transfers the risk if your equipment or inventory suffers loss, damage, or theft. A good policy should also cover these assets when they are not on the property, such as if you and your staff perform vision screenings at a charitable event, and diagnostic equipment is stolen or damaged. Property insurance covers the cost of replacing and repairing the property, and in some instances, will compensate you if certain assets cannot be replaced.

It does not matter if your practice supports only one or 50 employees, it is mandated by law that small business owners carry worker’s compensation insurance (also known as workman’s comp). Because it is mandated, this seems more like overhead or an administrative expense that is unnecessary. But this policy does not just cover medical expenses and lost wages if an employee is injured while working. It also covers legal expenses if inappropriate claims are charged against your practice; if an employee is hurt while working but not on the property; certain types injuries and illnesses; and funeral costs and financial support to dependents.

Umbrella policies are great to add for additional liability coverage, both personally and professionally. This policy adds another layer of protection to the above policies because it covers only a specific amount of damage per claim, and a certain aggregate. If a claim, lawsuit, or damages exceeds the policy amount, an umbrella policy would pay the uncovered, out-of-pocket expenses. The premiums are normally less for this policy rather than adding additional coverage to your current policies and is much more cost effective. Additionally, you can extend additional coverage to many policies with a single umbrella policy. Unfortunately, this policy typically will not extend additional liability coverage to malpractice insurance policies.

Your employees are your biggest assets, but they can also be your biggest liability if they do not know certain protocols or employment law. An employment practices liability policy protects your practice if a lawsuit is charged regarding: gender/age discrimination, sexual harassment, wrongful termination/discipline, negligent compensation/promotion/hiring, breach of employment contracts, invasion of privacy, libel/slander, employee benefits mismanagement, and emotional distress/mental aguish. These charges have been growing and can be quite costly referring to an employment attorney for every aspect of Family Medical Leave Act (FMLA) and Americans With Disability Act (ADA).  

As your practice is getting more efficient with electronic communications with e-mail, sales order processing, patient relationships, and electronic health records, your data is at risk for compromise. When your data is lost or compromised, your business owner’s insurance or property policy will not cover this type of loss or the financial loss to fix and recover the data. The practitioner is responsible to protect patients’ information and to notify patients if there has been a breach in your data. Now think about how many patients you have currently, and in the past. Obtaining a cyber liability policy will cover expenses relating to the loss, breach, or compromise of data, credit monitoring and investigative expenses, as well as notifying all parties affected.

Not all risk can be transferred to another party and may have to be mitigated or reduced. Mitigating your practice’s risk is trying to eliminate the possibility of financial losses and the occurrences of risk events. When thinking about adding services, policies, and products to your practice, developing a mitigation plan will identify the risk to minimize the losses. For example, when hiring a new associate, you mitigate your risks by developing, training, and empowering them to understand your practice’s policy and procedures, as well as certain clinical and employee protocols. Developing strategies is critical for both small and large practices to reduce risk and must be a part of every day management regime to prevent knowledge gaps. You must be able to defend your day-to-day operations and put in place policies and plans to minimize the exploitations of vulnerabilities in your practices’ activities.ODT

Part 4: Diversify your practice