As the 2016 Presidential election bears down on us there is a great deal of uncertainty among both advisors and consumers about our long-term and short-term economic prospects. This uncertainty requires proactive legal and financial planning by physicians.
In our last discussion I provided caveats about the wide array of employment related exposures that peak during recessionary economic conditions including lawsuits, theft, and embezzlement and what you need to do to protect your practice. Medical practices and their owners in some states are already feeling this pinch, but given our current volatile political conditions and increasingly shrinking and fragile global economy, these issues could apply to any state and practice area without much notice.
Many physicians experienced significant losses and legal exposure during the last recession. Some have recovered, some never will and most still haven’t done anything different than they did before to protect themselves. Below are some issues that require increased vigilance and proactive management.
Liabilities that spike in a recession
1. Personal Injury Claims, including medical malpractice claims. Both attorney advertising and claim frequency increase when times are tough and people are more willing to file a claim over any issue, regardless of merit, as source of supplemental income. Make sure all recommended professional and specialty liability policies are in place and that you have both personal and commercial liability umbrella insurance policies of at least $1 million, ideally more. Some claims will be in the office, others will be linked to your home, autos or family, so be prepared and think beyond just malpractice.
2. Litigation among and between business partners, promoters and investors goes up. In some cases it’s the way a project is being managed, in others it’s the aggrieved party’s external financial pressures that causes it. Either way, good recordkeeping and adherence to the rules (operating agreement) of the project are vital as is D&O insurance to help protect owners, officers and directors from the liability of their positions. Remember, you often have this liability even you don’t carry a CEO type title and the fewer the number of owners and managers, the greater the risk they share. If you’ve solicited investors and partners or made representations that others have relied upon in a legal or financial context, your personal liability is even higher.
3. Debt Kills. We’ve covered this before in detail and how it relates to real estate related debts in particular. We were shocked by how many doctors and business owners were put in harm’s way when their real estate slowed in performance and their debt service required out of pocket contributions when the rent on their investment real estate is reduced, slows down or dries up completely. Handling this risk is relatively simple but elusive for most consumers; live well within your means, have a cash savings position for emergencies and opportunities and be able to live off less if you have to.
4. Third party and group litigation spikes. The last recession was a boon to many lawyers, not just bankruptcy attorneys. In addition to the employment, personal injury and intra-company litigation related issues I’ve already mentioned above, we saw significant increases in many other kinds of litigation including:
-Intellectual property claims
-Class actions lawsuits
-Payer lawsuits and audits
-Various business suits where a doctor or some other principal was a partner, both in medical business you may invest in (labs, ASCs, etc.) and many others
5. Fraud Spikes. In particular tax, trust and investment fraud that preys upon your fears and economic pressures. Con men know that promises of massive tax savings and outsize investment returns are more exciting and easier “bait” in tough times. This pressure is also a good end-run around the usual due diligence you’d use to check an offer out, so be especially wary of any limited time or space offers that are sold with pressure tactics of that seek to exclude your advisors.
Most importantly, please remember one of the central ideas of this column; the most cost effective and predictable planning to in protecting your assets is always proactive. You can’t wait for any of the pressures above to manifest until you act to protect yourself, manage your spending or address your risks. It’s got be preventative treatment with the help of a seasoned professional that can help with both identifying and managing risks and creating legal back-up plans.