Five Financial Mistakes Doctors Must Avoid

1. Making billing and insurance errors. The administrative requirements of medical practice today are daunting. A typical office deals with several private health insurance companies and HMOs as well as the government programs Medicare and Medicaid, and each insurer has its own codes and rules. Make a mistake in billing or the required documentation and you could shortchange your receivables—or end up in hot water with regulators bent on uncovering fraud and abuse in medical practices. Employing or contracting with an expert billing assistant is crucial, and you may want to hire a consultant to make periodic reviews. If your attorney hires the consultant, any irregularities the consultant uncovers may be protected by attorney-client confidentiality.

2. Not safeguarding the practice’s money. Large sums pass through medical practices, and without adequate checks and balances, theft by employees is all too easy. Having the same person physically handle payments from patients and insurers and operate your accounting and billing software is asking for trouble, and if your practice is too small to employ multiple assistants, consider using an outside billing service. Large groups can have their accounting firm do unannounced annual financial audits.

3. Having inadequate malpractice insurance. Almost all doctors are required to buy professional liability insurance to protect themselves from patient lawsuits alleging negligence or other errors. Such coverage is expensive, ranging from an average of $12,500 a year for family practitioners and pediatricians to $55,000 annually for obstetrician/gynecologists, according to a 2008 survey by Medical Economics magazine. Yet purchasing only the minimum amount required by your state or hospital may be a false economy. A doctor’s risk and potential losses can vary widely because of differing state rules, and the same survey found sharp regional differences in coverage amounts, with doctors in Texas insured for only $200,000 to $600,000 while Chicago physicians paid up for protection against damage awards of as much as $6 million. Make sure your coverage is sufficient for your region, specialty, and personal financial situation.

4. Failing to have a succession plan and a buy-sell agreement. Most physicians practice by themselves or in small groups, and many operate informally, depending on a handshake or long-ago-drafted documents regarding what happens if a partner dies, becomes disabled, or decides to leave the practice. But your interest in the practice may be one of your most valuable personal assets, and you need to protect it with an up-to-date buy-sell agreement that specifies procedures for establishing the worth of each partner’s share and spells out how buyouts will be funded, normally with life insurance purchased by the practice.

5. Depending on incompetent or untrustworthy advisors. Physicians have a reputation for being easy marks, and even if you avoid being swindled by Bernie Madoff wannabes, failing to work with reputable, experienced legal and financial advisors could do serious harm to your long-term financial and professional prospects. At a minimum, you need: an accountant who has experience working with medical practices and can advise you about practice management issues as well as your accounts and taxes; an attorney who can draft buy-sell agreements, provide advice about malpractice issues, and help with other legal matters, making referrals to specialists as needed; and financial advisors who can handle wide-ranging practice and personal needs. We specialize in helping physicians achieve their goals and could work with you to review your financial and retirement plans, evaluate potential business deals, and do whatever else is needed to ensure that you’re as successful financially as you are professionally.