If your medical practice suffered a property loss and your work interrupted for several months while your property was being restored, you would probably experience a significant loss of income and have ongoing expenses. If you are not properly insured, this could put an undue burden on the financial condition of your practice. Consider the many businesses and practices that suffered significant interruptions from Hurricane Katrina. Many of the affected medical practices discovered that having their property insured was insufficient to keep them in business and help them recover from the sustained period of time that their practices were shut down.
Most, if not all, physicians and practice managers focus on making sure their physical property is covered, but often overlook, or are not aware of, insurance coverage for income and expenses that normally would have been earned if a loss had not occurred. There are many ways a medical practice can suffer during and after a disaster. One of the most devastating is theloss of income. Ask yourself how long your practice can survive without income. Is trying to survive without income a risk that you or your group is willing to assume? Many practices have ongoing expenses that continue even if they are not able to operate for a period of time. Think about key employees who need income to support their families, about lenders who expect the loan payments to be paid, about lease installments for equipment, about advertising commitments and about other financial obligations that don’t simply go away because you are not able to practice for a period oftime. Depending on your practice, the list of financial commitments and expenses could go on and on.
When considering business interruption insurance, practice owners and managers should know that they can also cover the additional expenses that may be incurred to get their practice up and running in a temporary location in order to mitigate the potential loss.
When you purchase business interruption insurance, you have the option of purchasing extra expense coverage that will provide valuable indemnity for the costs associated with renting temporary space, renting equipment, posting signs, establishing electricity, re–routing phone lines and the like. As you can imagine, these extra expenses add up quickly and be very difficult for a practice that has no income for a period of time.
If you, as a physician or member of a medical group, are heavily dependent upon a particular hospital or treatment facility to generate a significant amount of revenue, you should consider contingent business income coverage. “We can think, for instance, of the major contracted groups typical at a hospital: ER, Anesthesiology [and] Radiology,” said Bob Snyder of HRH Healthcare Practice. “If the income of such a group is substantially dependent on its contract relationship with one or two hospitals in an area, as is often the case, then we might find that business interruption coverage makes financial sense. This might also be true in the case of a high risk/high income surgical practice, such as orthopedics, cardio–thoracic or neurosurgery, again, where the income stream is highly dependent on the relationship with one or two hospitals.”
There are many things to consider when protecting your practice against loss. While covering the physical property is very important, there are other coverages that will go a long way to help you stay in business and recover a significant portion of a financial loss that results from a covered property loss. Calculating the amount of business interruption and extra expense coverage limits can be a challenging undertaking because there are so many things to consider. Therefore, a little time invested with your insurance agent and CPA can mean the difference between surviving a significant property loss or experiencing financial ruin.
With tort reforms that have resulted in reductions in premiums, as well as the soft insurance market for physicians and medical practices, now is the time to evaluate all your policies to make sure you are properly covered and prepared for the unexpected.
We can’t always prevent property losses or catastrophes, but we can prepare for them. Now is the time to make sure your practice is prepared to survive a natural disaster, such as Hurricane Katrina, a fire or any other catastrophic event.
