Disaster-proof your practice

Key Points

While vacationing in Hawaii with her son and daughter in April 2007, pain-management specialist Lynne Carr Columbus found herself confronting a pain of her own. Her gall bladder had been removed two weeks earlier, and she was suddenly experiencing severe upper thoracic and back pain. "It was so bad I couldn't sleep," she remembers.

Back home in Palm Harbor, FL, she found out why: A CT scan showed multiple pulmonary nodules and a PET scan revealed lesions on her spine and hip. Biopsy of a tumor at T4 revealed that the 43-year-old had Langerhans cell histiocytosis, a rare, cancer-like immune disorder that primarily affects children.

By the end of May, Columbus started chemotherapy. Between the fatigue of chemo and excruciating pain from the lead apron pressing on her tumors when she delivered radio-guided spinal injections, she wasn't able to work much. So in June she started filing insurance claims to keep open her 3,000-patient practice and multidisciplinary pain center.

Even so, when disaster struck, some holes in her plan appeared. She hadn't counted on the three-month income interruption before her long-term disability policy kicked in. And, in her weakened condition, she found insurance documentation demands burdensome. Columbus' attempt to keep the practice running by hiring locum tenens midlevel providers was a disaster. She ended up taking on a temporary physician partner who may eventually take over the practice.

Despite these glitches, the steps Columbus took to protect her practice are paying off. While her income is down by about half, she's able to support her family. And the practice she worked years to build will be there when she's ready to return.

For most physicians, a hardship like Columbus' would wreak havoc on their professional and personal lives. Below are some steps to take - and some pitfalls to avoid - to protect your practice, and you, should you become unable to work.

Think worst-case scenario

The threat Columbus faces looms over every solo and small group practice. If you're not able to work - even for a short time - you could lose it all. "In a two- or three-physician group, if one doctor becomes disabled, it can bring the whole practice down," says C.J. Millett, a financial planner with the Commonwealth Planning Group in Boston. "There is a need for income to cover overhead that doesn't go away."

A crisis action plan can help, says Bob Cimasi, president of Health Capital Consultants, a St. Louis firm specializing in practice valuation and value enhancement strategies. The place to begin is with the worst-case scenario. "Painful as it may be, you need to ask yourself what you'd do if Dr. Jones gets hit by a truck. How will you generate income for your family and yourself? How will you pay practice bills? How will you keep the practice running? How will you take control of the practice?"

These questions are related, but have very different answers, Cimasi says. In general, crisis needs fall into two categories: personal and business. Your plan should include not only insurance coverage for income replacement and business expenses, but also detailed operational plans for keeping the practice running until you can rejoin it or sell it. Power of attorney and other legal documents should be prepared to facilitate transfer of practice control in an emergency, he adds.

For the ultimate disaster, life insurance is an option. Separate policies should be in place to provide income for survivors and to fund practice needs. The amount of coverage you need will depend on individual circumstances.

On the personal side, you'll need enough to support your family after you're gone. That amount may decline as you accumulate assets and your children get older. On the business side, your need will depend on whether and how long the practice will continue operating. If you have partners, buy enough insurance to fund a buyout and cover locum tenens and overhead costs required to replace your services.