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New Challenges to Physicians' Financial Security


The idea that physicians need to protect their assets from lawsuits is hardly new, but the rationale for the strategy has changed. Malpractice insurance policies are shrinking, plaintiffs' malpractice awards are growing. Never before has the medical profession been so vulnerable.

The idea that physicians need to protect their assets from aggressive litigants is not new, but the rationale for the strategy has changed just in the last year. New causes of action brought by the federal government targeting Medicare and Medicaid fraud have netted an estimated $45 billion windfall.

Worse yet, at a time when malpractice insurance policies are becoming smaller, plaintiffs' malpractice awards are growing. Never before has the medical profession been so vulnerable.

One of the most costly and immediate challenges facing physicians today is the unavailability of reasonable medical malpractice insurance. Insurers are clamping down by either not writing new policies or by not renewing existing policies, and many jurisdictions have allowed insurers to increase their premiums exponentially.

Policies can cost between $120,000 and $150,000 a year, yet most insurers will not write policies of more than $1 million per claim despite the fact that juries are returning close to nine-figure awards. Two recent examples: A plaintiff was awarded $85 million dollars against a doctor in New York; a Las Vegas trauma center closed down because the doctors were unable to obtain coverage.

The second significant challenge comes from the federal and state governments' crackdown on Medicare and Medicaid fraud. Unfortunately, honest billing mistakes are being treated as acts of fraud, with steep penalties and asset seizures in store for the alleged violators.

Just as litigants can go after the personal assets of doctors above the limits of their malpractice policies, so can the government attach physicians' personal assets. There are, however, steps doctors can take to protect themselves from losing their life savings.

To fend off the individual plaintiff, the best strategy is to discourage the lawsuit in the first place. Typical contingency lawyers start out with the expectation that they are bringing an action against a wealthy, deep pocket physician. The sooner they learn that the defendant has no attachable personal assets, the sooner their strategy will change and the lawyers will take whatever they can get from an insurance settlement. The process brings malpractice insurance back to doing what it's supposed to do -- cover the doctor rather than invite the lawsuit.

Domestic asset protection (for example, a family limited partnership) will, if done properly, be 100% effective against all future claims, and should serve to discourage future lawsuits.

Asset protection is designed to give defendants a big club to force a favorable settlement within the parameters of their malpractice coverage. One caveat: it is imperative that physicians protect themselves before the commencement of a lawsuit.

Unlike challenges from individual plaintiffs, domestic asset protection offers no guarantees against actions brought by the government.

Doctors who are concerned about unwarranted Medicare or Medicaid fraud investigations must take a different approach and look to offshore asset protection. This strategy entails physically moving one's assets out of the jurisdiction of U.S. courts.

A recent example to illustrate how innocent mistakes are being pursued as fraud: an individual who owned an ambulance company was given a number of prescriptions to transfer dialysis patients to a nearby treatment center.

Despite the fact that he was simply following instructions, he was prosecuted for Medicare fraud because the facility was not on an approved list of centers.

Doctors have a number of potential jurisdictional options, including the Caribbean (Cayman Islands and Belize), the Isle of Jersey, Liechtenstein, and Mauritius, among others.

Despite shady appearances in movies like The Firm, offshore asset protection done in a tax-compliant manner is an extremely effective tool to protect physicians' assets.

A key distinction between domestic and offshore asset protection is who retains control of the assets. With domestic asset protection the individual still controls the assets, although he or she must give up title.

With offshore asset protection the individual is giving up all legal control, although it is possible to maintain de facto control.

Typically a trustee or corporation controls the assets. In all cases, physicians must be guided by someone who knows how to:

1. Structure the vehicles in a tax compliant manner;

2. Do it in such a way that the protections cannot be undone; and

3. Choose an area with political, economic and social stability.

Given the attacks on doctors from both government and individual plaintiffs, it is more apparent than ever that doctors need to protect their assets to the best of their ability. The days of huge insurance policies serving as reliable umbrellas are long gone, but there are viable alternatives available to those who plan ahead.

Kenneth Rubinstein is the senior partner at Rubinstein & Rubinstein, LLP, an international law firm based in New York City that provides specialized legal expertise in the areas of domestic and international asset protection planning and estate and tax planning.

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