Wealth Protection in the Face of Medical Malpractice

Fifteen years into his career in emergency medicine, in the late 1990s, Mark Plaster had to decide whether to battle a malpractice case in court or agree to a settlement that would keep his financial exposure within his insurance coverage.

With a child heading to college and other bills to pay, he agreed to the $750,000 settlement.

"I wasn't going to risk my family's future," said Plaster, who also holds a law degree and is executive editor of Emergency Physicians Monthly.

Today, Plaster's other career interests, including the magazine and website, limit his practice to about one day per week. The shifts he does take are in relatively low-acuity centers, which is a self-preservation strategy after years of working in overcrowded, sometimes violent emergency departments - conditions that can lead to lawsuits, he says

Reduced, shortened, or altered careers as a result of malpractice claims can have long-term financial implications for physicians, and even those who continue to practice in malpractice-prone disciplines can face myriad distractions, research shows.

While medical malpractice claims fell substantially and then leveled off a decade ago, they still occupy a significant portion of many physicians' careers, says Richard Anderson, a physician and chairman and CEO of The Doctors Company, a medical malpractice insurer that covers about 73,000 members.

For a study with the RAND Corp., the insurer provided information from its customer database on 40,000 physicians who faced malpractice claims during the period of years that included a large spike in filings. The study found that on average, physicians spend four years over a 40-year career fighting claims, and some high-risk specialists spend a quarter of their careers defending against claims.

"Malpractice litigation pressure continues to be overwhelming and unrelenting," Anderson says.

 Malpractice awards are typically covered by professional liability insurance, but there are some out-of-pocket expenses and potentially some longer-range issues you should address, financial advisers and physicians who have been through lawsuits say.

Of course, protecting your home and personal wealth from all kinds of legal threats must be done as you begin your career and reviewed annually to make sure all your financial assets are properly titled.

But shuffling assets into a trust after a bad patient outcome or after a claim is filed in hopes of protecting assets from creditors could be deemed fraudulent.

When it comes to specific professional liability coverage and surviving a claim financially and emotionally, keep these tips in mind instead.

Review your coverage

Ilene Brenner, an emergency physician and author of "How to Survive a Medical Malpractice Lawsuit: The Physician's Roadmap for Success," notes that some insurance contracts contain language essentially mandating a settlement instead of allowing a case to go to trial once a claim has been filed.

"This can become a career issue," says Brenner, who for the book drew from her own experience taking a case to court. Cases that are settled can end up in public databases and can affect lifetime coverage limits, she says, so it's important to make sure you have the ability to plead your case in court and have access to your own attorney.

"Often the only real decision you have is to settle or take it to trial, and some insurance companies settle everything," she says.

As more doctors become employed by hospitals, she says, they need to be aware that a hospital attorney representing both them and the hospital has the potential for conflicts of interest.

"Beyond money, you need to be concerned about your future career, and if you end up with too many settlements you can lose [hospital] privileges," she says. "You're essentially done. Don't settle away a case that is winnable."

Whether you have an occurrence- or claims-based malpractice policy with tail coverage, be sure you've had an attorney of your own review both the policy and your employment contract, says Plaster.

"A lot of people have a tendency to believe they have to sign [employment] contracts as-is," he says. Simply proposing some alternative language at the request of your attorney is a reasonable request, he says.

Build an emergency fund

Although most malpractice awards are covered by insurance, keep in mind there are some incidental costs, Brenner says, including the purchase of appropriate clothing to present a professional image in court.

If a case goes to trial, there could be an insurance deductible or significant amount of lost income as you prepare the case that goes above most insurance policies' compensation for actual days in court.

And in some of the worst situations, as Brenner suggests, you could see actual career interruptions as you seek new employment.

"Awards that exceed policy limits are pretty rare, but there are indirect costs, such as loss of reputation, professional embarrassment, and lost income from the time dealing with the case," says Seth Seabury, an economist at RAND and one of the authors of the study on the costs of malpractice, which was published in 2011 in the New England Journal of Medicine.

Given all these potential issues, physicians may not have the predictable, rock-solid income streams that financial advisers have long counted on when they think about the type of investment risk profile their physician clients have.

"The biggest thing I tell physicians is that it's going to happen. It's a cost of doing business," says Carolyn McClanahan, a former physician who is now a financial planner with physician clients. Though she was never sued in a malpractice case herself, she reminds clients it happens frequently.

For clients in very stable practices over several decades, having an emergency fund of three months' expenses usually suffices, she says. For those with unusually high debt loads or who tend to change jobs frequently - which could also be those who have faced several lawsuits - she recommends six months' expenses be held in money market accounts or mutual funds invested in ultra-short duration bonds.

Look at the big picture

Beyond your emergency fund, think about your overall investment risk profile.

Loading your retirement funds with a high proportion of stocks may be alright when you're first starting out, but mid- to late-career physicians should think realistically about all kinds of career threats that could derail the income train on the way to retirement.

Even if you haven't spent a lot of time creating trusts and other asset protection strategies, and you now face a malpractice lawsuit, remember that you may be protected anyway, McClanahan says.

Retirement funds and, often, personal homes are protected from creditors, so brush up on your state's laws in this area.

It's also important to embrace the situation and deal with it so it doesn't shorten your career altogether, which could result in far lower lifetime income than planned, McClanahan and Brenner note.

"You have to expect it and try not to internalize it into your self worth," McClanahan says.

Brenner likens physicians' common reactions to lawsuit filings to Elisabeth Kubler-Ross' five stages of grief: denial, anger, bargaining, depression, and acceptance.

Sometimes a case is lost because a doctor fails to accept the situation and start dealing with it aggressively.

"They want to put it in a box and hope it goes away," she says.

Consider the long term

Once a case is underway, the anger often sets in.

"A lot of physicians stay stuck in the anger phase for years," says Brenner, which means they don't prepare well for trial and ultimately can make them disengage from their work, which in turn can shorten or compromise advancement in what could have been promising careers.

The long-term effects of the anger can be psychologically corrosive, says Anthony E. Francis, an attorney and former physician who faced three lawsuits while practicing and who now writes a medical-legal blog for WebMD.

He says he left medicine in part because of the peer review process that leads to so-called defensive medicine.

The bottom line today, he says, is that with so many physicians working under employment contracts, staying diligent about contract language and insurance terms and hiring your own legal team is imperative.

The ongoing threat of claims is also a constant reminder to keep personal debt in check and live below your current means.

 "It's like any other situation," he says. "If you always spend less than you make, you'll always have money."

Janet Kidd Stewart is a freelance writer based in Marshfield, Wis. She holds a bachelor's degree and master's degree from the Medill School of Journalism at Northwestern University. She can be reached at editor@physicianspractice.com.

This article originally appeared in the May 2013 issue of Physicians Practice.