How Going Bare Can Be A Good Business Decision Settlements for Bare Physicians April 2003 By: Marc Singer, MBA, CFP Many physicians are currently considering or have recently gone bare. The first group of doctors to go bare did so in 1986 during the past Florida malpractice crisis. Many of them have not carried insurance since that time 17 years ago.There are now numerous physicians who have experienced a lawsuit while being bare. In instances where bare physicians were sued, virtually all cases reached a favorable conclusion. The following are some lessons we have learned. |Initially, bare physicians approached lawsuits as if they were insured, essentially mounting a full legal defense. The average case now costs approximately $85,000 to defend through trial. If the case was won, then there was no concern. However if they lost, then they would have a malpractice judgment to contend with. At that point, an attempt would be made to settle the judgment for a reasonable and affordable amount. Many times this could be accomplished, especially when the plaintiffs understood that there was no deep pocket (the physicians had no malpractice coverage and all their assets were well protected). In the event that a reasonable settlement could not be reached, some doctors found it beneficial to declare voluntary bankruptcy. Contrary to popular belief, bankruptcy is not a dirty word, but rather a process in which the physician can retain all their protected assets and have their malpractice judgments discharged. It essentially wipes the slate clean. Unlike a malpractice case, which takes 4-6 years and is psychologically grueling for a physician, a voluntary bankruptcy can be completed in 30-60 days. Of course, we always attempt to settle cases without going to bankruptcy. It should be noted that in most cases where doctors went through bankruptcy, the $250,000 financial responsibility was discharged by the court and the physician was able to retain their medical license. This concept will be explored in detail in a future fax. "Plaintiff attorneys have come to realize they will get very little or no compensation if a doctor declares bankruptcy." As everyone now realizes, our malpractice insurance system in Florida has essentially melted down. Over the years, we learned that being prepared to declare bankruptcy is actually the best way to fight a malpractice claim. We believe that plaintiff attorneys are primarily motivated by their ability to get awards for their clients, and thus be compensated through the contingency system. It can be very effective in some cases to argue the financial reality of a case rather than the medical merits.  We do this in certain cases by retaining bankruptcy attorneys to conduct negotiations rather that using traditional defense lawyers. A bankruptcy attorney presents the case from the perspective that the physician has no insurance and no available assets to pay a judgment, should the plaintiff be successful in their lawsuit. Logic dictates that without the potential for recovery at the end of a 4-6 year legal process, most plaintiff attorneys will not be highly motivated to pursue the case. Therefore, a nominal or reasonable settlement offer has often been accepted. Simply put, plaintiff attorneys have come to realize they will get very little or no compensation if a doctor declares bankruptcy. To summarize the economics of going bare, take the example of an obstetrician who went bare in 1986. The premiums would have averaged $125,000 per year for $250/$750 coverage. Cumulatively, over $2.1 million in premiums would have been paid over that time. The highest amount we are aware of any obstetrician paying out in total claims and legal fees during this entire period is only $300,000. The reality is that going bare has been shown to be a much better business decision than carrying coverage. Of course, every case is unique and must be evaluated individually. It is of crucial importance that, prior to being sued, a physician has taken adequate measures to protect their personal and P.A. assets. A physician's Financial Advisor should be experienced in asset protection strategies and be in a position to assist in the negotiating process. Bankruptcy attorneys will not bluff; one has to be 100% protected prior to them being willing to negotiate. Singer Xenos does not provide legal advice. Please consult with your own legal counsel.