The Road to Private Practice Ownership

Author: Alicia D.D. Spoor, Au.D.

Introduction
The Academy of Doctors of Audiology (ADA) has partnered with Alicia D.D. Spoor, Au.D. on a new initiative to follow her process of opening a private practice. Dr. Spoor is the President of Designer Audiology, LLC in Highland, Maryland and has agreed to document her process of opening a private practice, from start until end (retirement?). Alicia has recorded short (usually less than 15 minutes) videos and webcasts about her progress and she will also have articles in Audiology Practices about topics related to her experience starting a business. See below for the first video about her decision to open a private practice.

The Role of Insurance in a Private Practice
When an audiologist mentions insurance, s/he is typically referring to different types of patient insurance accepted in the clinic. After embarking on the road to opening a private practice, I realized the word “insurance” took on a whole new meaning. Not only do private practice owners have to determine which insurances will be accepted to attract new patients, but owners also require several other insurance policies to operate as a business and conduct daily operations.

Ten years ago, I completed a private practice course as part of my Au.D. curriculum. However, I was unsure of exactly what types and what amounts of insurance I would need. After establishing a partnership with a financial institution, in this case a local bank that facilitated a Small Business Administration (SBA) loan, my commitment letter detailed some policies that would be required prior to releasing the funds to purchase the practice location and equipment. With my lack of in-depth insurance knowledge, I turned to my accountant for assistant. Her firm did not have an insurance broker on-site, but she was able to refer me to an appropriate professional. After my initial contact, I was referred to another broker for some policies and stayed with the initial referral for other policies. Trusting my accountant and her referrals, I felt as though I was in good hands to proceed with both of the brokers’ recommendations on the specific details, companies, and monetary values. [Watch more about my “team” on the online webcast.]

This article will describe the different insurance types that Designer Audiology needed to complete daily operations.
Policy Requirements
Designer Audiology’s office is a suite in a medical/retail condominium building, within a larger, three-building complex. The practice is on the first-floor of a two-story building to allow for easy access for patients, with direct entry from the outside (i.e. no common area within the building). Because the office suite is part of a larger complex, the complex’s landlord/owner maintains the General Liability Insurance. This insurance covers the building structure should something happen to the entire building. If something happens to just Designer Audiology’s suite, the building’s General Liability Insurance would not cover it. Additionally, the purchase of the suite required me to have all insurances in place prior to closing, to ensure that I met the financial institution’s requirements.
Policy Brokers
Starting the business required a diverse group of professionals, and I was fortunate to assemble an amazing team. [You can see my line-up and how I found each member via the video on ADA’s website.] One part of the team was the insurance brokers who helped procure the insurance policies, described in the following sections. I worked with two separate insurance brokers for my practice and individual needs. Both brokers were local to the practice and allowed me to ask questions, meet in person, and complete required paperwork quickly.
Business Policies
Insurance plans will vary depending on the type of business, type of location, and if the practice owns or rents the space it occupies. As a new business owner, and a start-up company without a patient base on day one, Designer Audiology was required to have three insurance policies:
  • Business Owners Policy (BOP),
  • Professional Liability, and
  • Business Overhead Expense (BOE).
The Business Owners Policy has three parts, each described below:
  • Property insurance,
  • Business Interruption insurance, and
  • Liability protection.
Property insurance covers the practice’s property/suite should something happen, such as fire. The property insurance also covers the build-out construction within the condo suite. As noted, there is a Community Area Maintenance (CAM) program and the landlord/owner oversees the shared space. Should something happen to damage/destroy the entire building, the General Liability Insurance would cover the space.

Business interruption insurance covers the loss of income resulting from a fire or other catastrophe that would interrupt the daily business operations. This insurance would also cover the expense for Designer Audiology to temporarily locate to another location. This type of insurance allows Designer Audiology to have a temporary space to operate from if a damaging event occurred.

The liability protection of the BOP insurance covers the business should any harm come to others. Harm would include bodily injury or property damage which may be due to defective products, faulty installation, and/or errors in services provided by Designer Audiology employees. This coverage is similar to personal injury protection offered by many homeowners’ insurance policies. This portion of the policy covers things that are done, as well as things that are not done in the practice. For example, if a patient trips and falls within the practice suite, the liability protection would protect the business from a personal injury claim. It is important to note that this is NOT Professional Liability coverage.

Additionally, the BOP has other insurances contained within the policy: water and sewage back-up, computer, valuable papers, employee dishonesty, newly acquired buildings and more. These are standard within the BOP and the amount of coverage can be adjusted as the business needs change.

As a clinician, professional judgement and expertise are “on-the-line” every day. Even if a clinician does nothing wrong, the business can be sued by a patient claiming neglect, error, or omission in the services that were provided. Professional Liability Insurance covers the clinician in the event that a claim is filed against the provider for something done, or not done. The ADA, American Academy of Audiology (AAA), and American Speech-Language-Hearing Association (ASHA) all offer a benefit to their members, through a third-party company, for discounts on Professional Liability Insurance. Prior to opening Designer Audiology, Dr. Spoor had maintained Professional Liability Insurance and was able to keep her policy in place.

The Business Overhead Expense (BOE) covers the expenses of the practice, including loan payments (rent payments in a rental space) and employee salaries should the owner become injured. The BOE covers most expenses to keep the business intact and in a position to operate. On a tax note, the BOE is typically a pre-taxed deduction and starts after 30 days (called the elimination period) and extends for 12, 18, or 24 months.
Owner’s Policies
As a sole-practitioner, I also chose to purchase two personal insurance policies:
  • Life insurance, and
  • Individual Disability Insurance (DI).
Life insurance was strongly recommend as I am the responsible party for the large amount of loan money required to open the practice. I already had life insurance through another company prior to opening the practice. Due to the purchase of the practice location, I purchased a new life insurance policy and used it as collateral in the mortgage for the property. This was a requirement with the lending bank to ensure that if something happens to me as the owner, the bank loan is paid-off first before any beneficiaries would receive a benefit from the life insurance. As the loan is paid-off over time, the benefit amount assigned to the bank institution decreases.

The individual disability insurance (DI) covers my income, should something happen after the 90-day elimination period, to prevent me from working. As income from the business increases, the policy benefit can also increase without additional medical underwriting. Since the business income is currently my biggest asset, an appropriate level of DI was needed. My policy includes a clause that if I cannot work as an audiologist and I choose to work somewhere else, the DI benefit would still be paid, despite earning additional income from another profession. Unlike the BOE, the DI premiums are not pre-taxed and are paid from my personal account. Paying with post-tax dollars ensures that the benefits would be tax-free, if needed.

The life and individual disability insurances required medical underwriting before becoming active. This entailed an extremely in-depth medical case history, administered over the phone and an in-person home visit from a registered nurse to obtain vital signs and blood work. I was healthy and therefore had no issues obtaining the level of coverage requested with the initial policies.

On a side note, it was beneficial to purchase DI and BOE from the same carrier to reduce the amount of paperwork and stress should a claim be filed. I also obtained discounts for both policies by using a single BOE and DI company.
Multiple Owners
Should a practice have more than one owner, cross-purchase life insurance would be recommended. This would provide a pre-tax benefit to the surviving owners, who would then be able to buy out the deceased spouse or estate, without further loans. The surviving owners would then get a Step-Up in Basis for the amount they paid, which in turn can save them in taxes when they retire. Example with 3 Owners A, B, and C.
  • Owner A owns a policy on Owner B and Owner C
  • Owner B owns a policy on Owner A and Owner C
  • Owner C owns a policy no Owner A and Owner B
  • If Owner A dies, then Owner B and Owner C receive a tax-free death benefit which would be used to pay off Owner A’s spouse or estate in exchange for Owner A’s shares.
  • Owner B and Owner C would then each own 50% of the Practice and have a Step-Up in Basis for the amount paid which saves on taxes when they sell in the future.
Future Policies
As Designer Audiology grows with patients, employees, and locations, the insurance needs will also change. As an owner, it is expected that the insurance is up-to-date and complete for the current state of the practice. Designer Audiology will likely be purchasing new policies for:
  1. Worker’s Compensation,
  2. Employment Practices Liability Insurance (EPLI), and
  3. Cyber/Data breach coverage.
As an owner, worker’s compensation can be waived and it was encouraged in my case, since I had disability insurance already in place. However, when employees are hired, the practice will be required to purchase worker’s compensation insurance for their benefit.

The Employment Practices Liability Insurance covers the owner from any employment-related claims resulting from alleged acts; for example: discrimination, harassment, retaliation, and more. Once staff members are employed, Designer Audiology will be adding this policy to ensure that no claims or lawsuits arise with an employee’s termination, if needed.

Designer Audiology operates as a paperless practice. Any paper that comes into the practice is scanned, electronically filed appropriately, and the paper copy is discarded appropriately. In the State of Maryland, records must be kept for five years after the last date of treatment1, or five years after the patient turns 18 years of age2. Obviously, the more patient records, the more at-risk a business becomes for a cyber/data breach. Many states have laws about what a business is expected to do if a breach occurs, beyond the Health Insurance Portability and Accountability Act (HIPAA).    
Special Thanks

Alicia D.D. Spoor, Au.D. is the Audiologist and President of Designer Audiology, LLC, located in Highland, MD. Previously, she was part of the cochlear implant and hearing aid teams at the Mayo Clinic Arizona.  Dr. Spoor earned her Doctor of Audiology degree from Gallaudet University in Washington, D.C. and her Bachelor of Arts degree from Michigan State University in Audiology and Speech Sciences. While at Gallaudet University, Dr. Spoor taught at both the undergraduate and graduate levels. She is currently the Treasurer for the Academy of Doctors of Audiology, Chair of the Audiology Quality Consortium, and Legislative Chair of the Maryland Academy of Audiology.
Endnotes
1 http://www.medchi.org/sites/default/files/Records%20Retention.pdf

2 http://www.healthinfolaw.org/state-law/retention-destruction-medical-records-under-statistics-and-records-law-md-code-ann-health-