Example:

• • Dr. Adams faced personal liability for a patient lawsuit because his medical corporation failed to follow formalities.

How to Avoid:

• • Maintain detailed records of meetings, policies, stock issuances and other formalities.
  • Strictly separate personal and corporate finances.
  • Work closely with legal counsel to ensure full compliance.

Frequently Asked Questions:

• • What are examples of key corporate formalities? Holding valid meetings, issuing stock certificates (with the specific language required for medical corporations), filing annual reports, documenting policies.
  • What happens if corporate veil is pierced? The professional loses liability protection and can face personal responsibility for lawsuits or debts.

Example:

• • Dr. Lee’s C corporation lacked the tax savings he would have received with an S corporation.

How to Avoid:

• • Consult business attorneys and financial advisors to determine optimal structure.
  • Consider long-term goals and business needs beyond just taxes.
  • Be willing to convert to a more suitable entity in the future if necessary.

Frequently Asked Questions:

• • What factors determine the best professional corporation structure? Limiting personal liability, business continuity needs, optimizing taxes, professional category, and more.
  • Can I easily change tax status later on? Yes, you can convert, but the process can get complex on the backend.

Example:

• • Dr. Patel’s medical corporation was fined for allowing unlicensed staff to treat patients.

How to Avoid:

• • Verify all required licenses and credentials before commencing services.
  • Establish strict policies for vetting staff qualifications.
  • Consult legal counsel regarding professional regulatory requirements.

Frequently Asked Questions:

• • Can my corporation lose its ability to operate if licenses lapse? Yes, failure to maintain valid professional credentials can halt legal authority.
  • How often must I renew my professional licenses? Requirements vary by state and profession – verify renewal terms to remain compliant.

Example:

• • Dr. Andrews failed to detect his CFO had embezzled over $100,000 lacking financial oversight.

How to Avoid:

• • Implement layered internal controls with checks and balances.
  • Conduct regular financial audits by independent CPAs.
  • Monitor bank statements to quickly catch unauthorized transactions.

Frequently Asked Questions:

• • Should I require multiple signatures on large financial transactions? Yes, dual authorization helps deter fraud and errors involving material sums.
  • What are examples of other useful financial controls? Physical asset security protocols, electronic access controls, transaction pre-approvals, invoice verification processes.

Example:

• • Dr. Thompson struggled to dispute a malpractice claim lacking detailed patient records.

How to Avoid:

• • Implement document management systems with version controls.
  • Digitize records while maintaining secure backups.
  • Develop retention policies aligned to regulatory statutes of limitation.

Frequently Asked Questions:

• • What corporate records require permanent retention? Articles of incorporation, bylaws, tax filings, contracts, insurance, board minutes and resolutions.
  • What records can I discard after a set period? Employment applications, accounting source documents, expired licenses and non-binding correspondence.

Example:

• • Dr. Kelly’s lavish vacations paid by her medical corporation triggered an audit resulting in over $50,000 in back taxes and penalties.

How to Avoid:

• • Clearly define policies restricting personal usage of corporate resources.
  • Ensure accurate expense reporting and reimbursement processes.
  • Consult tax experts regarding deductibility of fringe benefits.

Frequently Asked Questions:

• • What are examples of prohibited personal usage? Vacations, vehicles, home renovations, country club memberships – if paid by the corporation.
  • Can I ever use corporate resources for personal matters? Occasional minor usage may be acceptable but should be strictly limited.

Example:

• • Dr. Wilson faced major losses after a fire wasn’t fully covered by his corporation’s property insurance.

How to Avoid:

• • Engage brokers to conduct risk analyses and secure adequate overall coverage.
  • Review policies annually and adjust limits to match growth.
  • Ensure compliance with updated regulatory policies.

Frequently Asked Questions:

• • What main policy types should a professional corporation carry? General liability, medical/professional malpractice, Directors & Officers (D&O), Cyber and Data Privacy, Workers Compensation.
  • Should we insure corporate records and data assets? Yes, consult brokers regarding Cyber and Data Privacy policies to cover digitized materials and intellectual property.

Example:

• • Dr. Patel’s clinic lost its Medicare eligibility over high volumes of denied claims.

How to Avoid:

• • Implement billing systems with rigorous internal controls and staff training.
  • Conduct regular external audits to verify full compliance.
  • Keep protocols current as regulations frequently update.

Frequently Asked Questions:

• • Can minor billing errors trigger serious consequences? Yes, regulators and insurance plans take compliance very seriously – even small infractions can prompt investigations.
  • What are high risk areas of non-compliance? Billing for services not provided, duplicate claims, inflated costs, coding manipulations, eligibility fraud.

Example:

• • Dr. Roberts’ clinic faced lawsuits over unqualified technicians contracted from a third-party lab vendor.

How to Avoid:

• • Vet all vendors thoroughly upfront and implement performance metrics.
  • Mandate compliance with policies and procedures.
  • Conduct regular vendor reviews and reassess relationships periodically.

Frequently Asked Questions:

• • What due diligence is recommended on vendors? Background checks, reference checks, financial vetting, verifying licenses, interviewing principals, reviewing policies and procedures.
  • Should vendors carry their own insurance? Yes, validate policies and add your entity as an additional insured to transfer risks.

Example:

• • Lax security enabled hackers to access thousands of patient records at Dr. Taylor’s clinic, prompting lawsuits.

How to Avoid:

• • Conduct exposure assessments and implement layered cyber defenses.
  • Encrypt data and control access with strict protocols.
  • Provide regular end-user security training.

Frequently Asked Questions:

• • Should I hire external experts to evaluate risks? Yes, independent cybersecurity firms help objectively assess vulnerabilities.
  • How often should risk assessments occur? Annually at minimum, but continuous monitoring is ideal to keep pace with constant external threats.

Example:

• • Absent estate planning, Dr. Miller’s unexpected passing prompted major disputes over practice ownership among children.

How to Avoid:

• • Implement Buy-Sell Agreements dictating future control transfers.
  • Secure life insurance to fund obligations under such agreements.
  • Review estate documents routinely to update executors and beneficiary designations.

Frequently Asked Questions:

• • What assets require special estate planning guidance? Closely held corporate stock, alternative investments, intellectual property rights, specialty licenses.
  • What happens if I gift partial ownership before death? Review implications for basis step up, gift taxes, continuity planning, buy-sell triggers, and more.

Example:

• • Dr. Anderson prompted an expanded investigation and potential charges by responding aggressively to initial Medicare audit inquiries.

How to Avoid:

• • Engage legal counsel promptly when contacted regarding an investigation.
  • Conduct internal reviews to understand relevant risks and formulate responses.
  • Closely coordinate with counsel before producing documents or communications.

Frequently Asked Questions:

• • When are external investigations typically launched? Whistleblower complaints, referrals from other agencies, paid informant tips, routine audit findings.
  • What agencies commonly investigate medical corporations? DOJ, OIG, FBI, DEA, IRS, FinCEN, Medicare, Medicaid, FDA, professional licensing boards.

Example:

• • Dr. Martin’s decision not to appeal a disputed licensing board sanction had long term impacts on her reputation and practice.

How to Avoid:

• • Engage counsel early to carefully assess risks in disputes.
  • Consider negotiations and mediation before litigation.
  • Model potential settlement impacts over long horizons.

Frequently Asked Questions:

• • What types of agreements typically require legal review? Settlements, equity/asset sales, partnership agreements, affiliated party deals, leases.
  • When should I consider litigation over a dispute? Attempt other resolution paths first, then litigate strategically understanding the time/cost commitment required.

Example:

• • Rapid expansion left Dr. Davis without adequate staff and resources to meet patient demand without quality declines..

How to Avoid:

• • Develop long term strategic growth plan supported by financial modeling.
  • Secure access to sufficient capital to fund growth.
  • Routinely assess need to enhance management, operations and governance.

Frequently Asked Questions:

• • What indicators highlight needs for additional infrastructure? Patient cycle times, medical errors, customer satisfaction surveys, staff workload scores.
  • What are options for financing growth plans? Retained earnings, bank debt, private equity, joint ventures, sale-leasebacks.

Example:

• • As CEO, Dr. Jones’ lack of leadership generated deep rifts between physicians and the administration.

How to Avoid:

• • Elect knowledgeable, engaged directors to provide oversight.
  • Implement incentives promoting strategy alignment across stakeholders.
  • Routinely verify senior management has sufficient skills and direction.

Frequently Asked Questions:

• • What are warning signs of leadership gaps? Declining productivity, high employee/partner turnover, patient dissatisfaction, increased errors.
  • How can physicians improve governance engagement? Assign dedicated time for strategy immersion, provide operational transparency, host board education sessions.

Common Legal Mistakes Physicians Make with Professional Medical Corporations

Q1: Failing to issue stock certificates and hold meetings risks: A) Tax benefits B) Personal liability C) Cost savings

Q2: Reimbursing lavish personal expenses from the PC risks: A) Inquiry B) Taxes C) Refunds

Q3: Practicing without proper licensure: A) Increases revenues B) Lowers insurance costs C) Heightens liability

Q4: Poor vendor management chiefly increases risks of: A) Lawsuits B) Errors C) Bankruptcy

Q5: Inadequate data security can prompt: A) System failures B) Legal disputes C) Breaches

Q6: Succeeding without continuity planning risks: A) Lower taxes B) Ownership conflicts C) Smooth transition

Q7: Record retention gaps can increase odds of: A) Legal wins B) Settlements C) Malpractice claims

Q8: What is the chief risk of poor physician governance? A) Financial growth B) Staff loyalty C) Non-compliance

Q9: Inability to scale heightens risk of: A) Divestitures B) Site closures C) Declining quality

Q10: Rushing dispute resolution risks: A) Missed details B) swift justice C) Equal outcomes

Answers: Q1: B) Personal liability Q2: A) Inquiry Q3: C) Heightens liability Q4: A) Lawsuits Q5: C) Breaches Q6: B) Ownership conflicts Q7: C) Malpractice claims Q8: C) Non-compliance Q9: C) Declining quality Q10: A) Missed details