The Medical Practice and Business Overhead Expense Disability Insurance Coverage

The Medical Practice and Business Overhead Expense Disability Insurance Coverage: Claim and Legal Issues.

George Thompson. Esq.
Introduction

Hundreds of medical practices through out New England have a form of insurance coverage that is known as Business Overhead Expense ("BOE") disability insurance. The purpose of BOE coverage is to provide a reimbursement to the practice owners, up to a specified dollar benefit amount identified in the insurance policy, for the incurrence of "usual and customary overhead expenses" related to the "running" or "operating" of the practice prior to the onset of the disability of a physician/practice owner ("the Doctor"). Example of typical medical practice expenses insured against would be rent, taxes, employee salaries, utilities, lease payments. What Doctors and their business/practice managers typically do not appreciate, however, is the risk of not receiving any BOE benefit payments from the disability insurance company because of the unique circumstances associated with each BOE claim. The purpose of this article is to high light some of the typical BOE insurance claim disputes and to better educate Doctors and Practice Managers about some of the potential pitfalls associated with BOE claims.

  1. Is the Medical Practice Owned By Only One Doctor Who Is also the Person Insured Under the BOE Policy?

A frequent denial theme for a medical practice BOE disability claim involves a medical practice that is a "one Doctor shop." In other words, one individual wears the hats of Doctor, sole business owner, and the individual insured against disability under the BOE policy. Typically this is seen in medical practices organized as a Sole Proprietorship or a "S" or "C" corporation for federal income tax purposes. The pitfall for the unwary is appreciated if the insured/Doctor is totally and likely permanently disabled. In such a situation insurance companies have denied BOE benefits under the rationale that the business is no longer functioning as a medical practice since the Doctor can't provide medical care and nobody else in the practice is providing medical care. Many Courts have accepted this rationale and have concluded that once the core function of the practice is eviscerated by a total disability, the business is no longer being "conducted" or "operated" as a medical practice and hence benefits are not payable for continuing run off expenses such as a property or equipment lease, accounts receivable activities, secretarial or clerical salaries associated with transferring patient files. Consequently, the totally disabled sole business owner/Doctor gets the worst of both worlds: he/she is totally disabled, can't practice medicine, and could becomes liable for run off overhead expenses since the BOE policy won't pay.

  1. Was the Medical Practice Sold or Did the Doctor/Owner Sell His Practice Ownership Interest to His Medical Group?

Another basis used by disability insurance companies for denying a BOE claim revolves around the incorrect assumption by the insured/doctor that so long as the liability for the overhead expense was incurred before his disability, i.e. an equipment lease payment, the BOE policy will always pay a benefit to cover the expense. Once the Doctor/Owner sells his interest in the medical practice, however, the insurance company is likely to deny the BOE claim because the Doctor is neither contemporaneously engaged in the conduct or operation of the medical practice and/or is no longer responsible for those continuing overhead expenses assuming the new owner takes all of the assets and liabilities of the medical practice. Similarly, unwary purchasers of medical practices from disabled Doctors sometimes under value the overhead expense liability they are acquiring because they fail to appreciate that the business overhead expense payments will end when the disabled Doctor sells his/her ownership interest.

3. Words Matter: Business vs. Profession

The words used in BOE policies typically vary between insurance companies and also can vary within different BOE policies issued by the same insurance company. One example of the significance of different words and different results concerning a benefit payment conclusion can be appreciated by focusing on the difference between "business" or "profession". "Business" is a narrower term than "Profession." One may not be providing health care services (the business) but still be incurring expenses such as licensure fees and association dues related to his or her broader " profession." Accordingly, if a disabled doctor closes or sells his business but has a policy that provides for benefits associated with the conduct of his "profession," he may stand a better chance of qualifying for some BOE disability payments.

Next Article: The author will discuss some possible solutions for medical practice owners confronting the BOE issues above. Questions or comments about this article can be emailed to George Thompson atgthompson@gthompsonlegal.com

About the Author: George Thompson works with the Westborough, MA. Law firm of George Thompson (508-366-1304). His practice focuses on representing insurance policyholders, both individuals and businesses, through out New England, in insurance disputes with their liability, disability and health insurance carriers. He has worked as an adjunct Professor of Insurance Law at the University of Massachusetts School of Law and is a past Co-Chairman of the Massachusetts Bar Association Health Law Section. The article above is intended to be educational and informative and is not legal advice to any particular reader.