There are many physicians with 10-99 income sources that are sole proprietorships; essentially, that means they are operating in business as themselves and any contracts with any other entities to provide service has their own name on it. This may not be the best scenario for you. By incorporating yourself into a formal business entity (more on those later), you are creating a layer of separation between yourself as an individual and the entity that is paying you. That separation can – in some cases – be significant in the event of a lawsuit.
DISCLAIMER: Nothing herein should be taken as legal counsel. This is just to inspire thought and consideration, so consult your attorney for the state – specific legal ramifications of incorporating in your home state.
Doesn’t Medical Malpractice cover me? Yes. Lawsuits resulting from medical errors are designed to be protected through your medical malpractice coverage. That said, you must think about the lawsuit as a weapon that lawyers will use to try and discover assets… assets you own that they would like to come after on behalf of their clients. The question becomes, where can they find assets that are exposed, in any way, to the lawsuit at hand? What if the medical malpractice coverage is 1) insufficient to cover the total damages awarded or 2) the lawyer finds a legal way to position other assets you own as party to the suit? Would you do whatever you can to minimize your asset exposure?
Creating a formal business entity and using it to represent you allows you to enter a contract with whatever entity is paying you (hospital, private group, locums company, etc) where it is your business that is part of the contract, not you personally. (IE, this agreement between xyz Dr. Biz Corp and Hospital). As a result, in SOME cases, certain types of lawsuits can only pursue assets located inside of that company – which would keep your personal assets outside of that purview. In the least, the entity acts as an additional layer of coverage that lawyers would have to pierce to get to you (the phrase ‘pierce the corporate veil’ is used inside the industry). Part of the liability protection built into corporate structure is designed to prevent personal assets from lawsuit exposure.
It must be carefully noted that the laws governing this topic are all state specific. Therefore, what applies in one state may not apply at all in another. It is irresponsible for anyone to generalize about the extent to which you are (or aren’t) protected through the use of a corporate entity – because the laws can vary to a great degree between one state and another. But, at least in some states, it is advantageous to have this additional layer of asset protection built in.
Different states require different entities. Some states will allow you to operate through an LLC (Limited Liability Company) or S Corp, and others are going to require a more formal entity like a PC (Professional Corporation) or PLLC (Professional LLC) which have more rigorous reporting and structuring requirements. You have to do your research to know your states laws. Better yet, have your team do it with you! The cost can be anywhere from a few hundred to a couple thousand depending on the type of entity and state you live in; while this is certainly a wildly variable cost basis, if indeed the entity can help protect you against lawyers with frivolous suits seeking to add as many of your assets as they can discover (indeed the process is called ‘discovery’ where any assets that can be party to the suit are laid out), that cost might be comparatively insignificant.
While this information may be frustratingly general, if you walk away from this wanting to understand your state specific laws better – and how incorporation may be able to help you – mission accomplished. You were told in med school that lawsuits are going to happen in your professional life; what preparations were you told to take? This topic can and should be part of your research; talk to your advisors. For us, when we hear the stories from physicians about a lawsuit hitting their desk, no one ever regretted being more prepared and informed in advance.