Life insurance, disability insurance, office overhead insurance, employment practice liability, malpractice insurance. Add one more thing to your list of insurances: membership in a cross-coverage group.
Eric J. Ploumis, D.M.D., J.D.
Dentists, by nature, are solitary beings. Most practice alone and many have no arrangement to keep their practices running if they are unable to be in the office. The thinking often goes, “I have life/disability/overhead/malpractice insurance. What else is there to worry about?” An often-overlooked “insurance” is the cross-coverage group—an agreement among like-minded practitioners to fill in for one another if a member is disabled or dies.
As an attorney who specializes in practice transitions, I have seen a number of instances, several in the past year alone, where the death or disability of a sole practitioner has resulted in a significant decrease in the value of the practice. The dramatic drop-off in productivity and income rapidly erodes the attractiveness of the practice to a potential buyer. Even if the orthodontist is able to return to work, the disruption the practice endured can have a long-lasting impact on growth and profitability. If the doctor had a cross-coverage agreement in place, he or she could have helped preserve the ongoing value and goodwill of the practice, made it more appealing to a potential buyer and maintained the new patient flow essential to every practice.
The cross-coverage agreement is a contract among willing participants. Unlike many contracts, its enforceability rests more on the moral compact the parties bring to the agreement than on something they can take before a judge to enforce. A key element in an enforceable contract, consideration, is not present in a tangible form. Asking a judge to compel a member to cover for another member or to award monetary damages for a failure to cover is an argument grounded more in theory than in fact. The lesson, then, is: choose your coverage group colleagues wisely and make sure they are professionals you can count on to come to your aid if you need them. When you are lying in a hospital bed the last thing you want is to find out is that a member of your coverage group does not plan to fulfill this solemn obligation.
Let’s look at what a typical cross-coverage agreement should consist of.
The agreement should list the members of the cross-coverage group. No member can substitute or assign his or her obligation to the group to anyone else. You don’t want casual or oral commitments; you want willing participants who will solemnly agree, in writing, to step up if and when needed. This is not a loose collection of dentists you happen to see on occasion at a meeting. This is an essential part of your practice security, as important as any other insurance coverage you have.
It is usually advisable to have at least six members in the group, but no more than 12. No member should have to assist more than once a week. With six members, every day of the week is covered; with 12, a member only has to cover once every two weeks. Covering for another member means a day you cannot be in your office. You want to minimize the impact on your practice while being able to assist your coverage group member retain the value of his or her own practice.
Another option to consider is for the group to keep a file of recently retired local orthodontists, perhaps even a retired former member of the coverage group. Having one doctor covering the practice will provide greater continuity of care for the patients. The local dental society or dental school often has data on recently retired practitioners who might want to help out on a short-term basis.
An introductory section that defines the mission of the group and its stated purpose, concluding with words like, “The parties seek to provide for the orderly functioning or transition of their practices in the event of a member’s disability or death,” is recommended.
In this section, you clearly define when members are obligated to step up and assist the member in need. Death is easy to define; disability is a little trickier. As a member of the group, you want to make sure that if you suffer a disability, the group is obligated to come to your aid. However, there are a number of events that may technically constitute a disability that you might want to consider excluding from the definition of disability, such as:
- Elective medical procedures.
- Self-inflicted disabilities.
- Disabilities as a result of hazardous activities.
- Foreseeable disabilities that allow time for the procurement of a substitute.
Failing to accurately and precisely define what triggers a disability is often the source of friction and resentment within the coverage group. The decision should rest with objective facts, not on the subjective opinion of the majority of the members.
The agreement should clearly state how the cross-coverage is put into play. One member should be appointed chair of the coverage group. This can be done on a rotating basis, with the subsequent chair already established, either by seniority or alphabetically, in case the presiding chair is the one in need of assistance. If coverage is required, the member or representative of the member in need of assistance will know immediately whom to call to arrange for coverage. There needs to be a clear chain of command and a specific way members communicate with each other if they are needed to assist.
Members should not automatically assume that if they hear of another member’s illness or death, they will be required to serve. The practice may have a buy-sell agreement already in place that obviates the need for coverage. It is even possible that the representative of the practice prefers not to have the coverage group spring into action, opting to make other arrangements with someone not in the coverage group.
Each member should know what day he or she is expected to be available. When the call comes in from a member in need that is not the time for the other members to decide which day they can give. Each member should state a specific day of the week he or she will be available. Members should also discuss the hours their office is open. If a member likes to work three 12-hour days each week, that may not be acceptable to a covering doctor who prefers a shorter day.
The group needs to agree on how long members will cover for a doctor in need. The customary time is no more than six months. Most of the time, group members are very happy to step in and assist a colleague in need, but the obligation must have an end. The rationale behind the coverage group is to buy time for the doctor in need to make appropriate arrangements for a more permanent solution. This means that if a doctor is disabled, the group’s obligation is to fill in while the disabled member actively looks for a substitute doctor to keep things going until he or she can recover. In the event of the death of a member, the group’s obligation is to maintain the value of the practice while the designated representative actively seeks to transition the practice.
Especially in the event of the death, there is often a grieving period that prevents putting a transition in play immediately. The group is there to keep things going. What the coverage group is not obligated to do is to provide perpetual coverage while the representative shops the practice around looking for the perfect buyer.
The group must decide whether the covering members are entitled to any compensation. The customary way this is handled is that for a period of a few months, usually no more than three, the members fulfill their obligation to the member-in-need with no compensation. In most cases, this will mean the covering doctor is out of his or her office for no more than 12 days over a three-month period. If coverage is needed after three months, members should receive per diem compensation. Taking time out of one’s own office is a costly commitment. Even when the covering doctor is compensated, the compensation rarely exceeds the lost income the covering doctor experiences.
The covering doctor must make concise and accurate records of all procedures and income generated. Ideally, a trusted staff member will be there to assist. The member must agree that none of those records can be duplicated or removed from the office under normal circumstances. The disabled doctor or the spouse of the deceased doctor does not want to worry that the confidential records of the office are leaving the premises.
It also needs to be clearly stated is that in the event any of the covering doctors requires any of the records to defend against a judicial or administrative action, he or she is entitled to whatever access is necessary to assist in the defense of such action. There should also be a clause in the cross-coverage agreement that all records need to be maintained for the required statutory period. And the agreement should clearly state that if the practice is sold or otherwise disposed of, these provisions will be binding on any subsequent buyer.
Your agreement should require that each member of the coverage group keep a “transition file” in an accessible but secure location, ideally with a trusted accountant or lawyer. Much like a will, this file will be opened only upon a triggering event. The file should contain vital practice documents, such as financial information, payroll reports, staff roster, passwords for office accounting, office software, data information, and the names of trusted advisors, including the doctor’s accountant, attorney and investment advisor. In an urgent situation, it is imperative that time not be lost locating these records and advisors.
Members of the group should prepare several different template letters, to be sent as a situation arises. One letter should be in the event a member suffers a short-term disability, another if the disability appears to be of a more permanent nature, and a third in the event of a member’s death. The letter should be directed at both referring dentists and patients and should seek to assure recipients that it is “business-as-usual” in the office. Agreeing on and composing a letter under the stress of an urgent situation leads either to a costly delay or a poorly drafted letter. Attach a letter for each scenario to the cross-coverage agreement as an exhibit.
The parties to the agreement should promise not to solicit any of the patients or staff of the doctor-in-need.
Term and Termination
The agreement should self-renew annually, unless a member withdraws or the group decides to disband. The agreement should have a mechanism to allow a member to withdraw from the coverage group, with members agreeing on how much advance notice is required to withdraw. Ninety days is the suggested notice. A method of delivery for the notice of withdrawal should be stated, usually a certified letter to the group chair, with an obligation by the chair to immediately notify all other members so that a replacement member can be brought into the group.
The agreement should have a provision that no member may withdraw if an active coverage situation is in effect or if there are not enough members in the group. Coverage groups work best if there is a critical mass of doctors who are available to cover. The untimely withdrawal of a member in an active coverage situation can have a negative impact on the dynamic of the entire group.
In the event of a catastrophic illness or the death of the practice owner, it is imperative that a transition occur rapidly. The coverage group should form a relationship with a reputable practice broker and name that broker in the agreement, in addition to the practice accountant and attorney.
Under the heading of “no good deed goes unpunished,” the last thing any member of the coverage group wants is to be liable for the actions of another. The cross-coverage agreement must have a clause that states that each of the parties promises to indemnify and hold harmless all others from their independent acts, errors and omissions. In addition, each covering member should notify his or her malpractice carrier and inform them that they will be covering for a colleague at a new office location.
Relationship of Parties
Your cross-coverage agreement should unequivocally state that there is no “privity” or business relationship between the members of the coverage group. No member, by virtue of being part of the group, has any claim on or responsibility for any of the assets or liabilities of the other members.
The agreement should address where and how any dispute between the members will be resolved. The logical venue for any dispute resolution is the state and county where most of the members have their offices. The best dispute resolution mechanism is arbitration rather than litigation in the court system.
The composition of the group should be age-balanced. As members of the group age, younger members should be asked to join. Although death and disability can strike anyone at any time, older members are actuarially more likely to require the group’s services. Younger members must acknowledge that the old guard has provided coverage for others for years and appreciate that fact if asked to come to the aid of a senior member. Coverage groups don’t work as well if all members are the same age.
Members must be clear about what constitutes a disability. A source of friction within a group and, occasionally, the cause of a group’s collapse, is when some members feel that a disability is one that could have been foreseen and provided for. The purpose of a coverage group is to provide short-term support for unexpected illness or death. A member who expects the group to cover for him while he or she is out for a month recovering from a hair transplant or maternity leave creates resentment among the other group members. Expecting group members to take time out of their offices when there was ample time to procure a substitute dentist is not within the spirit of the agreement.
When forming a coverage group or asking new members to join, vet each potential member to be sure everyone shares similar treatment philosophies. If you have a member who, for example, is adamantly opposed to extractions, he or she might not be a good fit for strict Tweed adherents. Additionally, all members of the group must be licensed in the same state; it makes no sense to have someone in your coverage group who cannot legally practice in your office. It is a good idea to notify and seek the advice of your malpractice carrier if you are called upon to assist a colleague in need. In the case of doctors with multiple offices, the group should determine which of the offices members are obligated to cover.
By establishing a pre-existing relationship with a reputable practice broker, the group can use its leverage to negotiate a discounted brokerage fee if a practice needs to be sold due to the death or disability of a member. Using those same economies of scale, a coverage group can also negotiate a lower fee with a practice appraiser and get annual or biennial appraisals of their practices to ensure that there is a current valuation if a rapid sale is required. The broker should be invited to speak to the group periodically to update the group on valuation methods for dental practices and the current “state-of-the-market” for transitioning practices. Having a broker in place who knows the practice and the prevailing market will improve the transition value of the practice. A knowledgeable broker can also provide a “reality check” on the presumed value of the members’ practices and help a disabled doctor realize that the time to sell is before the practice starts to decline significantly.
In many jurisdictions, such as New York State, a dental practice must be owned and operated by a dentist licensed in the state. The New York State Board for Dentistry permits only a brief window when the spouse of a deceased dentist can own and run the practice as it is transitioned. If a coverage group is not in place and the practice has not had a recent valuation, critical time is wasted putting together the necessary transition team. Often, the grieving spouse is too distracted to focus on the importance of acting decisively to transition the practice. Grief, coupled with lack of preparation, can cause a delay that severely impacts the ability of the practice to be effectively transitioned. The delay creates a significant drop in the value of the practice at a time when the surviving spouse may most need the income the sale would produce.
A successful coverage group has like-minded members who know each other and get along with each other. As a practical matter, when advising coverage groups I always suggest they meet twice a year to re-affirm their legal, moral and ethical bond to each other. One of the meetings is a business meeting, where the agreement is reviewed and each member is made aware of his or her solemn obligation to the other members of the group. The group roster is updated with the names of each of the members’ office manager, accountant and lawyer. On occasion, a speaker can be invited to discuss issues that might arise if a doctor dies or becomes disabled, such as taxation or estate planning.
The second meeting is more of a social gathering to which spouses are invited. It is important that spouses meet the members of the group and each other. In the event of the death or disability of the dentists, the surviving spouse will need to rely upon the members of the group to step in and assist in preserving the practice value while it is transitioned. Meeting with each other, even if it is once a year, serves to allay any fears the surviving spouse may have that members of the group would “poach” patients and staff from the deceased doctor’s practice.
In the past year, I have represented several dental-practice transitions that were the result of the death or disability of the selling doctor. Regrettably, not one of the deceased or disabled doctors had a coverage group in place. The spouses all had similar stories: “We talked about it but he never got around to joining one.” “She was in great health and never thought she’d get sick.” “He thought it would never happen to him.” “She knew she was sick but was in denial.”
Had the practice owners been part of a cross-coverage group, the practice value would have been preserved. The absence of a coverage group and lack of advance planning resulted in a significant reduction in the selling price of the practice. Even where I represented the buyer and we were able to pick up the practice at a large discount, neither party benefited. The seller got a lower price, the buyer a lesser practice.
Consider forming a cross-coverage group with like-minded colleagues. The peace of mind you will achieve knowing that no matter what happens, your practice can continue on is worth the time and effort. You owe it to yourself and your family.
The information presented here is not intended as a substitute for legal advice. You should familiarize yourself with the laws of your local jurisdiction and seek legal advice from a local attorney who specializes in such matters.
Dr. Ploumis is an attorney, an orthodontist and adjunct clinical professor of orthodontics and risk management at New York University. He limits his legal practice to issues surrounding the practice of dentistry, with an emphasis on practice transitions, employment issues, leases, and defense of allegations of professional misconduct before the Office of Professional Discipline. He can be reached at this email.