The Risk on Your Books No Insurance Policy Covers

Your second-highest-producing associate has been with your medical practice nine years. She joined the year you moved into the building, took her first call on a Tuesday in October, and within eighteen months had built a panel that ran three deep on the schedule by Wednesday morning.

Today she generates 31 percent of the reimbursements that hit the practice’s books. Three of your top fifteen referring physicians knew her before they knew you. Two of them trained with her. One of them sends every difficult case her way and signs the consult notes “thanks again, please give her my best.”

Her employment agreement contains a non-compete clause. Fourteen miles, two years, the standard language your attorney inserted when she signed in 2016. The clause has not been touched sinceE.

The practice has no written succession plan for her departure.

Most owners who read that back to themselves register a small tightening in the chest and move on. The tightening is the recognition and the recognition is correct. The associate, the referrers who knew her first, the untested non-compete, the absent succession plan. Each of these is a fact about your practice today. Together they describe a single concentrated exposure that has been building for nine years.

The practice owner who feels the tightening and moves on has made a decision without naming it. The decision is that the exposure will be addressed when it materializes. The associate will give notice. The owner will respond. The patients will be retained or they will not. The referrers will continue sending cases or they will redirect them. The two-year non-compete will hold or it will be tested in a deposition.

The alternative is to run the numbers before the notice arrives.

• The revenue that follows her on departure is a calculation that can be performed today.
• The non-compete’s economic effect, separate from its legal enforceability, is a calculation that can be performed today.
• The practice’s operating position six months after her departure is a calculation that can be performed today.

None of these calculations require the associate to do anything. They require the practice to look at what it has. 

The exposure is the same. The owner’s position relative to it is not.

You do carry three million dollars in key person life insurance on her. The premium is $6,400 a year. The policy pays if she dies.

It does not pay if she leaves.

The probability of the second event in the next 36 months, for an associate of her tenure, age, and market position, is materially higher than the probability of the first. The insurance industry knows this. It is why the policy you bought is the policy that exists. Departure cannot be underwritten because departure cannot be modeled. Mortality can be modeled because it has a curve. The curve is what the carrier sells. The curve is the only part of the risk the carrier will accept.

This is the pattern across your binder. The risks that have premiums are the risks the market can model and price. The risks without premiums are the risks the market cannot model and will not accept. Your premium is not a measure of the risk you face. It is the price the market charges to move risk off your balance sheet, on the risks the market is willing to take.

The risks the market will not take stay on your balance sheet. Indefinitely. Without renewal letters. Without annual rituals of acknowledgment. Without a premium that prompts the question of whether the protection is adequate, because there is no protection to be adequate or inadequate.

My help makes what comes next possible.