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Strategies to protect against malpractice liability

Article-Strategies to protect against malpractice liability

Strategies to protect against malpractice liability

At one time or another, you have most likely found yourself worried or thinking about potential malpractice liability. As I counsel all of my clients, you would be wise to take proper steps to protect against it, and this article outlines a few strategies for doing so.

#1: Risk Management

The first and most obvious strategy to protect against malpractice liability is to reduce risk and become the best physician you can be. This begins with developing your ongoing knowledge through continuing medical education and maintaining a commitment to meeting the medical standard of care expected in your specialty.

Beyond this medicine-centered approach, physicians are well-served to incorporate non-specialty specific risk management techniques in their practice. These include learning how both you and your staff members can best communicate with patients, especially when dealing with difficult patients or bad outcomes.  

Physicians should also consider implementation of methods for handling protected health information (PHI), adhering to frequently changing HIPAA regulations and managing risks of communication technology, from blogs and websites, to texting and email.  

#2: Asset Protection

Regardless of how many risk management courses you take or how carefully you practice, mistakes will occur.  Human error cannot be eliminated from the equation.  Moreover, sometimes bad outcomes will occur even when all best practices were followed, and occasionally bad outcomes can lead to potential liability even if you believe you nothing wrong. Certainly, our legal system is not perfect and predicting liability is not an exact science.

Given this, many physicians have chosen to buttress their practice risk management with asset protection planning. Asset protection planning has a simple goal: to position a your assets in such a way that makes it difficult, and in certain cases nearly impossible, for a potential future lawsuit plaintiff to gain access to them. 

If your goal is to feel more secure and sleep better at night knowing that you will not lose what you have worked so hard to build, then asset protection planning is an important part of the solution. 

Asset protection: A matter of degrees

One fundamental concept that physicians must understand is that asset protection planning is a discipline of degrees, not a black-and-white, vulnerable or protected analysis.  

In fact, we use an asset protection rating system for a doctor’s overall situation: from -5 (totally vulnerable) to +5 (superior protection). The goal is to move as much of your wealth as possible from the negative vulnerable positions to the higher positive protected positions – ideally, with as little cost and interruption as possible. 

Practice asset protection

While the highest priority for most physicians is to protect their personal assets, practice protection should not be overlooked. Why? Because any malpractice or employee claim (sexual harassment, wrongful termination, etc.) against any of the doctors in the practice threatens all of the assets of the practice. In other words, if you are in a group practice, you are underwriting all of the acts and omissions of your partners, to the extent of your practice assets.

The most important practice assets include your cash flow and income. The good news is that the tools that protect your cash flow also typically help you save on income taxes and build retirement wealth. These include qualified retirement plans – such as defined benefit plans, 401k and combination plans – non-qualified plans, captive insurance arrangements and more. 

Other important practice assets include the practice real estate, if any, and valuable equipment. If your practice has valuable real estate or equipment, you may want to separate these assets from the main practice, using limited liability companies (LLCs) to lease them back to the main practice entity. 

Personal asset protection

Personal asset protection encompasses your home, retirement accounts, other investment accounts, second home or rental real estate and valuable personal property.

First, we typically recommend leveraging your state’s exempt assets, because (1) they enjoy the highest +5 level of protection and (2) they involve no legal fees, state fees, accounting fees or gifting programs. In other words, you can own the exempt asset outright in your name, have access to its value, and still have it 100% protected from lawsuits against you.

Each state law provides for assets that are absolutely exempt from creditor claims, thereby achieving a +5 status. Many states offer exemptions for qualified retirement plans and IRAs, cash within life insurance policies, annuities and primary homes. Make sure you seek an asset protection expert to find out the exemptions in your state.

Beyond exempt assets, basic asset protection tools like family limited partnerships (FLPs), limited liability companies (LLCs) and certain types of trusts should be used.    

FLPs and LLCs provide good asset protection against future lawsuits, allow for maintenance of control by you (the client), and can provide income and estate tax benefits in certain situations. Specifically, these tools will usually keep a creditor outside the structure through “charging order” protections. These protections typically allow you to create enough of a hurdle against creditors to negotiate favorable settlements. For these reasons, we often call FLPs and LLCs the “building blocks” of a basic asset protection plan.  

There are many types of trusts that also provide significant protection for physicians. These range from life insurance trusts or charitable remainder trusts, to grantor retained annuity trusts, domestic asset protection trusts and more. Each type has its pros and cons, costs and benefits.  

Obviously, for all of these legal tools, their asset protection benefits rely on proper drafting of the documentation, proper maintenance and respect for formalities and proper ownership arrangements. If all of these are in place, you can enjoy solid asset protection for a relatively low cost.


The practice of medicine has inherent lawsuit risks, primarily from medical malpractice. Risk management and asset protection planning go hand-in-hand to help you reduce your risk of liability and protect you in case liability does occur. 

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About the Author

David B. Mandell, JD, MBA

Attorney David Mandell is a well-known expert in the areas of risk management and asset protection. He is a partner in the wealth management firm OJM Group ( and author of more than a dozen books for physicians, including For Doctors Only. He can be reached at 877-656-4362 or [email protected]


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This article contains general information that is not suitable for everyone. The information contained herein should not be construed as personalized legal or tax advice. There is no guarantee that the views and opinions expressed in this article will be appropriate for your particular circumstances. Tax law changes frequently, accordingly information presented herein is subject to change without notice. You should seek professional tax and legal advice before implementing any strategy discussed herein.

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