Protect & Defend columnist Ed Branam, DVM, is the veterinary and animal services program manager at Safehold Special Risk Inc. A 1977 graduate of the Michigan State University College of Veterinary Medicine, Dr. Branam has worked in the insurance industry for the past 20 years. He is a former Sacramento, California, veterinarian and a former veterinary affairs manager with Hill’s Pet Nutrition.Read Articles Written by Ed Branam
Regardless of the size or complexity of your veterinary practice, the delivery of clinical services comes with a significant number of inherent business perils. Smaller hospitals, typically privately owned, frequently lack the in-house organizational depth, expertise and technical resources enjoyed by larger, often corporate-operated, organizations. The latter group, however, can struggle with managing multiple entities from afar because of differing medical protocols, pricing models and management styles.
A key part of protecting the ongoing viability of any business is to review each risk and strategize to mitigate potential negative operational impacts.
Let’s look at six major risk categories critical to all veterinary organizations.
Independent practice owners likely invested their life savings or took out large loans to start their clinic or purchase one. Therefore, the initial pressure to succeed financially is tremendous. Cash flow is often the biggest concern. Where will they find the money to pay employees, taxes, insurance, vendors and creditors?
As the practice matures, financial concerns often shift to protecting the long-term investment. For many private owners, their equity in the business represents a major component of their anticipated retirement income.
Conversely, many larger veterinary entities are wholly or largely funded by corporate or private-equity investors expecting an acceptable return on their investment.
Despite the pandemic, the past few years saw excellent revenue growth at many practices. However, some economists predict a national, even global, recession. How such an event would affect the veterinary industry is yet to be seen. Nevertheless, many organizations are preparing aggressively for such an eventuality.
The veterinary profession is experiencing a renaissance in alternative systems of health care delivery. We have online and big-box pharmacies, in-store wellness clinics, the expansion of in-home wellness, hospice and euthanasia services, virtual medicine, specialty practices, and practice aggregators, to mention a few. How will those changes affect your business? What must you do before new market forces significantly impede your practice’s viability?
A veterinary practice’s most important asset is its reputation. You can have the best medical team and consistently deliver outstanding patient care at a reasonable cost, but if your reputation stinks, so will your business. That is particularly true with smaller, one- or two-location veterinary hospitals. They can’t dilute bad publicity as well as an extensive, multilocation network can.
The ever-increasing impact of social media makes managing an organization’s reputation more challenging than ever. Disgruntled clients and employees have a readily accessible, public platform to air grievances. A single negative post can reach thousands of potential clients. Forward-thinking veterinary organizations aggressively develop and promote their brand, differentiating themselves from an ever-expanding list of competitors.
Liability discussions invariably focus on client expectations and the exposure to lawsuits and state licensing board claims. Those are valid concerns.
However, practice owners must consider several other liability risks. Major ones include but are certainly not limited to employee claims (an on-the-job injury or workplace grievance, for example) and third-party injury and property damage claims. In addition, errors in managing employee benefits programs and contested contractual obligations are other risks that can lead to costly lawsuits and potential fines.
5. Business Interruption
A practice’s unanticipated closure for even a few days can be devastating. Fires, floods (from a pipe break or excessive rain), earthquakes, tornadoes and hurricanes are common causes of business interruption.
What happens if your hospital can’t open for an extended period? Do you have contingency plans for protecting revenue flow and paying staff salaries and ongoing operational expenses?
Insurance coverage is a standard component of business-interruption protection. However, some practice owners don’t know the extent of their coverage. For example, most standard policies don’t protect against a closure resulting from a flood or earthquake. Likewise, wind damage might be limited or excluded in high-risk areas. In addition, forced closure by civil authorities can be an uncovered exposure.
Sometimes, local authorities close businesses temporarily for precautionary reasons, such as a wildfire. However, will business-interruption coverage respond if your practice suffers no physical damage? In the case of a wildfire, the answer typically depends on its proximity to a business.
Five critical considerations involving business-interruption coverage are:
- What risks are covered? Standard policies often exclude several common causes of loss, such as natural disasters. Coverage also can depend on which part of the country your practice is located.
- How long is the waiting period? Some insurance policies provide coverage with little or no waiting period, whereas others might require a week or longer.
- How much does the policy pay? Typically, the maximum is based on a monthly limit, a total claim limit or an actual-loss-sustained basis.
- How long will the policy cover? Up to 12 months is standard for business-interruption coverage. Be advised that civil authority coverage usually runs for a much shorter period. Check your policy.
- Does the policy provide extended indemnity? For example, many business-interruption policies offer 30 to 90 days of ongoing financial support once a veterinary practice has reopened.
Risks surrounding cyberliability and network security are omnipresent in today’s world. The rise in cybercrime, coupled with the public awareness of and sensitivity toward the safety of personal information, forced companies to focus on protecting confidential data.
However, as global outsourcing becomes the norm, even for small companies, the boundaries of corporate responsibility have expanded and can be hard to define. Veterinary practices are constantly looking to vendors for a host of services that require sharing sensitive data. Although call centers, credit card processors, payroll administrators and cloud providers can handle tasks on your behalf, your practice ultimately is responsible for protecting information and responding appropriately in case of a breach.
An IBM Institute study found that almost half of all data breaches occurred while the information was with a third-party vendor. Therefore, if you transmit proprietary data, such as credit card numbers, for billing purposes, hackers might access it during the transmission, leaving you with significant exposure. Hackers also can get into the cache system of computers or servers and find deleted information.
Many veterinary organizations hesitate to use outside legal resources to help manage liability exposures. Instead, they contact friends, colleagues or vendors for advice on vital legal matters.
Every veterinary practice owner should develop a business relationship with an attorney experienced in working with the profession. The upfront investment can save time, money and aggravation in the long run.
In addition, investing in comprehensive insurance protection is one of the most cost-effective steps to protect yourself and your business. Work with an insurance agent or broker to find the best coverages, limits and contractual terms.
According to CyberPolicy.com, “Small and medium businesses are the top target for cyberattacks. Unlike large corporations, who have the money and resources to pay for cybersecurity and upgrade their network to match the latest hacker tricks, small businesses do not have that same luxury, and hackers know it.”