Written by Upstate bankruptcy attorney Däna Wilkinson: If the wrong thing happens at the wrong time, anyone can face bankruptcy. That includes anyone, even doctors. And recently, those bankruptcy filings are rising as financial pressures affecting doctors and medical practices increase from every direction. If you are accustomed to thinking that doctors are immune from financial pressures, and that a medical degree is a guarantee of financial security, think again.
Under our current system, most medical care providers are for-profit businesses. Unlike the alternatives, we rely heavily on businesses to provide our medical care. While there are still public hospital systems, most doctors, hospitals, labs and clinics are businesses, and to survive they have to be able to make a profit. In the last five years, those medical service businesses have been bombarded from all sides with pressures that cut their profits. As the overall economic condition declined, people deferred medical procedures and even office visits. At the same time, Medicare and Medicaid cut disbursements. Private insurers soon followed. Cost for malpractice insurance and other expenses continued to rise. Doctors and medical practices that were healthy have become marginal; those that are under peculiar pressure have been forced into bankruptcy.
Plantation, Florida attorney David Langley provides an example of a solo practitioner whose patients were mostly on Medicare or lacked insurance:
As the economy worsened in the wake of the recession, fewer patients could afford to come in. Cash payments and reimbursements dropped. To come up with money to keep the practice going, [the doctor] took a second job at a hospital. Still, her debt ballooned. She fell behind on state tax payments.
Two years ago, Florida tax officials showed up at her door to shut the clinic down. She quickly called Langley and he was able to file an emergency bankruptcy for her online while the officials were still in the waiting room. He gave them the bankruptcy case number, and they left without closing the clinic. Langley eventually helped the doctor restructure her debt and the clinic is still open, he said.
Doctors whose practices include large numbers of Medicare patients (like cardiologists) can be particularly vulnerable, since changes in reimbursement policies, or even timing of those payments, can have a heavy impact on a practice. Unfortunately, oncology practices can also be vulnerable, due in part to the high cost of cancer drugs.
In oncology, doctors were [once] allowed to profit from drug sales. So doctors would buy expensive cancer drugs at bulk prices from drugmakers and then sell them at much higher prices to their patients.
“I grew up in that system. I was spending $1.5 million a month on buying treatment drugs,” he said. In 2005, Medicare revised the reimbursement guidelines for cancer drugs, which effectively made reimbursements for many expensive cancer drugs fall to less than the actual cost of the drugs.
“Our reimbursements plummeted,” Barth said.
Still, Barth continued to push ahead with innovative research, treating patients with cutting-edge expensive therapies, accepting patients who were underinsured only to realize later that insurers would not pay him back for much of his care.
“I was $3.2 million in debt by mid 2010,” said Barth. “It was a sickening feeling. I could no longer care for patients with catastrophic illnesses without scrutinizing every penny first.”
Imagine, if you will, the only oncology practice in your town shutting its doors because of financial pressures, because it was no longer profitable. For some, that would considerably increase the inconvenience of treatment, as well as the cost for travel and missed work. For those who don’t have access to transportation, it could literally be a death sentence. And yet, that is what has happened to some clinics. Even more unfortunate, it has driven some doctors to leave the practice of medicine.
Doctors, much like lawyers, aren’t usually taught how to run a business, and that is part of the problem. I would hazard a guess that student loan debt is also a part of the problem for some practitioners. But the best business practices in the world can’t insulate you completely from the vagaries of a bad economy, decreasing expenditure as a result of that economy, and increasing expenses for insurance, supplies, utilities, and the like.
So how does bankruptcy help? Sometimes the “patient” (i.e., the medical practice) is too far gone–too far in debt, with too little income–to be saved, and a Chapter 7 liquidation is the only option. But sometimes a Chapter 11 reorganization (for either a medical practice or a doctor as an individual) can restructure debt and rehabilitate the practice as an operating business. And sometimes a personal Chapter 13 bankruptcy can do the same for the individual practitioner. The issues involved in such cases are complex (especially where continuing care for existing patients is at issue). But, a bankruptcy may give a practice a chance at recovery that would not be available otherwise.
Doctors are also subject to the same reluctance to face bankruptcy as the rest of us–maybe more so, since many of them also assumed that their medical training offered some financial stability. But just as any other business can suffer financial setbacks that lead to bankruptcy, so can a medical practice. And, like any other business, the sooner help is sought, and the more time available for planning, the better the outcome is likely to be.
Photo credit: iStock/AndreBlais