Legals Don’t Need to Be Complicated: Managing Risk in Your Medical Practice
When running a medical or health practice, it’s easy to feel overwhelmed by the sheer number of legal and operational risks that need to be considered. From patient complaints to regulatory audits, the landscape can seem complex, but the truth is, your legals don’t need to be complicated. By implementing some key strategies, medical and health professionals can protect their practices, reputations, and financial well-being.
Understanding Risk in a Medical Practice
Risk is an inevitable part of running any business, and medical practices are no exception. Risk can be defined as the exposure to harm, loss, or damage—whether that be financial, reputational, or operational. In the medical field, risks arise from multiple sources, including:
performance risks (e.g., misdiagnoses, patient dissatisfaction);
legal issues (e.g., breaches of employment agreements, contract disputes);
regulatory and government policy changes;
environmental risks (e.g., pandemics, natural disasters, chemical spills);
security risks (e.g., data breaches, theft); and
financial risks (e.g., economic downturns, Medicare Benefits Schedule (MBS) audits).
The key to successfully managing risk is a proactive approach. This means identifying potential issues before they arise and implementing strategies to avoid, mitigate, transfer, or accept them. Risk can also create opportunity in business as well, so do not underestimate the value in identifying risks and identifying those which could be used strategically in your practice.
Risk Management Strategies
The four primary approaches to risk management are:
Avoidance – Where possible, eliminate activities or decisions that could introduce risk.
Mitigation – Decrease the likelihood or impact of the risk.
Transference – Shift the risk to another party, such as through insurance or contracts.
Acceptance – Recognise that some risks are unavoidable and manage them accordingly.
For example, having all of your legal agreements in writing helps to avoid and transfer risk, and regular reviews and ongoing education help mitigate risks. Ensuring you have appropriate insurance is a key way to transfer risk, and in some cases, accepting risk is necessary when no other alternatives exist. Being a business owner means that you are already open to accepting a larger number of risks than other health professionals.
Common Practice Risks and How to Manage Them
1. Patient Complaints
Every medical practice will experience patient complaints at some point. The key to managing them effectively is understanding their nature and having clear policies in place. Steps to take include:
reviewing clinic policies to see if the complaint is already covered;
checking insurance coverage (e.g., liability for slips and falls when in the clinic);
responding professionally and in writing if necessary.
If a patient has complained publicly (for example, on the practice’s social media), something else to be mindful of is the Australian Health Practitioner Regulation Authority’s (AHPRA) advertising guidelines. Interactions with such complaints (particularly where they constitute a ‘testimonial’) have the potential to land the practice into some hot water. We would recommend ensuring the clinic policies include how to manage patient complaints consistent with your practice’s AHPRA obligations. You Legal offers an Advertising Framework which includes best practice regarding how to manage such complaints; and seeking legal advice if a complaint escalates to a formal dispute.
2. A Doctor Leaving the Practice
When a doctor decides to leave a practice, questions arise about what happens to their patients. Whether the doctor is a contractor or an employee affects the legal obligations involved. To manage this transition smoothly:
review the doctor’s agreement with the clinic;
ensure patients receive proper communication about their continuity of care; and
if necessary, enforce contractual obligations through cease-and-desist notices for breaches of non-compete or patient solicitation clauses.
If the departing doctor is also a director or shareholder in the practice, additional complexities may arise. This is where an Owner’s Agreement becomes essential.
An Owner’s Agreement, commonly referred to as a Shareholders, Unitholders or Partnership Agreement (depending on your business’ structure) sets out the rights and responsibilities of the practice owners. When an owner leaves key considerations include sale of ownership interest, impact on business operations and restrictions on future competition. For more information on the importance of implementing an Owner’s Agreement in your practice, read our recent article here.
A Buy-Sell Agreement can also work alongside an Owner’s Agreement to define how ownership transitions are handled in the event of a doctor leaving the practice in more tragic circumstances. This agreement is insurance backed and outlines what is happen with departing owner’s shares, specifies how the sale price will be determined, establishes funding mechanisms and ensures that ownership transitions occur smoothly and fairly, protecting both the departing owner’s (or their next of kin) interest (usually in circumstances where they can no longer work due to death or permanent disability) and ongoing viability of the practice at a time which is already emotionally taxing for the other owners.
If your practice does not currently have a Buy-Sell Agreement in place, now is the time to consider implementing one to safeguard your business’s long-term stability, and importantly provide peace of mind.
3. Employees Not Doing the Right Thing and Disputes
Employee misconduct can range from minor breaches of workplace policies to serious ethical and legal violations. Managing employee behaviour or any disputes requires clear expectations, strong workplace culture, and adherence to legal agreements. Consider:
whether the employee aligns with your clinic’s values and culture;
reviewing their employment agreement and clinic policies. When a dispute arises, you may need legal assistance to understand the contractual rights and obligations of both parties and to guide your next steps;
understanding the challenges of hiring in the current medical/ health industry landscape; and
taking prompt action when issues arise, including performance management or termination if necessary (though as you would likely know, termination of employees must be done carefully due to unfair dismissal protections, we highly recommend getting legal advice on this to protect your practice).
4. Unexpected Liabilities
Unexpected liabilities can be a risk that can significantly impact a medical practice’s financial health and operational stability. Common areas that we see that surprise clinics in the heath and medical industries include unexpected payroll tax liability, worker misclassification, incomplete (or no written) agreements and data breaches.
Each of these risks present unique risks that require proactive management to safeguard the practice’s long-term stability:
Payroll Tax Liability: Recent legal decisions such as, Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue [2021], and consequential state payroll tax rulings, have heightened scrutiny and payroll tax obligations for medical practices, particularly concerning independent practitioners. If you’re wondering about how these rulings may impact your practice, seeking specialist payroll tax advice can help clarify your obligations and mitigate potential risks. We have a fast-track solution for Legal Advice on Payroll Tax Rulings to help you navigate these rulings efficiently available here.
Worker Misclassification: If a practice incorrectly classifies a worker as an independent contractor rather than as an employee, it may face legal challenges relating to entitlements and superannuation. Ensuring clear and well-drafted Service or Employment Agreements is crucial to aligning contractual terms with actual working arrangements.
Incomplete (or no written) Agreements: Poorly drafted or missing agreements can expose medical practices to disputes over responsibilities, revenue-sharing and termination processes. Regularly reviewing your practice’s contracts with legal professionals can help practices stay protected against future disputes.
Data Breaches: With increasing reliance on digital technologies, cybersecurity risks have become a growing concern on medical practices. A data breach can have serious regulatory and reputational consequences, particularly given the strict privacy laws governing patient information. Implementing robust cybersecurity measures is essential to protecting sensitive data.
Key Takeaways for Risk Management in Your Practice
Check Agreements and Policies: Always refer back to agreements and clinic policies when a legal issue arises. Regularly review these and engage with professionals to ensure necessary updates are made and your practice is protected.
Insurance Matters: Ensure that you have appropriate insurance coverage for common risks, including professional indemnity, public liability and cyber risk insurance and understand who bears what risk whether that be the practice or practitioner to avoid unexpected liabilities.
Know Your Desired Outcome: Before taking action, clarify what resolution you want to achieve.
Seek Support When Needed: Some legal issues require professional legal assistance—don’t hesitate to reach out to us for assistance.
Final Thoughts
Risk management doesn’t have to be overwhelming. With the right strategies in place, medical practices can operate smoothly while minimising potential legal risks. At You Legal, we are passionate about supporting healthcare professionals in navigating the complexities of legal risk. If you need legal documents or tailored legal advice, we’re here to help.
If you’re unsure where your practice stands our Medical Practice Risk Audit is a great starting point. It is designed to help you identify potential vulnerabilities and ensure you have the right protections in place – giving you confidence and peace of mind.
For ongoing insights, join our Facebook group: You Legal for Doctors.
Our team has extensive experience in providing advice and insights into helping practices manage risk. To discuss the potential ways we could help, contact our team here, and we will put you in touch with the best professional for your needs.