Navigating Partner Disability in Private Practice
A plan for maintaining stability and sustainability in a common scenario in which a partner is unable to work for an extended period of time due to illness or injury.
Seth J. Kanowitz, MD, and David E. Melon, MD, on behalf of the Otolaryngology Private Practice Section (OPPS)
Running a medical practice requires navigating numerous challenges, but few are as complex and potentially destabilizing as managing the disability of a partner. In private practice, where recruitment hurdles and financial pressures are magnified, the absence of a partner and that person’s contribution toward overhead can strain patient care, operations, and finances. Addressing this issue proactively through thoughtful planning and safeguards is essential for ensuring long-term practice stability.
The Challenges of Partner Disability
Even with healthy accounts receivable, most practices can sustain overhead costs for only about three months without significant strain. But what happens if a partner is out for six to 12 months? Fixed overhead costs, such as rent, utilities, EMR costs, staff salaries, and malpractice premiums, will continue to mount and without a solid plan, that can potentially drive the practice—and the partner—into financial distress.
When a partner becomes disabled, the repercussions extend far beyond their personal income loss. Replacing a partner temporarily is difficult, if not impossible, leaving the remaining physicians to absorb not only a heavier patient load, but also the disabled partner’s share of those fixed overhead expenses. This financial and operational burden can destabilize the practice, reducing patients’ access to care and increasing the remaining partners’ stress. For the disabled partner, covering their share during their absence could mean financially “going in the hole.” Depending upon the stage of their career, this may cause them to question if they are better off retiring or looking for a different practice environment.
Practices must have defined plans for open-ended disability situations to avoid compounding these challenges and forcing partners to shoulder additional financial and patient care responsibilities indefinitely. The absence of clear policies and financial safeguards can lead to strained relationships and jeopardize the practice’s sustainability. The lack of a clear mechanism for addressing these costs can lead to tension and even jeopardize the practice’s long-term viability.
The Risk Is Real
Disability might seem like a remote possibility, but the statistics tell a different story:
- A 35-year-old in the U.S. has a 50% of experiencing a disability lasting 90 days or longer before age 65.1
- Workers younger than 35 have a one in three chance of being disabled for at least six months during their working years.1
- One in four workers in the U.S. will endure a disability that keeps them out of work for at least one year during their career.2
The leading causes of short-term disability claims are pregnancies (18.0%), infectious diseases, including COVID-19 (15.9%), musculoskeletal disorders (15.1%), and injuries such as fractures and sprains (9.9%).3 Long-term disabilities are more often caused by musculoskeletal issues (25.2%), injuries such as fractures, sprains, and strains (13.1%), cancer (11.5%), and mental health issues (7.3%).4
The Role of Business Overhead Expense Insurance
To mitigate the financial risks of a partner’s disability, many practices turn to business overhead expense (BOE) insurance. This specialized insurance provides coverage for the disabled partner’s share of fixed business expenses, ensuring that the practice can maintain its financial stability during their absence. Unlike personal disability insurance, which pays the affected physician directly for lost wages, BOE insurance ensures that the person’s portion of essential practice operations—such as payroll, rent, and utilities—is covered during the disability period. It also allows the disabled physician to not use their personal disability income to pay overhead expenses, effectively increasing the value of their overall disability insurance benefits.
Benefits of BOE Insurance
- Provides guaranteed cash flow to the practice during the disability period as defined by the policy’s limits
- Keeps the practice operational even in the partner’s absence
- Covers critical business expenses, preserving cash reserves for the remaining partners
- Helps retain employees by ensuring payroll continuity
- Often has tax-deductible premiums
At both our groups, our partners carry BOE insurance, splitting premiums equally, regardless of individual rates based on medical underwriting. This shared-cost approach reflects the understanding that the insurance protects all partners and the business as a whole, not just the disabled individual. Essentially, you are insuring yourself and your personal income against your partner’s disability. Although we have been fortunate not to have to use it, having BOE insurance provides invaluable peace of mind.
Defining Clear Disability Policies
Another way practices must prepare for a disability situation is by codifying disability policies in their operating agreements to clarify expectations. Here are key elements to include:
- Specify the maximum period disability. What happens once the BOE payment stops at the completion of the fixed term (typically 12 months after the 90-day elimination period)?
- Set triggers to bring in temporary replacements (e.g., locum tenens physicians), transitioning the disabled partner to a non-clinical role, or initiating a buyout if necessary.
- Review how you will redistribute patient loads among remaining physicians and advanced practice providers to alleviate operational strain.
- Ensure that the operating agreement outlines when and how a disabled partner’s role will be adjusted or transitioned.
What’s Your Backup Plan?
In addition to BOE insurance and disability policies for operations, it’s important for practices to explore and codify additional financial support mechanisms, such as:
Goodwill Agreements
Partners temporarily cover overhead with the expectation of future reciprocity.
Flexible Overhead Allocation
Converting fixed expenses to a percentage of collections reduces the burden on a disabled partner.
Loan Options
Internal or external loans can cover overhead, with repayment terms defined in advance.
Contingency Funds
Partially self-insure and establish a shared fund to cover overhead expenses while awaiting insurance payouts or to supplement insurance coverage.
Advance on Buyout
Offer an advance on the partner’s anticipated buyout, akin to a stock-pledge agreement, with a reasonable interest rate.
Final Thoughts
At its core, addressing partner disability is about safeguarding the future of the practice while ensuring fair treatment for all partners. BOE insurance, clear operating agreements, and proactive financial planning are invaluable tools for achieving this balance. We encourage practices to evaluate their current policies and consider whether their plans are robust enough to handle the unexpected.
What strategies has your practice implemented to address partner disability? Share your experiences on ENT Connect or get in touch with the Bulletin via bulletin@entnet.org.
References
- The Council for Disability Income Awareness. Accessed February 2025. https://thecdia.org/disability-statistics/
- Social Security Administration, Disability and Death Probability Tables for Insured Workers. 2023. https://www.ssa.gov/oact/NOTES/ran6/an2023-6.pdf
- Integrated Benefits Institute, Health and Productivity Benchmarking 2022 (released 2Q 2024), Short-Term Disability, All Employers. Condition-specific results. See https://www.ibiweb.org/tools-analysis/benchmarking
- Integrated Benefits Institute, Health and Productivity Benchmarking 2022 (released 2Q 2024), Long-Term Disability, All Employers. Condition-specific results. See https://www.ibiweb.org/tools-analysis/benchmarking
