Jeffrey T. Willoughby, CPA, CFF, CFE, Forensic Accounting Consultant

Case Summary: Plaintiff, a physician operating a specialty medical practice, argued a fall at a local health club caused injuries resulting in physical limitations, which required him to scale back his medical practice.  His calculations of lost profits over a span of 20+ years ranged from $4,000,000 to $25,000,000.

Expert Analysis: The loss of net income or earnings is the difference between pre- and post-injury net income calculated out to a worklife expectancy, which is also referred sometimes to as a person’s lifetime earning potential.  A Forensic Accounting Consultant’s analysis of Plaintiff’s lost earning calculations indicated lower gross sales and, by default, lower salary and business income.  Calculations also included provisions for full and part-time losses as the doctor was currently working but was expected to be required to cut back hours and eventually close the practice.

An examination of the practice’s tax returns revealed a decrease in gross revenue in the year in which the accident occurred.  Comparing the practice’s revenues pre- and post-injury showed a definite decrease in gross revenue and the resulting net profit available to Plaintiff.  Based on this information, the case appears to be clear cut: injury occurs, revenues drop, lower profits result—one causes the other.

However, Plaintiff’s calculations failed to consider several factors to substantiate the claimed damages.  Some of these elements include the 50-mile relocation of Plaintiff’s residence and practice, the practice’s decision to not accept any insurance payments, and Plaintiff’s desire to scale back the practice as he approached retirement.  Additional evidence indicated that the doctor may not be as injured as he alleged.

Documents indicated Plaintiff relocated his practice to a rural area within months of the alleged injuries, farther away from his regular patients, while several competing practices in the same specialty remained closer to the area of his practice’s original location.  According to Plaintiff’s testimony, it was around this time that his practice no longer accepted insurance of any kind, requiring that all patients pay in cash at the time of service.

Testimony offered from an unrelated lawsuit, more than 2 years prior to the accident in question, indicated Plaintiff’s desire to scale back his work load as he approached retirement.  Additionally, for several months after the accident, the electronic entry log at the fitness center where Plaintiff had a membership indicated that he was exercising nearly every day during hours in which a medical practice might typically be open and treating patients.  These issues, among others, refuted the claims that Plaintiff’s medical practice was directly affected by an inability to physically handle his patient load.

Result: The analysis and report provided by a Forensic Accounting Consultant ultimately assisted in negotiating a settlement amount for a fraction of the claimed damages.

Jeffrey T. Willoughby, CPA, CFF, CFE, Forensic Accounting Consultant with DJS Associates, Inc., can be reached via email at experts@forensicDJS.com or via phone at 215-659-2010.

Categories: Business | Case Studies | Forensic Accountant Consultant | Forensic Accounting | Jeffrey T. Willoughby, CPA, CFF, CFE

Tags: Business Loss | Financial Damages | Loss Calculations | Lost Profits | Personal Injury