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Medical Malpractice Insurance Blog

Discussing contemporary medical malpractice insurance issues

It has been a decade since we witnessed the last buying frenzy that led many doctors to sell their practices to local hospitals. The last time this happened, physicians received payments for their practices and employment contracts that guaranteed their income for a number of years. Most of those deals fell apart after three to five years with the hospitals cutting loose the medical practices without getting any of their investments back. Many of the doctors in those practices kept right on practicing, as they had before, but were able to pocket the money they made from the sale of their practices, a big win for the doctors.

We are again witnessing a buying frenzy. The Accountable Care Act and other economic pressures are generating significant interest in buying physician medical practices in virtually all specialties all over the U.S. Some of these are simple takeovers with the physicians guaranteed about 5 years of income. Some are very lucrative to the sellers, with the partners receiving significant multiples of their current incomes at the time of sale and guarantees of future income for about five years. This time, it does not look like the deals are going to unwind.

The future of reimbursement for medical care is moving in the direction of insurance companies and the government making a single payment for all services related to a particular ailment. For example, if a pedestrian is hit by a car, the insurance company or government will assign a value to the treatments needed for that injury and make single payment to cover the Orthopedist, Plastic Surgeon, Anesthesiologist, Radiologist, Surgery Center or Hospital and all other components of care. This is one of a number of factors driving large institutions like hospitals to purchase medical practices because they want to control how these payments will be divided up.

Also, many doctors understand that insurance companies are not paying a level fee across all similar specialties in their neighborhoods and that the best way to assure the highest level of reimbursement is to merge into large groups that can leverage that size into negotiating clout. After these mergers and subsequent negotiations with insurance companies, some doctors have seen their incomes for the same patient load increase by over 15%, a huge increase in take home pay. These factors, among others, have led to an upheaval in the way physicians practice, and in a reduction of solo practices.

The goal of this posting is to provide advice on managing some of the insurable liabilities associated with these transactions. In particular, it will deal with the Malpractice and Director’s and Officer’s exposures.   This posting won’t be too detailed, but will give you enough information to make sure you are asking the right questions. Working with an experienced Healthcare Insurance professional is very important.

DIRECTORS AND OFFICERS EXPOSURE ON THE SALE OR MERGER OF MEDICAL PRACTICES

We’ll deal with the Directors and Officers (D&O) exposure first because it’s the simplest. This is not an issue for solo practitioners and is probably not a big issue for small groups of 2-5 physicians, but in larger groups, particularly those composed of a mix of older and younger physicians, where the interests in selling the practice and giving up control may be far apart, this can be a major issue. The senior partners with retirements looming in the next 5-7 years may be delighted to take some cash up front for the sale of the practice, particularly with income guarantees at current levels at a time that they are seeing their reimbursements drop. The younger associates may feel that they didn’t enter private practice to work as an employee of a large corporation; they entered private practice to have some control over the future of their practices. Disagreement like these can lead to large lawsuits, much of which can be protected by D&O insurance coverage. Having said this, it may be hard to obtain this coverage if a group already is in negotiations for an acquisition or merger.   All medium and large-sized groups should consider whether D&O coverage should be a part of their insurance portfolio. I can’t begin to tell you how often I’ve seen practices that run really well, with much camaraderie, fall into infighting over issues they never expected. D&O Insurance can often help.

MALPRACTICE INSURANCE ISSUES ON THE SALE OR MERGER OF PHYSICIAN PRACTICES

MAKING SURE ALL PAST SERVICES ARE COVERED

Malpractice claims can follow a physician for a long time after services are rendered, often 3-5 years and for over 21 years if children are involved so it’s very important to deal with this issue carefully during mergers and acquisitions. The focus here is not on claims for treatments provided after the merger or acquisition, it’s for those services rendered before the change in ownership. If the group being merged or acquired is covered under an Occurrence policy (one that does not require a tail, this is not a concern, because all future claims for services provided before the merger, will continue to be covered by those policies. If the group being merged or acquired is covered by a claims made policy, it is important to make sure the transition is completed without creating gaps in coverage. See our October 2009 blog posting http://www.medmalinsuranceblog.com/index.php/2009/10/

DEMAND TRIGGER POLICIES CAN LEAVE YOU WITH A GAP IN COVERAGE

Physicians insured by a claims made policy (which is most private practice physicians in the US), must secure a tail when they cancel that policy or make arrangements to have the same period that was covered by the claims made policy taken over by the new insurance carrier. If they fail to do this, any new claims that come in for that coverage period will not be covered and will expose the doctor’s personal assets to lawsuits. The free tails that are offered for death, disability or retirement, do not cover this situation.

Also, it is important to know whether the claims made policy has an “incident” or “demand” trigger. If the policy has an incident trigger, transitioning to another company that takes over the prior exposure is usually not a problem because the company being replaced will continue to cover any bad outcomes they were told about before the policy was cancelled. If the previous policy had a “demand” trigger or some hybrid version of a “demand/incident” trigger, it is important to determine whether the insured doctor reported any bad outcomes (“incidents”) that were not yet claims at the time of policy cancellation. If incidents were reported and claims come in after the merger,  they may not be covered by the old or new insurance companies. See our November 2009 blog posting See our October 2009 blog posting http://www.medmalinsuranceblog.com/index.php/2009/10/. Having an incident doesn’t mean you cannot be part of a merger or acquisition; it requires special handling and has to be considered. Managing a merger or acquisition for large groups can get very tricky because of situations like this and making sure that you are using knowledgeable attorneys, accountants and insurance brokers is important.

DEALING WITH THE NEED TO SECURE A TAIL

There is no rule of thumb on how Malpractice Insurance will be handled by the acquiring entity. Those that continue with traditional insurance may:

  • Allow you to keep your current policy
  • Require that you insure with its carrier, but the carrier will pick up the prior exposure
  • Require that you insure with its carrier, but the carrier will not pick up any prior exposure so you have to purchase a tail.

(There is a version I have seen where the doctor or group being purchased or merged is told “if you like your current Malpractice insurance, you can keep your current Malpractice insurance” only to be told a year later, if you want to remain part of our group or get all of its benefits, you’ll have to switch to the group’s insurance plan.)

If the plan is for the practice being acquired to move to the new entity’s self-insurance plan, this is handled by:

  • The physicians purchasing a tail with their own funds or with funds provided as part of the transaction or
  • The physicians initially continuing with their own policies for 3-5 years and, when the new entity feels they are far enough away from any exposures of the old practice, folding all the exposures including that from the old practice into its self- insured program.

There are, of course, infinite variations of the above.

IF YOU NEED A TAIL, WHERE DO YOU BUY IT

It used to be the case, that the only place to purchase a tail was from the insurance company that insured you in the earlier practice (unless you were covered by a new claims made policy after the acquisition and the new company took over the old exposure, called securing a “nose.”) This is no longer the case. The premium for a tail from the physician’s current insurance company can range anywhere from about 125% of the expiring premium to over 300%. The usual cost is about 200% of the expiring premium. But there are quality companies that will provide a tail for another company’s policy at premiums that are anywhere from 10%-40% lower than the current company’s pricing. These are called “standalone” tails and are a good way to go.

CONCLUSION

There are, of course, many other types of insurance that practices will have to deal with if they are merging or being acquired. These include Workers Compensation, Office liability, Health, Pension Plan Bonds and more. Handling these is usually fairly straight forward. They usually are occurrence policies and can be cancelled after the practice being sold or merged ceases to exist, but even these should be dealt with only after obtaining professional advice.

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If it wasn’t complicated enough to practice medicine and field a large back office to handle getting paid, physicians, midwives, Physicians Assistants, Nurse Practitioners, other healthcare providers and facilities have entered a whole new world of exposure due to Electronic Medical Records, other internet based activities and heavy intervention by local licensing boards.

To meet these concerns, many insurance companies have added, usually at no charge, a basket of cyber and regulatory action coverages. Unfortunately, in virtually all cases, these coverages are inadequate should a real concern arise. More is left bare than covered. Having said that, it has highlighted a need and companies have moved in to provide coverage for these exposures. That leaves one last concern. You need to be a lawyer to understand what you are buying.

In this posting I’m going to provide as much explanation of what these policies cover as I believe is needed to get the gist of it without making you an expert.   For more than that, you should consult your insurance broker or attorney. There are a number of policies available and the discussion below is not intended to cover them all. It is very general.

The exposures tend to fall into three categories:

  • Cyber
  • Regulatory
  • Licensing

As with all things, there is some overlap between them and the best approach is to purchase a policy that includes at least the Cyber and Regulatory pieces to make it less likely that you will have gaps in coverage. For this reason, I’m not going to break my discussion into three categories but will move through all the exposures that should be covered by these policies.

One last matter before moving on to the subject itself and that is the issue of coverage limits and cost. Most of these policies have some deductible/copay. These are the costs that you will bear before the policy kicks in and they tend to be reasonable. After the deductible, the limits that will be available will generally be $500,000, $1,000,000 or more (can be $10,000,000 or more). For most individual and small group practices, $1,000,000 should be adequate for all coverages except the cost of defending your license. For licensing actions $50,000 to $250,000 should be adequate and it will largely be a matter of what is available and the cost. For ballpark purposes, a policy that provides a $1,000,000 limit for Cyber and Regulatory coverages and $100,000 of license protection limits should have an annual premium of approximately $1,700 to $3,000 per provider, with the per provider cost dropping considerably for groups. The actual cost will depend on a number of factors including which company provides your Malpractice insurance. Reasonably priced licensing action coverage will not always be available as will be discussed below.

Let’s move on to the particular coverages found in many of these policies:

MEDICARE AND MEDICAID FRAUD AND ABUSE: The Federal government has moved aggressively to identify billing that it deems excessive and a whole industry has been created to mine data and find billing practices that are out of the norm. Private plaintiffs can initiate “Qui Tam” proceedings themselves.   Health insurance companies have also gotten into the act, clawing back reimbursements deemed excessive.   Some policies cover both of these exposures.   If the government undertakes an investigation of a practice and charges it with improper billing, the cost of defense can be exorbitant. These policies can cover the cost of defense and penalties (if permitted by law) but generally do not cover the cost of “disgorgement,” paying the government or insurance company back for the receipt of excessive payments. Many policies also cover the cost of a “shadow audit,” a very important piece of coverage. It is an audit performed by your professionals on the same documents the government is reviewing, to give you an expert opinion on what the government is likely to find and to assist in your defense.

REGULATORY PROCEEDINGS: This includes the proceedings mentioned above, and for: violation of the Emergency Medical Treatment and Labor Act (EMTALA); Stark violations alleging transgression of any federal, state or local anti-kickback or self-referral laws; and, HIPAA violations. The federal government has collected billions of dollars from practices, large and small, that have had private patient information released, a HIPAA breach.

PRIVACY ACTIONS: It is astounding how many different ways a practice can be attacked by regulators. These coverages are for actions based on: release of private patient information under HIPAA; the Gram-Leach-Bliley Act; state and federal statutes; consumer protection laws such as the Federal Fair Credit Reporting Act; Children’s Online Privacy Protection Act or similar laws; and, the EU Data Protections Act or other similar privacy laws worldwide.

CUSTOMER NOTIFICATION EXPENSES: An intrusion into a practice’s patient records can trigger a requirement that all affected patients be notified and be given support such as credit monitoring. That can lead to significant expenses particularly if a large number of files have been released. In addition, some policies will provide coverage for public relations expenses to help protect the practice’s reputation.

SECURITY BREACH: An unauthorized intrusion into a practice’s computer system can cause damage to a practice’s system by infecting it with malicious code and transmitting that code to other computer systems. This coverage provides compensation for covered losses of digital assets and for lost income sustained by a practice while it is affected by a security breach. Some unauthorized intrusions into a computer system can lead to “cyber extortion” in which control of a computer system is lost unless compensation is made to the intruder. These events are covered by some of these policies.

MULTIMEDIA LIABILITY: This coverage protects against electronic media release of information that defames, libels or slanders; infringes on another’s right of privacy, misappropriation of name or likeness or disclosure of private facts; plagiarism; copyright or trade name infringement; and, similar conduct.

LICENSING ACTIONS: Many healthcare practitioners have experienced one or more complaints from disgruntled patients to the local board of licensing. More often than not, these are benign, answered easily and dismissed by the board. Some are not benign and require assistance from an attorney. This coverage provides funds to pay for these legal services. Some policies extend this coverage to hospital and insurance company credentialing issues. Many Malpractice insurance policies provide $25,000-$50,000 in coverage as part of that policy.   But for serious Board actions that may not be enough. The cost per dollar of coverage should be discussed with you insurance professional before opting for this coverage. At about $300 per $100,000 of coverage, it is a reasonable purchase. At $750, it may be better to self-insure.

Please let us know if you have any questions or comments about this subject or would like to see posts on other subjects.

 

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Physicians, Midwives and other health care providers are newly finding that they can access a Malpractice Insurance market that previously had been available only to very large groups and to practitioners who could not find coverage because they did procedures that were considered high risk, like bariatric surgery, or had an extensive claims history or other underwriting concerns.  This market is the surplus lines market and more and more it is becoming available to mainstream practitioners.  Surplus lines companies can offer more flexible coverage terms and more competitive premiums than are available in the standard markets and many are highly rated.

A little history and law will be helpful to understanding this product.  There are generally two forms that Malpractice Insurance companies can take to be approved to sell their products in a given state; admitted and nonadmitted.  Both of these forms require that the states in which the company is selling its products submit significant financial documentation to show that it meets the state’s requirements for financial solvency and adequate capital.  Admitted companies must take one further step and submit to the state for approval  the premium rates it intends to charge its customers and the policy forms, and endorsements that it will issue together with any actuarial, policy and procedures information required for state review.  After the state has reviewed the company’s rates and forms and approved them, the admitted insurance company can sell only within the rate parameters that have been approved and only on the policy forms that the state has approved.

The Nonadmitted or surplus lines insurance company is approved to sell without submitting its rates and forms for state review.  It is limited by any state laws that apply to all companies but is otherwise free to meet insurance needs with great flexibility and if the risk is attractive to it, can offer pricing that can be significantly better than the premiums offered by admitted companies that are locked in to their state-approved premiums.

The natural question is why would any company want to be admitted?  That’s where history comes in.  Surplus lines was designed to meet the needs of markets where there were no admitted companies.  So, for example, when Teleradilogy and Bariatric Surgery first emerged, there was a paucity of admitted companies willing to cover these exposures and the surplus lines market was needed.  In order to show unavailability, most states required the insurance broker securing coverage in the surplus lines market to demonstrate that it sought this protection in the admitted market and was rejected by at least three companies.  As this evolved, some states maintained a list of risks for which it recognized that insurance was not available, and for which three declinations were not necessary.  The states also recognized that the consumer protection offered by approval of rates and forms might not be necessary to large and sophisticated customers and some states excluded these customers from the three declination rule.  The last steps that have affected these rules have come from federal statutes that supersede state law and allow the sale of surplus policies without declinations on a customer by customer basis or even on any basis.  The clear direction of this history is to make surplus lines policies as readily available to small consumers as to large ones.

There is one other aspect of this dichotomy that bears discussion.  Most states maintain a guarantee fund which protects policyholders insured in the admitted markets from company failures.  So if the admitted company insuring a party goes bankrupt, the state fund will step in and take over management of all claims and for policies that had per claim limit of, for example $1,000,000, the state will provide protection of approximately $300,000-$400,000.  For an insured in that position, that is good news and bad news:  good news because there is some coverage where there otherwise could be none; and, bad news because history has shown that state management of these claims is simply an effort to close down a bad situation and many cases that would have been defended by a solvent insurance company and won, are settled at the per claim cap and besmirch the insured’s claims record.  And where does this guarantee fund money come from?  It is taxed against the remaining admitted insurers in the state selling that line of insurance.  So even though they behaved responsibly, they bear the cost of the irresponsible behavior of the insolvent insurance company that was their competitor.

The disinclination to participate in these guarantee funds is one of the primary considerations for many companies who elect surplus lines status.  At the end of the day, they do not mind sharpening their pencils and offering competitive rates to prospects that deserve it, but if they operate lean, they don’t want the state coming with its hands out for millions of dollars to cover the behavior of companies that acted irresponsibly.  The second motivating consideration is that surplus lines companies are confident in their abilities to underwrite risk responsibly while still fashioning flexible coverages that may not be available from admitted carriers, coverages for such exposures as HIPPA, Directors and Officers and Cyber losses.

So what’s the best way to insure, admitted or surplus?  The answer is simpler than it seems.  Healthcare professionals should get quotes from both markets and should assure that quotes are presented only by companies with high ratings of “A-“”Excellent” or better from A. M. Best, the nation’s oldest and most respected insurance company rating service.  Certainly, A. M. Best has called some wrong, but it remains the best and most reliable rating service and there are many services that give high rating to companies whose financials and experience do not warrant a good rating.  If a company has no A. M. Best rating or a rating below “A-“ the insured is accepting significant risk and should decline those offers.  I would say the same for admitted companies, even though they are approved by the state.

Secondly, the brokers presenting the admitted and surplus lines products should be asked to make a written comparison of the differences in price, ratings and policy terms offered by all companies being considered.  Also, determine which attorneys the companies will use to defend you.  Make sure they are recognized in the field.    If, as a customer, you see greater value offered by a highly rated surplus lines company, you should not hesitate to go that route.

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Over the past decade, we have witnessed growth in the merger of smaller practices into single specialty large group medical practices and multispecialty physician groups.

This growth has been fueled by a number of factors including the desire to exercise greater leverage in negotiating with health insurance companies and implementing savings from bulk purchasing and central management. Many of these groups hired experienced management staff to assure that all available benefits were obtained as quickly and efficiently as possible. Many delegated management to the founding members of the group. All experienced significant growing pains. Some more than others.

Since one of the largest expense line items for large groups is the cost of medical malpractice insurance, it is an issue that is often tackled early, shortly before or after the group is formed. When smaller groups merge, the new practice is faced with its physicians insured by many companies with each old group having its own corporate coverage for the former corporations. Since all of these old practices will be running off their accounts receivable for many months, the old corporations cannot be closed and coverage should be continued until the corporations are legally closed, either through the purchase of tails (See former blog posting dated October 19, 2009), continuing the former coverage, or endorsing the old corporations onto a new policy.

It is important to address the issue of unifying coverage for all members of the group under one company to avoid the possibility of cross claims between members of the group that can occur when a number of doctors are on the same claim but represented by different companies. Also, unifying coverage brings other benefits discussed below. Often, however, this issue is not addressed until after the group has begun operations. It is important to have malpractice insurance coverage in place for the new corporation on the first day of operation. This coverage may not be available in the standard malpractice insurance market if no one company insures a majority of the group’s physicians. If a group has to go outside the standard market for “stand alone” corporate malpractice insurance coverage, the cost, while usually manageable, is often significantly more expensive than would be available in the standard market and can carry heavy premium front loading so that there is not a pro rata refund if the policy is canceled when the group obtains a single malpractice insurance policy. Clearly, the best way to proceed is to get this all done before going live with the new corporation. As a practical matter this rarely happens.

So what are the benefits of coverage with a single company? As noted above, it can help avoid or diminish the likelihood of ugly cross claims between members of the same group. Also:

  • For groups with good claims histories, group purchasing of medical malpractice insurance can significantly reduce the cost per physician, showing group members an immediate and gratifying benefit of all the work that went into merging the practice.
  • There may be some members of the group who have had to pay high premiums or look to the high risk markets for coverage due to claims or other issues, who could now obtain coverage at closer to standard prices or from a standard medical professional liability company.
  • Many of the companies that insure large groups offer free on site risk management studies and can make recommendations to help lower future claims.
  • Large groups can secure coverage that best positions the group for future self insurance when the group becomes large enough to make this feasible.

The issue of reducing the cost of medical malpractice insurance is usually the main focus of a large group’s search. The key to reducing cost is to shop widely among standard and Excess & Surplus companies with a broker or brokers experienced in these markets. Standard companies, often called “admitted” companies are companies whose rates and forms are approved by the state. They are not allowed to charge rates other than those filed with and approved by the state or use policy forms that have not been filed with and approved by the state. Excess and Surplus companies, often called “Surplus Lines” or “Non Admitted” companies are approved by the state as meeting its solvency requirements, but do not have to file rates and forms with the state. Surplus Lines companies have much greater flexibility in negotiating rates and in creatively meeting emerging coverage issues that can often be faced by large medical groups and multispecialty medical practices. Our next posting will deal with Surplus Lines coverage in greater detail. Obviously, groups should only accept offers made by highly rated “admitted” and “non admitted” companies.

Companies have wide latitude in offering savings to large groups with excellent claim histories, Group savings of over 20% can be realized. Groups with poor claims experience will not see significant savings, making a key element of group formation proper credentialing and a key element of continuity, the establishment of a strong oversight committee to insure “best practices” within the group.

A side question of the search for group medical malpractice insurance coverage is whether it is better to work with a broker that charges a fee or one that is paid a commission by the insurance company. The argument for fee based representation is that it insures broker neutrality and levels the playing field for all companies. While many medical malpractice insurance brokers will represent their clients either on a fee or commission basis, the commission basis will usually get the group its best overall cost. This would not be true if determining the cost of malpractice insurance was an exact science. But it isn’t. Instead it’s a competitive marketplace and a good broker will obtain bids from many companies and negotiate hard to get the best price. Pulling the commission out before the negotiations does not guarantee a lower price to the group. Instead, the group can land up with the same price it would have had with an insurance company paying the commission, but now the group has to add its fee to that price.

Regarding physicians who have had claims activity, licensing board actions or the like, the severest treatment usually falls on solo practitioners or small groups, because the medical malpractice insurance company has little incentive to undertake a detailed review of the history of the past conduct and the steps taken to assure that they will not recur. Also, the premium does not outweigh the risk of future loss. In a large physician group setting, medical professional liability companies have a greater incentive to undertake this review and, are open to being convinced that there are good reasons to believe that these issues are in the past and can even help establish risk management procedures.

Many companies have risk management divisions. While it is not cost efficient to send a risk management team out to do a survey for a solo practitioner or small group, it does make sense to do it for large groups. When these services are available, they are almost always free and they tend to be excellent and well received.

The last benefit mentioned above is proper positioning for future self insurance. The medical malpractice insurance market in 2010 is highly competitive.  Rates are at a low point and will probably remain this way for another two to three years before the market cycles back to higher premiums. Under these circumstances, it is rarely beneficial for new groups to form new self insurance programs. The cost of buying insurance will usually be cheaper than the cost of funding a self insurance program. Many currently “Self-Insured” programs are paying higher “Self-Insured” costs, than the cost of purchasing medical professional liability policies from insurance companies. However, it is a good time to position a group for self insurance by assuring that the group’s coverage includes “incident trigger” (See posting dated November 5, 2009) language and considering products that convert from claims made coverage to occurrence coverage (See posting dated October 19, 2009).

All in all, current market trends favor large group medical practices and these groups should undertake a serious annual review of their medical malpractice insurance policies.

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With over 40 years since I passed the bar and in 30 years selling Medical Malpractice Insurance, few questions have been as difficult to answer as when it is appropriate to report a bad patient outcome to one’s Medical Professional Liability Insurance company.

The question is fraught with legal and  practical issues: legal because there is a contractual duty to report matters that can lead to claims; and practical, because reporting bad outcomes can affect one’s insurability and qualification for claims free discounts. The question of reporting is the same whether the insured is a physician, midwife, surgery center or other healthcare provider.  I will discuss the considerations below, but recommend that your read last month’s posting about demand and incident triggers because you will need to understand that topic to fully appreciate this one.

As discussed in last month’s posting, Medical Malpractice Insurance policies that have incident reporting triggers bind a company to defend any incidents reported to it during a policy term even if when the incident turns into a claim, the healthcare provider is insured with a different company.  This is true even if the new company provides retroactive coverage over the dates of service on which the claim is based.  On the other hand, demand trigger companies are not responsible for reported incidents until there has been a demand for money or a lawsuit has been filed.  With a demand trigger policy, if one has reported an incident, the insured cannot switch to a new company until the incident turns into a claim because any new company’s policy will exclude incidents reported to a previous Medical Malpractice Insurance company.  The company the insured wants to leave will not be responsible for any claims based on a previously reported incident if the healthcare provider is no longer its insured.  Thus, if an insured reports an incident to a demand trigger company and switches companies, he or she will not have coverage for that incident if it later turns into a claim.

Most Medical Professional Liability policies require the insured to report incidents that are reasonably expected to lead to claims, but there is rarely a definition of what is reasonable.  Also, there is a duty on the insured not to engage in conduct that prejudices the insurance company’s ability to defend a claim. Failure to give timely notice could be seen as prejudicing a company’s ability to gather up to date information needed to defend a claim.

The issue of when something is likely to lead to a claim is very subjective.  Perforations during colonoscopies, for example, are serious events, but can occur without any negligence and are usually repaired with a patient experiencing full recovery. We all know that bad things can happen during medical procedures.  It’s why informed consents include laundry lists of possible bad outcomes.  So is this an example of something that should be reported?  I don’t think so.  Unless the patient has made statements that lead a physician or involved surgery center to believe a suit will be filed or if there hasn’t been a quality recovery, a perforation is a clearly indicated risk for this procedure and if properly explained to the patient, can be reasonably viewed as not expected to lead to a claim.

Let’s look at another example, an OB/GYN or Midwife who has a patient who dies during delivery of a newborn.  Comparing this to the situation above, it may well be that this situation falls well within the parameters of an informed consent.  However, the outcome is so severe, that reasonableness argues for immediately reporting this outcome to one’s Medical Professional Liability insurance company.

Does a request for records impose a duty to report?  If a medical office routinely receives requests for records for things such as health and accident claims, a request for records may not impose a duty for one request that is any different than for other requests.  Healthcare providers are not required to recognize when a request for records comes from a malpractice insurance plaintiff’s law firm.  But if the request for records discloses that the records are being requested in connection with review of the healthcare provider’s performance for negligent conduct it may impose a duty to report.  There is a wide range of conduct between the examples given above that may or may not reasonably be expected to impose a duty to report and healthcare professionals have to use good judgment in evaluating the decision to report or not report bad outcomes.

Given the discussion above of the downside of failing to report bad outcomes, what is the downside of reporting every possible bad outcome?  Years ago, I worked with a surgeon who in over 25 years of practice had never been sued, but had reported every bad outcome, eighteen of them.  He was relocating to a new state where his current company did not provide insurance and was applying for new coverage.  No Medical Malpractice Insurance company in the standard market would insure him and he had to get coverage in the “high risk” market.  Similar considerations can arise in “claims dumping” situations where a physician, midwife, surgery center or other healthcare provider switches companies and is advised by the agent or new company to check past medical records and report every bad outcome to the incident trigger insurance company the insured is leaving.  Sounds like a good idea, but it can come back and bite you if a future switch in companies is needed since almost all applications for new coverage ask about incidents that have been reported to previous companies.

Also, many insureds are concerned that reporting claims can affect claims free discounts. This is a real concern, although some companies give claims free discounts to insureds with open incidents. Lastly, if one is insured by a demand trigger policy, reporting a case doesn’t make the company responsible to defend it until it turns into a claim.  Reporting this incident will exclude any future claims on this incident from coverage by any other company an insured may want to switch to so reporting incidents can affect one’s ability to switch companies.  But not reporting incidents to avoid this concern usually will not help.  Many policies exclude coverage for incidents that an applicant for a new policy knew about or could reasonably have foreseen would turn into a claim.  Therefore, electing not to report an incident to a current demand trigger company may not offer protection to an insured who leaves a demand trigger company.

Seeking advice on whether to report bad outcomes is one situation where calling your insurance agent may not be helpful.  Insurance agents have to advise any client that asks whether an incident should be reported, to report it.  This is so because insurance agents also can be sued for negligence, just like the professionals they serve.  If an agent advises against reporting an incident and that incident later turns into a claim which the insurance company refuses to cover because of either a gap in coverage, prejudice by a delay in reporting or for some other reason, the agent who gave the advice not to report may be found to have been negligent in giving that advice.  For this reason, if an insured calls an agent and asks, the agent has to assume that the incident concerned the insured enough to seek advice and, therefore, should be reported.

I recognize that of the blogs I have posted, and all the ones I will post in the future, this one is likely to be the least helpful in making decisions of which incidents to report and which can wait, but I hope that the discussion of the legal and practical implications help readers in thinking through the process to reach reasonable decisions.  As with all such legal matters, this posting is general in nature and cannot be relied upon for legal advice.  Those who need legal advice for a particular issue should consult with their personal attorneys.

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A medical malpractice insurance policy is a contract. The terms of the contract, what is covered and what is excluded, can vary from company to company and even among different policies issued by the same company.

Nothing demonstrates that more clearly than demand and incident triggers. In our last post, we discussed the differences between claims made and occurrence policies. An insured can move from one claims made company to another, with each subsequent company picking up the retroactive dates of previous companies. Any new claims, even those that occurred while insured by a previous company, are reported to the company whose policy is in force at the time the claim is made. However, claims made companies do not intend to provide coverage for known claims that occurred under a previous carrier. The retroactive coverage is there to cover new claims that were unforeseeable at the time the insured switched carriers.

All claims made policies exclude coverage for incidents that were reported to previous insurance companies. Some have exclusions for bad outcomes that an insured “should have” reported to a previous medical malpractice insurance company. Because of this exclusion, physicians, allied practitioners, and surgery centers that have had bad outcomes or have reported incidents have to be certain that any lawsuits that arise from those incidents are covered by either the old or new insurance company. This is how demand and incident triggers come into play.

When a medical professional liability insurance company issues a policy that has an incident trigger, any incident reported to it remains its responsibility even if the insured switches to another company. With an incident trigger, the insured can report a bad outcome the day it happens, even if there has been no threat of a lawsuit, and know that the company to which the incident was reported will always be responsible for any future claims based on this incident. If an insured cancels that policy, a tail does not need to be purchased from that company for the claim to be covered.

When a medical malpractice insurance company issues a policy that has a demand trigger, insurance company responsibility for an incident cannot be triggered until a patient has made a demand for money or filed a lawsuit. With a demand trigger policy, an insured with a bad outcome that was reported to an insurance company, who thereafter switches to another company before a claim is made, is likely to find that any suit based on this bad outcome is not covered by either the old or new insurance company. It is not covered by the old insurance company because the insured is no longer covered by it and responsibility for this incident was not triggered before the insured switched companies. It is not covered by the second company, because its policy excludes any incident that was or should have been reported to a previous company. Clearly, those insured by demand trigger policies have to exercise great care in switching companies.

There are hybrid versions of these two policy forms: policies that are incident trigger within a short window (30-60 days) after medical services were rendered, and demand trigger after that time; and, policies that are similar to demand trigger policies but are a little more liberal in defining what triggers coverage (e.g. a lawyer’s request for records).

Whenever a physician, entity, or allied practitioner has a choice (in some markets there may be no choice) between a demand and incident trigger policy, the incident trigger should be taken, no matter what the difference in price. That might sound like a huge generalization but it isn’t. Demand trigger policies can force insureds with even a single dormant incident to stay with that company for years, to avoid a gap in coverage. Anyone who is forced to stay with an insurance company because of an open incident may have to wait 3-5 years for the Statute of Limitations to pass (longer if children are treated) before he or she can consider switching companies. During that time, the insured can be subjected to significant premium increases and even changes of coverage. And even the passing of the Statute of Limitations is not a complete guarantee against future claims because, under certain circumstances, the Statute of Limitations can be breached, and it can cost considerable legal fees to invoke the Statute and beat back any challenges to it. The only way a change can be made to another company with certainty that a reported incident is covered is by purchasing a tail from that demand trigger company. That can be very expensive. In some cases, particularly for “high risk” policies, long-term tails may not be available. Hence the blanket recommendation that demand trigger policies should be avoided at all cost unless there is no other viable choice.

In our next post, we will discuss reporting bad outcomes to insurance companies. Should all bad outcomes be reported? Should bad outcomes never be reported until a letter has been received from a patient’s lawyer? Stay tuned. We welcome questions on our topics and suggestions for topics you would like to discuss.

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“In the olden days” all Medical Malpractice Insurance policies were “occurrence” policies.  Policies were written for a one-year term and covered any claims that arose from treatment during that one-year term even, if at the time the claim was made, the insured was no longer with that company.

This ended in the 1970’s because Medical Professional Liability companies (particularly St. Paul Insurance Company) were writing policies with premiums based on claims histories of the 1960’s and 1970’s and paying out claims years later based on burgeoning jury awards.  The premiums they had charged when the policies were issued did not cover the losses at the levels that were paid years later when the claims were resolved.  The country’s largest writer of physicians’ liability insurance, St Paul, did not have a quick fix and withdrew from the market entirely, creating a medical malpractice insurance crisis.

Smaller regional carriers were formed to close the gap.  St. Paul later reentered the market and, long story short, Medical Malpractice markets shifted to claims made coverage, which allowed companies to later adjust their pricing to meet new concerns by having a “last shot” at more premiums through the need for “tail” insurance.  A claims made policy is an incomplete policy form that offers coverage from a start date (called a “retroactive date”) through subsequent renewals, as long as the insured keeps paying premiums or if the insured switches companies, as long as the new company picks up the original retroactive date, and the insured keeps paying premiums.  If, however, the insured stops paying premiums or switches companies without the new company picking up the previous retroactive date, coverage for previous acts (“prior act coverage”) ceases unless that coverage is completed by acquiring a “tail”.  With most policies offered to physicians in the standard market, a free tail is available for death or disability without any waiting period and for retirement usually after a waiting period of one to five years and sometimes after reaching a minimum retirement age.  Free tails are usually not available to facilities and the tails that are available are usually offered at a steep premium and extend the time for filing claims for only one to ten years (usually 1-5 years).

It would seem almost intuitive that the best available medical malpractice policy is the occurrence policy and that would be true if we don’t consider the price.  Occurrence policies are priced at a level premium year to year.  Claims made policies start off at a low first-year premium and increase each year, usually until the fifth year, when they reached their “mature” level premium.  The savings in premium over those five years can equal approximately 125%-170% of the mature premium so with claims made coverage, you get a year and a quarter or more of coverage free, compared to occurrence coverage and that is true unless you get stuck having to pay for a tail which can cost anywhere from about 180% to 250% of the mature fifth-year premium.

There are other considerations, such as whether the claims made Medical Malpractice Insurance policy has a “demand” or “incident” trigger, but those issues will be discussed in our next blog post.  All other things being equal, the choice between claims made and occurrence coverage depends largely on whether an insured will qualify for a free tail.  If a free tail is likely, claims made is usually the way to go.  Let’s look at a real case example for a Maryland Radiologist with a company that offers claims made and occurrence coverages.  The chart below shows this company’s annual premium for limits of $1,000,000/$3,000,000 for claims made (I) and occurrence (II) policies, the cumulative savings of claims made over occurrence (III), what the tail cost would be at the end of each year (IV) and the cumulative price difference if a tail is purchased at the end of that year (V).  Remember, you only pay a tail once for any number of years of claims made coverage.

Year

I

Occurrence

II

Claims Made

III Cumulative Savings

IV

Cost of tail this year

Extra cost if a tail is purchased

1

$17,645

$5,379

$12,266

$17,693

$5,427

2

$17,645

$10,084

$19,827

$26,539

$6,712

3

$17,645

$13,615

$23,857

$32,068

$8,211

4

$17,645

$15,127

$26,375

$35,386

$9,011

5

$17,645

$16,587

$27,433

$35,386

$7,953

6

$17,645

$16,587

$28,491

$35,386

$6,895

7

$17,645

$16,587

$29,549

$35,386

$5,837

8

$17,645

$16,587

$30,607

$35,386

$4,779

9

$17,645

$16,587

$31,665

$35,386

$3,721

10

$17,645

$16,587

$32,723

$35,386

$2,663

Different companies may have higher or lower first four year premiums and tail factors.  A qualified Medical Malpractice Insurance Broker can do these comparisons for any companies you are considering.

As can be seen from the chart above, in the first five years, this Radiologist would save $27,433 on claims made premiums and, if a tail needs to be purchased, the extra cost over the claims made savings would be $7,953.  After ten years, the claims made savings is $32,723 and, if a tail needs to be purchased, the extra cost over the claims made savings would be $2,663.  The claims made savings to this Radiologist, if a tail is not needed because of qualification for a free death, disability or retirement tail increases each year by $1,058.

Of course, this does not take into account the additional dollars that accrue from investing the savings.  Nor does it consider the shock value of having to come out of pocket at one time with a lump sum payment of as much as $35,386, if a tail has to be purchased (or approximately $180,000 for a Maryland OB).

So how do we select which medical malpractice policy form to take?  Surgery Centers and Ambulatory Care Centers should always opt for occurrence coverage unless they need the savings of the first few years of lower premiums to operate, because there ordinarily are no free tails for facilities and tails are always based on current premiums.  If rates are dropping so will the tail cost but one never knows.  A tail could be needed because the facility is closing, or has lost its coverage due to claims or market conditions and may be unable to get retroactive coverage from a new carrier.  In those cases the tail can be expensive and may be limited.  So I recommend that facilities go with occurrence coverage if it is available.  Physicians and Allied Practitioners who know they are going to work at a location for a short time and will not be able to take coverage with them are better off with occurrence.  Physicians and Allied Practitioners who plan to stay at one location for a long time, and can bank the savings against unexpected needs to purchase a tail, are better off with claims made coverage and its significant savings over occurrence coverage.

Stay tuned for a discussion on “demand” and “incident” triggers in claims made Medical Malpractice Insurance policies, an important consideration in reviewing competitive offerings.

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Physicians often are Medical Directors of surgery centers, nursing homes, hospital divisions and the like.  Sometimes these positions come with a small stipend.  Sometimes they are attractive because the title is prestigious.  However, with the small stipend and prestige come significant exposures to liabilities that often are not covered by physician medical malpractice insurance policies.

Physicians that are Medical Directors at hospitals are involved in credentialing and establishing practice protocols.  At surgery centers and nursing homes, Medical Directors can have responsibilities for patient care, credentialing, setting protocols and the hiring and firing of ancillaries.  Even if those responsibilities are not specifically enumerated in the agreement between the physician and the institution, they may be implied from the “Medical Director” title.  The Medical Director can be exposed to potential claims from disgruntled patients, employees and even their employers.

Credentialing, while not a professional liability exposure is covered by most physician medical malpractice insurance policies.  Patient care is usually covered unless there is a specific exclusion.  Setting protocols, hiring and firing are not medical professional liability exposures and ordinarily are not covered.

In a recent lawsuit, a surgical group with its own, separately incorporated outpatient surgery center, had an adverse outcome.  One of the group’s members, who was not involved in this patient’s care, but was the Medical Director of the corporation, was named in the lawsuit solely in his capacity as Medical Director.  The physician/Medical Director’s professional liability insurance company declined coverage because it contended the Medical Director position was not covered by its policy.  The case including the Medical Director’s liability was settled for $4,000,000.  So how does one protect against Medical Director exposures?  The simple answer is not to accept any such titles.  Unfortunately, that is not always possible or even desirable.  Some states require that certain facilities have “Medical Directors.”  A surgery center, like the one mentioned above, may be required to have a Medical Director and the physicians are not going to search outside the group to fill this position.  Also, many physicians desire the prestige or compensation that comes with the title.  For those who cannot or do not want to refuse the title, they must assure that this exposure is covered either by a malpractice insurance policy that includes protection for these exposures or a “Directors and Officers” policy.

Physicians should fully disclose all Medical Director positions to the company that provides their medical malpractice insurance coverage and secure a written determination from the company as to whether these positions are covered for services that involve both patient and nonpatient care.  Ordinarily the malpractice insurance company will cover the patient services but will exclude the Medical Director services.  If these services are excluded, one may be able to negotiate with the company to have this coverage added, preferably for free, but if not, possibly at an additional premium.  The larger the insured medical group, the more likely that this can be added to the existing policy at little or no extra cost.

It is best to have the Medical Director exposure covered within one’s own medical malpractice policy because this reduces the likelihood of gaps in coverage that can occur when more than one policy provides coverage.  If coverage cannot be secured through one’s own malpractice insurance policy, one should seek out the coverage either through a policy provided by the entity for which he or she is Medical Director or through a personal Directors and Officers policy.

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We are pleased to announce our new blog, discussing contemporary medical malpractice insurance issues.  We hope to post articles to this blog monthly or more often as time allows and will consider issues presented by our readers.  The blog will focus on physician, midwife and surgery center malpractice insurance issues, but more often than not, the discussions will be equally relevant to other medical professionals and entities.

This blog, written by Israel Teitelbaum, Attorney at Law and president of Contemporary Insurance Services, is intended to provide an overview of medical professional liability issues and is not intended to provide legal advice to any party.  It should not be relied upon for that purpose.  Those who need specific legal advice for a particular issue should consult with their personal attorneys.

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