We don’t get asked about medical malpractice insurance very often, but it is important for physicians to have a basic understanding of their malpractice coverage. If you are in a medical residency or fellowship, your employer likely covers your malpractice insurance for you. However, if you moonlight at an outside institution, you will need to verify if your existing malpractice policy is sufficient, or if you need to secure additional coverage.
If you are in practice at a hospital or large group, malpractice insurance is likely provided as part of your benefits package. However, you may be responsible for purchasing a tail policy if you leave that employer. If you are at a small group, you may be required to pay for your own malpractice insurance, but this could be a point of negotiation when discussing your employment contract or partnership agreement. If you own your own practice, you’re on your own to get coverage.
Today we will look at different types of medical malpractice insurance, explain what a tail policy is, and discuss what to be aware of when negotiating employment contracts.
Types of Medical Malpractice Insurance
There are two main types of medical malpractice insurance. Occurrence based coverage and claims based coverage.
Occurrence Based Malpractice Insurance
Occurrence based malpractice policies used to be the most common, but are few and far between these days. Most companies simply don’t offer them. If they do, it can be quite expensive to purchase.
With an occurrence based malpractice policy, you are covered for any incident that occurs or occurred while you were paying for your policy, no matter when the claim is actually filed.
For example, let’s say you were covered under a policy from 2010-2015 while working at a particular group during that time period. You are no longer working there anymore. In 2027 (looking ahead to the future), a patient you treated back in 2012 decides they want to sue you for malpractice. They have ongoing medical complications and got in touch with an ambulance-chasing lawyer who specializes in suing doctors. Apparently the lawyer is able to make a case that the patient’s complications in 2027 are due to your negligence when treating the patient in 2012.
With an occurrence based policy, the malpractice company you had your policy with in 2012 will cover that claim in 2027, because the incident occurred during the time period when you had the policy. Even though that policy is no longer in force today.
The reason these policies are rare nowadays is because it is hard to price for the risk. How does the insurance company price for the possibility of a claim that is filed 12 years after you stopped paying for the policy? I am aware insurance is state regulated and in some states may have tort laws that may prohibit claims filed that far after the fact. However, this example illustrates how occurrence based malpractice policies work. Companies got out of that game and now primarily offer claims based malpractice policies.
Claims Based Malpractice Insurance
Most malpractice insurance policies for doctors today are claims based policies. These policies only cover you if the claim is filed while you are paying for the policy. So if you have been paying for a policy since 2010 and a patient files a claim today for a procedure you did in 2012, you are covered.
If you stopped paying for the policy in 2015 and the patient files a claim today, you are not covered. You stopped paying for the policy in 2015, so the coverage ended in 2015.Any claims filed after that point will not be covered by the insurance company.
This is much easier for insurance companies to calculate the risk. They have the data and know the odds of you getting sued at any point based on specialty, the number of years you have been practicing, the procedures you do, etc. All they have to price for from year to year is based on past data. They don’t have to predict the future and guess how long you will continue to hold that policy. If your policy is paid up to date, you are covered. After you stop paying, the coverage ends. Simple.
Usually these premiums start off small in the first year and get more expensive as time goes on. This is because the odds of getting sued during a one-year span is less than the odds of getting sued during a five or ten-year span. Usually around year five the premiums level off and the premium is more consistent from that point forward.
Well, what happens if a patient files a claim after your coverage ends? It was the last patient you treated at your previous job and now you are at a new job and covered under a different malpractice policy. This is where you need a tail policy.
Malpractice Tail Coverage
A tail policy is an extension of your previous malpractice policy (think of a literal tail coming out of the end of your malpractice policy) that covers you after your main malpractice policy ends. So if you are covered under a claims based malpractice policy from 2010-2018 and then leave to join a different employer, your tail policy would cover you for any claims that are submitted moving forward by patients you treated from 2010-2018 at your previous job.
There are several different ways a tail policy can be structured. There is no right or wrong way to go about it, but obviously the less you have to pay the better.
It could be your responsibility to pay for it out of your own pocket when you leave the group. This is not ideal, but may be the only option, depending on the circumstances.
The next employer could pick up the cost and/or have it built into your new malpractice policy. They could set a retroactive date of your new malpractice policy to cover you all the way back to 2010, using the previous examples.
The previous employer could pay for it. This is common for hospitals or large groups, but less common for smaller private practices.
Contract Negotiations
Malpractice insurance and particularly tail coverage can be good points of negotiation when coming to agreement with an employer.
A group may say they will pay for your malpractice insurance, but if you leave the group, you have to purchase your own tail policy. It is worth countering and asking if they will pick up the cost of the tail. If you are in a specialty that has a high likelihood of getting sued, such as an OBGYN, this could be a very expensive tail policy.
If they really want to hire you, there is a good chance they will be willing to put in the contract that they will cover your tail policy if you leave. Maybe they put a tenure requirement on it. After some back and forth, you might settle on three years. If you stay at least three years, they cover the cost of the tail coverage in full. If you leave before three years, you buy the tail. Or maybe a staggered plan – if you leave within one year, you pay the full cost of tail. If you leave after one year, you pay two thirds of the cost. If you leave after two years, you pay one third of the cost. After three years, they pay the full cost.
It is definitely good to have this outlined in the contract and know what you will be responsible for if or when you leave that employer. I don’t have any hard data, but based on experience in working with doctors over the past decade, I would estimate about 50% of doctors change jobs within three years of entering practice. Statistically, you will have a handful of employers during your career. This means you will be changing malpractice policies at least a handful of times during your career and tail coverage will be an integral part of that.
Hopefully you are fortunate and never need to use your medical malpractice insurance. However, it is important to have a basic understanding of what you have and what you will be responsible for when you change jobs.
Disclosures:
Finity Group does not broker malpractice insurance. Consult with your malpractice insurance company for specific information on your policy. Consult with a malpractice attorney in your state to understand the state laws surrounding malpractice insurance.