My prior post was about, Choosing Your First Job. Before we move on to Physician Contracts, I think it’s important to talk about Malpractice Insurance.

Physicians in general dislike talking about this because we don’t like to think about the possibility of being sued. For the most part, this is covered during residency under your institutional policy, which is almost always occurrence meaning that you don’t have to worry about it.

However, now that you are looking at jobs, you need to consider it.

What is malpractice insurance?

The general definition in legalese is “A specific type of professional liability insurance purchased by healthcare professionals”. What does that mean to you? Well, liability insurance is pretty much everywhere. Most businesses have liability insurance of some sort, however, for physicians we have a special liability insurance because we can be sued in a specific way “medical malpractice”, hence its more common name of “malpractice insurance.”

Medical malpractice is usually generally considered to be an error in care by the physician. However, the truth of the matter is the definition of medical malpractice is very broad. The terminology used is:

“deviation from accepted norms of practice”

Yes. It is that broad. In other words, it doesn’t have to be an error and you don’t have to be “wrong”. In the minimalist sense, all you need is for someone to disagree with your medical decision-making enough to hire a lawyer that will open a lawsuit against you.

However, this is a post on malpractice insurance and not a post on tort reform… however, I may write about that in a future post.

Do I absolutely need malpractice insurance?

The technical answer is “no”. There are some people who do not carry malpractice insurance.

This is called “Going Bare”. This was covered by NBC news back in 2004 and then again by Huffington Post back in 2013. Basically, this pretty much only occurs in Florida, and almost exclusively relates to private practice doctors. I doubt any hospital or hospital system would credential a “bare” physician. These physicians must disclose the fact that they do not have malpractice insurance to their patients.

This, in and of itself, doesn’t prevent a lawsuit. I the event of a lawsuit, these physicians either have enough in reserve to cover a lawsuit (self-insure), or have various or other vehicles in place which effectively cap damages. There are arguments in place as to why this only happens in Florida, but the most common one is that malpractice lawsuits are pretty common in Florida.

Long story short, this is not recommended. So, for all intents and purposes, you must carry malpractice insurance.

Ok, so how do I choose malpractice insurance?

First, we need to clarify the types of malpractice insurance:

Occurrence

When you think of occurrence, just think “you’re ok” because occurrence covers you for any case that “occurred” during your policy. For example:

You have occurrence coverage from company XYZ and see a patient October 2015, then leave that job and change insurance in November 2015 to company ABC. This patient then sues you, today, July 25, 2016. Who covers that time period? In this example, company XYZ does because the incident “occurred” during their time of “occurrence” coverage.

Claims Made

Now it gets a little more complex. Claims made only covers you for any claims made during the time when you are under that company’s coverage. Let’s take the same example:

You have claims made coverage from company XYZ and see a patient October 2015, then leave that job and change insurance in November 2015 to company ABC. This patient then sues you, today, July 25, 2016. Who covers that time period? Well, in this example, we don’t know yet. All we do know is that company XYZ doesn’t cover you. Like I said before, the claim has to be made during the time you are under that company’s coverage.

So there is a gap in coverage between Claims Made at company XYZ and starting your new job and being covered by company ABC. This brings us to:

Tail/Nose Coverage

You need to cover this lapse in coverage. You either get it from company XYZ, to cover your tail (since it is the same company you were already with and covering the back end), or you ask company ABC to cover your nose (since they are the new company you will be going forward with).

The sticker shock of tail coverage is that can cost between 200% to 350% of the prior year’s premium as a one-time on-demand fee. As I described in my previous post, this can effectively prevent you from leaving a job if you do not have the ability to pay for your tail. It can range anywhere from a few thousand to a hundred thousand or more, depending on your specialty and state of practice.

Why wouldn’t I just always get occurrence then?

Good question. Mostly because: it’s significantly more expensive and might not be an option available to you.

Occurrence is like paying your tail in advance, so expect to pay a significant amount more for it. Additionally, if your particular employer covers your malpractice, they may only offer claims made, or you may need to pay the difference yourself between claims made and occurrence.

All things considered, if you have a claims made policy, it would be prudent to save some additional money to help cover tail/nose coverage should you need to leave that job. I can not think of many things worse than having to stay at a job you dislike because you can not afford the tail coverage in order to leave. 

As a side note: Some contracts may have allowances for claims made, such that they will cover a percentage of your tail if you leave based on years worked. A general example would be something like, the group will cover 25% of your tail if you leave at 1 year, 50% at 2 years, 75% at 3 years, and 100% after 4 years. These little clauses in your contract may be completely overlooked when you are looking for your first job, but should definitely be considered if one job has such an allowance and one does not. As I described above, tail/nose coverage is expensive. I’ll discuss more contact stuff in my next post.

Ack. Tail coverage sounds so painful… is there any way to get it for free?

There are a few ways. One possibility is what I just outlined above, in which your employer would cover tail after you had been with the company for a certain period of time. The other is that if your new job really wants you, they will offer to pay nose coverage for you. However, neither of these things is all that common.

For normal people, it’s Death and Taxes. For physicians, it’s Death, Taxes, and Tail Coverage.

For the sake of completeness, I will include these other options for getting tail coverage “for free”:

Retirement
Disability
Death

Not all claims made policies have these clauses however. Make sure you read the fine print. Additionally, in order to get this “free tail coverage”, you (or someone) must notify your insurance carrier of your retirement, disability, or death within a certain amount of time.

Ok, what are the other factors that influence malpractice insurance cost?

Regional influence (state of practice)
Tort Reform (state of practice)
Maturity (claims made)

The first two you can’t do too much about. Places where people are more likely to sue that don’t have malpractice caps will (surprise) most likely cost more for insurance premiums.

What might be a little surprising to you is that your premium (for claims made) increases with time and then levels off around years 5-7. (matures)

So… which is better?

Financially…? It all depends on tail. Claims made will cost less than Occurrence on a year to year basis indefinitely, especially in the first 3-4 years before it levels off at around years 5-7. If you think you will qualify for free tail coverage, then claims made will almost certainly win out. However, if it is unlikely that you will qualify for tail coverage, then you will need to set aside extra money to cover your own tail if the need arises.

Mentally/emotionally…? Having occurrence will cost more money, but you won’t need to worry about tail, and you don’t need to save “extra money” because you are essentially paying for it up front. This peace of mind may be worth it to some.

So… which company should I use?

This is very region-specific, but for the most part, go with a company that has a good AM Best rating. This is a good indicator as to how healthy the company is financially. The last thing you want is to have your malpractice provider go bankrupt. You’re looking for an A or better rating, preferably A+. You can ask your colleagues or your local medical specialty chapter for guidance on this as well. Get all the information and then make your own informed decision.

TL;DR

For simplicity’s sake: Occurrence = Claims Made with “Tail Built In”.

Tail Coverage is expensive, far more than you probably think. Death, Taxes and Tail Coverage.

Tail Coverage can sometimes be “free” (see above).

Occurrence versus Claims Made isn’t really “better” or “worse” unless there is a high likelihood you can get tail coverage for free, in which case Claims Made wins.

Whether you go Occurrence or Claims Made, make sure your company has a good AM Best Rating.

-Sensei

Agree? Disagree? Questions, Comments and Suggestions are welcome.

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