Medical malpractice liability tail exposures bring risk: Hospitals eye legacy med mal exposures as more doctors come on board

Rodd Zolkos (mailto:rzolkos@BusinessInsurance.com)

As hospitals look to bring self-employed physicians on board as employees, a key issue is addressing those physicians’ medical malpractice liability tail exposures.

Hiring hospitals can either ask those physicians to cover the risk themselves or, as is increasingly the case as they look to provide an incentive for physicians to join them as employees, the hospital can take on the med mal tail and prior acts exposure in its own insurance program.

“As a broker, ideally if we have doctors who are on claims-made policies, we like to see them buy their own coverage and close out their tails and start fresh with the hospital,” said Merry Robinson, team leader and client service manager at Brower Insurance Agency L.L.C. in Dayton, Ohio.

But as hospitals compete with other health care systems to recruit physicians to join their staffs, there are sometimes internal conflicts between what offers the most straightforward risk management approach and hospital development efforts.

“It’s definitely becoming a bigger and bigger issue, because one of the things that we are seeing is that more and more hospitals are employing docs, and the hitch with that is that either (the doctors) purchase coverage or (the hospitals) end up purchasing it on their behalf,” said Vivian Miller, senior risk management specialist at the Chicago-based American Society for Healthcare Risk Management.

Particularly in addressing the med mal tail exposures for physicians in high-demand specialties, “Hospitals are more likely to negotiate in favor of the physician rather than in favor of the hospital because they need them,” said ASHRM’s Ms. Miller. “The tail coverage and the prior acts coverage, it all depends on how the doc negotiates that when they come onboard.”

To a large extent, hospitals’ interest in employing physicians is driven by outcomes-based reimbursement provisions included in the federal health care reform law.

“It’s happening, it’s happening very frequently, and it’s happening increasingly across the country,” said Michael Maglaras, president of consultant Michael Maglaras & Co. in Ashford, Conn. “It’s become more apparent. It’s a complex insurance and risk management issue.”

“What is apparent is hospitals are continuing to recruit, into employment or into a joint venture, physicians in the community,” Mr. Maglaras said. “When they recruit them, they are using their insurance facilities to ease the transition.”

Brower Insurance’s Ms. Robinson said she has seen cases where hospitals have taken on employed physicians’ med mal tail exposures and faced claims as a result. “We’re seeing different approaches,” she said. “We have seen hospitals who agree to take those liabilities wind up getting claims.”

Sarah E. Pacini, vp of risk management and insurance at Advocate Health Care Network in Oak Brook, Ill., said Advocate prefers not to bring physicians’ tail exposures into the organization’s captive insurer when physicians become employees.

“When we look at a physicians group or even a single physician, we generally want to procure the tail coverage from the carrier they’ve been with,” Ms. Pacini said. “We believe that when a physician comes to Advocate, they’re practicing in a safer environment.”

Although Advocate prefers to purchase coverage for employed physicians’ tail exposures, the system can write that coverage in its captive. Advocate looks to remain flexible and best meet the needs of both the physician and the organization, Ms. Pacini said.

“We’ve done a number of different customized responses depending on what the physician needs and what the organization needs,” she said. “I think that’s the key: to be nimble and flexible.”

Whether employing physicians directly or entering into joint ventures, “the hospital system’s captive is very much in evidence, the hospital system’s risk manager is very much needed as part of that process,” said Mr.

Maglaras. The hospital’s excess insurance or reinsurance also must be closely aligned with the process of employing those physicians and how the med mal tail is addressed, the consultant said.

Ms. Robinson said specialties such as obstetrics and gynecology and bariatric medicine, where the med mal tails are longer than other specialties, are “a little concerning.” Also, she said, in considering whether to take on a newly employed physician’s tail exposure, “We counsel our clients about that, too: Is this somebody who’s going to be with you a long time?”

If not and the hospital agrees to take on the tail exposure, they might see the doctor leave to start fresh elsewhere while the hospital remains exposed to those earlier risks, she said.

Ms. Miller noted, however, that when doctors become hospital employees, they’re typically subject to a credentialing and privileging process, as well as a probationary period. Subsequent contracts set out the responsibilities of both the doctor and the hospital in the relationship. “They make it very clear in the contracting process who’s going to be responsible for what and for how long,” she said.

Ms. Miller said the employment relationship can have several advantages for doctor and hospital.

Among them, she noted, medical malpractice suits involving self-employed physicians typically target both the doctor and the hospital. In the case of hospital-employed physicians, “the plaintiff only has one pocket” to target, so total awards tend to be less than if the hospital and physician were sued separately, she said.

Also, insurance claims paid on behalf of a doctor in medical liability cases must be reported to the National Practitioner Data Bank for the remainder of a physician’s career, Ms. Miller said. However, claims on the hospital’s insurance in connection with an employed physician don’t have to be reported. “That’s a huge, huge incentive for the docs,” she said.