Medical Groups, as they add employed physicians (EP’s), take on a large financial obligation. Besides salary and benefits, they also assume the expense of medical malpractice coverage.  Paying for medical malpractice insurance is often seen as a necessary evil in the recruitment of new doctors.  Also, when the doctor leaves, the group will pay for the tail coverage of the employed physician or EP.

Why the medical groups buy medical malpractice for EP’s:

*The group confirms there is coverage since they are paying for it directly.

*The group’s medical malpractice includes two coverage components. The first is if the EP is sued, he/she is covered personally, which is not the medical group’s risk. The other part of the coverage is the entity (the medical group itself), which covers the medical group if they are named in a suit with the EP or if the medical group is named for another third-party’s exposure on a medical malpractice insurance claim.

*You may save money on the group medical malpractice insurance since there is a group rate, which includes pricing for a claim for EP’s with claims and without.  It is cheaper for the EP’s with claims, than if they purchased coverage on their own; but it is often more expensive for the EP’s with no claims, than if  they bought their coverage on their own. The group’s malpractice policy uses the good experience EP’s to offset the cost of the EP’s with claims.

*When the EP quits, the medical group has to pay for tail for the departing physician since this may be a requirement of the employment contract, or if not, the malpractice insurer may cancel the group or raise their rates if the group routinely does not buy tail.

This has been the SOP for all medical groups, but at HCP National we have a better cost alternative for medical group medical malpractice.  The main risk for the group is the entity exposure. So we recommend the group buy the entity policy on a stand-alone policy, and does not buy Group Medical Malpractice Insurance for the EP’s risk:

*Entity stand-alone coverage is very inexpensive.  It is subject to underwriting, but it is about 5 to 10 percent of the annual premium that the group was paying for all its group malpractice coverage. It also allows each EP to have any insurer. There is no requirement that the majority or all of the EP’s have the same insurer as the group policy.*The group pays the entity coverage directly so they are able to confirm that coverage is in force.

*When an EP leaves, there is no tail premium for the Entity policy, as long as the Entity policy is maintained.  Tail does not apply to the Entity Policy until the day the group cancels the coverage, hopefully due to the sale of the medical group.  At that time they buy tail coverage.

*You take your EP’s with the best records and get quotes from the lowest cost insurer in the standard market for MD coverage only—no entity.  Also, request rates for first through fifth year or fully matured rates.  When you hire an EP, your offer includes reimbursement for malpractice based on those least expensive standard rates. The EP will buy their own coverage, from a list of approved insurers; you will want to work with your broker on this list.  You then base the reimbursement on the rates of that lowest cost insurer.  If the EP cannot qualify for the lowest priced insurer, you reduce the EP’s salary or bonus to cover the added reimbursement.  This is done upfront, prior to employment and agreed to in the offer for employment.  Every year you get updated rates from the lowest cost malpractice insurer to update your reimbursement.  Each doctor can have his/her own insurer and policy.

*When the EP leaves, they take their policy with them.

Case Study:  A primary care medical group with 16 MD’s in a group, 3 partners and the remaining EP’s paying $490k a year; all MD’s have full matured claims-made rates.

Group Medical Malpractice Insurance Coverage Comparison

The savings yield in this year is $226k, and the year when there is no tail, you still save $106k.

There are distinct differences between Medical Malpractice insurance for Medical Providers and Managed Care Errors and Omissions (Professional Liability) and Directors and Officers insurance.

Malpractice Insurance applies to the actual physician’s treatment of patients, whereas Managed Care E&O and D&O Insurance provide a distinct and separate layer of insurance for exposures that may occur in association with the business activities related to managed care operations.

At times there may be cases where a medical malpractice suit not only names a physician or hospital, but goes on to name a managed care organization such as an IPA or HMO. This spread of risk is often referred to as “Vicarious” liability and is one of the main reasons why such organizations must carry Managed Care Professional Liability insurance or Errors and Omissions.

• Vicarious Liability is defined as: When one person is liable for the negligent actions of another person, even though the first person was not directly responsible for the injury. For instance, a parent sometimes can be vicariously liable for the harmful acts of a child, an employer sometimes can be vicariously liable for the acts of a worker, and a managed care organization can sometimes be vicariously liable for the acts of a contracted provider. In all of these cases the party causing the tort is seen as under the third parties control.

In the above scenario, a Medical Malpractice policy would respond for the physician or medical facility named in the suit and the Managed Care Insurance policy would respond for the managed care organization.

Note: HCP is not a law firm and we are not giving legal advice, or defining coverage; your insurance policy is the final authority. HCP National is a Medical Malpractice Insurance and Managed Care E&O and D&O Insurance Company or broker.

We get calls all the time from our physicians who have received mailers offering medical malpractice insurance at ridiculously low prices. There are all kinds of schemes for professional liability.  But you need to know what you are buying when you buy medical malpractice, and you need to be assured that the coverage will respond as expected when you have a claim.

What a consumer should require of their medical malpractice insurer : 

• An “A” category ( A-, A, A+, A++) insurer per www.AMBEST.com   The higher the grade, the better.
• An insurance company admitted in your state, if possible, which means they are regulated by your state’s Department of Insurance.  They are usually part of a state-sponsored insolvency program, meaning if the insurance company goes out of business, you may still be able to receive recovery for a claim.*
• Policy wording that covers the physician’s practice.
• An insurer that has been doing medical malpractice for 10 years or more, which may demonstrate a commitment to stay in the market if times get tough.

 (* Admitted is ideal and it is where physicians with non medical malpractice risk profiles are placed by HCP.  However, for doctors who are not acceptable to the Admitted medical malpractice insurance market, the Non Admitted medical malpractice insurance is still a fine coverage offering.  Some of the largest insurance companies in the country are Non Admitted.) 

What you do not want to choose is a company that does not have the above qualities.  The most common alternative to the above are Risk Retention Groups or RRG’s. Risk retention groups are insureds that have banded together and formed a federally chartered insurance company to share risk with each other.  They are regulated by the federal government and are exempt from state regulation. Federal law requires that they be licensed in one state (state of domicile). 

 RRG’s have the following: 

• A risk retention group, RRG raises capital from its policyholders.  It has no means to borrow or raise capital on its own.

• Policyholders can be accessed or charged more than their initial premium if the RRG needs more money to operate.  

• An RRG can charge smaller premiums than the type of insurer mentioned earlier, because any time they loseWeight Exercise money as a company, their reserves are the your assets as the policyholder.  This is explicit under Federal law and the amount of assessment is unlimited. 

• Groups may say that they are not assessable, but this may not be accurate.  If there is a lack of premium to pay losses:

                            Members may pay “voluntary assessments or payments” to cover premium shortages  or 

                            The RRG will enter bankruptcy and a Federal bankruptcy judge will determine what assessment amount is needed.

(We have  encountered physicians who paid hundreds of thousands of dollars for many years because the RRG’s in which they participated  had gone bankrupt)

So, if you get a solicitation for a cheap medical malpractice insurance deal, call us so we can discuss reality.  Medical Malpractice is never cheap,  until you need it then it is a bargain.  We are not against RRG’s many are good alternatives, but one has to be aware of their downsides if things go badly.

The above is a brief discussion of Medical Malpractice Insurance.  HCP is not a law firm and the above does not constitute an interpretation of insurance coverage.  HCP National is a California Medical Malpractice Insurance Company or Broker.  We specialize in all forms of medical malpractice including OB/GYN medical malpractice insurance, Surgeon medical malpractice insurance, and Medical Group medical malpractice insurance.

We have found many Medical Spa’s, more commonly known as Medi-Spa’s, without proper insurance. Most buy their normal business insurance and think that their general liability insurance will cover their Spa adequately. General Liability for this type of business will cover the business entity, but will exclude coverage for anything relating to medical malpractice for a Medi-Spa. So, if a client has a burned face from a laser treatment, the Medi-Spa is not covered by general liability insurance.

The only way to cover the Medi-Spa for medical malpractice claims is to purchase Medi-Spa Medical Malpractice Insurance. This coverage can be structured to cover the techs or RN’s, the Medical Director for non-direct physician care, non-physician employees and the business entity. The policies normally exclude the MD, but they can be added under certain conditions. Also, if you have an MD who works for the Medi-Spa, in addition to ascertaining if they have their own medical malpractice insurance, ask for a certificate of insurance that specifically states they have coverage for Medi Spa procedures i.e., Laser, Botox, Fillers, et. al.

The above is a brief discussion of Medi-Spa Medical Malpractice Insurance. HCP is not a law firm and the above does not constitute an interpretation of insurance coverage. HCP National is a California Medi-Spa Medical Malpractice Insurance Company or Broker. HCP National is also a California Medical Malpractice Insurance Company or Broker. We specialize in all forms of medical malpractice, including OB/GYN medical malpractice, Surgeon medical malpractice, and Medical Group malpractice.

Occurrence Medical Malpractice Insurance

An occurrence malpractice insurance policy covers any claims that occur during any policy year. The only event where occurrence coverage will apply is when the incident occurred during the policy year.

Claims Made Medical Malpractice Insurance

A claims made policy covers any claims brought during the claims made policy period. There are two events for claims made medical malpractice coverage to apply. The incident must have occurred during the policy year and it must be reported during the policy year.

The average time to report a medical malpractice claim is approximately one to two years, and a tail is required, or reporting endorsement is to be purchased to provide coverage for claims which have occurred but are not yet reported if the insured is non-renewed or decides to change carriers.

(Note: This is not meant to be legal advice; we are not a law firm, but we are HCP National is a medical malpractice insurance brokerage in Orange County CA.)

You have asset protection, with all your assets in a offshore corporation,  and now you decide to go bare on your medical malpractice and not buy coverage.  Some reasons why this is NOT a good idea:

1. You cannot get credentialed by hospitals or many health plans without medical malpractice insurance.
2. If you have a medical malpractice judgment, and yes, your assets “may” be protected.  But the plaintiff can garnish your wages or practice income stream; or the court can appoint a “keeper,” who collects your patients’ and carriers’ payments for the court.  This could destroy your practice.
3. It will be difficult to get accepted by the standard malpractice insurance market, who have the lowest rates in medical malpractice.  So when you need medical malpractice in the future, you will pay a significant load for having no insurance.

In short, going bare for medical malpractice insurance will not save you money in the long run.  It could cost you your practice and the “good will” you have with your patients.

(Note: This is not meant to be legal advice; we are not a law firm, but we are HCP National a medical malpractice insurance brokerage in Orange County CA.)

We get questions all the time from Medical Malpractice clients who have received a premium increase in their med mal insurance at their renewal date and do not understand why.  They have had no claims or adverse events to explain an increase.

Most Medical Malpractice policies are “Claims Made” Policies.  These “Claims Made” malpractice policies have a retroactive date, commonly referred to as the retro.  This is the date that the medical malpractice coverage went into effect.

Example: if you have a 9/01/07  retro date on a current policy, this means the insurer will cover you for any eligible claims made against you that were incurred from 9/01/07 going forward.  If the claim is dated 8/30/07, the insurer will not cover it since it was before the retro date.

When the policy comes up for renewal on 9/1/09, the insurer will increase the malpractice premium since they are adding one more year of coverage to the retro date.  The renewal will extend the coverage to 9/1/10, or from the retro date to the new expiration (9/1/10) which is three years.  The insurance company will make this increase at renewal until the coverage has completed its fifth year.

These increases are called step ups, and when the policy period has completed its fifth year, the policy is said to be a “mature” malpractice policy.  When the policy matures, it will have no more step ups or annual premium increases.  Beginning with the sixth year the premium will not increase unless there is an adverse event, change in practice,  or the insurance company seeks a company-wide rate increase.

(This not meant to interpret your coverage always consult your policy for all questions about coverage HCP National is a medical malpractice insurance brokerage in Orange County CA.)