Malpractice Insurance – State of the Industry

Part 2 of a 2 part series

For Institutions, Facilities and Other Healthcare Businesses

It is remarkable how competition changes the dynamics of an industry. As was true of physician insurers at the onset of the “hard” market back in 2002 and 2003, availability of coverage became scarce. Insurers were still willing to protect institutions, outpatient facilities and other healthcare businesses, but at significantly greater cost, with coverage limitations, and with greater deductibles or retentions.

It is our recent experience that;

• Premiums are going down driven by increased competition and reduced claims activity,
• Deductibles are being lowered, and
• Insurers are more flexible when negotiating terms.

Now we are seeing a resurgence of insurers becoming more active in the state. For example, the author just represented a new surgery center in search of professional liability insurance and found thirteen (13) different insurers interested in providing coverage. (no exaggeration!)

Joint and Several Liability

One new law change should have an especially favorable impact on your business.

Last year, the legislature passed a law repealing joint and several liability. Joint and Several liability means that your organization previously could have been found on the hook for the entire payout of a large judgement even though other defendants had a far greater degree of responsibility.

For example and in the past, your outpatient facility may have been found to be 25% responsible for a judgement while an independent contractor physician was found to be 75% responsible. The total judgement rendered was $400,000. It turns out the physician was “bare.” So, the court as allowed by law, concluded that the outpatient facility was to pay the full amount of the $400,000 judgement.

With the repeal of joint and several liability, a facility should only be responsible for your percentage of fault. This should reduce the historical reality that the facility has been treated as the “deep pocket” in so many lawsuits.

A Different Approach to Underwriting

Many insurers providing facility coverage, historically, have calculated their premium pricing as a percentage of gross or net income. Many insurers are reverting to a fixed rate for each outpatient visit. The theory is an outpatient-based rate better reflects the actual exposure of the facility.

Also, many insurer’s policies would extend to the entity, but exclude key employees, independent contractors and in some cases, even your medical director. This left the facility’s professional liability program with serious gaps in coverage and sometimes spending precious time finding alternative coverage for those parties not covered by the corporation policy. Further, by excluding certain medical professionals, the facility’s effort of recruiting personnel became more difficult as new recruits demanded coverage.

Many insurers have addressed these issues and now offer coverage;

• Pricing your policy more adequately on a per visit based approach, and
• Including all professional employees under the policy to provide a more comprehensive coverage

The “Bare” Physician

Florida is unique in that physicians may practice in our state without carrying malpractice insurance.

If you are a facility employing physicians, you probably include their professional liability coverage within your corporate policy. If you are paying separately for their coverage while securing your own facility coverage, there is likely a better solution available to you.

If you have independent contractor physicians who are going “bare”, you have probably found it complicates your negotiations when securing your professional liability corporate coverage. You may have been unable to even identify an insurer willing to provide corporate protection. Or at the least, you may have incurred a significant surcharge because your physicians do not carry their own malpractice insurance.

Again, as competition increased, insurers have become more flexible in this area.

Credentialing

The author cannot emphasize enough the importance of “due diligence” when staffing your business. It is so essential that you carefully screen who you hire and who you contract with.

Go to great lengths to get a clear picture of the claims history of your medical professionals. Professionals with multiple claims, whether negligent or not, can lead to;

• Significant premium surcharges because of their claims history, and
• One basis for an entity to be sued is “negligent credentialing.” Your organization may have no responsibility whatsoever for why a claim occurred, but you can be found at substantial fault because you hired the wrong people.

Hospital On Call Specialists

There is a national crisis for hospitals in finding specialists on-call physicians willing to work in their ER departments. Specialists are reluctant to perform this services because;

• The time taken diminishes their quality of life,
• They want compensation for this work, and
• They do not want the potential liability that goes with this exposure.

I am not in a position to comment on quality of life issues nor compensation. As to the increased liability exposure, there are solutions. An Indemnification agreement is the tool being used by some hospitals. And a few select insurers have started to provide stand-alone and affordable coverage to protect on-call specialists while working in the ER.

In conclusion, the professional liability insurance market has improved substantially for institutions, facilities, and other healthcare businesses. You should see your costs coming down. Insurers seem to be paying more attention to your needs and meeting those needs.