As a physician or other healthcare provider, few items are more important to negotiate in an employment offer than malpractice insurance coverage. Unlike auto insurance, professional liability (or malpractice) insurance covering professional services is not required by law as a prerequisite for practicing a licensed profession. However, studies show that 37.6% of physicians in New York, New Jersey, and Pennsylvania have been sued at least once during their careers.
A medical malpractice policy provides coverage for monetary losses incurred by a licensee or professional entity that is sued in civil court, usually by a patient, or is otherwise the subject of claims or allegations of negligence in the provision of professional services. Malpractice insurance also covers the costs associated with defending such claims, including legal fees. Being named in a lawsuit is not, in itself, evidence of wrongdoing. In fact, it is common for plaintiffs to cast a wide net when reacting to a negative medical encounter. Nevertheless, defending a lawsuit can be extremely expensive. For certain specialties, the risk of being sued exceeds 50%. General surgeons, in particular, reported the highest volume of claims on record, averaging 177 claims for every 100 physicians over the course of their careers, with OB-GYNs close behind at 139 claims per 100 physicians.
For these reasons, most employers will not allow an uninsured physician to provide services. Virtually all hospitals and ambulatory surgery centers (ASCs) require physicians to maintain adequate insurance coverage in order to retain admitting and treatment privileges. However, the details of coverage, and responsibility for its cost, can vary significantly. When reviewing an employment offer, physicians should carefully examine the malpractice insurance provisions. Even if the employer covers the cost of the policy, important questions remain: What are the coverage limits? Does the policy include telehealth services or services rendered in other states? Does the employer have the authority to settle claims without the physician’s consent? Will the physician be responsible for prorated charges upon termination? Which party owns and controls the policy?
For example, is the physician simply added to the employer’s group policy at the employer’s expense? Is the physician expected to maintain an individual policy that names the practice as an additional insured? Will the physician manage the policy independently and seek reimbursement for premium costs? Will any of these arrangements create payroll or tax consequences? Additionally, some large practice groups and hospitals operate under self-insured programs and forego purchasing traditional liability insurance altogether.
While all of these factors shape the overall employment offer, the issue with the greatest financial consequences is whether the policy includes or requires tail insurance. In New York, the statute of limitations for medical malpractice claims is generally two and a half (2.5) years from the alleged incident, subject to numerous exceptions. Consider a physician who negotiates a position with Practice A, works there for several years, and later moves to Practice B. What happens if a patient treated at Practice A files a malpractice claim after the physician has already left that practice?
To address this scenario, professional liability policies generally fall into two categories: occurrence-based coverage and claims-made coverage. An occurrence-based policy provides coverage for incidents that occur during the policy period, regardless of when the claim is filed. By contrast, a claims-made policy only provides coverage for claims brought while the policy remains active. To bridge the potential gap in coverage after a physician leaves employment, insurers offer supplemental products commonly known as tail coverage, also referred to as an extended reporting endorsement. In some situations, physicians may instead obtain nose coverage, which is added to the beginning of a new policy.
Physicians insured under claims-made policies, which are often less expensive than occurrence-based policies, face the risk of being uninsured against malpractice claims filed after termination of employment. Accordingly, if an employer provides claims-made coverage, tail coverage must typically be secured when the physician’s employment ends.
If an employer does not pay for tail coverage, the physician may face substantial ongoing financial obligations in order to remain insurable and employable throughout a career. Some physicians remain continuously insured under claims-made policies as they move from one practice to another in order to avoid gaps in coverage. Others, particularly those who do not manage their own policies, may be forced to purchase a tail policy to supplement a new employer’s preferred coverage. Some employers implement tiered arrangements, agreeing to pay for tail coverage only under certain termination circumstances or after the physician has remained employed for a specified period of time. Depending on the physician’s specialty, the cost of tail coverage can be exorbitant and may outweigh the financial benefits of a signing bonus or salary increase offered in a new position.
Many physicians mistakenly view malpractice insurance issues as minor details within an employment agreement. In reality, tail coverage can carry significant financial consequences and is a critical component of the overall employment offer, as well as the physician’s long-term career outlook.
We draft and negotiate employment agreements within the healthcare industry. If you need experienced counsel to assist with reviewing or negotiating your healthcare employment agreement, please contact Chaya Rosenbaum at (516) 294-5414 or [email protected].
Weiss Zarett Brofman Sonnenklar & Levy, P.C. is a Long Island law firm providing a broad range of legal services to members of the healthcare industry, including corporate and transactional matters, civil and administrative litigation, healthcare regulatory issues, bankruptcy and creditors’ rights, and commercial real estate transactions.
The thoughts expressed in this article are not legal advice, but are intended solely to alert readers to legislative changes that may affect their legal rights and obligations depending on their individual circumstances.
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