Malpractice insurance considerations for employed physicians

Physicians who leave independent private practice to join a large group or a hospital system have different considerations when it comes to medical professional liability (MPL) insurance.

MPL insurance is purchased by physicians and healthcare entities to transfer the risk of financial loss stemming from an MPL claim to an insurance company. The insurance company in turn agrees to defend and indemnify (pay on behalf of) its insured(s) for such liability exposure.

For many years, the purchase of MPL insurance has been a very personal decision made by individual physicians who prioritize defending their professional reputation. Physicians would often select their MPL carrier based on the company’s reputation and ability to defend him or her if faced with an allegation of medical negligence.

In small- to medium- sized group practices, the purchase decision often was made by the physicians, rather than by the group’s manager, with emphasis on the insurance company’s willingness to stand by the physician throughout any possible litigation.

Now that many more physicians are members of large group practices or are employed by hospital systems, the group practice or hospital’s executive management and board frequently manage the MPL insurance decision, including coverage terms and limits of liability.

With this practice mode transition, other considerations understandably take priority. The executive management of larger practices and/or hospital systems must be concerned about the financial exposure and potential for adverse publicity for the entity when its employed physicians are involved in a malpractice claim.

Everyone shares the concern regarding the impact of a large verdict. However, individual physicians and their employers might view these impacts very differently.

Fear of adverse verdicts may increase a larger entity’s interest in settling claims where the potential damages are large, even when the involved physician believes his or her actions were appropriate and in accordance with the standard of care.

This often raises questions about “consent to settle” provisions that are frequently part of an individual physician’s MPL insurance policy. The “consent to settle” provision specifies that the physician must authorize any settlement made on his or her behalf–and moves settlement decisions outside the control of the entity’ management.

Mangers of group practices or hospital systems may be uncomfortable with this situation, and want to get more involved in the overall claims management process.

For those physicians employed by a regional or national healthcare system, it is likely that the system’s management will have a system-wide insurance program in place for all employees.

Large healthcare entities often are accustomed to having varying levels of financial risk on the revenue side, such as capitation, withholds and various pay-for-performance arrangements with payers. Also, many self-insure their risk of loss to some extent, or may carry large deductibles on some or all of their other coverages such as health insurance, workers compensation and other property and casualty insurance programs. Therefore, it is common for such entities to place some or all of the risk for their medical professional liability into self-insured programs.

It is important for the physicians in these arrangements to understand these coverages and the potential financial or reputational impact of those coverage arrangements. Most large healthcare entity insurance programs are professionally managed; due consideration usually is given to the implications of their operational decisions on future claims activity as well as physician satisfaction. Physicians covered under self-insurance programs should understand the program’s operating philosophy and feel comfortable that their needs will be met.

NEXT PAGE: Other considerations for employed physicians

Other considerations

On another note, as healthcare continues to evolve, new risks are created along the way. Such emerging risks frequently increase the uncertainty of loss and, consequently, the uncertainty of adequate premiums and capital to cover such losses. Some of the evolving areas on the radar today include:

Telemedicine

New electronic capabilities are enabling healthcare to be delivered effectively in ways not possible before. Telemedicine practice may take a physician into less- known regions where the legal climate creates potential liability exposure that is much greater than expected.

Electronic health records (EHRs)

While EHRs have great potential for improving care, they also create new opportunities for privacy breaches and other care coordination challenges. No one can deny the potential errors and resulting liability risk that EHR’s bring to the healthcare arena.

Physician extenders

Physician extenders, such as nurse practitioners and physician assistants are playing an ever-greater role in healthcare delivery. State legislatures and healthcare organizations are struggling to find the appropriate level of physician supervision. That debate is ongoing.

Affordable Care Act (ACA)

To the extent that the ACA increases the number of patients with healthcare insurance there is concern that it may create a misalignment between patients’ expectations of the level and availability of care and the ability of the healthcare system to meet those expectations. The increase in volume may also overwhelm medical practices and thereby increase the risk of loss due to medical malpractice

Cyber-related Exposures

Patient confidentiality and personal identity are increasingly under attack. Violations of the Health Insurance Portability and Accountability Act and the resulting consequences are a real threat to the entire healthcare arena. With talented criminals exploiting security weaknesses in an attempt to gain access to private information, securing protected health information is a continual challenge.

It is a new and ever-changing world for physician practices. Professional liability insurance is a vital part of that landscape, but it is certain that physicians will continue to demand excellent MPL coverage that protects their reputation and financial well-being in the event of a lawsuit.