Malpractice coverage for hard-to-place’ physicians requires creativity
By Rob Lee
Shand Morahan & Company Inc.
Today, a number of powerful forces are making it considerably more challenging for hospital risk managers to insulate physicians from medical malpractice exposures and guard their hospital’s bottom line against costly malpractice lawsuits. Society’s love of litigation, for example, has produced a steady rise in the number of medical malpractice lawsuits, in turn creating a new class of physicians who require support and guidance from risk managers because alleged errors in professional or personal judgment or physical or emotional disabilities have landed them in the "hard-to-place" insurance category.
Risk managers usually feel challenged by the task of finding insurance for those physicians, and rightly so. But the insurance is available if you know where to look and how to go about the process. Unfortunately, the challenge comes just as trends such as integrated delivery systems make it more difficult for risk managers to monitor quality of care in ancillary facilities — even as today’s emphasis on strict treatment protocols and scrupulous collection of outcomes data provide increasingly little margin for error. To stay a step ahead of calamity in this increasingly perilous and fast-changing environment, risk managers must understand clearly the medical malpractice insurance options available to their hard-to-place physicians. At the same time, they must work to develop and implement policies and programs that control malpractice risks for physicians and hospitals alike.
Physicians practicing in the 1990s face greater liability risks today than they did during the previous decade, and that can spell trouble for hospital risk managers. According to data from the American Medical Association’s Socioeconomic Monitoring System (SMS), the number of malpractice claims filed against physicians has increased from a low of 6.4 claims per 100 physicians in 1988 to almost 10 per 100 physicians today.
Jury Verdict Research reveals that medical malpractice awards rank at the top of all tort-related civil jury cases. Though slightly less than 60% of claims are either settled out of court or litigated to a verdict, both awards and settlement amounts are up sharply since 1990, with the median award increasing to more than $500,000 in early 1996.
Hospitals pay 26% of all medical malpractice damages awarded each year, according to a 1995 study by the accounting firm of Tillinghast-Towers Perrin.
These trends affect risk managers in several important ways. First, because insurance companies may not renew the policies of physicians named in medical malpractice lawsuits, risk managers often are asked to help these hard-to-place physicians find coverage from an alternative carrier so they can maintain their admitting privileges. Second, because hospitals are frequently named as codefendants in lawsuits brought against individual physicians, risk managers must do everything within their power to solidify the hospital’s defense in the event of a lawsuit. Preemptive actions range from requiring every physician’s medical malpractice coverage to meet specific standards for limits, policy terms, and the financial stability of the insurance carrier, to establishing specific guidelines for physicians that help mitigate a variety of malpractice risks.
Risk manager faces tough choices
Today’s environment makes the process of finding the appropriate coverage for physicians more complex than ever. To help hard-to-place physicians select the coverage that suits their unique needs, risk managers must know how individual carriers in both the admitted and the excess and surplus (E&S) markets define their respective comfort zones, and which policies deliver the best total value for the individual physician. In recent years, a bevy of insurance carriers have entered the medical malpractice arena, each with its own distinct underwriting criteria. Though some insurers in the standard market will consider hard-to-place physicians, most physicians with claims histories or disciplinary problems will have better luck in the E&S market, which specializes in underwriting hard-to-place risks.
When it comes to purchasing malpractice coverage, many physicians make their decisions based on price alone, without examining the important details that differentiate one policy and carrier from another. A low premium is of little consolation, however, if a lawsuit ensues and the physician believes his insurer is not providing adequate representation, or perhaps worse yet if the insurer lacks the financial resources to pay a claim. Problems like these quickly can become issues for the hospital, too, as plaintiffs and their lawyers target entities with deep pockets. To protect their physicians and hospitals, risk managers should consider the following policy features before recommending a specific policy or insurance carrier:
o Consent to settle.
Some E&S carriers are silent on the consent-to-settle clause, and the insurance carriers might construe these policies as not requiring the physician’s consent to settle a lawsuit. This is an important consideration, however, because settlements made in the interests of expediency may carry with them an implied admission of guilt that can be costly to a physician’s professional reputation. For those physicians whose reputation already is damaged, such a cloud could spell the end of their career. Because consent-to-settle clauses give physicians direct input into the outcome of their cases, they should not surrender this privilege voluntarily.
o Demand forms vs. incident forms.
Demand forms limit coverage to actual demands for reimbursement made during a policy period. Incident forms extend coverage to protect physicians from adverse results that later may develop into a claim. They allow physicians to report incidents during a policy period even though no charge has been filed. The policy will cover the incident if it later develops into a claim, regardless of the status of the physician’s current coverage.
o Policy "tails."
Insurers vary widely on their approach to "tails" that provide coverage for prior acts after a policy expires. Some standard markets offer these tails with no additional premium for death, disability, or retirement by building the cost into the original pricing of the policies. E&S companies usually price tails separately, and costs vary widely. Risk managers should encourage physicians to look into this aspect of the coverage and inquire about these costs upfront. Physicians also may want to do a cost-benefit analysis to see how best to cover future expenses in the event they either practicing medicine or replace coverage with a carrier unwilling or unable to provide prior acts coverage.
o Financial strength.
Physicians also should look at the individual insurance carriers and evaluate their financial strength, their commitment to and understanding of the medical malpractice business, and their claims-handling expertise. A carrier’s rating by A.M. Best and other agencies provides a clear indication of the company’s financial stability — and its ability to meet financial obligations.
Doctors should look out for themselves, too
Because medical malpractice coverage is such a vital asset to physicians, risk managers should counsel them to perform additional due diligence before purchasing a policy to ensure that the carrier they’ve selected meets acceptable standards for financial stability and responsive claims handling. Specifically, physicians should:
• Review the policy carefully to obtain a clear understanding of its terms, conditions, and any exclusions.
• Ask the carriers to explain their approach to controlling defense costs.
• Make sure the policy contains a clearly worded consent-to-settle clause.
• Call colleagues within their profession who have faced lawsuits and ask how satisfied they were with the representation the insurance carrier provided.
• Contact the state insurance board and ask whether there have been complaints filed against the carriers under consideration.
• Check the reputations of the law firms these carriers use to handle malpractice suits.
Make preemptive strikes to protect yourself
Beyond helping physicians find suitable malpractice coverage, risk managers face the much greater responsibility of insulating the larger hospital entity from malpractice risks. Specific ally, they must address the liability issues that surround the hospital as a corporate entity, the medical staff committees that grant admitting privileges, and the hospital’s governing board of directors.
Risk managers can go a long way toward controlling these risks by ensuring that the hospital has a clear credentialing process in place and that it adheres to it without exception. In the absence of any national, centralized credentialing system, it’s tempting to take a physician’s word on matters of credentials, training, employment history, and claims history, but oversights can prove extremely costly.
In addition, many risk managers have the authority to set and enforce hospital policies that address specific risks. These risk management policies not only protect the best interests of physicians, they also strengthen the hospital’s defense in the event of a malpractice lawsuit.
Many hospitals, for example, require their physicians to follow established protocols that have been developed for procedures such as childbirth, and they insist that physicians deliver all outcomes data to a central location for inclusion in a database. Accurate outcomes data often alert risk managers to problems that can be addressed before it’s too late.
More risk avoidance tactics
Other hospitals develop practical guidelines for health care practitioners that include the following tactics:
• Refer patients for all necessary tests and admit rather than nonadmit when in doubt.
• Document all visits carefully, including all follow-up appointments. Many patients are noncompliant, and missed appointments can contribute to unfavorable results.
• Have another medical professional or a family member present when treating patients of the opposite sex — especially minors — to prevent unfounded allegations.
• Create a "safe haven" for nurses so they feel comfortable reporting signs of questionable medical practices, emotional instability, or substance abuse.
• Have a thorough consent form for all procedures and take direct responsibility for discussing it with patients and securing their signatures.
[Editor’s note: Rob Lee is a senior professional at Shand Morahan & Company, Inc. of Evanston, IL. Shand Morahan is the underwriting manager of the Evanston Insurance Company, which markets medical malpractice, professional liability, E&O, D&O, and casualty insurance products nationwide through wholesale brokers. Contact: Rob Lee, Shand Morahan & Company, 1007 Church St., Evanston, IL 60201. Phone: (847) 866-2800.]