More MD hires means more tail insurance

Hospitals are bringing more self-employed physicians on board as employees, which can bring benefits to both parties, but it brings a potential problem for risk managers. What do you do about tail insurance?

The easy answer is to have physicians take care of their own med mal tail and prior acts exposure. But hospitals often sweeten their recruiting offer by agreeing to pay for the tail exposure, especially for highly sought specialists, says Mary Anne Hilliard, JD, BSN, CPHRM, chief risk counsel with Children's National Medical Center in Washington, DC, and president of the American Society for Healthcare Risk Management (ASHRM) in Chicago.

"The tail coverage problem often comes up in negotiations around hiring," Hilliard says. "The doctor wants the job, and the hospital wants to hire, but someone has to cover the tail liability."

The physician's own coverage usually has an option for tail coverage with stated terms, typically a percent of the annual premium, notes John Geisbush, placement leader for the healthcare practice of Marsh, an insurance broker and risk adviser based in Phoenix, AZ. If you want to obtain the tail coverage through that policy, you're stuck with those terms, he explains.

The hospital might have alternative risk vehicles — captives and self insureds — that could absorb the tail liability for the physicians or physician groups, he says. Additionally, insurers are beginning to offer more tail-only policies for physician exposures, he says. "The fact that we have freestanding tail options is a positive development," Geisbush says. "We didn't have any freestanding options in the past. It's a limited market now, but I think we may see an expansion of those options."

The decision making might come down to how much risk the hospital is willing to take on and how much it is willing to pay to reduce that risk, Geisbush says. The risk can be transferred by paying for a tail policy, but that move reduces your cash flow. Taking the tail exposure into your own captive or self-insurance plan saves you that policy payment, but you could end up paying for a med mal case down the road. (See the story on p. 17 for tips on deciding how to provide tail insurance.)

"If you bite the bullet and invoke the tail provisions in the policies of the physicians being acquired, the issue just goes away at that point. There's nothing to negotiate, but you might be getting the best deal in terms of cost or coverage," Geisbush says. "If you take that risk into your own risk financing structure, you have to weigh what the actuary says could be the eventual cost to you, and it could turn out to be more than you bargained for."

As with any insurance decision, the risk manager and colleagues in finance will need to weigh the available options to determine what is most affordable and advantageous, he says. The financial expert might be best able to sort through the cost differences, but the risk manager is best suited to weighing the details of the coverage. "Unfortunately the risk manager is usually the last person to find out about these acquisitions," Geisbush says. "The person making these acquisitions should be reaching out to the risk manager very early to make him or her aware of the possibilities and to allow the risk manager to do due diligence."

The risk manager is critical for collecting information about the doctor's past practice, Hilliard says. The risk manager also can learn about existing claims and the potential for unknown claims. That information can be used to help the parties weigh the pros and cons to different approaches and to strategize around solutions that mitigate risk and maximize opportunity.

"Finally, the risk manager can help the physician feel welcome in their new hospital by engaging in the problem and working toward an amicable solution," Hilliard says. "That builds trust and, before you know it, your new doctor is telling folks in your hospital to report and work with risk management because they are good problem-solvers."

Sources

• John Geisbush, Placement Leader for Healthcare Practice, Marsh, Phoenix, AZ. Telephone: (602) 337-6229. E-mail: john.geisbush@marsh.com.

• Mary Anne Hilliard, JD, BSN, CPHRM, Chief Risk Counsel, Children's National Medical Center, Washington, DC. Telephone: (202) 471-4860. E-mail: mhilliar@childrensnational.org.