The INs and OUTs of Malpractice Insurance
What is Malpractice Insurance?
Malpractice insurance is a medical professional liability insurance policy that covers bodily injury or property damage as well as liability for personal injury such as distress and suffering, when a physician misdiagnoses or makes a mistake in treatment. It also covers the legal costs in defending a physician against a lawsuit, as well as any damages awarded to the plaintiff.
Many large healthcare entities such as hospitals or groups of physicians may self-insure losses to better control the costs of medical malpractice insurance. Self-insured losses are typically estimated by an actuary.
How much does it cost?
Premiums are usually based on the physician's specialty and geographic location but not always on claims made against them. So even if a physician has never been sued, they can end up paying high premiums regardless. The premiums increase because of factors such as amount of coverage needed, claims severity, claims frequency, location of practice, group vs individual coverage, and laws in the area.
Covenants to consider:
HIPAA Reimbursement — Since HIPAA was enacted, some malpractice insurance carriers have offered policy riders that generally provide $25–$35k of coverage, but that is a minimal amount. HIPAA does not provide for a “private right of action”, which refers to the fact that private individuals cannot directly sue a health care provider for violating HIPAA. Only the government can do so.
Although a patient can't file a lawsuit against a health care provider alleging a breach of HIPAA, they can file a lawsuit alleging a breach of medical privacy under a traditional negligence theory. In fact the negligence claim may be connected to HIPAA by arguing that it sets a national standard of care on the issue of confidentiality of patient health information. So looking for a policy that covers HIPAA is a good idea if it is available.
DEA Coverage — A DEA proceeding is one instituted against the Physician by the federal Drug Enforcement Agency for the purpose of ceasing the Physician's ability to prescribe drugs. DEA actions are often based on the over-prescription of pain management medication. Investigations can be triggered by reports to the DEA from pharmaceutical manufacturers and distributors about pharmacies, clinics, or physicians that order an abnormally large amount of narcotics, or from other sources that might catch inappropriate prescriptions for drugs. Investigations are also opened based on complaints received from patients or their next of kin, competitors, local surrounding businesses, or local law enforcement authorities. For this reason, DEA coverage is another covenant to look for in a good malpractice policy.
STARK Coverage — A STARK proceeding is one initiated by a government entity against a Physician, alleging violation of any anti-kickback or self-referral laws. The Stark law requires that if a physician, or a member of his or her immediate family, has a financial relationship with an organization, then he or she may not refer a Medicare or Medicaid patient to them, and that organization may not submit a bill for any item or service defined as a designated health service (DHS), unless one of the Stark exceptions is met. One exception includes physician services and in-office ancillary services provided personally or by another physician in the same group practice.
The following items or services are DHS and are NOT exceptions to the Stark Law:
- Clinical laboratory services
- Physical therapy services
- Occupational therapy services
- Outpatient speech-language pathology services
- Radiology and certain other imaging services
- Radiation therapy services and supplies
- Durable medical equipment and supplies
- Parenteral and enteral nutrients, equipment, and supplies
- Prosthetics, orthotics, and prosthetic devices and supplies
- Home health services
- Outpatient prescription drugs
- Inpatient and outpatient hospital services
EMTALA Proceeding — An EMTALA proceeding would be based on the violation of the Emergency Medical Treatment and Active Labor Act. EMTALA requires Medicare-participating hospitals that offer emergency services to provide a medical screening examination or treatment for an emergency medical condition, including active labor, regardless of an individual's ability to pay. Hospitals are then required to provide stabilizing treatment or transfer patients with emergency medical conditions.
A few EMTALA provisions apply directly to physicians. For example, a penalty may be imposed on a physician who fails to respond to an emergency situation when he or she is on-call. A physician who signs a certification in support of an appropriate transfer may be liable for a civil monetary penalty if they knew or should have known that the benefits of transfer did not outweigh the risks, or if he or they misrepresented the patient's condition.
Hammer clauses — A Hammer clause allows an insurance company to limit its liability in cases where it has determined that a settlement is appropriate, but the Physician withholds consent to settle. Sometimes Physicians do so because they don't want the case or settlement to go against their record. In situations such as these, a Hammer clause will leave the Physician responsible for any amount of future settlement or judgment, which exceeds the original proposed amount. This type of clause can force a Physician to settle claims against their will, in order to avoid the possible liability of paying a certain amount of a future settlement or judgment.
However not all Hammer Clauses are the same. In a modified Hammer Clause, often referred to as a coinsurance clause, the Physician is liable only for a percentage of any judgment above the recommended settlement. The most commonly used percentages are 50% and 70%. If the modified hammer provision is 50%, the insurance company would pay its recommended settlement plus 50% of the overage, upto the limits of liability on the policy.
Claims Defense — Legal costs can be included within the limits of liability or they can be in addition to the limits of liability. For example: a Physician has a claim for damages totaling $1,000,000 and legal expenses are $150,000. They have a policy with limits of $1,000,000 / $3,000,000 with legal costs included within the limits of liability. In this case, the legal costs would reduce the $1,000,000 liability coverage available to pay a judgment against the Physician by $150,000 — leaving only $850,000 to pay for the $1,000,000 damages. The Physician would be responsible for covering the remaining $150,000.
In addition, it is important to know the extent of the insurer's obligation to defend you. Will the Physician be reimbursed for lost wages when in court? What services will be provided as part of their defense?
Pure Consent to Settle — A pure consent clause has no strings attached. In order to settle a case the insurance company must obtain the Physician's approval, who may reject the settlement without further ramifications. It means the insurance company cannot settle a claim without the Physician's consent. A “Pure Consent to Settle” clause is not always easy to find in a policy. Certain states prohibit consent-to-settle clauses in medical malpractice policies because they want to encourage settlement and reduce rising medical malpractice premiums.
Also Courts in some states have said that physicians do not have rights under consent-to-settle clauses in policies issued to medical facilities. In these states, if a Physician elects coverage under a facility's professional liability policy, the Physician runs the risk that the facility's interest in settling will be different than theirs, and as a result, the Physician will lose the benefit of a consent-to-settle clause. The definitions of Named Insured and Insured need to be spelled out clearly in the policy language for all parties.
Billing Errors Proceeding — Investigations typically begin when a Medicare, Medicaid, or commercial payer detects an anomaly in billing patterns; when competitors, patients, or employees lodge complaints; and from random sampling. They may include:
- Billing for services not performed
- Upcoding of services
- Inadequate documentation to support the services provided
- Use of incorrect CPT codes
- Unbundling or fragmentation of services
- Providing medically unnecessary services
Multimedia Liability — Electronic or print media display results in defamation, invasion of privacy, plagiarism, or copyright infringement.
Cyber Extortion / Terrorism — Medical offices have gigabytes of private information on their clients. Hackers may try to target these offices for the personal data and billing information they have for their clients. Cyber coverage includes restoration of the Physician's computer system because of acts of terrorism or threats to release confidential information or corrupt the Physician's computer system. It might also include payment for:
- Crisis management and extra personnel to help the Physician deal with HIPAA-mandated legal responsibilities after a breach of private information.
- Advertising and P.R. campaigns to restore the practice's reputation.
- Investigations about the attack and network security.
- Costs to contact patients about the attack.
- Fraud monitoring / credit monitoring for patients and other affected parties.
Occurrence vs Claims-Made
There is a major difference between policies that are Occurrence vs Claims based, with Occurrence-based being the most comprehensive but expensive. Occurrence Form insurance provides coverage for professional services that occur during the policy period, regardless of when a claim is reported. Occurrence policies protect the Physician and the healthcare facility for the life of the patient.
Claims Made policies provide coverage for claims that are reported during the policy period. However the provider is not covered for claims made after the policy expires, unless a “tail policy” is purchased. A note of caution that not all tails are not created equal, and it's imperative to carefully review the type of coverage provided.
Financial Strength of Insuring Firm — How financially secure is the insurance company issuing this policy? A number of insurance companies have gone out of business in the past few years. Physicians also should find out the rating of the insurance company. The rating indicates the stability of the company and its business practices, as well as the company's reputation and reliability. The rating can be checked with AM Best or another rating company to determine the insurance company's financial strength. Ratings of at least A- is suggested, but some say that nothing less than an A should be considered.
Coverage Amounts — You will notice insurance coverage limits written as $1,000,000 each occurrence / $5,000,000 annual aggregate or $1,000,000 / $5,000,000. (Also, $1,000,000 / $3,000,000, $1,000,000 / $1,000,000 etc.) What does this mean? A $1,000,000 / $5,000,000 limit means that the most that would be paid on any one claim is $1,000,000 and the number of $1,000,000 claims that could be paid on your behalf in a year is 5, for a total annual aggregate of $5,000,000. So the most the insurance company is going to pay out for claims that occurred in any one policy year is $5,000,000 — and the most they will pay on any one claim in any one policy year is $1,000,000.
Statistics on Malpractice
from New England Journal of Medicine 2011 study
Findings: Specialties in which physicians were most likely to face claims were not always specialties in which indemnity claims were most prevalent. In addition, large judgements of over $1 million were not as common, the median claim is much smaller. However, the notion that Physicians are frequently sued for malpractice seems correct, with 75–99% of Physicians in low to high risk specialties facing the prospect of a suit by the end of their career.
- Across specialties, 7.4% of physicians annually had a claim, whereas 1.6% made an indemnity payment.
- There was significant variation across specialties in the probability of facing a claim, ranging annually from 19.1% in neurosurgery, 18.9% in thoracic-cardiovascular surgery, and 15.3% in general surgery to 5.2% in family medicine, 3.1% in pediatrics, and 2.6% in psychiatry.
- Across specialties, the mean indemnity payment was $274,887, and the median was $111,749.
- Specialties that were most likely to face indemnity claims were often not those with the highest average payments. For example, the average payment for neurosurgeons ($344,811) was less than the average payment for pathologists ($383,509) or for pediatricians ($520,924), even though neurosurgeons were several times more likely to face a claim in a year.
- Outlier awards, which were defined as those exceeding $1 million, were infrequent, accounting for less than 1% of all payments. Obstetrics and gynecology accounted for the most payments, followed by pathology, anesthesiology, and pediatrics.
- The projected proportion of physicians facing a malpractice claim by the age of 65 years was high. Among physicians in low-risk specialties, 36% were projected to face their first claim by the age of 45 years, as compared with 88% of physicians in high-risk specialties. By the age of 65 years, 75% of physicians in low-risk specialties and 99% of those in high-risk specialties were projected to face a claim. The projected career risk of making an indemnity payment was also large. Roughly 5% of physicians in low-risk specialties and 33% in high-risk specialties were projected to make their first indemnity payment by the age of 45 years; by the age of 65 years, the risks had increased to 19% and 71%, respectively.