When a physician is either switching a job or many times when someone is coming out of training. They may receive an employment agreement containing RVU (Relative Value Unit). An obvious question to most people not used to being compensated in that way is: what is an RVU? How do I get paid for it? I’m going to break this down in the simplest way possible. Make it digestible for people looking at a job where they may be paid based on RVUs. 

From Income Guarantee to Productivity Model

Just an initial matter, most of the time, if you’re entering a job. Is that, there will be a guarantee period before a productivity-based agreement kicks in. For instance, let’s say a gastroenterologist works as an employee at the hospital. They’ll usually have an income guarantee for the first year or two. A base salary that’s not tied to productivity in any way. Then maybe after year two and entering year three, it’ll transition into a productivity model. In most cases, at least as far as being employed at the hospital, it would be RVU based. 

What are RVUs?

Let’s talk about what an RVU is and how you get paid for it. An RVU stands for relative value unit. The CMS (Center for Medicare) and Medicaid services came up with the system. I believe it was in the early 90s when essentially, they gave every CPT code a value or a number based on how long it takes, how acute it is, and how much time and skill are involved. All the specialties with all the encounters and CPT codes have an RVU number attached to them. 

3 Types of RVU

There are three types of RVUs. You have the work RVU for the physician, the practice expense RVUs, and the malpractice RVUs. The only RVUs that matter to the physician is the work RVUs. That just considers what the physician does. One of the benefits of RVUs versus net-collections is that RVUs take out any collection problems.  Net-collections is another common way of being compensated for production.

Even though a physician may do a service, provide a service to a patient if they’re being compensated via net-collections. If the management doesn’t receive the money or the hospital or whoever the employer is, the physician won’t see it.

How RVUs Work

Let’s say write-offs, reductions by insurance companies, or just straight defaults by the patient in paying. All those will go towards the physician doing the work but not getting paid for it. RVU kind of takes that away. It’s only based upon what the physician does. In this case, as I’ve mentioned, each encounter is given a number. That number is then multiplied by what we’d call a conversion factor. That’s how much the physician will get paid. 

Let’s do primary care, for instance. Let’s say the median RVUs generated in a year for primary care is roughly 5,000 to 6,000. If they were receiving compensation annually based on RVUs, you’d take 6,000 RVUs, and multiply those times the conversion factor. That’s what they would make for the year.

There are multiple ways of paying them. No one’s going to wait till the end of the year. Generally, they would have a draw. So, there’d be a number that they’d agree to where the physician would be paid that amount. Then either monthly or quarterly, there’d be reconciliation. Suppose there’s a leftover amount, meaning they’ve generated more RVUs than they were actually paid via the draw. They would receive that as a bonus at the end of the month, the quarter, or whatever the reconciliation period. 

There is no negotiation as far as what an encounter is worth, as far as RVUs go. CMS sets that, and that’s what it is. There can be a negotiation in the conversion factor that changes based upon specialty. One specialty may have a conversion factor of 35, which is like the average. Whereas possibly, like a neurosurgeon, it might be 75 or $80. It just depends.

Negotiating Your Compensation Factor in RVUs

If you’re with a health network or a hospital, they usually have their internal benchmarks for what each specialty will receive for their compensation factor. Maybe if you were with a small physician-owned group using RVUs, you’d have more leverage in negotiating your compensation factor. How to use this information practically? I would search right out on the internet for what an annual RVU amount would be in your medical specialty. Also, look for the compensation factor. 

Another way of compensating physicians is they’ll have tiers. For instance, if their expectation is 5,000 RVUs in a year, then maybe between 5,000 and 6,000. They’ll be paid this comp factor 6 to 7. It would raise to maybe $5 more and then 7 to 8, another $5. That’s not uncommon either. Anyway, that is what an RVU is for a physician. Once again, you only care about the work RVU. There are multiple ways of compensating for it. Still, hopefully, that’s a bare-bones analysis to at least give you knowledge about it.

Chelle Law will provide a physician contract review to identify areas we could improve and to assist you in negotiating the best contract possible. 

Other Blogs of Interest

• What Should be in a J-1 Physician Contract?
• Is a Physician an Independent Contractor?

What is a Physician Base Compensation Plus Productivity Model? 

How does a base salary plus productivity model work in a contract? It can work in several different ways. We’ll go through that in this article. In a physician contract, if someone is just coming out of training or is switching jobs, there will likely be an income guarantee period. It doesn’t make much sense for physicians to join a medical practice or a hospital. Then go straight production from the beginning. Now, it could be specialty-dependent. Maybe that may make sense if you’re doing staffing or shift work with an ED or hospitalist.

Productivity Based Model

However, if you are building a practice in primary care, cardiology, or any outpatient-based clinic practice. It takes time to build up a patient base. 12 to 18 months is an average time for practice to reach maturity. If you come in, there likely will be an income base guarantee. And maybe some stretch goal production models where you’ll get a bonus if you hit certain thresholds. But in that case, after the income guarantee period, after the first year or two, it can then switch. And today I’ll talk specifically about how a base salary plus productivity model would work. It’s basically a hybrid compensation model. I’ll take two scenarios and kind of walk through them briefly.

Physicians Base Salary Plus RVUs

Let’s say, physicians have a guaranteed base, plus RVU-based productivity bonuses involved. And let’s talk about how that would work. Let’s say you made 240,000 in year one. And then 240,000 in year two is the income guarantee. And after that, your compensation then shifts to the productivity model. An employer could, instead of just paying you 240, they could cut your base guarantee in half. So, you’d be making 120. Then once you hit certain productivity thresholds, they would calculate, and you would get the surplus. Let’s take RVUs as an example. Let’s say you’re in primary care and the annual RVU goal is 6,000. Most places would do maybe a quarterly reconciliation. It’s 1,500 RVUs that you’re expected to generate.

You have the 120 annual base, right? Divide that by 12. And so, you have 10,000 a month, and after the quarter, they’ve paid you 30,000. In addition, at the end of that, they would say, alright, did you generate 1500 RVUs? Then anything above that, you would get multiplication where they’ll take the surplus RVUs times compensation factor. You would get that as a bonus at the end of the quarter. In that scenario, that’s not how most places would do it. Because most physicians won’t be okay with getting a small base each month and a big windfall at the end. 

Base Salary Plus Net-Collections

Additionally, if you were getting half base, you wouldn’t be expected to have a normal median RVU productivity to get additional comp. They would lower it. Another way to do a base plus productivity would be through net-collections. The scenario would be the same: care physicians would have a base salary. And then they would have a net collection threshold. One way would be that the physician is getting paid 20,000 a month. The management would say, okay, once you cover your base pay, once you’d get 20,000 in collections that month. Anything above that amount, you would get a percentage of usually somewhere between 30% to 40%. And then they would get that at the end of the month.

Usually within 15 to 30 days of the end of the month. That would be a normal way of doing it as well. From contract to contract, the way physicians earn probably varies the most from any other term.

In Practice, is One Better Than the Others?

There are so many ways of doing compensation. Is there one that’s better than the others? No, I don’t think so. It depends on the specialty and how efficient the billing practices of your business are. The volume and how established the practice is. All those variables, I guess, combine to determine what type of compensation model would be best for you.

Until we can take a total look at it, there’s no way of knowing what’s the best in your situation. Then also, some employers say, this is the compensation model we’re using. And it would help if you dealt with that as well. In that case, say you know what the compensation model is and that they’re not changing the model. The one variable they can change is the numbers used. The RVU threshold, the net collection percentage, and the base straw. These are all things that can change and determine whether it’s a great opportunity for physicians in their careers. That’s a brief example of a base compensation plus productivity model for physicians.

How is Physician Productivity Calculated? 

What are the different ways of calculating physician productivity? As someone who reviews contracts daily, I find that the two most likely methods of calculating productivity are either net-collections or RVUs. And so, let’s break both of those down. Suppose someone is an employee of a hospital network. In that case, their productivity will likely be calculated through RVUs.

What are RVUs (Relative Value Unit) and How is it Computed?

RVUs are relative value units. CMS, Center for Medicare Services, issues a list every year and has different RVU values associated with the different types of encounters that the physician has. In most scenarios, whatever RVUs generate is multiplied by a conversion factor, and that number can also vary. It’s usually somewhere between $35 to $80, based on the physician’s medical specialty. 

A Scenario for RUVs Measuring Physician Productivity 

Let’s take a scenario where a physician has been employed in the hospital network for a couple of years on an income guarantee. Then their contract will switch to just pure RVU production. Usually, the base salary level will be chosen below what they would’ve made the year prior. So, if somebody made $240,000 and their RVU production matched that in year two and then switched to production, maybe they’ll back down whatever the draw is, like what they’re paid per payroll. So, if they’re receiving 20,000 per month, perhaps they would back that down to 15,000. And then if the physician, when they did the RVU calculation, exceeded that, they would get paid that amount at the end of the month, or quarterly as well as a usual way of doing it.

How RVUs are Calculated

If they’re doing RVU production, it’d rarely be less than quarterly or monthly. That’s how a physician gets paid for RVUs. You take the RVUs generated, multiplied by a conversion factor, and that’s what they get. And then, at some point, there’s always a reconciliation to ensure they are getting what they burn. And there are scenarios where a physician may make less than what they had been earning. Then, in that case, most contracts will carry forward the deficit. So, a care physician could have a negative balance in a month. And if so, the contract will likely state that the negative balance will be carried forward into the next month until a physician exceeds the negative balance. 

Net-Collection

The other way is through net-collections. Net collections are literally what the management collects for the physician services. Now, net-collections are utilized for the most part in private physician-owned practices. The difference between why someone would use RVUs versus net-collections is a hospital network operates RVUs because there are many times when a physician must provide healthcare. They know the person they provide healthcare to can’t pay the bill. 

Hospitals and physicians also don’t think it’s fair that they are part of the job of giving that charity care. However, they still provide that healthcare and want to get paid. And RVUs only consider the work that the physicians do. It doesn’t consider what’s collected. Whereas, with net-collections, most physician-owned practices utilize net-collections because almost everyone they’re providing health care to in practice has insurance or private pay.

Most smaller physician practices aren’t going to provide that charity care. They want to know, will the care physician be paid for what we receive? Now, why can it be different? Well, there could be write-downs from the insurance companies. There could be write-offs from patient care issues where they give a refund, something like that. So, even though the physician may provide healthcare, what the practice receives could be less. And in a net-collections productivity model, usually, it would be monthly productivity. 

Guaranteed Minimum Base Pay for RUV Model

The physician would likely much like the RVU scenario where they’d have a small, guaranteed base, or maybe it’s not even guaranteed, but just like a draw. Let’s take the same amount of money. Let’s say 20,000 a month for a physician. Most practices will say, okay, once your collections exceed your salary for the month. You will get a percentage of whatever is collected after that, usually somewhere between 20% to 35%. And once they reached the threshold, as far as they go up, let’s say they collected 40,000 in a month and had a 25% net collection with a 20,000 threshold. Then they would get 25% of 20,000.

Are Medical Physicians Paid Purely on Net Collections?

Now, I’d say rarely is a physician paid purely on net-collections, meaning there’s no minimum guarantee or draw. It’s just whatever they do in the month, that’s what they receive. Those scenarios are challenging, especially when the physician is starting. Because there’s no guaranteed payment for the first couple of months. And so, they could be working for 30 days without receiving any money. I mean, the average accounts receivable cycle is somewhere between 30 to 90 days.

 In that scenario, the physician wants to ensure a minimum draw, so they make at least a little bit of money in the first couple of months. Then it will ramp up over time. The last consideration is, and this goes for both RVUs and net-collections: if there is a bonus structure involved, there will be language in the contract that states, if the contract is terminated, how is the physician paid? There are times when it will state that the bonuses will only be paid out if the physician is an employee at the time of the payment. 

So, even though they may have earned the bonus if they terminate the contract. Or leave the employee who made it and it’s paid out. They won’t get any of it. Strategically, sometimes the physician must wait until the management pays whatever bonus is coming. Then they can give notice and leave. I mean, that makes the most sense to remember in their careers. So, that’s how they measure physician productivity, or at least the two main ones are RVUs and net-collections.

What Is the Best Physician Compensation Model?

What is the best physician compensation model? I wish I had a black and white answer, but it depends. Let’s work through the different types of physician compensation models and who can benefit from each. There are three main types of physician compensation models. 

3 Main Types of Physician Compensation Models

First, just a straight-based salary. You work for the management. They pay you 300,000 a year. You do the work, that’s it. You get the straight base, no productivity incentives, compensation, nothing. Second, you could earn on net-collections. Whatever revenue your services bring into the practice, you would get a percentage of that. Typically somewhere between 35% to 45%. And then lastly, RVUs. The physician produces work RVUs for every encounter and generates a certain revenue based on the schedule released by CMS. Then there is the compensation factor. An actual monetary value multiplied by the RVUs generated times that compensation factor. That’s how much physicians will make in their careers. 

There are certainly hybrid models that combine one or all of these. It would be rare to have a compensation model with both net-collections and RVUs. That seldom happens. Maybe there would be a half-based salary minimum. And then the rest of your compensation would be tied to either net-collections or RVUs. I find that most physician-owned practices will have some productivity compensation and use net-collections. And then most hospital-based health network employment would utilize RVUs.

Why do they separate them? Not sure. But that’s just how it works in this industry. Which one is best? I think having a straight base salary with absolutely no performance incentives or productivity incentives doesn’t make sense to me. Now, if you’re a new physician coming into a new job. I’ll say, with the hospital, you’re establishing a practice in the area. There will almost always be an income guarantee for the first few years.

RVU Not For Newly Practicing Medical Physicians

It usually takes 12 to 18 months for a practice to reach maturity. So, it only makes sense that physicians wouldn’t be placed on productivity compensation immediately. Especially primary care, cardiology, and any medical specialty where you must build up a patient base like ED or hospitalists. Those types of things where you’re just doing the work before you. You’re not building up a practice. You can hit the ground running. In those scenarios, it’s okay if it was in the RVU-based productivity model. But it makes no sense initially if you’re building up a practice. Many organizations will have an income guarantee for the first year or two. And adjustment into a hybrid of base salary plus RVUs. 

Let’s first take net-collections. The main point of negotiation in the net collections-based agreement is the percentage. When I speak to physicians, they’re taken aback upon seeing they’ll only make 35% of revenue collected by the management. However, overhead is expensive. 60% is not an unusual amount in physician practices. If the management is going to have revenue, they need a percentage within that area. As I said, usually somewhere between 35% and 45% is normal. You will not see a net collections-based agreement over 50%. And if they’re a good businessperson, honestly, anything over 40 to 45 wouldn’t make financial sense unless they’re efficient. 

Negotiate the Percentage of Collection

One thing to negotiate would be the percentage of collection the management gives. It can either be calculated monthly, quarterly or yearly in some instances. And then it’s tier up, or there’s reconciliation at the end of those periods. So, the percentage will be the negotiating point if it’s a net collections-based agreement.

It can be just pure net-collections, meaning everything you bring in that’s your revenue. Or maybe you have a base salary. And let’s say that any quarterly collected over $200,000. You get a percentage of whatever it is, in addition to your base salary. As far as RVUs are concerned, once again, you could be paid monthly, quarterly, or yearly if it’s reconciled. You’re not getting paid yearly, but they could reconcile it at that period. Usually, in an RVU-based contract, they would come up with a draw.

Let’s say you’re taking home 10,000 a month, no matter what. And then, at the end of the month or quarter, there’ll be a target. And then any RVUs generated above that target would be multiplied by that compensation factor. Then that’s what you would take home. So, what is the best? Well, as I said at the beginning, it depends upon the setting for the physicians. Net-collections based do not work in a hospital environment. So, if you are in a healthcare network hospital, it simply doesn’t work. RVU is the only thing that works in that environment. 

It All Depends on the Setting and Practice

I think RVUs are fair, but you also must consider this. If you’re in a medical specialty like ED or hospitalists, and you’re only getting on RVUs. You could be completely screwed if the volume of the hospital is very low. If the sense is slow, if the ED is slow, there’s nothing you can do. In that scenario, you would not want to be paid purely on production. And honestly, it doesn’t happen very often, but I’ve seen it before. And it’s just a bad idea. 

Now, if you’re in primary care, you’re at the mercy of, is the office manager good? Is the office set up well, and are they efficient? Is the medical billing and collection department on top of it? If you’re on a net collection base agreement and the billing and collections department is terrible. Well, you’re the one going to suffer from that. So, I always try to work in a hybrid where you’ll get a guaranteed base. But if you perform over a certain amount, you’ll also reap the benefits of the production. I mean, it’s just human nature. If you can get a bonus, then most people are incentivized to work harder to get that bonus. 

That’s why most of these employers provide something like that. When you’re on a base salary, with no opportunity for production, you’re just doing work that’s in front of you. It’s just human nature that you likely won’t focus or work as hard if there’s no opportunity to make more revenue. So, which one is better? It depends upon the setting. But all three can work perfectly for physicians if it fits the practice that they’re in.

What is the Most Common Physician Compensation Model?

What are the most common types of physician compensation models? Spoiler alert! There is no common model. From contract to contract, the way people get compensated varies the most. It’s the most variable part of any physician contract across contracts. I review hundreds of physician contracts a year. It just blows my mind how many ways different organizations compensate physicians. But there are probably three main types, and I’ll go through those right now. 

Straight-Based Compensation 

The easiest and simplest way of paying physicians is just a straight-based salary. There is no productivity attached to it, no volume expectations. You do the work; you get paid a base salary, and that’s it. For people just coming out of training and starting their careers. It’s not uncommon for them to receive a guaranteed base without productivity for the first year or two. And there are many jobs where they pay the base, and that’s it. 

Pay Through Production 

However, there are also different ways to compensate physicians that introduce some productivity in practice. I’d say the first one is RVUs. When someone enters an organization, whether they’ve been out for a long time or just coming out of training. Just starting out their careers. If you’re joining an organization. This goes mostly for hospitals and big healthcare networks. It’s rare to have a physician-owned practice use RVUs. So they’ll have an income guarantee, usually for a year or two. And then, their physician compensation model will switch completely to RVU performance compensation. How much they make each year depends on how many RVUs they generate in their careers. 

I will not get into what an RVU is or how they calculate it. I do have a couple of videos. If you’re interested, you can look at it. I go through what an RVU is and how a physician gets compensated for it. 

But on the basic level, they multiply the number of RVUs you generate times the compensation factor. Like a monetary amount that varies by medical specialty. Usually, it’s somewhere between 40 to $80. And then they multiply that times your RVUs, and that’s how much you make for the year. Now, there must be some details that go into that. Usually, there’ll be a base draw. So the physician will continue to get a regular monthly salary, but then it’s reconciled quarterly.

Example Scenario on the Job

For instance, let’s say they’re taking home 20,000 a month. At the end of the quarter, they’ve been given 60,000 from the management. And then they’ll look back on how many RVUs they generated times the compensation factor if there is a surplus. It means they generated more RVUs than they made and are usually given a bonus. Most employers in that scenario will not give a full percentage with a base draw. Let’s say in the previous year, someone just via RVUs generated like $240,000, right? So, it’s 20,000 a month. The management will not give them a base of 20,000 a month because there will be variables involved. If someone takes a two-week vacation but keeps getting paid 20,000 per month. 

There will be a deficit they will either have to pay back or carry forward. Most employers will give maybe around 80% of what they made in the previous year as their base draw. And then that way, there aren’t a lot of negative balances to carry forward. Most physicians do not like that at all. One way to do it is just after the income guarantees a straight RVU compensation model. Others will do a hybrid of a guaranteed base in addition to RVUs. They’ll give monthly, quarterly, and yearly targets for RVUs. Once the physician hits that total amount, they can receive a production bonus. 

As I said, it would be just the RVUs generated above several times the compensation factor. Hospital management and healthcare organizations primarily use them. 

How Net Collections-Based Model Works

I would say that a different compensation model is net collections-based, primarily from physician-owned groups from smaller practices. How it works is that they’d calculate the amount collected by the practice that directly results from the physician’s services. And then the physician would get a certain percentage of that.

Usually, the percentage would be between 30% to 40%, somewhere in there. Now, you think that’s completely unfair if you’re a physician. I only get 30% to 40%. Still, when you consider overhead staffing, supplies, payroll taxes, and all that stuff. It does work out mathematically to be equitable for both parties. You are not going to get net collections-based compensation. It is like 50% or anything. It’s just not going to happen. Net collections-based compensation models are like RVU-based models, and there’ll usually be monthly reconciliation. And if you were to generate a hundred thousand dollars monthly, then they would just do the calculation.

If you’re on 40%, you will get $40,000, usually paid within 15 to 30 days of the end of the month. And that’s what you make. Some more variables go into it, which is tricky if you go into a job. It’s just pure collections from the very beginning. You aren’t making a lot in the first couple of months. Because the average accounts receivable revenue cycle can be anywhere from 30 to 90 days. It’s from when you do a service to when you get paid through the insurance companies. You could work for the first month or two and make a tiny amount of money. And then it grows over time. Usually, in those scenarios, we try to bake in a draw. So that the physician isn’t just making a tiny amount in the first few months. 

Summary

My opinion on what’s fair and what’s not? It just depends upon the job and the medical specialty of the physician.

All the different models are fair if the compensation is proper. I think on a kind of motivational level. It makes sense to incorporate some production into the contract. Someone who only has a physician base salary and has no bonus or upside in producing more or working more? It’s just human nature though, that they’re just. I don’t know if being ‘stagnant’ is the right word. But people are motivated by money. That’s just a reality. And if an management can incorporate some way of compensating an ultra-productive physician, there’s no downside to that. It’s probably a matter of whether the employer’s creative. But, I mean, there are a million ways of doing compensation. 

So those are the three most common physician compensation models: straight-based salary, RVU-based production, and net-collections. And then there are so many permutations that would be a hybrid model of all three of those.

How Much are Resident Physician Salaries? 

One question med students have is the average salary for a resident physician. After a physician graduates from medical school, they move on to an internship or residency within their specialty. Then earn. But for most of them, it’s simply not even remotely enough for the work that they’re doing. So, it’s not uncommon for residents to work 70- or 80-hour weeks. The average salary for residents in the United States is around $63,000. Maybe you’re a resident right now, thinking, I don’t even make close to that, or maybe I make more. This is average across all specialties. Some specialties will make a little bit more in their careers than others.

Leverage in Salary Negotiation

Some could be as high as the 60s. Whereas maybe in family medicine, you could be about 50s. Can residents negotiate their salary during training? No, they have no leverage. Anytime you’re negotiating a contract, you base it upon leverage. Even those residents coming out of training and moving on to their first employed job don’t have much leverage either. The only leverage they have in those situations is if they’re in a needed medical specialty. Or two, if they’re willing to go to an under-served geographic area and need physicians.

So, around 63,000 is the medical residency salary. If you think of it this way, if they work 70 to 80 hours a week, they’re making about $15 hourly. And providing healthcare as a doctor for $15 an hour. Now, once they move out of training, the salary increases substantially. And for some specialties could be an eight-fold increase, at least just coming out. But that’s what it is. One consideration we make when reviewing and negotiating the resident’s or fellow’s first contract. Most of them don’t have much money coming out of training. 

Importance of Relocation Assistance 

So, suppose the new employer is offering a signing bonus or relocation assistance. In that case, we want to ensure they’re getting a chunk of that before moving and starting the new job. Wherever, if they are moving from where they’re currently training. Simply most residents, especially if they have family, maybe the only breadwinner. At that point, they don’t have $10,000 to $15,000 if they’re making a cross-country move. So, we need to ensure that either the employers pay their moving costs directly to the moving company. Or they’re going to front the money before the physician needs to spend it on the move.

In that way, they don’t have to outlay a ton of cash. Because it certainly is expensive moving from one place to an entirely different one. Medical residents certainly are underpaid. Unfortunately, it’s part of the process they must go through to be fairly compensated for the services they provide. But it’s just tough when you’re making that little. And I think the average physician has about. I think 47% of physicians have student loans over $200,000. It could be a big burden.

When Should a Physician Resident Start Looking for a Job?

When should resident physicians start looking for jobs? This is a complicated question. First, I do contract reviews daily for physicians. Many are individuals getting their first jobs who’ve never had an employment contract before. They’re either in their last year of residency or fellowship and have an offer they want me to review. There are occasions where there’s a multiple-year fellowship, maybe a PGY-2 or something like that. Wherein residents already have an offer that won’t begin for two years and want me to look at, as well.

Search for a Residency Job

Let me give some words of wisdom, just from doing this for a couple of decades now. One, if you are a resident or a fellow. You know where you need to be geographically. Maybe you have to move home, or you have a significant other completing trading themselves elsewhere. Want to move close to your family, whatever it is. If you have a pinpoint location in mind, getting started sooner than later is probably a good idea. Start looking for work when you still have two years left in training. Think of it from an employer’s perspective. Some employers don’t have immediate needs for physicians, right? So, if they are well run, they’ll have financial forecasts.

Forecasts as far as the patient load will be, perhaps the management is expanding and opening a new office. But they’re not going to open it for a year. I guess I’m saying that employers know that they’d have a need for a physician. But sometimes, it’s not for a couple of years. That’s why management will start looking immediately for a position that’s not immediately available. Once they get out there and see some candidates, even if that candidate has two years left in training. It’s not uncommon for them to offer them a position and make them sign an employment contract. One benefit of looking early in their careers is simply getting in before someone else takes the part. So the earlier you look at the job, the more likely you’d have a chance to get it. If that makes sense. 

If You Take a Practice Early 

Next, the downsides of going early. What’s the negative part of finding a position far out from when medical residents have completed training? Suppose you sign an employment agreement that doesn’t commence for two years. And then you have some change in the family. Maybe the significant other that was supposed to move to one city is now moving to another. Or there’s a sickness in the family. There are a million reasons why a location is perfect at one point, and two years later, it’s not. The downside of signing early is that things may change in your life, but you have signed the employment agreement. Then it gets into: how can I terminate this agreement even before I’ve started? Are there any penalties associated with it? Some contracts have built in that if the physician doesn’t start, they will owe some penalty.

Which Year to Start the Job Search?

I would suggest. Before signing an agreement with that kind of language, probably get it reviewed by someone to go over the ramifications. What happens if I sign the agreement, I either can’t start or don’t want to start. And then need to get out of the contract? Another possibility is you sign early and get a better offer. So maybe it’s just a better opportunity for you. The compensation is more. The benefits are better. The concern is that if you sign a contractor early, you’re foregoing any potential opportunities down the road. Now, some employers are okay with letting someone out with enough notice. 

The contract will have a notice requirement, but if you haven’t even started, most employers are understanding. If there is some actual change in family circumstances. They’re not as forgiving if it’s simply that this person is paying me more than you. I don’t want to complete the terms of this agreement. Once the contract is signed, the employer relies upon you to start, so they will stop recruiting anyone else. They’re going to make plans to either bring in more patient volume. Or maybe the office they’re opening up is contingent upon you being there.

Where Residents Should be Looking

So, I guess there are problems for both sides if the physician doesn’t want to start. The employer could have some damages associated with the physician not completing the terms of the agreement. Overall, I’d say the sooner, the better to start looking. However, taking the first offer and signing an employment agreement without comparing different bids is a bad idea. There are almost always multiple opportunities for somebody. Just to accept the first one just because they are the first doesn’t make a lot of sense to me. So I’d suggest you look at multiple offers, gauge the compensation structure amongst them, and then go from there.

Continuing Medical Education or CME

What is CME? CME stands for continuing medical education. And every healthcare provider is licensed through a licensing board, no matter what state you’re in. And let’s just take a medical board, for instance. Each medical board will have its own requirements as far as how much CME a physician will have to complete on an annual basis. And then some states will do it annually. So, the physician must complete 30 hours of continuing medical education in one year. And then others will have maybe a rolling average. For instance, I’m licensed in Indiana in addition to Arizona, where I live. And Indiana has a three-year rolling average that I have to get done, whereas, in Arizona, it’s just set at 15 hours per year.

Annual CME Payment 

First, identify how much is required by the licensing board. Now, on the employment side of things, if you are employed by a hospital, medical group, small physician-owned practice, or whatever it is, the practice should pay an amount for your continuing medical education (CME) every year in addition to providing some time off. As far as the amount provided, 3,500 is about the average that an employer would provide for continuing medical education for a physician on an annual basis.

Some places are a little bit more, and some places are a little bit less. I’d find that the larger healthcare networks and hospitals are probably on the higher side. A physician-owned group might be on the lower side, but you shouldn’t accept less than 3,500. As far as how much time off is provided, this would depend on the time-off structure of the employer but receiving anywhere between three to five additional days of time off would not be uncommon for continuing medical education (CME).

Paid Time Off at CME 

So, when you think about time off, there are usually four factors. You have a vacation, holidays, sick days, and then CME. Some employers will just group all of that into one pot of time off. And so, no matter what you do, if you’re not there, you’re taking time off of that pot. Whereas others will break it down and say 15 days of vacation, five days of sick days, six or seven federal holidays, and then three to five days off for CME. So, that’s what continuing medical education is. Look at your board to see how many you need per year, and then look to the employer to see how much they’re going to pay for you to complete CME, and then also look to see how much time off you’re going to get to complete those.

How Much Vacation Time Do Doctors Get?

How much vacation time do doctors get? Let’s break down what is considered time off and then what is normal. First, I find that many people lump everything into vacation, meaning just any time away from work. No one lumps it like that. It’s generally thought of as paid time off or PTO. And then there are four things that go into paid time off. You do have vacation time, you have sick days, you have holidays, and then you have continuing medical education (CME). Those four things all go into the pot for paid time off. And then that determines how much time off you get.

Normal Amount of Vacation Time Physicians Should Receive

The average physician gets around 30 days of total time off. So, when you add up, let’s just say a normal amount would be 15 days of vacation and five sick days. Now, many states have actual laws in place that dictate how many sick days an individual can get. I would check into that prior to figuring out how much actual time off you get. You’ll usually get somewhere between three to five days for CME and around seven to eight federal holidays. It depends upon the office and then also the call responsibilities of the physician. And this is specialty-dependent, so when I say the average amount, I’m just taking the average amount across all specialties, around 30 days.

If you’re getting less than that, it’s probably not enough. And certainly, if you’re getting 20 days, that’s well below average if you add everything up. Now, there are some specialties that get a significant amount of more than 30 days. Radiology and anesthesiology, for whatever reason, tend to get much more. Obviously, if you’re doing shift work, so if you’re in the ED or a hospitalist, many of you won’t get any time off. So, if you’re seven-on/seven-off, your time off is the week that you have off, and you’re not going to get any additional paid time off. However, I have seen recently, which I’ve never seen before, a few hospitalist jobs that are offering paid time off in addition to the time off that they get, which I think is abnormal but obviously great for the hospitalist.

What to Do if A Physician is Offered a Substandard Amount of Paid Time Off (PTO)?

What do you do if you’re being offered a substandard amount of paid time off? First, you need to go to them and say, look, the industry averages are these, and you’re giving me this, and it’s not enough. You also must consider, as I said before, what your call responsibilities and expectations are. If you’re on call for 75% of the holidays, that’s not true time off. Do you get the day off after you take the call? Sometimes that’s not in the contract, and it should be spelled out. As far as vacation time, I find that most of the larger hospitals and hospital networks have a generous time off policy, and they are not going to bend on that. It’s the same for all the physicians, and you’re going to get what they offer. The room for negotiation is the smaller physician-owned practices.

Those are also the organizations that tend to try to screw over the physician. So, let’s just say you’re just coming out of residency or fellowship. They may say, well, this is your first year, so you only get five days of vacation or something like that. You’re going to be completely burned out. Your compensation structure will also determine how much time off you want to take. If you’re on an income guarantee, say you’re making $250,000 a year, and it has no productivity incentives tied to it at all, well, the more time off you take, the better.

What Factors Are Counted in PTO?

• Vacation:  Hospitals and health networks generally offer more vacation (15) than smaller physician owned groups (10).
• Sick Days:  Many times, this amount is mandated by State law.
• Holidays:  Some organizations observe different holidays than others.
• Continuing Medical Education:  Most employers give between 3-5 days off for CME participation.

How Much Should an Employer Give a Physician for CME Expenses?

Physicians need to continue their education in the medical field by attending Continuing Medical Education (CME) courses. The cost of these courses can be a burden on an individual physician’s wallet. To reduce this burden, employers will cover the cost of CMEs for their employees as part of the contract benefits package.

Continuing medical education (CME) is a type of continuing professional development that helps physicians stay updated with the latest developments in their field. It can be done online, on-site, or through other means, such as books and journals. It is not just for physicians; it also includes nurses, pharmacists, dentists, physical therapists, and other professionals in healthcare fields. It helps people keep up-to-date on new treatments and technology while keeping them out of trouble regarding ethical issues within their profession. It has many benefits, so read this article to learn more!

Continuing Education for Medical Providers

Continuing Medical Education (CME) can help physicians keep up to date on new treatments and technology while keeping them out of trouble regarding ethical issues within their profession. As a doctor, you know the importance of continuing medical education (CME) to stay current with the latest advancements in your field. 

Continuing medical education (CME) can be done online, on-site, or through other means such as books and journals. Some people might take college courses where they can earn credits towards getting a degree if they want one. It is important not just for physicians but also nurses, pharmacists, dentists, physical therapists, and other professionals in healthcare fields. The requirements are variable but typically require 20 hours per year, with many employers requiring more than 40 hours annually.

Credit for Virtual Continuing Medical Education (CME) Conferences

A sponsoring organization often provides credit for completed CME activities. For example, a medical association will provide credit for time spent listening to presentations at their annual meeting. And this information can be used on the physician’s CV or in seeking new employment opportunities with other organizations.

At a CME conference, physicians will see many lectures and posters on different topics in their field. CME is an opportunity to hear from experts about a topic that can be difficult to stay up-to-date with without reading extensively.

A conference may also have networking opportunities, sharing experiences, and discussing new developments in one’s practice area with other physicians who specialize in the same type of care.

Most CME Conferences Offers:

• CME Conferences often include hands-on workshops where participants learn how to apply essential information learned during previous sessions.
• Lunchtime discussion panels provide attendees the chance not only to discuss what has been presented but also to voice their opinions publicly for feedback.
• Social events are another way that some organizations foster lasting relationships.

What Expenses are Paid for?

• Travel
• Meals
• Lodging
• Conference Entrance Fees

Average Cost of CME the Employer Pay 

A recent survey revealed that employers often spend between $1500 to $4,000 per year in reimbursements for expenses that are included in the business expenses reimbursed to the physician.
Due to the recent pandemic, many continuing medical education (CME) conferences are being held remotely, negating the need for travel reimbursements. However, most employers still provide relocation assistance for physicians when they move to a new job.

How do you calculate tail insurance coverage? If you are a provider and sign an employment agreement or independent contractor agreement, it may state who’s responsible for the malpractice insurance. And then, who’s responsible for paying the tail insurance coverage expense if it’s a claims-made policy? 

Three Types of Insurance

There are three types of insurance utilized by healthcare providers. One would be claims-made, which you do need tail insurance. The second is occurrence-based coverage, where tail insurance is unnecessary, or you could be working for an extensive healthcare network, and then they would be self-insured. In that scenario, it’s implausible you’d have to pay for tail insurance. This is specific to providers with claims-made policies, and then in the contract, it would dictate that the provider would have to pay for the tail insurance policy after the agreement is terminated.

The Easiest Way to Calculate a Tail Insurance

The easiest way to calculate a tail insurance cost is to take your annual premium. And the annual premium is how much it costs to insure you annually. And then you would multiply that times two. Now, it can vary from one and a half to up to three times, but a good rule of thumb is that it will be twice your annual premium. Now, that’s a one-time cost. If you have a tail policy for, let’s say it’s a three-year period, there would be an upfront cost, which would cover the entire three years. You don’t have to pay every year. So, let’s say you have a $10,000 annual premium. Then the tail cost would be $20,000. Most insurance companies expect the entire amount to be paid upfront. Some of them do offer payment plans, but many of them don’t. 

Few Ways of Getting Out of Paying for Tail Insurance

There are a few ways of getting out of paying for tail insurance. And I think it’s probably a good idea to go through those. One is negotiating before signing the employment agreement, stating that the employer would be responsible for paying the tail cost. That’s the first way. The second way would be your new employer would pay your old tail. That’s called nose coverage. You can think of that as like a quasi-signing bonus in some ways. And then the last way would be that this primarily applies to people in private physician-owned practices. Still, if your new job uses the same insurance company, that insurance company will likely roll over your policy into your new one. Then you won’t have to pay for tail insurance.

Now, you have no idea if you just started a job and where your next job will be. So, that’s not something you can count on, but there are many states where specific specialties, I guess, identify and utilize a particular insurer. And so, let’s say you’re in cardiology. There might be an insurer that caters to the cardiology market. In that way, it might be more likely that you would have the same insurance company if you switched to another physician-owned group, but that’s certainly not something you can bank on. The easiest way to calculate tail coverage is to double whatever your annual premium is.

Annual Premium Costs

Now, most people don’t know what their annual premium is. You need to ask the employer or contact the insurance company to find out what it is. It will vary depending on what state I will be working in. You could be in the same specialty in one state and move to another. And the tail costs vary significantly. It’s primarily based upon the states that have imposed strict caps on the med mal damages. Whereas others, insurance can be much more expensive if there are no caps. Texas, for instance, is a pretty physician-friendly market for insurance, much less costly than in other states. So, you need to think about, alright, In what state will I be working? What’s the environment like for malpractice claims? And then, based upon that annual premium, you’d be able to calculate what your tail cost will be.

Other Blogs of Interest

• How Much is Tail Coverage for an Anesthesiologist?
• What is Tail Coverage for Dental Malpractice Insurance?
• How Long Does Tail Coverage Last? | Tail Insurance
• 3 Things Resident Physicians Should Know About Tail Coverage

What is Claims-Made Malpractice Insurance? | Malpractice Insurance

One of the most frequent things when reviewing a physician’s contract is malpractice insurance, the differences between the different types, and tail insurance. Today, I will talk about claims-made malpractice insurance for a physician. Let’s do some basics on malpractice insurance, precisely, claims-made coverage. Every physician is required to have a malpractice insurance policy. The employer will be the one that nearly always will pay for the underlying coverage. Every year they must pay a premium to the insurance company. And then, if they continue to pay that premium, the physician is covered for their activities for that employer.

Coverage Limit

Most of the time, the coverage limit will be 1 million, 3 million. That means 1 million per claim. And then no more than 3 million aggregate per year. If you have $3 million claims in one year, you have more significant problems than just insurance. You’re going to have some board complaints. You might have a database entry if they settle or lose a trial. So, it’s a bigger problem if someone asks or is concerned about the aggregate limit. 

Types of Malpractice Insurance

There are usually three types of insurance. You have self-insurance programs. Some of the more prominent hospitals and healthcare networks are self-insured, which means they have a lot of money to pay claims. The second would be occurrence-based insurance. And that means a policy has to be in effect when the malpractice event occurs. The benefit of occurrence-based insurance is you do not need tail insurance. The downside is it just costs a little bit more. Generally, occurrence-based insurance costs about a third more per year than a claims-made policy.

Claims-Made Malpractice Insurance for a Physician

And then lastly, what we’re going to kind of detail today is claims-made insurance. A claims-made insurance policy must be in effect when the claim is made. Suppose you are with an employer, terminate the agreement, and leave. In that case, there will be a period called the statute of limitations from when a patient can still sue you. In most states, it’s two years. Even though you’re no longer with the employer and it was a claims-made policy that ended when you left, you need gap coverage. Another policy covers the gap between the last day you work for the employer and the last date where the statute limitations run. And what’s commonly known as tail insurance.

Let’s discuss if you must purchase tail insurance with a claims-made policy. Everyone wants to know, well, what’s the cost? A good rule of thumb is that tail insurance coverage generally costs about twice your annual premium. So, if you have a $10,000 annual premium, multiply those times two. Then you would have to pay $20,000 once your employment contract is terminated to cover your tail insurance. That’s a one-time payment. You don’t have to pay it every year. It’s just that you pay all of it upfront, and then you’re covered for whatever. Some tail insurance policies last longer than others. Generally, you want more than long enough to go past the statute of limitations. Most malpractice claims it’s when the patient either knows or should have known of the malpractice event.

Who Has to Pay Malpractice Tail Coverage?

There are infrequent times, but a patient would’ve no way to know about a malpractice event until years later. And so that’s kind of when this kicks in. Who must pay for tail insurance? If you work for a hospital or healthcare network, most of them will be self-insured, but let’s say they had a claims-made policy. They will generally pay for your tail insurance. Most physicians who have to pay for tail insurance are employed with a private physician-owned group. I’d say it’s probably 75% of physicians who work for a physician smaller physician-owned group that must pay their tail insurance. Is this something you can negotiate? Sure. A couple of thoughts on that. 

You can ask them to outright pay for your tail insurance. If they say no to that, which many of them most likely will, you could also say, alright, well, let’s do it this way. Let’s say for every year that I am employed with you. You’ll agree to pay a quarter of my tail insurance cost. If I finish a year and then leave, you will pay a quarter of the tail insurance. If I stay for two years, you will pay half. And in that way, if I complete 40 years, the employer will pay for the entire tail insurance.

I find some employers understand that that is a fair way of doing things. And then you can play with the annual percentages or how much each party pays. There are creative ways of figuring out how to split the cost of the tail insurance between the physician and the employer. 

Will an Employee Have a Choice Between Claims-Made and Occurrence-Made Policy?

Most of the time, the physician will not have the choice of either getting an occurrence-based or a claims-made policy. Whatever the employer or type of malpractice insurance the employer decides to use, the type of malpractice insurance the employee will have to use. Usually, the physician can’t say, hey, I’d like an occurrence coverage if the employer decides to use claims-made. The reason why the employer uses claims-made is it’s cheaper.

As I said, an occurrence policy is about a third more expensive per year than a claims-made policy. So, suppose you’re the employer, and you’ll make the physician pay for their tail insurance. In that case, you’ll say, not only am I going to save a third per year on annual premium cost, but I’m not going to pay for tail insurance either. Save them some money. There is a kind of math equation. Let’s say you did have the option of choosing occurrence or claims-made insurance. It will be based on how long you decide to be with the employer.

Consideration When Choosing Between Claims-Made and Occurrence-Based Policy

If you have, say, a $6,000 annual premium and occurrence-based would be $8,000. So, $2000 more. The longer you are with the employer, the more that would make sense. If you’re with the claims-made policy, you’re paying $6,000 yearly, or the employer is. Still, in the end, the longer you are with your employer, the tail insurance can sometimes be a little bit more expensive. So, you do need to do the math of, alright, if I’m paying a third more per year, at what point does it make sense to pay if I plan on staying with the employer for ten years? Well, that might make more sense to a claims-made policy. 

Maybe an occurrence policy also makes more sense if you’re there for a shorter time. This certainly is something that you can negotiate in an employment contract. And I do think it’s something that most physicians feel is important. It’s also specialty-dependent. If you’re primary care and paying $6,000 in your annual premium, then $12,000 for tail insurance isn’t that big. Suppose you’re an OB-GYN paying $50,000 yearly for your underlying coverage and must leave. Your tail insurance is a hundred thousand dollars, well. That will certainly get your attention, and you may need to discuss it with the employer.

How to Get Out of Having to Pay for Tail Insurance?

A couple of ways of getting out of having to pay for tail insurance: one, obviously to negotiate so the employer agrees to pay for it. Two, if you are with an insurance company and your new job uses the same insurance company. Then generally, the insurance company will roll over your old policy and tail insurance into your new one. You won’t have to pay for tail insurance. Now, no one’s going to know for sure if they leave a position, the new employer will utilize the same insurance company, but that’s one way of doing it.

And then the last way of doing it is nose coverage. That means the new employer would pay your old tail insurance called nose coverage. And then that would be a way for you to get out of having to pay for it. Nose coverage happens, I would say, infrequently. Still, it’s not entirely unique that a new employer would pay someone’s old tail insurance. So, that’s what claims-made coverage is. It’s a lot of, I guess, complicated scenarios but simple once you break it down into three different types of insurance.

Why is Physician Tail Coverage so Expensive? | Tail Insurance

Why is tail insurance for a physician so expensive? Let’s get a little background on when a physician would need tail insurance and then kind of cost analysis, and then why it is so expensive. First, the physician must identify what type of insurance policy they have. There are usually three main types. If you’re employed with the hospital network, most large hospital networks are self-insured now, so you would not need tail insurance if you’re working for a big hospital network, usually. 

Some hospital networks have claims-made policies, but the physician won’t need to pay for the tail insurance expenses in most instances. Most of the time, if there’s a claims-made policy and the physician is required to pay for their tail insurance, it’s when a smaller physician-owned group employs them. If you have occurrence-based coverage, you do not need tail insurance. Occurrence-based coverage means the incident must occur when the policy is in place. In that scenario, it doesn’t matter when the claim is filed if there was a policy when the event occurred, then the physician is covered.

One would purchase claims-made over occurrence-based because occurrence-based is about one-third more expensive than the claims-made policy. So, if you paid 6,000 a year for claims-made, you pay around 8,000 for occurrence. Now, if you do have a claims-made policy, and most of the time, if you have a claims-made policy, it means you’re employed with a smaller physician-owned group. And then, the employment contract will state who is responsible for paying for the tail insurance. In this scenario, the physician is responsible for paying for tail insurance coverage, and there’s a claims-made policy.

Considerations for a Physician’s Tail Insurance Calculation

In that scenario, tail insurance coverage usually costs about twice what the annual premium is for the physician. The annual premium is what the practice pays annually to insure the physician. It would be best if you found out what your annual premium. And then two, you must figure out how long you’ve been with the practice. Tail costs can go anywhere from one and a half up to three times the annual premium. 

And it’s usually based on the length of time the physician has been with the employer. If you’re only there for a year or two, it might be closer to the 1.5 ratio, whereas, if you’ve been there two decades, it could be closer to the three times your annual premium. Specialty is also certainly important. OB-GYN and many surgical specialties have extremely high yearly premiums, meaning their tail insurance cost could be like a hundred thousand dollars. 

Whereas if you’re in family medicine or pediatrics, your annual premium is probably 6,000, meaning your tail insurance costs might be around 12,000 per year. Tail covers the gap between when you leave the employer and the last day somebody can sue you. It’s called the statute of limitations. In most states, it’s around two years from when the patient knew or should have known of the malpractice. There are some exceptions for minors allowed to sue up until the date of majority, but a good rule of thumb is it’s around two years in that scenario. There are shorter tail policies. You may get one that’s only two years long, or you may want to get a policy that covers an infinite amount of time. 

Can Tail Insurance Coverage Be Negotiated With the Employer?

The length of time the tail insurance lasts can also affect the cost of the tail insurance itself. Anything with long tail insurance will cost a little bit more. You might not get to the two-times ratio with anything with shorter tail insurance. This is something that you can negotiate in a contract. A couple of ways of approaching it.

Forgiveness Period for Tail Insurance

If the employer isn’t willing to kind of foot the entire cost of tail insurance, you could suggest giving a forgiveness percentage at the end of each year of employment. For instance, you could say, look, let’s say, for every year that I’m employed here, you will cover 25% of the tail insurance cost. If I’m here for one year, the physician’s responsible for 75%, two years, 50%, three years, and 75%. And then, if the physician completes four years of employment, the employer will pay for the entire amount.

We often use that if the employer isn’t willing to pay the entire cost from the beginning. Maybe offer them, alright, well, it’s fair that if I’m here for a very long period, you will cover my tail insurance. I think that’s one good way of negotiating it if they’re not willing to foot the entire bill. 

Nose Insurance

Another way of paying for it is if when you leave the employer and get a new job, the new employer could pay for your old tail insurance, which is called nose insurance. And that could be a part of the negotiation when you’re leaving one job and going to another is alright, here’s my tail insurance cost, I’d like you to cover that—and sometimes used as a signing bonus or in addition. I guess it just depends. 

Same Insurance Company

Then lastly, if you stay with the same insurance company, let’s say you stay in the same state. You’re in the same specialty and just moving to a different practice. They utilize the same insurance company. Most companies will roll over your old policy into a new one, and you won’t have to pay tail insurance. So, is tail insurance expensive? It’s specialty-dependent. I mean, every amount is relative. If you’re making 500,000 a year and must pay a 15,000 tail insurance, it’s probably not as shocking as those in other professions.

How Is Tail Insurance Calculated?

How is tail insurance calculated? What is tail insurance? Under what kind of malpractice policy do you need it? And then how much does it cost? There are two common types of malpractice policies for healthcare providers. You have occurrence-based and claims-made. In a claims-made policy, you need tail insurance; if it’s an occurrence policy, you do not. 

Different factors are considered to Calculate tail insurance. There are different lengths of tail insurance. You could have one year, two-year, five-year, or infinite, and then with each one, it’s a little bit more expensive. A good rule of thumb in calculating tail insurance costs is about twice your annual premium. Let’s say you’re a family practice physician. On average, your annual premium, so how much it costs to insure you each year, will probably be about $6,000. And so, if you had to pay double that, the tail insurance calculation would be $12,000.

Now, that’s a one-time payment. You do not have to pay it annually. You give it all at once, and then you’re covered for how long the tail insurance is. If it’s up to you how long the tail insurance lasts, it makes sense to get an indefinite tail insurance policy. You are rolling the dice if you have one-year tail insurance, but the statute of limitations is longer than a year because you’re uncovered for that period. And if you do not have malpractice insurance, they could come after you potentially. And that could be catastrophic for a professional. If it’s only a couple thousand dollars more, it’s just simply worth it to get the longest tail insurance policy that you can. That way, it’s just one last thing you have to worry about.

Two Common Types of Malpractice Insurance Coverage

Let’s talk about the differences between the two malpractice insurance. For an occurrence-based policy, a policy must be in effect when the malpractice incident occurs. There is no need for tail insurance in that scenario, and I’ll explain why.

In a claims-made policy, a policy must be in effect when the claim is made. And so, for an employee who terminates a relationship with an employer, there will be a period where somebody can sue them. In most states, it’s two years. It’s called the statute of limitations. And in this scenario, let’s say a physician leaves the practice, they’re no longer an employee, and they have a claims-made policy, and that policy is done.

Well, they need an additional policy called tail insurance that covers the gap between when they leave the employer and the last day an individual can sue them. There are some exceptions in some states when a minor becomes an adult and a few other scenarios, but let’s use two years as a standard amount here. The employment contract will state that the employer will pay for the underlying policy, assuming you’re not an independent contractor.

Who Will Buy Tail Malpractice Coverage?

And then, it will also state who is responsible for tail insurance. Now, if you’re in private practice, like a smaller physician-owned group, they will likely have a claims-made policy. And it’s also very likely they will make the provider pay for tail insurance when the contract ends. If it’s an occurrence-based policy, you’re good; you don’t have to worry about tail insurance when the contract ends.

Why Would Someone Get One Over the Other? 

An occurrence-based policy is around one-third more expensive per year than claims-made. So, if it is a smaller physician-owned practice, they usually use claims-made, so they pay a third less annually for the premium because they’re going to be the ones paying for it. And then two, they’ll usually put the tail insurance cost on the provider. So, they not only pay less per year for the premium, but they also don’t have to pay for tail insurance, and it’s just cheaper for them. That’s why 9 out of 10 private practice owners use claims-made coverage. Some use occurrence-based, but it’s rare. 

If you have a claims-made policy, and it is determined in the employment agreement that you are responsible for paying for tail insurance, let’s break that down. It will state that you must purchase a tail insurance policy prior to your last day of employment with the employer. Usually, it’ll also say how long the tail insurance policy must be. 

How Do You Get the Employer to Pay for Tail insurance?

Well, ask them when you’re negotiating. I’d like you to cover the tail insurance expenses. They may say no. If they do, you could come back at them, and we’ve had some success with saying, alright, well, you’re not going to pay for all of it. What if we do it like forgiveness over the initial term? What I mean by that is, if you signed a three-year contract, you would say, alright, for every year that I complete for you, one-third of the cost of tail insurance will be covered by you. 

So, after three years, when I’ve completed the initial term, you will be responsible for paying for tail insurance if I leave any period after that. You could also have your new employer pay for your tail insurance. That’s called nose coverage. And then the last way of not having to pay for it would be if you stay with the same insurance company with your new position. They’ll generally roll over your old policy into a new one. In that way, you don’t have to pay for tail insurance. So, that’s a little primer on how tail insurance is calculated.

Claims-Made Malpractice Tail Insurance

One of the most frequent things when reviewing a physician’s contract is malpractice insurance coverage, the differences between the different types, and then tail coverage. Today, I’m going to talk about what is claims-made malpractice insurance for physicians. Let’s just do some basics on what malpractice insurance is, specifically, what claims-made coverage is. Doctors are required to have medical malpractice insurance policy.

Who Usually Pays for Claims Made Insurance Policy?

The employer will be the one that nearly always will pay for the underlying coverage. Every year they must pay a premium to the insurance company. If they continue to pay that premium, the doctor is covered for any of their activities for that employer.

Coverage Limits

Most of the time, the coverage limit will be 1 million, 3 million. That means 1 million per claim. And then no more than 3 million aggregate per year. If you’re having $3 million claims in one year, you have bigger problems than just insurance. You’re going to have some board complaints. You might have a database entry if they settle or lose a trial. So, if someone asks or is concerned about the aggregate medical malpractice insurance coverage limit, it’s a bigger problem than that.

3 Types of Malpractice Insurance

There are usually three types of insurance. 

Self Insurance

You have self-insurance programs. Some of the bigger hospitals and healthcare networks are self-insured, which generally means they have a lot of money set aside to pay claims out of. 

Occurrence Coverage

The second would be occurrence-based insurance. And that just means a malpractice policy has to be in effect when the malpractice event occurred. The benefit of occurrence-based insurance is you do not need tail coverage. The downside is it just costs a little bit more. Generally, occurrence-based insurance costs about a third more per year than a claims-made malpractice policy would. 

Claims Made Coverage

And then lastly, what we’re going to kind of detail today is claims-made insurance. A claims-made malpractice policy must be in effect when the claim is made. If you are with an employer and the agreement is terminated, and you leave, there will be a period called the statute of limitations from when a patient can still sue you. In most states, it’s two years. Even though you’re no longer with the employer, and it was a claims-made malpractice policy that ended when you left, you need gap coverage. 

Tail Insurance

Another malpractice insurance policy covers the gap between the last day you work for the employer and the last date where the statute limitations run. And that’s commonly known as tail insurance coverage or tail coverage. You must buy tail insurance coverage if you had a claims-made malpractice policy. Let’s talk about that. 

Cost of Tail Insurance

Everyone wants to know, well, what’s the cost? A good rule of thumb is that tail insurance coverage generally costs about twice your annual premium. So, if you have a $10,000 annual premium, multiply those times two, and then you would have to pay $20,000 once your employment contract is terminated to cover your tail insurance coverage. That’s a one-time payment. You don’t have to pay it every year. It’s just that you pay all of it upfront, and then you’re covered for whatever it is. 

Some tail insurance coverage policies last longer than others. Generally, you want more than long enough to go past the statute of limitations. Most malpractice claims it’s when the patient either knows or should have known of the malpractice event. There is an infrequent period, but a patient would’ve no way to know about a medical malpractice event until years later. And so that’s kind of when tail coverage kicks in. 

Who Pays for Tail Insurance?

Who must pay for tail coverage? If you work for a hospital or healthcare network, most of them will be self-insured, but let’s just say they had a claims-made malpractice policy. They will generally pay for your tail. Most of the physicians who have to pay for tail coverage are employed with a private physician-owned group. I’d say it’s probably 75% of physicians who work for a smaller physician-owned medical facility that must pay their own tail. 

Is this something you can negotiate? Sure. A couple of thoughts on that. You can just ask them to outright pay for your tail. If they say no to that, which many of them most likely will, then you could also say, alright, well, let’s do it this way. Let’s say for every year that I am employed with you. You’ll agree to pay a quarter of my tail cost. If I finish out a year and then leave, you will pay a quarter of the tail insurance. If I stay for two years, you’d pay half, and so on. And in that way, if I complete four years, the employer will pay for the entire tail insurance. I find some employers understand that that is a fair way of doing things. And then you can kind of play with the percentages per year or how much each party pays.

But there are some creative ways of figuring out how to split the cost of the tail coverage with physicians and employers. Most of the time, physicians will not have the choice of either getting an occurrence-based malpractice policy or a claims-made malpractice policy. Whatever the employer or type of insurance the employer decides to go with, that’s the type of insurance the employee will have to use.

Can Physicians Choose Which Insurance To Use?

Usually, physicians can’t say, hey, I’d like an occurrence coverage if the employer decides to use claims-made. The reason why the employer uses claims-made is it’s cheaper. As I said before, an occurrence-based malpractice policy is about a third more expensive per year than a claims-made malpractice policy. So, if you’re the employer and you’re going to make physicians pay for their own tail, you’ll say, not only am I going to save a third per year on annual premium cost, but then I’m not going to pay for tail coverage either. Save them some money. 

There is a kind of math equation. Let’s say you did have the option of choosing occurrence or claims-made insurance. It will be based on how long you decide to be with the employer. If you have, say, a $6,000 annual premium and occurrence-based would be $8,000. So, $2000 more. The longer you are with the employer, the more that would make sense. Whereas if you’re with the claims-made malpractice policy, you’re paying $6,000 a year or the employer is, but in the end, the longer with your employer, the tail can sometimes be a little bit more expensive. So, you do need to do the math of, alright, if I’m paying a third more per year, at what point does it make sense just to pay if I plan on staying with the employer for ten years?

Well, that might make more sense to a claims-made malpractice policy. Whereas if you’re there for a shorter period of time, maybe an occurrence base malpractice policy makes more sense as well. This certainly is something that you can negotiate in an employment contract. 

Why Who Pays for Tail Insurance is a Big Deal?

And I do think it’s something that most physicians feel is important. It’s also specialty-dependent. I mean, if you’re primary care and you’re paying $6,000 in your annual premium, then $12,000 for tail coverage isn’t that big a deal. Let’s say surgeons, or if you’re an OB-GYN and you’re paying $50,000 a year for your underlying coverage, and you must leave. Your tail coverage is a hundred thousand dollars, well, that’s certainly something that’s going to get your attention, and you may need to discuss the employer.

A couple of ways of getting out of having to pay for tail coverage: one, obviously to negotiate so the employer agrees to pay for it. Suppose you are with an insurance company, and your new job uses the same insurance company. In that case, generally, the insurance company will just roll over your old malpractice policy and tail insurance into your new malpractice policy. You won’t have to pay for tail coverage. Now, no one’s going to know for certain if they leave a position, the new employer will utilize the same insurance company, but that’s one way of doing it. And then the last way of doing it is nose coverage. That means the new employer would pay your old tail called nose coverage. And then that would be a way for you to get out of having to pay for it.

Nose coverage happens, I would say, infrequently, but certainly, it’s not unique that a new employer would pay someone’s old tail insurance. So, that’s what claims-made coverage is. It’s kind of a lot of, I guess, complicated scenarios but simple once you break it down into three different types of insurance.