What is Tail Coverage for Physician Malpractice Insurance?

What is Tail Coverage

Tail Insurance, also known as Extended Reporting Period coverage, must be purchased when a physician has claims-made professional liability insurance coverage.  Tail insurance covers the gap between when a physician leaves an employer and when the statute of limitations on filing a medical malpractice claims ends. 

Medical Malpractice

Malpractice coverage is a type of professional liability coverage that helps protect physicians and other healthcare professionals from the financial risks associated with lawsuits in which patients believe they were harmed as a result of an incident involving medical care. The amount of coverage depends on how much the policy is worth (premium) as well as your specialty – personal injury attorneys are more likely to take cases against physicians working in hospitals than those who practice family medicine or internal medicine in private practice.

Malpractice Insurance Coverage

Most malpractice insurance carriers provide coverage that has a deductible clause that can range anywhere between $0 -$100k per incident with most doctors opting for higher deductibles due to lower premiums. A deductible clause in a malpractice policy stipulates that the insurance company will not provide coverage for any expenses incurred by the insured for injuries or damages up to an agreed-upon amount. A deductible clause in a malpractice policy stipulates that the insurance company will not cover any expenses incurred by the insured for injuries or damages up to an agreed-upon amount per incident. The typical company’s deductible is usually $5000, but it can be higher, sometimes as high as $50,000 depending on individual state requirements and claims history.

How Much Does Tail Coverage Cost?

A good rule of thumb is tail coverage costs around 2 times your annual medical malpractice insurance premium.  Thus, if your annual premium costs $6000; your tail coverage cost would be around $12,000.  Your tail insurance cost is a one-time payment; it is not an annual cost. 

The cost of insurance coverage is based upon the claims history of the provider and the number of individual and group patients seen per year. Providers with high annual visit counts will have a lower insurance premium, since their claims are spread out over more people. Thus, the choice of claims-made or occurrence is important.

Insurance Tail Coverage

Additionally, doctors who perform below average in terms of malpractice insurance claims will pay less than doctors who incur higher claim rates. A provider’s business risk profile is also taken into account when determining the rate an insurance company will charge for the occurrence-based policy. Provider age is also factored into the equation, as younger doctors are considered to be at higher risk of committing acts that could lead to liability or making an error than older practitioners.

Who Pays For Tail Insurance?

The physician’s employment agreement will specify whether the physician or the employer pays for the tail insurance.  This is a point of contention in many employment agreement negotiations with resources from both parties advocating for their position.   

Tail Coverage

Claims-made coverage is used in cases where there may be periods of time when coverage is not available, such as physicians changing jobs. In these situations, the tail coverage policy will provide protection for up to three years after leaving an employer. The tail policy also has other limitations and exclusions which can make it difficult for physicians who leave employers often or have a history of high liability claims against them to find affordable malpractice insurance.

As with any type of insurance, it’s important that you understand what your tail covers before purchasing one. There are two types of tails – open and closed – each with their own benefits and drawbacks.

How Can a Physician Avoid Paying for Tail Malpractice?

• Negotiate for the employer to pay for it in the Employment Agreement.
• Have your new employer pay for your tail coverage(referred to as nose coverage).
• Stay with the same insurance carrier and the tail coverage will get rolled into a new policy.

Claims-Made Insurance Policy

Physician Claims-Made Insurance is a type of medical malpractice insurance purchased from an insurance company which provides legal defense to the physician from medical liability arising from clinical care that results in a patient’s injury or death. Each policy provides limits; which are the maximum amount an insurance company will pay per event. Thus, if your insurance policy has a limit listed of $1,000,000 per occurrence, that is the maximum amount your medical malpractice insurer will pay towards any claim filed within the term outlined in your policy.

Claims-Made Insurance Policies

A claims-made policy will only provide insurance coverage if the policy is in effect when both the incident first happened and when a lawsuit is filed against the doctor (when the claim is made). Thus, there is a chance a lawsuit can be filed after a physician leaves an employer. In situations like this, with claims-made medical malpractice insurance, a tail policy must be purchased by the medical provider which covers the gap between when physicians leave an employer and when the statute of limitations on filing a medical malpractice claims ends.

Medical Employment Contract Attorney

Contracts are a pervasive and obligatory part of nearly all business and legal transactions. Well-drafted contracts help to enumerate the responsibilities of the involved parties, divide liabilities, protect legal rights, and insure future relationship statuses. These touchstones are even more crucial when applying their roles to the case of a physician employed by a hospital, medical group, or other health care provider. While contract drafting and negotiation can be a long and arduous process, legal representation is a must in order to ensure that your rights are being protected.

Physicians

The present-day conclusion is simple: A physician should not enter into any contract without having the agreement reviewed by legal counsel.

There is simply too much at risk for a physician to take contract matters into their own hands. In addition to the specific professional implications, contract terms can significantly impact a physician’s family, lifestyle, and future. There are many important contract terms and clauses which can present complex and diverse issues for any physician, including:

• Non-compete clauses
• Damages
• Indemnification
• Verbal guarantees
• Insurance statements

Additionally, often times the most influential terms and clauses in any employment contract are the ones that are not present. With the advent of productivity based employment agreements it is imperative that any physician have an employment agreement reviewed before it is executed. Attorney Robert Chelle has practical experience drafting and reviewing physician contracts for nearly every specialty.

New residents, attending physicians, doctors entering into their first employment contract or established physicians looking for new employment can all benefit from a thorough contract review. By employing an experienced attorney for your representation, you can insure that you will be able to fully understand the extensive and complex wording included in your contract. By having a full and complete understanding of the contract, you will be in a better position to make your own decision on whether or not you want to enter into the agreement which will affect your career life for years to come.

The financial benefits gained from having your contract reviewed and negotiated by an experienced healthcare attorney far outweigh the costs associated with a review. You are a valuable resource, and you should be treated and respected as such. Attorney Robert Chelle will personally dedicate his time to make sure that your are fully protected and will assist you in the contract process so that your interests are fairly represented.

Every physician contract is unique.  However, nearly all contracts for health care providers should contain several essential terms.  If these essential terms in the contract are not spelled out in contracts, disputes can arise when there is a disagreement between the parties as to the details of the specific term.  For instance, if the doctor is expecting to work  Monday through Thursday and the employer is expecting the provider to work Monday through Friday, but the specific workdays are absent from the Agreement; who prevails?

Spelling out the details of your job is crucial to avoid contract conflicts during the term of your employment.  Below is a checklist of essential terms that contracts should contain (and a brief explanation of each term):

1. Locations: Which facilities will you be scheduled to provide care at (outpatient clinic, surgical sites, in-patient services, etc.)?
2. Outside Activities: Are you permitted to pursue moonlighting or locum tenens opportunities? Do you need permission from the employer before you accept those practice of medicine related positions?
3. Practice Call Schedule: How often are you on call (after hours office call, hospital call (if applicable))?
4. Electronic Medical Records (EMR): What EMR system is used in the practice of medicine? Will you receive training or time to review the system prior to providing care?
5. Base Compensation: What is the annual base salary? What is the pay period frequency?  Does the base compensation increase over the term of the Agreement? Is there an annual review or quarterly review of compensation?
6. Productivity Compensation: If there is productivity compensation; how is it calculated (wRVU, net collections, patient encounters, etc.)? Is there an annual review?
7. Practice Benefits Summary: Are standard benefits offered: health, vision, dental, life, retirement, etc.?  Who is the advisor of human resource benefits?
8. Paid Time Off: How much time off does the job offer? What is the split between vacation, sick days, CME attendance and holidays?  Is there a HR guide?
9. Continuing Medical Education (CME): What is the annual allowance for CME expenses and how much time off is offered?
10. Dues and Fees: Which business financial expenses are covered (board licensing, DEA registration, privileging, AMA membership, Board review)?
11. Relocation Assistance: Is relocation assistance offered? What are the repayment obligations if the Agreement is terminated prior to the expiration of the initial term?
12. Signing Bonus: Is an employee signing bonus offered? When is it paid?  Do you have to pay it back if you leave before the initial term is completed? Are student loans paid back?  Is there a forgiveness period for student loans?
13. Professional Liability Insurance: What type of liability insurance (malpractice) is offered: claims made, occurrence, self-insurance?
14. Tail Insurance: If tail insurance is necessary, who is responsible to pay for it when the Agreement is terminated?
15. Term: What is the length of the initial term? Does the Agreement automatically renew after the initial term?
16. Without Cause Termination: How much notice is required for either party to terminate the Agreement without case?
17. Non-Compete: How long does the non-compete last and what is the prohibited geographic scope?
18. Non-Solicitation: How long does it last and does it cover employees, patients, and business associates?

Coming into a new organization with a favorable contract can put the physician in a positive financial situation for years to come. Before you sign the most important contract of your life, turn to Attorney Robert Chelle for assistance.

If you have questions about your current medical malpractice policy or are interested in having your employment agreement reviewed contact Chelle Law today.

Tail Coverage

How important tail coverage is. First, we’ll talk about what tail coverage is and what type of policy you need, then the importance of it, and what are the kinds of negative repercussions if the physician does not have tail insurance. First, you will only need tail insurance if you have a claims-made policy. A claims-made policy means a policy must be in effect when the claim is made. When it’s filed and served to the physician. If a physician leaves a job, there’s going to be a gap in between the last patient they see for that employee and then the last day somebody can sue them and that’s called the statute of limitations.

In most states, a malpractice claim is two years. And that’s from when either the patient knows or should have known of the malpractice incident. That’s why it can sometimes go past two years if there was no way of knowing about the malpractice until later. If the physician has a claims-made policy, in the employment contract, it’s going to state who is responsible to pay for the tail insurance policy. So, if you are an employed physician, maybe a small physician-owned practice, it’s very likely that you’ll have to pay for tail. If you work for a big hospital network, it is unlikely you’re going to have to pay for tail. Most of the time, the big hospital networks are either self-insured, which generally means you don’t have to buy tail insurance, or they just offer that as kind of a perk of being in that job.

Tail Coverage

So, the tail insurance policy would be 12,000 to 16,000, something like that. Some of the other specialties like surgery, OB-GYN, can be tens of thousands of dollars per year with a tail cost of fifty to a hundred thousand sometimes, so it’s very important. What happens if you don’t have tail insurance? Well, simple. If you leave an employer and then someone has two years to sue you and you have no insurance policy to cover that gap, you can be sued and not have any insurance to back you up, which is a problem, obviously. Even though it does cost sometimes a substantial amount of money rolling the dice on hoping that a malpractice claim doesn’t arise in that to your gap is a bad idea. I mean, malpractice, not depending upon the severity, obviously, but most policy limits are 1 million per occurrence and then 3 million aggregate per year.

You can imagine if you don’t have an insurance policy and there’s a million-dollar claim, it could bankrupt some people. So, you absolutely need to get tail. Where to find it? Well, you can go with the same insurance company. They’ll just give you a cost, you pay it, and you’re good to go. I would go shopping a little bit. You don’t have to go with the same underlying insurance provider. Whoever’s providing you with the annual coverage doesn’t necessarily mean you have to go with them for your tail insurance. I would suggest shopping around. Sometimes, I’ve had people that have found tail coverage that has the same limits, same length of time for 25, 20% less than the cost given to them by their current insurance provider. So, that is kind of the importance of tail insurance. And then a little breakdown of claims made coverage as well.

Add Tail Coverage

How long does tail insurance last? When I am reviewing a contract with a physician, the malpractice policy and then potential payment of tail insurance, if necessary, is always a big discussion point. Let’s briefly go through in what scenario would a physician be responsible for tail insurance, the cost of it, and then how long it lasts as well. There are two main types of malpractice insurance. You have the occurrence-based and claims made. In a claims-made policy, a policy must be in effect when the claim is actually made. It’s possible that a physician could leave an employer and then two years later, be sued. And since they are no longer employed and that policy is ended, they need a gap policy that covers the last day that they saw a patient with the employer and then the last day that they can be sued.

In most states, the statute of limitation is two years. Although there are some exceptions that we’ll get into as well. If it’s a claims-made policy, someone must pay for tail insurance. And in an occurrence-based policy, no tail coverage is necessary. It just means a policy must be in effect when the malpractice event occurred. The main difference between claims-made and occurrence is that occurrence is usually about a third more expensive. The physician or the employer must make the decision whether they want to pay a third more per year for malpractice or pay a little bit less but then have a big chunk on the end for tail insurance. Let’s say a scenario where the physician is responsible for paying tail. The contract ends with the employer, the physician is responsible to purchase the tail policy.

A good rule of thumb is it’s usually around twice what the annual premium is for the physician. So, the annual premium is just how much money must be paid each year to insure the physician for malpractice, just multiply that times two, and that’s usually a good ballpark of what the physician is going to have to pay for tail. Now, a couple of considerations as far as how much it costs. One is the length of the policy. Once again, most states have a two-year statute of limitations. However, it’s two years from when the patient either knows or should have known of the injury. And then there are also some exceptions for minor patients to be able to see once they reach the age majority. In that situation, sometimes, a longer tail policy makes sense. A tail can be one year, two years, five years, or ten years.

There are also unlimited tail policies. Meaning, it just goes on forever. And if any claim arises in the future, no matter when it’s filed, the physician is covered. Now, why would a physician pay less or more? Simple, it’s cost. Like a normal tail, let’s just say that covers five years would probably be around twice the annual premium. An unlimited policy may cost more than that. So, if the physician is responsible, they need to think about, alright, what’s my liability here? What’s the potential for me being sued? Certainly, what specialty they’re in, I think is important as well. And then they can make a financial decision. Now, there are two ways of getting out of paying for tail. One, if you stay with the same insurance company, let’s just say, we have a cardiologist who is working for the private physician-owned practice, and then, they use whoever the insurance company is, they move a job, that new job uses the same insurance company.

Usually, they’ll just roll over the old tail into the new policy. The physician won’t have to pay for tail. Now, obviously, when you start a job, there’s just absolutely no way of knowing if you leave the job, who the new employer will be if they use the same insurance policy. So, that certainly shouldn’t be relied upon. The other way of doing it is your new employer paying for your old tail, and that’s called nose coverage. This doesn’t happen very often. It can, certainly, but most employers do not pay for nose coverage. And if they do, it’s almost always a hospital network. It’s exceedingly rare for a physician for a smaller physician-owned practice to pay nose coverage for any of the physicians they’re bringing in.

It just won’t happen. What makes sense as far as how long it should last? Well, the longer the tail, the safer it is for the physician. So, getting an unlimited tail makes sense. Now, as I said before, the cost is a factor. Let’s just give a scenario where the physician was sued, and then either the tail is expired and it’s a good claim, meaning, they didn’t miss the statute limitations. It hasn’t run yet. Well, the physician could be personally liable, not only for whatever the judgment is but for attorney’s fees and things like that.

It could cripple someone financially if they don’t have a malpractice policy in place if they are sued. It’s not worth it, at least I don’t think it’s worth rolling the dice. It is smart to get a tail policy and the longer the tail, the safer it is for the physician. Anyway, that’s kind of how long the tail policy will last.

Additional Information

How is tail coverage calculated as far as the cost is concerned? Let’s first talk about when a physician would need tail coverage, who’s responsible for it, and then kind of what the good cost estimate would be. First, a physician only needs tail insurance if they have a claims-made policy. Claims made policy means a policy must be in effect when the claim is made. It’s possible if a physician terminates a contract that there will be a gap in between the last day that they work for the employer and then the last day that someone can sue them. In most states, it’s called statute limitations.

How long someone can sue for, and in most states, it’s two years. So, it’s two years from when the patient either knows or should have known of the malpractice. That’s why there are some incidents that can go beyond two years if it would be impossible for the patient to know that malpractice incident had occurred. If a physician has a claims-made policy, someone needs to purchase tail insurance. And so, in the physician contract, it’s going to say who’s responsible for it. If it doesn’t, that’s a problem that needs to be worked out prior to signing the agreement. As far as who pays for it, well, it depends where the physician is employed. First, if a physician works for a smaller physician-owned practice, most of the time, the physician is going to be responsible for that tail cost.

However, if the physician works for a big hospital network, it’s very unlikely the physician will have to pay tail because that hospital network, depending upon the size, will either be self-insured or will always cover the tail for any of the physicians that are employed by them. There is another instance where the physician would not have to pay tail and that’s if there’s an occurrence-based policy. Under an occurrence-based policy, a policy must be in effect when the incident occurs. And so, that way, no tail is needed. The difference between occurrence and claims made is price. An occurrence policy is usually about one-third more expensive than a claims-made policy. So, you’ll pay one-third more per year. But then, you don’t have to pay that big chunk at the end for the tail coverage.

Claims-made is obviously cheaper per year. And when the physician leaves, that tail policy will have to be paid. And that’s when that big outlay of cash comes in. How much does tail insurance cost? When I’m talking to a physician, I’ll usually say the best estimates are around two times what your annual premium is. However, depending upon the length of time that the physician has been with the employer, it could be either shorter or longer. So, I think the best rate range is usually between about 150% to 300% of what the annual premium is for that policy. The annual premium is simply what the employer pays to ensure the physician per year. Let’s just take primary care for instance. A good rule of thumb is primary care malpractice insurance is usually around 6,000 a year.

Now, it also depends on what state you’re in, but just like an overall general estimate, we’ll just say 6,000. In this case, let’s say, the physician has been there three years, they terminate the contract, moving on into a new job. In that case, the tail cost would be $12,000 or an estimate of $12,000. And if the physician was responsible to pay for that, then prior to their last day of providing care to that employer, they would have to purchase that policy, show proof of that to the employer, and then they can move on. There are, I guess, two scenarios where a physician would not have to pay tail if they were responsible for it. One, they could always get their new employer to pay their old tail and that’s called nose coverage.

Think of it as a signing bonus that the new employer will just pay the old tail, or if the physician stays with the same insurance company. So, if you’re with one insurance company, your new physician utilizes the same insurer, in that scenario, they’ll generally roll over your old policy into your new one. Then you won’t have to pay tail. As I said before, most of the time, if you’re in a private physician-owned practice, the physician won’t be responsible for paying tail. Now, there are a couple of ways to negotiate this. One, just say to the employer, I’d like you to pay for my tail. If they’re unwilling to do that, another scenario would be to split the cost based upon how long the physician has been there.

I think one good way of doing it is, let’s say, it’s a four-year term for a contract. Then 25% of the tail costs will be covered by the employer for each year that the physician is employed. So, if they’re employed for two years, and then they leave, then they would split the tail costs 50/50 with a new employer or with the old employer. That’s one way of doing it. This is important for some specialties like the higher-level surgical specialties, OB-GYN can have enormous tail costs and it absolutely needs to be considered. If the physician is an OB-GYN and they must pay for all of their tail, and they’ve been there for eight years, they could have a tail cost of a hundred thousand dollars, and it has to be paid all at once.

That’s a lot of money for almost anyone. So, trying to figure out a way to split the cost of the employers is really one of the higher points of negotiation as far as that goes. Anyway, I hope that was helpful as far as how a tail cost is calculated, anywhere between 150% to 300% of your annual premium. The longer you’re there, the higher the range, the shorter you’re there, the lower the range.