Should a Physician Choose Claims-Made or Occurrence Malpractice Insurance?

Malpractice insurance 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 doctors working in hospitals than those who practice family medicine or internal medicine in private practice.

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 carrier’s deductible is usually $5000, but it can be higher, sometimes as high as $50,000 depending on individual state requirements and claims history.

Policy Deductibles

However, some states have limits on how much of a doctor’s income can be subject to such deductibles before he must buy additional coverage known as “excess” coverage.” The standard excess limit is 50 percent the doctor will make in annual gross salary

Malpractice policy provides legal defense coverage to the doctor from medical liability arising from clinical care that results in injury or death. Each policy period 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 if there is a settlement or judgment, that is the maximum amount your medical malpractice insurer will pay towards claims filed within the term outlined in your policy.

Claims-Made Medical Coverage

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 doctor 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 doctors leave an employer and when the statute of limitations on filing a malpractice liability insurance claims ends.

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

Assuming claims-made coverage is in effect, a good rule of thumb is tail insurance costs around 2 times your annual malpractice insurance premium.  Thus, if your annual medical premium costs $6000 per year; your cost paid to the insurance carrier would be around $12,000.  Your tail insurance cost to the carrier is a one-time payment; it is not an annual cost.  

The physician’s employment agreement will specify whether employers or physicians should cover expenses for the tail insurance if it is claims-made insurance.

Occurrence Coverage Liability Insurance

An occurrence policy differs from claims-made in that occurrence coverage provides coverage for any claim for an event that took place during the period of coverage, even if the claim is filed after the policy expires.  Thus, an occurrence policy does not require tail insurance against new claims.  

The permanence of an occurrence policy is the main advantage over a claims-made policy. The period of time you are protected under the policy lasts forever and you do not need to renew or buy tail insurance when you leave the employer. You can also take a job in another state, and you will still be covered from any claims.

Which Choice is Best for Physicians if there is a Paid Incident

Both policies offer the same policy limits issued by the same insurance carrier, along with the same endorsements against claims. The cost of occurrence based and claims-made coverage can factor into a doctor’s decision:

Claims-Made Cost: Assuming claims-made coverage is in effect, a good rule of thumb is tail insurance costs around 2 times your annual malpractice insurance premium.  Thus, if your annual medical premium costs $6000; your cost to the insurance carrier would be around $12,000.  Your insurance cost is a one-time payment; it is not an annual cost.  The American College of Physicians offers resources and information for multiple insurance options through AGIA Affinity for individual doctors and any practice.

Occurrence Cost: Since tail insurance is not needed under an occurrence-based insurance policy, the annual premium for an occurrence-based policy is approximately 35% more than a claims-made policy. So, if the average claims-made policy annual premium is $6000, an occurrence-based policy would cost $8100 in coverage. The cost of insurance coverage should be based upon the claims history of the provider and the number of individual and group clients seen per year. Providers with high annual visit counts (or number of admitted seen if in-patient) will have a lower insurance premium, since their claims are spread out over more people.

A retroactive date defines how far back in time claims can occur for your policy to cover your claim. If a claim happens prior to the date the insured’s policy is effective, the insured’s policy won’t provide retroactive benefits from the carriers for when the incident occurred. It’s a feature and form of claims-made professional liability coverage.

Occurrence Malpractice Resources for Doctors

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.

Additionally, doctors who perform below average in terms of malpractice insurance claims will pay less than doctors who incur higher claim rates. A doctor’s 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.

Claims Made Malpractice Advantages

• Ability to increase limits or buy new coverage with claims made malpractice insurance
• Portable and can be moved from one insurance business to another

Occurrence Advantages

• Permanence of coverage to insure.  Protected forever for each year under the policy period.
• No need to renew or buy tail when your employment ends with occurrence malpractice insurance makes choosing this an easy decision for many.

Tail Information from an 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.

The present-day conclusion is simple: A physician should not enter into any contract without having a physician contract review 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. 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?
2. Practice Call Schedule: How often are you on call (after hours office call, hospital call (if applicable))?
3. 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?
4. Productivity Compensation: If there is productivity compensation; how is it calculated (wRVU, net collections, patient encounters, etc.)? Is there an annual review?
5. 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?
6. Dues and Fees: Which business financial expenses are covered (board licensing, DEA registration, privileging, AMA membership, Board review)?
7. Relocation Assistance: Is relocation assistance offered? What are the repayment obligations if the Agreement is terminated prior to the expiration of the initial term?
8. 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?
9. Professional Liability Insurance: What type of liability insurance (malpractice) is offered: claims made, occurrence, self-insurance?
10. Tail Insurance: If tail insurance is necessary, who is responsible to pay for it when the Agreement is terminated?
11. Without Cause Termination: How much notice is required for either party to terminate the Agreement without case?
12. Non-Compete: How long does the non-compete last and what is the prohibited geographic scope?
13. Non-Solicitation: How long does it last and does it cover employees, patients, and business associates?

If you have questions about claims-made or occurrence coverage and your current malpractice insurance or are interested in having your employment agreement reviewed contact Chelle Law today.