Consider Downside of Employer-paid EP Malpractice Premiums
Hospitals get more control over management of claims
Some emergency physicians (EPs) might jump at an employer’s offer to cover the cost of their professional liability coverage. However, there are some potential downsides to this arrangement, warn legal experts.
If the EP’s coverage is purchased by the employer, "one of the things you are going to sacrifice is the ability to control litigation," says Thomas R. McLean, MD, JD, CEO of American Medical Litigation Support Services in Shawnee, KS.
The EP is no longer the insured, and instead, becomes a third-party beneficiary. "So the EP might not have the ultimate say on what is done with a case where it is alleged the physician engaged in medical malpractice," says McLean.
In a 2013 case, a court ruled that bad faith does not occur when the owner of a group insurance policy approves settlement of a claim within policy limits over the physician’s objections.1
"The situation is analogous to the EP who is employed. In both cases, the physician is a third-party beneficiary," says McLean. "Third-party beneficiaries just don’t get the same rights that the contract maker does."
Most, though not all, malpractice policies state that the insurer won’t settle any claim without the EP’s consent. However, in some employment agreements, the EP’s consent is not required to settle — only the employer’s is.
EPs might be able to negotiate the inclusion of a "consent to settle" clause into their malpractice coverage at the time the EP contracts for employment. The employer is unlikely to agree to this, says McLean.
"It is going to depend on how good your reputation in the community is and the employer’s risk tolerance," he says. "And to a certain extent, it’s going to come down to who the employer has as a lawyer."
An insured EP gets to approve who is hired as the defense attorney. "But if the employer owns the policy, the employer is going to get to pick the defense attorney," McLean says.
Shifting Approach to Malpractice Coverage
With the increasing trend of EPs becoming employed by hospitals or large physician practices, there is an accompanying shift in the approach to malpractice coverage, reports Johnathan Brutlag, president of Professional Security Insurance Company, a subsidiary of MagMutual Insurance Company in Atlanta, GA.
"It is increasingly common for employers to provide coverage, either through the purchase of a group insurance policy or through self-insurance vehicles, such as professional liability trusts or captive insurance programs," he says.
In contrast to hospitals, physician aggregators or large practices have generally chosen to provide coverage for their physician members through commercially available insurance products, says Brutlag, often by negotiating specialty "programs" tailored to fit the needs of their specific circumstances.
In the hospital setting, Brutlag is seeing an emerging shift from self-insurance back to private sector coverage. "For several years, we saw hospitals, especially larger, urban systems, bringing coverage for employed physicians into the hospital insurance program, often through some form of self-insurance," says Brutlag. Over the past year or two, many of these health systems have chosen to separate hospital and employed physician coverage for malpractice claims.
"The combination of high funding costs for self-insurance, depressed premiums brought about by increased competition, and a continuing soft’ commercial insurance market are leading employers back to private insurance," says Brutlag.
Both Pros and Cons to Arrangement
There are some obvious pros and cons to an EP allowing an employer to handle the procurement of medical professional liability coverage, says Ken Warner, a claims manager at MagMutual. On the positive side, the individual EPs are relieved of the burden of the insurance purchasing process and, in some cases, the associated costs.
"Additionally, many employers have a designated and experienced insurance buyer or risk manager who understands the complexities of malpractice policies," says Warner. "This potentially allows them to negotiate better terms and/or lower premiums."
In many cases, the employers also purchase higher coverage limits through excess or umbrella placements, providing increased protection to EPs should a malpractice allegation arise. "At the same time, there is an expected loss of control when someone else is responsible for providing an EP’s insurance coverage," says Warner.
If the hospital offers to cover an ED physician group as part of their insurance program with the promise of lower premiums, "there is potential cost savings for the physician group. But there are also some pitfalls," warns Jonathan Katz, president of Oros Risk Solutions, an Orlando, FL-based insurance and consulting agency specializing in selling medical professional liability insurance.
Seventy percent of hospitals employ a large number of physicians and use their own self-insurance vehicles to insure them, according to the 2013 Aon/ASHRM Hospital and Physician Professional Liability Benchmark report.2
"There are clearly benefits to the hospital in doing so. The hospital’s interest in doing that is to be able to control the claim," says Katz. "It might be not very advantageous for the physicians, but they won’t realize it until they are further down the road."
Katz has seen cases in which EPs covered by a hospital’s self-insurance program were unfairly blamed by the hospital during malpractice litigation. "To avoid being a deep pocket, the hospital may blame a claim on the physician," says Katz. "Hospitals may put their interests above the doctor’s in certain situations. I’ve seen it happen many times."
In addition, it might be cheaper for a hospital to settle a malpractice claim than to defend the EP, resulting in serious repercussions for the EP defendant. "If the EP or the group has the ability to purchase their own malpractice insurance, it certainly takes those risks off the table," says Katz. n
Reference
- Parvin v. CNA Financial Corporation, No. 6:10-CV-6332-TC, (D. OR 2013)
Sources
For more information, contact:
- Johnathan Brutlag, President, Professional Security Insurance Company, Atlanta, GA. Phone: (404) 842-5557. E-mail: [email protected].
- Jonathan Katz, President, Oros Risk Solutions, Orlando, FL. Phone: (407) 745-2892. E-mail: [email protected].
- Ken Warner, Claims Manager, MagMutual Insurance Company, Atlanta, GA. Phone: (404) 842-5671. E-mail: [email protected].
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