Medical Malpractice Insurance 101
Updated: Mar 18, 2020
Most medical schools make a presentation to students about medical malpractice that lasts an hour or two. It’s fair to say that as a med student trying to keep up with the overall demands of the curriculum, a lot of what was said probably didn’t sink in. In this blog, we discuss some of the key aspects of medical malpractice insurance because most physicians could use a review on this topic.
As the name suggests, medical malpractice insurance is a type of professional liability insurance designed to protect doctors, surgeons and other health care providers (including nurses, nurse practitioners and physicians assistants) against losses from patients who claim they suffered damages because of mistakes the provider made in treating them. Medical malpractice insurance covers the costs of defending against such claims, including legal fees, court costs, witness fees and any settlements or damages that may be awarded to the claimant, up to the maximum coverage provided by the policy.
There is a commonly held belief that patients, or their overzealous lawyers, are too quick to sue for medical malpractice, and that most of these lawsuits are without merit. Yet, the data show otherwise. A 2016 study published by researchers at Johns Hopkins states that medical errors are now the third highest cause of death in the U.S., totaling an estimated 250,000 deaths per year. And yet, the total number of malpractice lawsuits per year is estimated at 20,000. This suggests that if anything, not enough people are willing to take legal action against physicians or hospitals for committing medical errors that resulted in injury or death.
Even though the number of malpractice lawsuits is much smaller than the number of serious medical errors, having malpractice insurance is critically important for every physician; in fact, most states require it. Remember, you can be sued whether you did anything wrong or not, and even the most competent, skilled, ethical professionals sometimes make mistakes. Note that malpractice insurance does not cover intentional or criminal acts. It also does not cover claims of sexual misconduct, which have garnered a great deal of publicity recently and have ended a number of careers in the medical field.
Obtaining Malpractice Insurance
For M.D.s employed by a hospital or medical group, the employer usually chooses the insurance plan to cover their physicians. However, many doctors with hospital privileges are not employees, and thus are not covered by the facility. Proof of malpractice insurance is usually required to obtain hospital privileges. Doctors and surgeons whose employers do not provide malpractice insurance, those working as independent contractors and those who have their own private practices need to obtain their own coverage. If you're faced with buying medical malpractice insurance and are not sure how to proceed, here are some important things to consider:
How to buy – You can buy medical malpractice insurance by going directly to a specific insurance company, or through an agent who represents one specific insurer (called a “captive agent”), or from a broker who represents multiple insurance companies and various types of policies. In most situations, working with an independent broker is a good idea, as he/she will be able to help you explore different coverage options. When you buy insurance through an independent broker, your premium will generally be the same as what you would pay if you were to buy the insurance directly through the insurance company or from a captive agent.
Cost – Of course, a major factor in choosing a medical malpractice insurance policy is cost. Annual premiums vary by specialty and by state. Some states impose a cap on the amount of non-economic damages, e.g., for “pain and suffering” that can be paid to claimants in malpractice suits (although these have been overturned in some cases). This tends to lower premiums compared to states without such a cap. When there is no cap on damages, premiums may be as high as six figures for high-risk specialties, such as cardiovascular surgery and OB/GYN.
The insurance company – There are important factors other than cost to consider with malpractice insurance. For example,
Not all carriers are equal for every type of medical specialty, and the size of the premium does not indicate the quality of a policy. A carrier with a great deal of experience defending a certain type of medical specialty may justify charging higher premiums. Do your homework on potential insurers before making a decision.
Insurers differ in terms of their financial strength, and most publish ratings of their financial health on their websites. Look for a rating from A.M. Best, the insurance rating specialist, of “A”, “A+” or “A++”.
Does the insurer use defense attorneys in your area, so that if you are sued you have local representation? Ask questions about the breadth of the insurer’s network of attorneys.
Who to cover – If you are a doctor working as an independent contractor you probably only need to purchase coverage for yourself. However, if you are setting up your own practice you should buy insurance for yourself and for your business. You need coverage for the business (partnership, corporation, etc.) because a malpractice lawsuit could extend beyond a claim against you personally to include a claim that the business entity was also responsible.
Your employees also need coverage. Some insurers include coverage for nurses and other members of your staff at no additional charge. Be aware that employees in certain roles such as physician assistants, nurse practitioners, midwives and nurse anesthetists, may need their own malpractice insurance. You may choose to require these employees to contribute to the cost of their coverage.
What is, and isn’t, covered – One of the most important things to understand as you evaluate various policies is what each one covers, and what they specifically exclude. Every policy will call out certain exclusions. General exclusions include misrepresentations made on the application for coverage, sexual improprieties, illegal acts, and altered medical records. Be complete and be honest, because policies can exclude claims that relate to information that was misrepresented on the application for insurance coverage.
Policy limits. Just as you have coverage limits for your homeowners, auto and health insurance policies, a medical malpractice policy also includes coverage limits. Choosing a policy with low coverage limits would cost less, but would mean you could be personally liable for settled claims or damages beyond those limits. There are two parts to policy limits – the first is the most the insurer will pay for any one claim. The second is the most they will pay in any single year for all claims against you. Be sure you understand both and consider what other assets you have that could be at risk if your coverage turns out to be inadequate coverage. Find out what limits are typical for your medical specialty and discuss this with the insurer or broker before you buy a policy.
Not All Policies are the Same. Consider these features that vary across policies:
Consent to Settle – A “consent to settle” clause means you, the medical professional, must give your permission before the insurance company settles a case on your behalf. If there is no such clause, the insurance company has the power to settle a claim without your consent.
Cyber liability coverage – attached to a malpractice insurance policy, this provides a limited amount of protection, separate from the medical malpractice insurance limit of liability. Since sensitive patient health data and other personal information are stored in electronic health records, hospitals, health care facilities and physician practices are vulnerable to data hacking. Consider the level of supplementary cyber liability coverage offered as part of your malpractice insurance policy. If you are in a private practice, you may want to consider purchasing additional cyber liability coverage.
“Claims-made” versus “Occurrence” – “Claims-made” policies, by far the most common type, only cover claims that are made while the policy is in force. Even if the incident happened while coverage was in place, if a patient makes a claim after you cancel the policy you are not covered. Tail malpractice coverage should be purchased to provide coverage for claims brought after a claims-made policy is canceled. In contrast, an “occurrence” policy, which few insurers offer, covers claims for incidents that occurred during the period when the insurance coverage, even if the claim isn’t reported until after the coverage has ended.
Medical malpractice insurance can be complex. This discussion covered many important issues but there are other things to consider before choosing a policy. Be sure to ask questions of your broker or insurer and talk with colleagues about their experiences in this area to choose the coverage that best fits your specialty or practice. If you have any questions, feel free to reach out to us.
Gold Medal Waters is a fee only financial planner located in Boulder, Colorado that specializes in serving the unique needs of physicians and high net worth clients. Coordinating a great financial plan isn’t easy. Learn more about what sets us apart, or talk to an advisor and get a free meeting to see if we are the right firm for you.