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Medical Malpractice
Shopping Smart for Malpractice Insurance
Ruben Paradela
Publish Date: December 1, 2008   |  Tags:   Medical Malpractice-Legal

A surgery center's malpractice liability premiums can vary widely: from $22,000 a year for a center in rural Indiana to $100,000 for a moderate sized multi-specialty center in New York to as much as $200,000 for a larger multi-specialty center in such high-risk cities as Miami or Ft. Lauderdale. Rates are based on your specialties, number of procedures, staff size, claims history and limits of liability purchased. When it's time to renew your malpractice insurance, consider these seven tips.

Never stop shopping. Each year, check in with the company or broker that you did business with last year. But also keep your eyes open for other opportunities. Give yourself enough time — two or three months — to assess your options. While malpractice insurance prices usually are based on the city or region and the mix of procedures your center hosts, call similar facilities in your area and ask about the broker that they use and the insurance that they buy. You might find a new source that you didn't know of, especially since more insurers are returning to the malpractice market (see "Med Mal Insurers Competing for Your Business" on page 20).

Straighten up. Before you begin shopping, make sure that you have all the necessary information in order. Start with your physicians. Verify that they all have their own insurance. In most situations, a physician should have coverage of $1 million per claim and $3 million per calendar year. Even if your state doesn't require that a physician carry malpractice insurance, you should require it for privileges. Otherwise, you're running a great risk. If you let surgeons who "go bare" practice in your facility, your facility can become the target of malpractice lawsuits, since it likely has $1 million in insurance and the physicians don't (see "Any of Your Docs Going Bare?" on page 21). In effect, your facility becomes the "deep pockets" that the lawyers go after. Update all your safety procedures and training manuals based on current regulations and guidelines. You can do this as part of your preparation for accreditation. Also, make sure that you have an accounting of any pending claims and close or pay any inactive claims.

How much is enough? Most surgery centers carry $1 million/$3 million policies, like their physicians. Usually this is enough to cover most settled claims. For example, according to the American Society for Healthcare Risk Management, the average paid claim was:

  • $145,000 for a pressure ulcer;
  • $107,000 for an object left in surgery;
  • $48,000 for an injury; and
  • $46,000 for an infection.

Common outpatient procedures that result in malpractice claims include intracapsular lens extraction, breast reduction, breast implants and hair transplants.

In most cases, a surgery center would share the cost of the award with the physician. However, depending on your location, mix of cases and your facility's assets, you might need more coverage. In the last few years, the average jury verdict award increased from $3.1 million in 2000 to $4 million in 2006, according to Current Award Trends in Personal Injury, published this year by Jury Verdict Research.

Talk with a pro. Once you assess your situation and exposure, talk with an insurance agent or broker. Make sure that you work with someone who understands the outpatient surgery sector. If you speak with an agent, find out whom he represents. Brokers usually work with several insurers, while agents represent just one. With more companies entering the medical malpractice market, a broker may offer more variety. Get quotes from as many agents or brokers as possible.

When the agents and brokers come back with quotes, do more research of your own. Learn as much as you can about each company, especially those that you've never heard of. Look at A.M. Best's rating of each company (register for free at www.ambest.com). This is especially important now, since the economic climate has changed in the last few months and insurance companies have suffered losses as a result of the mortgage and financial market meltdowns.

Choose the right type of coverage. Physicians can choose between "occurrence" form policies and "claims-made" form policies. Surgical centers usually buy claims-made malpractice policies. Generally, occurrence policies are more expensive because of their coverage. An occurrence policy covers claims for any event that occurred while the physician was under that policy's coverage, regardless of when the claim is made. This is important to know because most malpractice claims are made at least a year after the event.

A claims-made policy covers any claims made during the time of coverage. Both the event and the claim must have occurred during the period of coverage. A claims-made policy can lead to a coverage gap if you switch insurers. To avoid this gap, you may need to purchase an insurance "tail" that will continue coverage of claims related to events that occurred during the initial coverage period. Tails are expensive, costing 150 percent to 225 percent of the price of the annual premium, depending on the life of the tail's coverage. If you're planning to change insurers, you can also purchase a "nose" from the new insurer that provides coverage retroactive to the date of your last policy.

Another policy term that will vary among insurers is the deductible. A policy can have an "indemnity-only" deductible — in which the insurer picks up all the costs to defend the claim and the center pays the deductible only if an award or settlement is made. Or the policy can have an "indemnity and expense" deductible, which means the center pays the claim's expense as well as the indemnity up to the deductible limit.

How will the insurer defend you? This is just as important as what the insurer will cover. Ask about the insurer's defense approach. Is it aggressive, or does the company settle quickly? What is the insurer's position on apologies after bad outcomes? Not all policies have the same terms and conditions when it comes to who pays the legal defense costs. Policies can have the defense costs "inside" or "outside" the limits of liability. For example, if you buy a $1 million/$3 million policy with the defense costs inside the limit, the $1 million policy limit is eaten away by the cost of defending the claim. (If legal and defense expenses were $100,000, there'd be only $900,000 left to settle a claim.) When defense costs are "outside," all of the $1 million limit is available to settle the claim and the insurance company picks up all the defense costs.

Keep your eye on the news. Finally, throughout the year, keep up on malpractice insurance in the news. Although conditions have improved recently, the insurance business is cyclical, which means that a "malpractice crisis" will surely return to the top of the news. When it does, you'll need to adjust your strategy.

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