I want to briefly discuss the handling of liability insurance as part of the contract negotiation process. Generally, most employers agree – liability insurance is a bona fide business expense. This should be clearly stipulated in the employment agreement as a covered expense of employment.
Unless you’re working for the federal government or providing charity care without compensation (in some cases), you will be required to carry professional liability insurance in order to care for patients and provide services for your employer.
If your relationship with your employer is as an independent contractor, you might be expected to cover your own malpractice coverage. But barring that, your employer will expect to pay for the coverage.
There are some caveats, however, that you want to keep in mind. You can generally only expect the coverage to apply to work done for the employer. If you plan to moonlight with other entities to boost your income, be sure that evidence of professional liability coverage is provided by the other entity prior to seeing patients.
And expect to have an offer of employment withdrawn if it is determined that you are not insurable for some reason, or if the costs of coverage significantly exceed local average premium rates.
Your employment agreement must also address the payment of tail coverage (also referred to as “extended reporting endorsement” or just “reporting endorsement”), unless your liability coverage is of the “occurrence” type. Occurrence coverage was common 20 or more years ago. This type of coverage would provide protection for any alleged acts of malpractice that occurred during the time the insurance was in force. If you were named in a suit, for example, two years after changing jobs and malpractice carriers, your old policy would still cover the costs of defending the case since it occurred while the policy was in force. Most policies are now of the “claims made” variety, which means that the policy must be in force at the time the suit is filed in order for it to be covered. If you leave your current employer, you therefor need to have an extended reporting endorsement, or tail coverage, to protect you for alleged malpractice that occurred while you were an employee, but not discovered and/or filed until some time later.
The cost of tail coverage can vary greatly. It depends primarily on the specialty, the length of time in practice and the prevailing costs of malpractice coverage (which depends on the location and comparative malpractice environment). For example, tail coverage for a family physician who has been in practice for one year following residency, in a low-cost state that has malpractice caps in place, will be very low – perhaps a few thousand dollars – because the exposure to potentially harmed patients is brief and the likelihood of a high award is low. At the other extreme, for example a very busy obstetrician or neurosurgeon in practice for 10 years in a highly litigious state, the cost of tail could be something like 1.5 to 2 times the annual malpractice premium, or in excess of $100,000. These considerations will be important when tail coverage is being discussed and negotiated.
Given that basic liability coverage is considered a business expense, you might think that employers expect to either provide occurrence coverage or arrange for tail coverage when physicians leave employment. However, this is not the case. Many employers consider this to be a negotiable item, that can fully or partially be made the responsibility of the newly employed physician. Perhaps it relates back to a time when most physicians were in solo or small group practices and were accustomed to paying for malpractice coverage themselves. Who knows? But now, employers often see this as a tool to encourage retention.
The justification goes like this: searching, recruiting, hiring, on-boarding, paying a guaranteed salary (even while patient volumes are low), and providing staff and facility support, all constitute an investment in the newly hired physician – an investment that may require several years to recoup. So, the last thing they want to do is encourage a fully trained, and now “seasoned” physician to leave by covering the cost of tail coverage. The employer sees the $50,000 or or higher potential expense as a nice incentive for the physician to stay put! Therefor, many employers are going make an initial contract offer of either no payment for tail coverage, or partial payment under very specific circumstances. Those specific circumstances could include conditions such as termination without cause, or the employer becomes acquired by another entity, both of which are pretty unlikely to occur.
Here are some ideas for addressing this topic during the negotiation phase:
- You want the freedom in your career to leave a lousy job and take a better, more fulfilling job, so you want to reduce your cost of future termination or withdrawal as much as possible – your goal, therefore, is to get the employer to cover 100% of tail coverage if you can.
- You can use this as part of a comprehensive negotiation strategy, which will be discussed in a future post, to “give” on lesser important issues (to you) to “get” more on the more important issues.
- Remember that costs for tail coverage for a new physician during the first few years of practice are relatively low, so you would be better off agreeing to share the early cost, but phase out sharing after 2 or 3 years of employment.
- Get to know the insurance carrier being used by the new employer – if you are sure you will be working in the same state, even if you leave the employer in the future, you may be able to remain with the same carrier and avoid the need for tail coverage altogether. In my previous position as CMO, we would often continue coverage that an independent physician had in place when we employed them, thereby avoiding the need for either party to worry about tail coverage, at least at the beginning of employment. Be careful on this, because some employers (e.g., hospitals and health systems) are self insured and you will not be able to access their carrier following your withdrawal.
- Be sure that you also have an idea of what happens with tail coverage at retirement. It might be early for this discussion, but find out what happens if you stay employed for thirty years and then retire – is tail coverage forgiven by the carrier? Is it paid by the employer?
- Do not accept the argument from the employer that in the event of separation, the next employer will be likely cover your tail coverage (also known as “nose” coverage from the new employer’s perspective) because that is not at all guaranteed.
- You might also want to consider that if you leave employment, and do not obtain tail coverage, your employer will probably purchase the coverage on its own – because it will become the deep pocket if its former employee does not have coverage (it will also generally be a party to the suit anyway). Some hospitals even go so far as to purchase tail coverage (reluctantly) for independent members of their medical staffs that leave and “go bare” because of the risk of being named in a suit if the physician does not have coverage (more so for high risk surgical specialties). I am not advising that you rely on this and go bare, but it is a discussion point that might help during negotiations.
Here is a link that describes Tail Coverage in a little more detail: