The Cost of Tail (The Doctors Company)

April 23, 2012

What if you are asked to sign a new contract with a new medical entity after all of these years of practicing solo; or, of practicing with a familiar group of physicians.

There are so many business issues to consider (we use some expert health care consultants to help our physicians become informed and instantly savy to putting their own business contracts together), Call us, we can refer you to one of our expert consultants.

This ‘blog’ this entry today is to just specifically talk about the perils of not planning properly for the inevitable issue of tail insurance. The cost of providing ongoing insurance protection for any lawsuit that might be presented in the future based upon the many services that you’ve provided during the time with the group that is now merging. Or, you might have a question about how a Nurse Practitioner or Physicians’ Assistant handles the cost of tail insurance.

Our brilliant Doctors’ Company Business Development expert, underwriter, marketer, claims handler extraordinaire, Bill Fleming, wrote about the issues to consider when you are signing a contract for emploiyment or partnership with other physicians.

He writes that bringing a new physician into a growing practice can be exciting and rewarding for both the group and the new hire. However, these relationships can end poorly and ongoing, career altering bad feelings can be developed if the issue of tail insurance is not addressed upfront. For that reason, we strongly recommend that all groups make use of physician employment agreements. Physician employment agreements can simply stipulate who is responsible for which percentage of this imminent cost of doing business (and, other important issues.

Most professional liability policies are written on a claims-made or claims-reported basis. If the policy is claims make, ten the policy responds to claims that develop during the scope of practice and when they are made within the policy coverage period (the initial active date until the final cancel date). When the physician or Allied Health Provider leaves the practice, that person will not be covered unless an extended reporting period (or “tail”) endorsement is added to the policy. The delay, the average time lag between a patient encounter and the filing of a suit related to that encounter is often a period of years. (three and one half year average delay). For this reason, tail coverage is expensive—typically a multiple of the annual premium. In the case of The Doctors’ Company, that multiple is 2.3.

A health care business attorney is your best source for ensuring that your employment agreements have all of the necessary elements. The Doctors’ Insurance Agency works with some outstanding healthcare attorneys to help you with this issue. When creating a contract with your attorney, you should consider the following:

  • Who selects the policy limits, deductibles—including who pays the deductible—Is there insurance for the entity or facilities or physician’s corporation?
  • Who has the right to change or cancel coverage for the physician?
  • And, most important question to ask: who is responsible for purchasing coverage, not, just ongoing, active malpractice insurance, but also nose and tail coverage?

Tail for physicians is a multiple of 2.3 x the annual premium charged for that specialty. The issue of carving out, specifically, in the contract, who pays which percentage of the cost of the active medical malpractice insurance and the tail premium is so important. The purchase of tail in the medical malpractice underwriting world is similar to maintaining good credit.

Whether you are a CRNA, CNM, NP, MD or any other type of healthcare provider, the purchase of tail can make you either a good risk (you come to the new enterprise a clean history) or a bad risk (you bring potentially unreported claims to a new carrier.

If you do not purchase tail insurance, you will be either uninsurable, or you will find yourself in a non standard company. Tail for a PA-C, or other Allied Healthcare provider: I just went over some of these same issues with another newly licensed PA (in Santa Barbara County), the answer to the question of whether you have tail, or what is the cost of tail is: (as is often the case), It depends.

Tail when insured with The Doctors’ Company Physician, or any other company’s physicians… : Sharing Limits. There is NO Cost! (the operative word here is Sharing limits. You are free to cancel and leave and the tail stays with the policy.

Tail when you are insured with another physician with Separate Limits (that is the key),

Then the cost of tail is your annual premium (think approximately $ 500 – 2,000 for your annual premium)

X a factor of 2.3 = TAIL Cost (so, it would be close to $ 5,000 paid over two years.

If you are insured on a Facility policy (Dialysis Center policy, Imaging Center, Medispa), then there is likely no tail because the liability for any claims involving your services would likely stay with the facility. The policy covering the entity would respond just as it would the physician with whom you share limits.

When you have a moment, call to discuss, we can provide you with more specific answers.