Ask the Experts: Physician Malpractice Insurance
Our hospital just acquired a physician group. What is our obligation to provide and/or pay for medical malpractice insurance?
Answer 1: This is a standard benefit for employed physicians. Under a professional services agreement model, we generally see this as a standard benefit as well. I am involved in transactions across the country and I have not seen a deal where the buyer does not pay for nose coverage (the period between the inception date retroactive date). With regards to tail coverage (a provision that permits an insured to report claims after a policy has expired or has been canceled), this is usually deducted from the up-front payment or value of the practice (i.e., if the valuation is $1 million and tail coverage is $20,000, the system can pay $980,000 and pay the tail coverage or pay $1 million and the physician pays the tail coverage). Another method used is a transition bonus, which helps cover the tail coverage cost, but aggregate compensation paid for personal services must still comply with fair market value standards.
This question was answered by Curtis H. Bernstein, principal, Pinnacle Healthcare Consulting, and a member of HFMA’s Colorado Chapter.
Answer 2: Physicians are required to carry medical malpractice (in Massachusetts it is a licensure issue, and the requirement is set by the Board of Registration in Medicine), and our own hospitals all require physicians to carry medical malpractice via their medical staff by-laws. Therefore, if you acquire a physician group as a hospital, you would know that there is a requirement for the physicians within that group to carry coverage. Whether the hospital provides the coverage itself, or facilitates a process for the physicians to obtain the coverage (e.g. through a commercial carrier), they need the coverage.
Now the question of who “pays” for the coverage should be addressed separately. I don’t believe there is any requirement for a hospital acquiring a physician practice to pay for the malpractice on behalf of the physicians. However, because they are required to have malpractice coverage, someone has to pay for it, so either the hospital or the medical group must buy the coverage. In our case, the medical group buys the coverage from our captive/self-insurance program.
This question was answered by: Rosemary Rotty, MHA, FHFMA, director, service line finance, UMass Memorial Health Care, and is a member of HFMA’s Massachusetts-Rhode Island Chapter.
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