The following is an example of a malpractice claim and its lifespan.
Year 1 — The ASC purchases medical malpractice insurance for both the corporation and its employed physicians. One of the employed or independent physicians has a bad outcome during the year. In compliance with the policy provisions, the ASC reports that incident to its insurer.
Year 3 — As the statute of limitations is about to expire (depending upon the state law), the ASC is served with a lawsuit alleging medical malpractice based upon the incident that occurred in year one.
Year 5 — By this time, the discovery process has commenced, depositions are being taken and interrogatories have been answered. Perhaps the opinions of expert witnesses have been obtained, but the case may not be ready to go to trial.
Year 6 — Discovery has now been completed and motions are being made back and forth by both sides.
Year 7 or 8 — The case is now at trial. As the ASC executive, you hope that your insurance company still has the financial wherewithal to pay a judgment, either big or small. You sit in the courtroom, waiting to hear the outcome of the case, concerned about the impact on your facility.
Our data show that 92 percent of claims arise within five years of the original incident. On average, a claim takes 2-3 years to resolve, with 71 percent of claims closing within two years and 85 percent within 3 years. This means that the average claim could take up to seven years to be resolved after the initial incident! This is what is called “the long tail of medical malpractice claims.”
Because of this long tail, it is imperative that you ask some important questions of your medical professional liability insurance company.
How strong is your carrier?
The next few years, at this point, are uncertain in terms of the economy and the insurance marketplace. Now it is more important than ever to thoroughly evaluate the company you trust with your reputation and assets. Here are six questions to ask and requests to make of your insurer that will help provide you with more insight into its stability.
1. How have S&P and A.M. Best ranked the company?
2. How have these rating companies ranked their outlook?
∙ Negative? Stable? Positive?
3. How long have they been in the insurance business?
4. How long have they been in the medical malpractice insurance business?
∙ Medical malpractice is cyclical and has had a major crisis almost every decade since the seventies. How have they managed during challenging times?
5. Ask to see their financial statements from the past 5 years.
6. How conservative are their investments?
You have enough worries and challenges in today’s medical marketplace, the least of your concerns should be if your medical professional liability carrier will be financially strong enough to protect and defend you in the future Today, more than ever the financial strength of your insurance carrier is crucial to your practice.
The medical liability market is cyclical, and, as we’ve seen in the past, can be volatile. A.M. Best warns that the malpractice arena has been stable over the past few years but is vulnerable to cycles. According to a study performed by A.M. Best, conducted before the destabilizing financial market crash, the following were the most significant causes of property and casualty insurance company impairments from 1969-2007. (Note: 8.1 percent of causes fell into a miscellaneous category):
- Deficient loss reserves — 38.2 percent
- Rapid growth — 14.4 percent
- Overstated assets — 8.9 percent
- Impairment of an affiliate — 8.1 percent
- Significant changed in business — 7.5 percent
- Alleged fraud — 6.9 percent
- Catastrophe losses — 4.2 percent
- Reinsurance failure — 3.5 percent
How experienced is the defense team?
Medical liability insurance is bought to protect healthcare providers and facilities during the worst-case scenario — a lawsuit. When that time comes, you want a comprehensive defense plan and a skilled defense team with the expertise to defend you. Defense should rank as one of the most important aspect of an insurance carrier’s service. A detailed evaluation of a carrier’s claims team, defense philosophy and historical performance will assure that they will defend your reputation and assets.
Here are several more questions to ask your insurer to gain a better understanding of their defense plan:
1. What is their defense philosophy?
∙ What kind of financial investment are they willing to make?
∙ Do they mount an early, aggressive defense that considers all outcomes?
∙ Do they only go to trial, or do they only settle? What’s the percentage of each?
∙ What are the deciding factors to take a case to trial?
∙ Do they use a team defense approach?
∙ Do they allow you to have a voice in your own defense?
2. Do they allow you the right to refuse settlement?
3. How many years of experience, on average, does their claims team have in dealing with medical malpractice claims?
4. How long have they defended healthcare providers and their organizations?
Commit the time to make an informed decision
There are many challenges to being involved in the medical field. This is also true for those who insure healthcare providers and the facilities where they work. Unfortunately, it’s a complicated decision that many don’t take enough time to evaluate seriously. This protection, when done right, should help protect and defend your reputation and assets.
— Bruce Whitmore is the healthcare facilities and wholesale distribution leader for Medical Protective, a Berkshire Hathaway company, and has worked in the medical malpractice insurance industry since 1990. Contact him at bruce.whitmore@medpro.com. Learn more about Medical Protective.
