Is Malpractice Coverage From Your Health System Risky?

Brian S. Kern, JD

Disclosures

February 27, 2014

In This Article

A Bad Deal for Doctors?

Healthcare reform has brought many changes -- some good, some bad, but some with effects that are less obvious and which may be far-reaching. Some of these changes could hold potential dangers for physicians.

As doctors enter into contracts with health systems, they've seen that some contracts require them to join that system's self-insured professional liability program (eg, a captive risk-retention group). Physicians need to understand what they're getting into when they agree to this arrangement and should take care to protect themselves.

Is Your Coverage Putting You at Risk?

Most independent physicians in the United States are insured by companies admitted to do business in the state(s) in which the physicians practice. To become admitted, insurance carriers must comply with strict filing and financial requirements. In exchange, most states provide guaranty fund backing, which protects doctors -- to some extent -- if their insurers become insolvent. For example, if an admitted insurance company in New Jersey becomes insolvent, the State Guaranty Fund would provide up to $300,000 in malpractice coverage. This coverage is usually for several years, but it could be indefinitely, because the physician may not be able to replace the coverage.

But some health systems choose to self-insure in lieu of using admitted carriers. For the health system, it may be less costly -- or even profitable for the captive's owners. However, the downside is that they lose guaranty fund protection. Losing this protection affects the hospital (because the hospital loses its backstop) as well as all covered physicians. Guaranty funds are created to protect those who are insured, not the insurers.

If a health system declares bankruptcy, its self-insured plans may follow suit and physicians can be left entirely uninsured. For example, When St. Vincent's Hospital in New York declared bankruptcy in 2010, physicians covered under its insurance program were forced to pay money into a backup pool or lose coverage altogether.

In light of the financial risks, physicians should assess a system's -- and its insurance program's --- financial condition prior to accepting coverage.

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