Carrier Choice Counts In More Ways than One. Faced with choosing between several insurance companies, new physicians often make poor decisions based entirely on the cost of the policy.  While price is an important consideration, (especially since new physicians often have a heavy debt burden to repay,) coverage is equally (perhaps more) important.  Again the key is to look at the matter in on a long term basis, rather than simply asking “how much will I pay this year?”

It cannot be stressed enough that working with an insurance professional to explore all the different options out there is the only wise thing to do.  This is the one time a physician is definitely in the position to choose from any of the top rated insurance carriers, yet some new doctors make the mistake of choosing to save a few hundred dollars and get coverage through Risk Retention Groups (RRG), or Captives or other similar ventures.

Here’s the scenario:  As a new physician, Dr. Smith is told the malpractice malpractice insurance average premium will be $25,000 a year.  In an effort to reduce the cost, Dr. Smith decides to obtain coverage from a risk retention group, because a colleague mentioned that they were really cheap.  Not understanding much about the coverage, Dr. Smith is thrilled to get a quote for “only” $19,000 and writes a check before even reading the contract or doing any research.

Six months later Dr. Smith is named in a lawsuit which lacks merit.  Dr. Smith is is given no choice or input on the choice of defense counsel (the risk retention group saves money by having one attorney firm handle all claims).  Dr. Smith is also not consulted when the case is settled on for $250,000 (the RRG includes a clause in the contract that clearly gives them the right to settle a claim without Dr. Smith’s consent).  To add insult to injury (and damaged reputation,) Dr. Smith receives a non-renewal (cancelation) letter from the RRG due to the $250,000 payout.  In a panic, Dr. Smith finally calls Presidio for help.  (Please refer to this blog post for What do Do when you’re being non-renewed).   We can help guide this new doctor towards better choices in the future, but it’s too late to take back the poor choice of not getting a free consultation from Presidio in the first place.

Initial savings?  $6,000  Net cost?  Untold, as the average premium will be higher and the cost of a damaged reputation can’t easily be determined.  Cost of giving Presidio a call before buying a policy?  Free, yet priceless!

New Physician Malpractice Insurance Article Series

Part 1 – New Physician Insurance Scenarios
Part 2 – New Physician Insurance Strategy
Part 3 – New Physician Insurance Risk

2) Consider the longer term strategy and seek advice from an insurance professional. New physicians qualify for substantial discounts on professional liability insurance for the first 3 years in practice.  Keep in mind the term “new physician” can include physicians completing military service, coming to the US for the first time, working at a county clinic, even completing work in a Kaiser facility or on a research grant.  The “new physician” discounts can vary between 15% and 75%.  Rules also differ amongst the various companies as to what constitutes a “new physician”.  You’re well-served by asking the question beforehand, since the rules for Norcal Mutual Insurance Company may be more flexible than The Doctors Company or Medical Protective, for a couple examples.

Here’s the scenario:  Dr. Smith has finished residency and eventually plans to open a private practice.  For the time being, though, Dr. Smith is considering a job with either a county clinic or a private medical group.  Both offer medical malpractice coverage and (having read the first segment of this series), Dr. Smith makes sure there won’t be a cost for a tail policy.

While caring for patients at the county clinic is rewarding, the private medical group offers $10,000 more per year and Dr. Smith joins the medical group.  After 3 years Dr. Smith decides to leave the Group, ready to start a new practice.  Here’s where it gets tricky: Dr. Smith went to work for the private medical group for her first 3 years of practice, thereby the group enjoyed the benefit of the “new physician” discounts.  (Remember that the group agreed to pay for the policy.)  Premiums paid by the Group were $6,250 the first year (75% discount), $12,500 the second year (50% discount) and $18,750 (25% discount)  the third year.  The total premium savings on “new physician” discounts gained by the Group is $37,500.

Dr. Smith now applies for a policy for the new practice, but the “new physician” discounts have already been enjoyed by the Group.  Dr. Smith’s premium is now $25,000 for the first year in practice (this is Dr. Smith’s second largest monthly expense after rent).  The rules state that Dr. Smith no longer qualifies as a “new physician” because private practice was actually entered into when work for the Group began.  Had Dr. Smith worked at the county clinic for 3 years, the new practice would have been eligible for the “new physician” discounts, but …

Dr. Smith earned a total of $10,000 per year for 3 years, or $30,000 in additional salary — less taxes — which comes to about $24,000.  The loss of discounts equates to $37,500 in additional premium costs for the new practice, and comes at a time when that new practice can least afforded it!

$10k per year x 3 yrs = $30k, less taxes = $24,000
Extra premiums paid by the new practice = $37,500
Net loss to Dr. Smith:  $13,500

Good advice from Presidio? Priceless!

Check back for the third and final segment on professional liability insurance!

New Physician Malpractice Insurance Article Series

Part 1 – New Physician Insurance Scenarios
Part 2 – New Physician Insurance Strategy
Part 3 – New Physician Insurance Risk

The first of three parts, this series addresses issues every new doctor should be aware of.

Each year at the end of summer, we find a fresh crop of recently licensed physicians seeking positions within medical groups and establishing their own new practices.  If you’re one of them, congratulations!  All that hard work is finally going to start to pay off!

Whether coming on with an existing group or hanging out your own shingle, you’re about to be barraged by a stream of unanticipated and unfamiliar details, things left for “Later” while you were focusing on your medical education.  Here’s a bit of practical knowledge to help avoid potential pitfalls in your blossoming career.  Protect yourself by understanding your medical malpractice insurance options. Professional (Medical) Malpractice insurance is an essential part of any practice or business.

Consider these scenarios, which every new physician can learn from:

1) If you’re joining a Group, be sure to review your contract and understand the financial implications of cancelling an insurance policy, should you choose to leave the group.

Here’s the scenario:  Dr. Smith completes Residency and goes to work for ABC Medical Group.  ABC Medical Group agrees to provide the doctor with medical malpractice insurance coverage while part of the Group.  Unfortunately, Dr. Smith quickly becomes unhappy with ABC Medical Group and decides to take another job offer, (or set up a new practice which is better able to serve patients.)  Pursuant to the terms of the contract between Dr. Smith and ABC Medical Group, Medical Malpractice insurance coverage ends once Dr. Smith leaves the group.  The contract is silent on the issue of coverage for lawsuits that arise from patient contact while with ABC Medical Group, though the suit wasn’t filed until after doctor left the practice.  Only when the suit is filed does Dr. Smith realize there was no protection against litigation once they parted ways.  To remedy this and help poor Dr. Smith, ABC Medical Group’s insurance carrier offers Dr. Smith an extended reporting policy (often referred to as tail coverage) which can be purchased for a mere $8,000 (which must be paid in full within the next 30 days).  Dr. Smith did not anticipate this expense, and now has to figure out how to come up with an extra eight grand in a month.  Not the best news of the season.  Had the new doctor gotten a free consult with Presidio ahead of time, potential pitfalls like Tail Coverage would have been brought up, saving a lot of stress and eight thousand dollars.

Check back for the next installment, Long Term Strategy!

New Physician Malpractice Insurance Article Series

Part 1 – New Physician Insurance Scenarios
Part 2 – New Physician Insurance Strategy
Part 3 – New Physician Insurance Risk