Medical

Malpractice Insurance Basics

Malpractice

The idea of being sued for malpractice as a healthcare provider is frightening. According to the AMA, one in three physicians report that a medical liability suit was filed against them. News stories highlight egregious cases and huge settlements. Rather than focusing on fears, let’s go through the basics of what malpractice is and how malpractice insurance works so you can protect yourself as you move from your education into practice.

What Is Medical Malpractice?

Medical malpractice is the negligent or improper treatment of a patient by a professional in the medical field that falls below the generally accepted standard of care. The patient’s treatment led to some semblance of loss, harm, or damages sustained due to a medical professional’s negligent treatment. Ultimately, defining what constitutes proper treatment in a given patient’s case is difficult to discern. The more a treatment is referred to as a standard of care, or a test is a standard of care, the more likely a medical professional will be held to the standard of care as a minimum level.

Standards of care will vary by the type of treatment, specialty, access to technology and equipment, staffing, and geographical area. Statistically, there will likely come a point where a patient will accuse you of falling below the standard of care in that patient’s case, which resulted in a negative outcome. This incident may result in a claim of medical malpractice against you, the hospital, and every other person who touched the patient.

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First, from my general experience, the person who tells you that they will “sue you” to your face in the office is generally looking to intimidate you to get you to concede something to them. The actual legal process of a lawsuit is more mundane.

The process will vary by state, but here is the typical process: An alleged event occurs that damages the patient. Damages can consist of the loss of life, use of a limb, or sensation – anything that can be quantified as a diminishment of what the patient had before the event.

Please note, the damaging event can even occur before you see the patient, such as a car accident. If your treatment for that damaging event falls below that of a similar professional or is negligent, you can still be held liable.

Next, the legal system will determine who caused those damages. Using the example of the car accident, the person who caused the accident is most likely to hold more liability than a physician who saved a patient’s life but could not save a patient’s legs.

Finally, did your conduct as the physician fall below that of a similarly experienced physician, or did your conduct fall below that of an acceptable minimum standard (“standard of care”)? Your state laws on medical malpractice control your maximum liability and determine if your conduct was below that of a similar physician.

In the American justice system, the default rule is each side pays for their own legal costs unless there is some provision for fee-shifting. Fee shifting means that the winner has their legal fees paid for, including the lawsuit’s cost, and in most cases, attorney fees. Statutes, contracts, agreements by the parties through counsel, or judicial decisions can provide fee-shifting. For you, as a physician, this means that you are likely paying for your defense.

The cost of a legal defense is not cheap. Fees include the law firm, the attorneys, support staff, document review, expert witnesses, and other expenses. These bills could run more than $60,000 if you are paying top rates for an attorney. The high cost of legal defense is why a physician needs medical malpractice insurance. In addition to the defense costs, should your treatment be found negligent, you can be liable for millions of dollars in compensation being paid to your former patient. Even if you think the cost of defense is something you can afford, likely, a multi-million dollar settlement would not be.

Malpractice Insurance

Do you need malpractice insurance? It depends on the state. Maybe your state does not require you to carry malpractice insurance. But what happens when you get sued and a judgment is found against you? Your pay and assets will be used to satisfy the judgment against you. This is why you have insurance. The insurance company gets to fulfill that judgment against you. Even before that, the insurance company will be obligated to defend you with their attorneys to mitigate payment of those damages.

What does malpractice insurance generally do for the physician?

  1. Provides the physician a starting point of who to contact when something has gone wrong or they are being sued. This starting point could be a risk management group for a hospital plan or an insurance company number where you report an incident or claim.
  2. Coverage of legal defense costs.
  3. Access to lawyers ready to defend you.
  4. Coverage of any judgment found against you.

What do I need to know about malpractice insurance?

There are two primary types of policies.

Claims-Made Policies

This policy provides coverage only for claims that occur while you are insured with the carrier. You are covered if the event is claimed while the policy is active, regardless of when the event occurred. Note that restrictions can apply, so be sure to speak with your insurance provider to understand your coverage fully. 

However, once you are no longer insured with that insurance company, you will no longer be covered against lawsuits or claims, even if the alleged malpractice occurred during the time the policy was active. This is where you need to look at tail coverage.

Tail coverage covers your liability for events that occurred while you were covered by your claims made policy. The downside of tail coverage is that it is costly. So, before you join a practice or a hospital, see who is responsible for paying that tail coverage if and when you leave. After all, it is becoming commonplace for physicians to move from system to system more frequently due to job market economics.

Occurrence Policies

Next are what are known as occurrence policies. These policies cover you for incidents that occur while the policy is in effect. How does this work in real life? Let’s say you work for a hospital that has an occurrence policy. A patient suffers a negative outcome. You leave the hospital for a new job, and you don’t buy any tail coverage. A few years later, the patient who suffered the negative outcome files a malpractice claim and suit against you and the hospital. The occurrence policy will defend you from that claim.

Understanding Your Coverage

Understand that insurance companies are in the business of staying in business. Therefore, insurance companies will do what is in the insurance company’s best interest, not necessarily what is in the best interest of the insured physician. So you need to read the fine print of your insurance carrier contract. Some things to look for:

  • Are there caps in the cost of defense?
  • Does the insurance company pay for a defense?
  • Is there a total cap paid out for the lifetime of the policy?
  • Is the per-incident cap enough to cover your potential liabilities?

You may want a “consent to settle” clause included in your policy. This clause means that the insurance company must get your consent to settle the claim.

Why would you want to control claim settlement? It is generally less expensive for your insurance carrier to settle a nuisance case for a small amount than to litigate it and have it thrown out in court. In some states, all settlements for any amount are reported to the state medical board. The state medical board may take action against you if you have settled too many claims, even if they were nuisance value claims. Having a “consent to settle” clause can help you prevent this.

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No one ever expects to commit malpractice or have a negative outcome with a patient. But the reality is we are all human, and the chances are good that you or someone you supervise will make an error or that you will encounter a patient who believes you did. If this happens, malpractice insurance will protect you.

I hope this article has demystified malpractice and helped you to understand why you need malpractice insurance. Good luck with your career!

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William Burnett graduated from University of California, Davis. He obtained a Masters degree in tax law from Golden Gate University and his JD from Washburn University School of Law. He is licensed to practice law in the state of Pennsylvania. William Burnett graduated from University of California, Davis. He obtained a Masters degree in tax law from Golden Gate University and his JD from Wa...