Physician Consolidation: What About the “Tail” Policy?

More and more physicians are leaving private practice to become employed by hospitals or consolidated into national or regional groups. In just 18 months between July 2016 and January 2018, hospitals acquired 8,000 medical practices and employed 14,000 physicians.

Often, a change in ownership will lead to a change in insurance policy. But changes in professional liability coverage can prove problematic for doctors and their employers unless properly addressed. Since medical malpractice claims can take months — if not years — to be filed, it’s important for physicians to ensure they have retroactive or extended coverage for their time as solo practitioners if they are changing policies.

Two Types of Coverage

Physicians have the option of purchasing occurrence policies that provide coverage for losses that take place while they are insured by a particular carrier, regardless of when the claim is made. These policies can have a higher initial cost and are not as prevalent in the market.

The second, and much more common, option is a claims-made policy which responds to claims made within the policy period. Physicians with claims-made policies may purchase an extended reporting period (ERP), otherwise known as tail coverage, to protect themselves for claims that are made after their claims-made policy expires or is terminated, a rather frequent occurrence in health care.

4 Tail Options

Physicians with individual claims-made policy limits have several options to secure financial protection with tail coverage after their policy expires or if they change carriers:

1. Purchase a tail from their current insurer within 30 days of their claims-made insurance policy termination. Tail coverage typically costs approximately double the expiring policy’s premium, and can apply for a limited period or an unlimited number of years. An employment contract may identify who is financially responsible for purchasing the tail.
2. Purchase a standalone tail policy from a separate carrier. 
3. Purchase prior acts coverage from their new insurer. However, if the physician is moving and will be practicing in a different state, the new insurer may not provide prior acts coverage to defend a claim in a state where it doesn’t typically provide insurance coverage. 
4. Retiring physicians may be eligible for a free tail. Those close to retirement should speak with their insurer and insurance broker to determine eligibility before terminating coverage and changing insurers.

The physician’s geographic location, employment history, and expected retirement date need to be considered when purchasing a tail. In rural communities that struggle with physician shortages, the market may support employers paying for the tail policy as part of their recruitment strategy. 

Physician residents are typically insured by their medical school or a teaching hospital, but they should confirm coverage before leaving their residency.

Decisions on the purchase of a tail coverage and the financial responsibility for payment should be discussed early in the employment or merger process, and physicians should consult with their insurance broker and advisor to ensure all risks are considered.