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Negotiating Malpractice Insurance in Physician Employment Contracts

Medical Malpractice Insurance is an essential part of any physician’s practice. According to the American College of Physicians, “Medical Malpractice” insurance is a specialized type of professional liability insurance that covers physician liability arising from disputed services that result in a patient’s injury or death. Injuries may present themselves immediately or at some time in the future. Malpractice insurance requirements will vary depending upon several factors including, but, not limited to how long you have been practicing, the size of your practice, specialty, prior claims filed against you, etc. Many providers receive their malpractice insurance  through their hospital employer while independent physicians must purchase their own. You should carefully examine your insurance policy to determine whether your coverage is for “claims-made” or “occurrence”.

 

Claims-Made

A “Claims-Made” policy protects physicians for treatment that was provided from the first day of coverage through the expiration date. Since coverage ends on the expiration date you much always renew your claims-made policy on the expiration date to continue coverage without any gaps. Each year that a claims-made policy is renewed the retroactive date remains the same. The renewed claims-made policy covers claims that are filed during the policy year for incidents that occurred on or after the retroactive date. This allows for previous years to be covered under the current policy. In short, if you continue to renew a claims-made policy the protections in place will continue for any covered incidents that occur between the retroactive date and the expiration date. Any injuries that occurred prior to the retroactive date or after the policy has expired are not covered, which is why continuously maintaining this type of policy is important.

Claims-made policies allow you to increase your policy limits or add new coverage as needed or when new coverages become available. A claims-made policy allows an insured to transfer their coverage from one insurer to another without purchasing tail coverage, which will be discussed below. This only applies if you have an active claims-made policy that is transferable to another insurer that offers prior acts coverage for this claims-made policy. In this instance, the new insurer will rollover the retroactive date from the previous policy into the new policy. The new policy now covers the same period as the old policy since it includes the retroactive date. Unlike occurrence coverage, claims-made limits do not restore each year. The policy limits remain the same as they were when you initially purchased the policy.

 

Tail Coverage

Claims-made policies don’t cover claims made after the expiration of the policy, so you will have to purchase “Tail” coverage to continue coverage. Tail coverage (aka Extended Reporting Endorsement) is very important if you have been covered under a claims-made policy and are changing insurers, switching employers, or retiring. Tail provides malpractice coverage during the transition for injuries that may have occurred in the past. Tail allows the policy holder to have continuous coverage from the policy’s retroactive date to the policy expiration date. Any claims that are filed during that period are protected. To obtain tail coverage you must pay a one-time fee shortly after cancellation of a policy, but it can be as much as 1.5 to 2 times a typical annual malpractice insurance premium. Again, if you are transferring coverage from one insurer to another insurer tail policy coverage may not be necessary if the new insurer applies a retroactive date to your old policy.

 

Occurrence

Most physicians will opt for occurrence coverage where available. Occurrence policies protect you for treatment rendered during the entirety of the policy period, no matter when the claim is reported. An occurrence policy will still defend you against claims even after the policy has expired. This policy offers permanent coverage for incidents that occur during the policy period. Additionally, occurrence limits “restore” each year so that claims paid for incidents arising from one policy year do not deplete limits available to cover claims from other years. Each year that this type of policy is in effect constitutes a distinct set of limits. The amount of coverage in each year of coverage is aggregated annually to increase the limits.

 

Here are a few questions to Ask yourself

(1) What kind of coverage do I have?

(2) What are the policy limits?

(3) Do I have tail coverage?

(4) What type of incidents does my policy protect me from?

(5) Is this policy transferable?

(6) Will the new insurer retroactively date the new policy?

 

Final Reminders

*When negotiating hospital employment, physicians should ask the hospital to pay for the tail coverage or ask the hospital to allow them to continue their current coverage so that tail coverage is not required.

*Many physicians who are employed by hospitals may be required to obtain tail since most hospitals are self insured and won’t provide the incoming physician with prior acts coverage.

*Purchasing tail coverage may not be a choice. Some hospital bylaws require physicians to maintain malpractice coverage even after they are no longer with that hospital in order to protect from any potential future claims that may arise for any treatment that was provided by the insured while on staff.

*Some hospitals will not grant staff privileges to a physician with any gaps in their malpractice coverage.

*You want to make sure that you policy is always in effect and that it covers all potential claims because legal fees and costs can cost you thousands of dollars. These legal costs are in addition to any settlements that would have to be paid to the injured patient, which can range from a few thousand dollars to millions.

*The claims-made policy is more flexible and more cost effective especially for those who are still in the early years of their practice.

*“Claims-made” to the insurance company after the coverage period ends will not be covered, even if the alleged incident occurred while the policy was in effect. In other words you would personally be on the hook for any damages!

*Occurrence policies are permanent, which means that you don’t have to renew the policy to maintain coverage for any gaps in coverage. You have separate limits each year you were insured so past claims limit your coverage in the years ahead. These types of policies are becoming increasingly difficult to find.

*You should negotiate tail coverage in an employment contract with a new employer.

*Tail Coverage is only necessary when a Claims-Made policy expires and the insured cannot secure “nose” coverage for prior acts from a new insurance carrier.

*Medical Malpractice usually does not cover liability arising from criminal acts or sexual misconduct.

***This blog post does not constitute legal advice and is only intended for educational purposes only. You should consult a licensed attorney in the State of Florida that specializes in healthcare law.***

What to Consider When Negotiation Physician Employment Agreements

Physicians employed by hospitals, group practices, or any other type of healthcare facility usually enter into the business relationship by signing a Physician Employment Agreement unless the physician is an independent contractor. At Jones Health Law, we instruct all of our physician clients to carefully review their Physician Employment Agreement prior to signing.

Many physicians believe that they can’t negotiate the contract. THIS IS NOT TRUE. Every section of the contract can be negotiated by your attorney. If you don’t approve of some of the terms contained therein you have to power to ask your prospective employer to change that provision so that it better suits you and your needs. Of course, the prospective employer may be unwilling to revise some of the terms of the contract, and at that point you have a very important decision to make. You have to decide whether these terms are deal breakers or not. Only you can decide whether you are going to take it or leave it.

There’s no secret that there’s a shortage of physicians and it’s even more difficult to find physicians adequately suited and licensed in certain specialties. Use that to your advantage when you enter the negotiation process. Younger physicians may have more difficulty with negotiating contracts but it is not impossible. You want to place yourself in the best situation possible even if it means walking away from a prospective employer.

Physicians must realize that while working for a specific healthcare facility may initially be a dream job it can turn into a nightmare later on. Terms of the contract can pose limitations on the physician for several years after their employment with that particular employer has concluded.

What to Look for When Negotiating Physician Employment Agreements

Physicians employed by hospitals, group practices, or any other type of healthcare facility usually enter into the business relationship by signing a Physician Employment Agreement unless the physician is an independent contractor. At Jones Health Law, we instruct all of our physician clients to carefully review their Physician Employment Agreement prior to signing.

 

Many physicians believe that they can’t negotiate the contract. THIS IS NOT TRUE. Every section of the contract can be negotiated by your attorney. If you don’t approve of some of the terms contained therein you have to power to ask your prospective employer to change that provision so that it better suits you and your needs. Of course, the prospective employer may be unwilling to revise some of the terms of the contract, and at that point you have a very important decision to make. You have to decide whether these terms are deal breakers or not. Only you can decide whether you are going to take it or leave it.

 

There’s no secret that there’s a shortage of physicians and it’s even more difficult to find physicians adequately suited and licensed in certain specialties. Use that to your advantage when you enter the negotiation process. Younger physicians may have more difficulty with negotiating contracts but it is not impossible. You want to place yourself in the best situation possible even if it means walking away from a prospective employer.

 

Physicians must realize that while working for a specific healthcare facility may initially be a dream job it can turn into a nightmare later on. Terms of the contract can pose limitations on the physician for several years after their employment with that particular employer has concluded.

 

Some physicians don’t bother to read the contract thoroughly if the financial incentives are very appealing. Yes, making $175,000 is a great salary, but here are a few things to consider that might not make that salary look so good after all:

 

  • Restrictive Period and Geographic Location: Physician Employment Agreements usually have a Covenant not to Compete clause that imposes limitations on certain actions that the physician can or cannot engage in. Many times the time and geographic restrictions are very lengthy and far-reaching. For example, a physician employment agreement may state that “You cannot solicit for current and past referral sources, or own, manage, operate, control or be employed by a medical practice or health care provider for a period of three (3) years within ten (10) miles of any of our office locations.” This becomes problematic if your employer has offices in every county in South Florida.

 

  • Transparency of Care: Many practices require that you follow the Practice Guidelines and Company Policies but don’t specifically identify any actions that can be taken against you or the procedure that follows if any of those guidelines and policies are violated.

 

  • Performance Evaluations: Negative performance evaluations may become a part of your employment record and may be used against you at subsequent PEER Review hearings, during litigation, or future contract negotiations. You want to determine who will be conducting the performance evaluations and whether that party will do so in a neutral and objective manner. This is very important because these evaluations can give rise to “for-cause” termination, which may negate your employer’s requirement to compensate you in accordance with the contract. Also, if you were to fail their performance evaluation you want to determine what its effect is and what recourse would be taken (i.e. mandatory education courses, termination, suspension, etc.)?

 

  • Conflicts, Confidentiality, and Nondisclosure: These paragraphs are usually drafted very broadly and in many cases they are too broad. For example, language in this section may preclude you from engaging in any type of business activity that could potentially interfere with the business of your employer. The employer may require that you obtain express written consent from them prior to engaging in any other type of business activity. This means that if your wife wants to open a dance studio and you want to be a co-owner you would first have to seek approval from your employer. Failure to do so might result in a breach of contract. Typically, the employer grants herself a lot of authority in this section and it will remain that way unless you negotiate a change.

 

  • Covenant not to Solicit Employees of Employer: For example, “You many not directly or indirectly orally or in writing solicit any Employee of Employer to work for another healthcare provider rendering the same or similar services to the services of the Employer.” This is one clause that causes a lot of physicians because they don’t realize that “stealing” an employee from a former employer may be actionable in court. Additionally, this clause as written is broad and means that you cannot place ads in any form of media while looking for employees of your practice if the employees of the employer could potentially see it. If you do so, and the employee is hired by your company you may have to pay the employer thousands of dollars for each violation. The reason for this is because an ad may be viewed as an indirect written solicitation even if the Employee wasn’t targeted specifically.

 

  • Effects of Termination: This is arguably the most costly section of any Physician Employment Agreement. I’ve seen agreements that state if a physician terminates the employment agreement prior to its natural expiration the physician will be responsible for paying to the employer six months of your base salary. In other words, if you resign from your employment and you are earning $150,000 base salary you would have to pay a whopping $75,000 to your employer.

 

  • Continuation of Contract: Many employers require advance notice that you don’t intend to extend the contact for another term period. Some employers require as much as six months written notice before the expiration of the agreement. Failure to do so may be actionable and they might seek damages. I advise my clients to reduce the requirement to three months notice at most because business opportunities may arise within that six month window.

 

  • Employer May Assign Agreement: Businesses are bought and sold all of the time and medical practices are no different. Many agreements state that the employment agreement will belong to the new owner and you are bound by the terms of the agreement during the remaining term period. I tell my physicians to negotiate this clause so that they have the option to terminate this employment agreement without triggering the Effect of Termination clause should the employer choose to assign its interest to a successor.

 

These are just a few of the problematic clauses that I typically encounter in Physician Employment Agreements but this is by no means an exhaustive list. The terms in Employment Agreements vary from one employer to the next. I strongly advise you to contact Jones Health Law so that an experienced healthcare attorney can review the contract and negotiate it on your behalf.

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