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Malpractice Insurance Strategies Evolve as Docs Get Hired

Rene Letourneau, for HealthLeaders Media, November 5, 2013

Many hospitals and health systems are paying for prior acts malpractice insurance as a way of attracting physicians, but how are they absorbing that expense once they've committed to it?

This article appears in the October issue of HealthLeaders magazine.

Healthcare leaders know that to keep pace with the impending changes in the industry—such as the influx of newly insured Medicaid patients that the Patient Protection and Affordable Care Act is projected to bring into the system and the movement toward population health management—they must have the right people in the right places in their clinical settings.

Yet building the best possible medical workforce is a major challenge, and healthcare executives are concerned about shortages. In the HealthLeaders Media Industry Survey 2013: Strategic Imperatives for an Evolving Industry, 76% of respondents cited physician shortages as a threat to their organization.

As provider institutions compete with each other to hire physicians, offering to pay for tail coverage—insurance against malpractice lawsuits that may emerge from the physician's previous employment—is one method of drawing talent. By committing to pay for this considerable expense, hospitals make it easier financially for a doctor to leave his or her current employer and more appealing for a physicians group to sell its practice.

Vic Arnold, managing director at Chicago-based Huron Consulting Group, says covering the tail as part of the compensation package when acquiring a medical practice gives a hospital a "competitive advantage" over other potential employers.

"On all these acquisitions, the deals are so transaction oriented, but you have to take a step back and think about what would be something that would be attractive to this particular physicians group. If a hospital includes tail coverage, it's a transaction cost that the group doesn't have to bear and can help overcome some of the acquisition postdeal issues," Arnold says.

"What the hospital is doing is buying an insurance policy that covers the professional liability risk," Arnold adds, noting that prior legal issues are factored into the cost of the coverage and that policies for some specialties—such as gynecology, obstetrics, and orthopedics—potentially can be more costly than for others because of the higher likelihood of a lawsuit.

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