Increasing Trouble with “Tails”
By Matt Gracey
As more doctors join hospitals or are considering doing so we are seeing more trouble created in the transactions by the doctors’ malpractice insurance tail issues. Once a doctor terminates his or her coverage for their practice and moves into a hospital practice their policy coverage will burn up almost completely unless they purchase a costly “extended reporting endorsement”, commonly called “tail” for their claims-made malpractice insurance policy.
The cost of tails can be very high. The rule of thumb is that insurers charge in the broad range of twice the annual policy premium, but the price can go up to over four times the annual cost, depending upon the circumstance and the insurer. For a large group of surgeons, for example, the tail cost can stop a hospital deal, or certainly be a major cost component that must be dealt with.
Some hospitals have taken the position that they cannot allow a doctor who is joining them to avoid a costly tail by purchasing continuing coverage with the same retroactive coverage component after they join a hospital. The reasons for this are usually two fold; either the hospital is concerned about not taking on doctors’ risk exposure from their previous practice, and / or the hospitals are worried about a possible serious stark violation. Whichever the case, the result is that doctors joining hospitals are now often looking at spending a large sum on a tail purchase that might not have been anticipated and particularly in group purchases this issue can kill or slow down the hospitals from consummating their purchases.
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