Employing Physicians: Insurance and Risk Issues

There has been a dramatic change in the practice of medicine in the United States over the past 10 years.

Although the exact numbers are not known, the percentage of physicians and groups in private practice is very likely at or under 50 percent, according to various sources. This is the result of the increasing trend to hospital employment of physicians as the health care delivery system in our country reacts to pressures to cut costs from payers, especially the federal government, and employers.

Many industry observers in 2014 think that there has been a notable slowing in the number of practices being acquired by hospitals.

This is due to the large cost of capital involved, especially in purchasing specialty practices. Primary care practices will continue to be desirable targets for hospitals’ acquisition.

There are also other factors driving the move towards physician employment by hospitals. Reimbursement cuts by Medicare and other payers are a huge factor.

Changing Risk Profile

Employing physicians markedly changes a hospital’s risk profile in many ways. Now the hospital’s entire limits of healthcare professional liability coverage are exposed in a claim whereas physicians in private practice previously had their own separate policy. All physician extenders of the physician practice now expose the hospital to claims as well.

The hospital historically was not responsible for claims involving misdiagnoses and improper performance of a surgical or operative procedure, for example. That is no longer true.

Careful due diligence and credentialing of physician practices being acquired by hospitals is more necessary than ever.

Addressing how to treat the long-tail exposures of physician claims is also crucial particularly when specialties like pediatrics and obstetrics are involved. Tail policies can be purchased from the previous physician carrier or the tail exposures can be rolled into a self-insurance program. Careful legal and actuarial analysis and advice is necessary as well as advice from the hospital agent or broker. Decisions must be made on whether to offer separate limits of liability coverage to employed physicians and physician extenders utilizing a self-insurance vehicle such as a captive or risk retention group.

Opportunities and Advantages

There are advantages for hospitals in employing physicians in that it is arguably easier to obtain better coordination for quality, patient safety, and risk management initiatives. Many hospitals and hospital systems collaborate more closely than ever now on these programs. That reduces risk.

The numbers of physician leaving private practice has had a definite effect on carriers that historically have primarily insured physicians, chiefly those companies that are members of the Physician Insurers Association of America (PIAA). But those companies have quickly responded to offering more coverages and services beyond a traditional physician/group policy. Most of them are well-capitalized and have solid financials given the very favorable claims trends of the past 10 years.

Hospitals can access the deep expertise of the PIAA companies by considering purchasing unbundled services such as claims, risk management, and even underwriting. A number of hospitals have partnered with them to insure employed physicians.

Healthcare reform and employing physicians present challenges for hospital insurance buyers and physician carriers. But there are opportunities to improve patient care and the bottom line of hospitals when thought is given to creative use of the expertise existing within traditional physician carriers.