Choosing the Right Medical Malpractice Insurance: What Self-Employed Doctors Need to Know

As many of you know, I reserve Mondays for reviewing my various micro-business personal experiences and discussing whether they can be written off as business or personal expenses.

One of my business transitions this year has been wrapping up my employment lite contract and moving into semi-retirement. For me, “semi-retirement” includes launching a new direct-to-consumer asynchronous telemedicine company that will treat 32 common acute infections via a chat-based platform. The new business is called ChatRx, and as my wife reminds me, it's a little more than "semi-retirement"😁.

Anyhow, as part of the transition, I am changing my malpractice coverage from traditional primary care clinic-based coverage to dedicated telemedicine coverage. Max Scholemann, a malpractice insurance broker who owns MEDPLI, has helped me find reasonable insurance coverage.

I highly recommend Max if you're looking for a malpractice insurance quote. Check out MEDPLI and tell them Tod from SimpliMD sent you.

While working with Max, I invited him to write a guest blog for our community. Today, he will cover one of the largest deductible expenses you will encounter as a self-employed micro-business owner: malpractice insurance. Many traditionally employed doctors transitioning to self-employment often fear this topic and process, which is why I felt it was important to provide a dedicated post on it.

Take it away Max.

Choosing the Right Medical Malpractice Insurance: What Self-Employed Doctor

By: Max Schloemann

Unlike traditionally employed doctors, self-employed doctors are responsible for their liability coverage. On the one hand, this increases autonomy over insurance providers and policy selection, but the responsibility shift also creates a considerable demand for your time. Choosing the right medical malpractice insurance requires careful research and analysis to ensure adequate, affordable protection. Working with a specialized broker, like MEDPLI, can simplify this process.

When securing or renewing medical malpractice coverage, follow these seven steps to guide you through the selection process: 

1. Understand the difference between claims-made & occurrence policies. 

Medical malpractice insurance policies have two main categories: claims-made and occurrence. Claims-made and occurrence policies offer different benefits and limitations. A thorough grasp of these differences helps physicians bypass coverage gaps, unexpected expenses, and insufficient policy terms.

The critical difference centers on claim timing:

• Occurrence policies cover incidents during the policy period, regardless of when the claim is submitted. 

• Claims-made policies provide coverage for incidents during the policy period – if the claim is submitted within the policy period (or within the Extended Reporting Period/Tail Coverage) 

It’s important to note that only some physicians or medical practices qualify for both forms of coverage. For instance, a provider that exclusively treats patients via telemedicine will only qualify for claims-made coverage, regardless of individual claims history or risk profile. Occurrence form policies are not currently available to telemedicine providers due to the lack of long-term data. 

2. Determine appropriate coverage limits. 

Limits of liability, or policy limits, refer to the amount your insurance carrier will pay on your behalf in case of a claim. 

To avoid personal liability for indemnity payouts and settlements, policy limits should correspond with your specific:

• Medical specialty 

• Professional risk profile

• Patient volume

• Practice offerings 

• Comfort level with risk 

• State requirements 

In most states, the standard limits are expressed as “$1,000,000/$3,000,000.” The first number ($1,000,000) represents the Per Claim limit, and the second is the Aggregate limit ($3,000,000), your insurance carrier’s payment ceiling for all claims within a policy period. 

3. Protect yourself from all liability. 

Self-employment can create additional liability risk beyond patient standards of care. You need to address each liability source to avoid unpredictable financial consequences that could threaten the viability of your practice. 

• Professional Liability Insurance protects against claims from professional risks, in this case, medical services. Professional liability is nuanced for doctors, and claims are generally very costly to defend. Because Professional Liability is subtle, you should work with a broker specializing in this area rather than enlisting a generalist to help you. 

• General Liability Insurance protects against non-professional risks, such as premises liability for office accidents or employee-related risks if your practice involves direct hires. All businesses have general liability exposure, which is not unique to doctors. You can often bundle General Liability on a Business Owners Policy. Some telehealth practices can bundle General Liability (GL) with Professional Liability (PL).

4. Limit your search to highly-rated insurance carriers. 

A history of high ratings and active state licensure typically correspond with the insurance provider’s financial strength and reliability. Financially stable carriers are the most likely to remain solvent and be able to cover policy limits, protecting you from unexpected loss of coverage.

• A.M. Best Ratings: A.M. Best is a global credit agency specializing in insurance company credit assessments. It assigns ratings based on a scale of A++ (Superior) to D (Poor). Recommended insurance providers maintain an “A-” rating or higher. AM Best is the gold standard rating agency for Medical Professional Liability Insurance companies. 

• Demotech Ratings are not equal to AM Best Ratings. At first glance, an “A” rating (from Demotech or another rating agency) seems like an AM Best “A” rating, but Demotech A ratings are easier to obtain than AM Best “A” ratings. Numerous Medical Professional Liability Insurance carriers that were once Demotech “A” rated have become defunct over the years, leaving thousands of doctors without viable coverage. A strong policy from a financially weak carrier is not truly strong protection.

5. Review policy terms, exclusions, and conditions.

Every policy is different. Carefully review every component to ensure it aligns with your practice and provides clarity on how your insurance carrier will manage a malpractice claim or lawsuit. 

• Read the exclusions section carefully. 

You don’t want any surprises regarding the scope of coverage. Consider the potential impact of each exclusion to identify coverage gaps and minimize the risk of professional and personal liability. Providing an application that clearly outlines your unique scope of practice will help you secure coverage that fits. 

Most malpractice insurance policies automatically feature exclusions for reckless or intentional conduct, illegal acts, and misrepresentation on the application. 

• Choose a policy that covers legal defense fees. Legal defense costs are a significant driver of medical professional liability rates. If you are named in a suit, you want your carrier to pay for a strong legal defense.

High-quality malpractice insurance will cover defense costs in addition to liability limits. Policies with a “defense in addition” clause are superior to those with a “defense within” or “eroding limits” clause, which means that legal costs can detract from the policy limits. Eroding limit policies are less expensive, but the attorney costs reduce the amount of your policy limit left to pay indemnity.

• Maintain control of settlement decisions. 

Many admitted insurance carriers will seek your approval before offering a plaintiff settlement. Ideal consent to settle clauses state that the carrier cannot settle a claim without your written consent. 

Beware of a “hammer clause,” which requires you to pay out of pocket if the final settlement amount exceeds the settlement amount that your carrier recommended.

6. Compare costs of premiums in the context of your overall operational budget.

Depending on your medical specialty, geography, and individual risk profile, insurance premiums will vary significantly across carriers and policy types. Gathering multiple quotes from various carriers could save you thousands of dollars per year. A professional liability insurance broker, like MEDPLI, can shop for you. 

• Occurrence policies generally have higher initial premiums, but the rate often stays the same over time.

With an occurrence policy, you won’t need to purchase tail coverage when the policy ends, leading to significant savings on the back end. 

• Claims-made policies generally have lower initial premiums, but rates generally rise yearly as the policy matures. Plan for your premium to double from the first to the second year and continue to increase until policy maturity in 4-5 years. 

With a claims-made policy, budget for the additional expense of purchasing tail insurance when the policy expires. 

• Tail Insurance premiums are paid as a one-time payment, typically equal to roughly 200%-250% of the annual claims-made policy premium. 

7. Assess your need for tail coverage.

After leaving a traditional employment setting covered under a claims-made policy, tail insurance protects you from any future claims concerning patient care that occurred during the past employment period.

Similarly, when self-employed doctors retire or close their practice, tail coverage can protect against claims related to incidents that occurred while they were still practicing. 

Quick Tips: Working with an Insurance Broker 

Partnering with the right insurance broker can save you time, money, and hassle. Follow these best practices: 

• Research Your Broker Options Take your time researching brokers. Look for a long-term partner who specializes in professional liability, understands the medical malpractice insurance market, and cares about your unique situation.  

• Be Honest & Open Be transparent about past issues or claims. A clear understanding of your claims history allows the broker to match you with carriers with an appropriate risk appetite. Misleading a carrier can lead to denied claims. 

• Get Plenty of Quotes Have your broker submit multiple applications to different carriers. Generating multiple quotes helps you secure competitive rates and avoid coverage gaps.

• Commit to One Broker Stick with a single broker to represent you with all underwriters. Working with multiple brokers can confuse and lead to inaccurate presentations of your risk profile. Being upfront with underwriting is best. 

In Conclusion

By following these steps, you'll be well-prepared to make informed decisions about your medical malpractice insurance and find a trusted broker to guide you. With the right coverage and support, you can focus on patient care confidently, knowing you’re safeguarded against the financial and professional risks of medical malpractice claims.

If you need general guidance on starting your professional micro-corporation, I invite you to purchase my new course, “Creating A Practice Without Walls.” Today only, it is available for 50% off. Don’t miss out!