To survive liability crunch: Be careful, cover your tail

Commentary. By William C. Schumacher, MD, AMNews contributor. Nov. 12, 2001.

Medical liability insurance has not been a front-burner issue for many physicians in recent years, if only because we have had a bigger headache to worry about -- namely, managed care.

But times change, and liability insurance again is becoming a critical practice management issue. As reported by AMNews and other publications, liability rates are skyrocketing, with rate increases running as high as 200% to 300% in some areas.

While the cost of purchasing new policies can be a major concern, the financial chickens really come home to roost when it comes time for physicians and groups to "cover their tails." The new, higher rates mean that tail coverage costs are going to be exponentially higher in many cases than physicians might expect. Indeed, in a "hard" insurance market, tail costs often run greater than 200% of the last policy premium and can reach into the tens of thousands of dollars and beyond.

What should physicians do given this somewhat alarming trend? The following are a few points to consider:

• Remember that you are building risk. At some point, the bill for covering this risk is going to come due, and either you or the group will have to pay for it.
• If you work for a group or a management firm, know something about its financial strength. Assess its ability to pay for rising tail coverage. Make sure the group has the cash reserves or a line of credit to pay the hundreds of thousands or even millions of dollars needed when and if the tail is to be paid. If you are a solo practitioner, prepare yourself financially for the inevitable tail cost.