Why malpractice insurance is not enough
Today's orthopaedic practices are at a crossroads. Many face possible mergers or acquisitions and potential relationships with hospital systems and third-party payers. As the healthcare landscape shifts, so too does a practice's professional liability exposures. Recently, I spoke with David Burke, director of Smith Brothers Insurance Healthcare Division, to find out what orthopaedic surgeons can do to protect themselves and their practices.
Dr. Marks: During my career I've been a managing partner in an orthopaedic practice, a hospital administrator, and currently, a healthcare consultant. Looking back, I was completely unaware that I needed more than malpractice insurance coverage to protect my personal assets. What should I have known 15 years ago?
Mr. Burke: Orthopaedic surgeons need to continually reassess their professional and management liability risk exposures in the changing healthcare paradigm in their roles as practice executives, managing partners, board or executive committee members, and/or consultants. And yet, many only consider their medical malpractice risks. Depending on what functions they perform, orthopaedic surgeons may want to consider additional coverage, including directors & officers (D&O) insurance, employment practice liability (EPL) insurance, and fiduciary liability insurance. Before deciding on these policies, however, they should first determine their risk tolerance.
Dr. Marks: What is D&O insurance and why is it important?
Mr. Burke: Many orthopaedic surgeons serve on the board of directors of their own practices or other organizations such as their hospital. Without a comprehensive healthcare-related D&O insurance policy, however, orthopaedic practice board members can be held personally liable for financial decisions made by these boards that affect third parties. This liability and exposure extends to both profit and nonprofit organizations and exists even if the surgeon's position on the board is voluntary and unpaid. Before accepting a position on a professional or philanthropic board or executive committee, orthopaedic surgeons should make sure that D&O insurance exists. Unfortunately, in many cases, they are sitting on these boards without proper insurance and leaving themselves open to great financial risk.
Dr. Marks: Due to mergers and acquisitions, there are very few small "mom & pop" orthopaedic practices left. The typical private orthopaedic practice is now a medium or large practice. My own practice had close to 60 employees, in addition to the physicians. What liability risk should a practice be aware of with respect to their employees?
Mr. Burke: Medical practices are becoming more corporate. Many now have by-laws, policy manuals, and some even have full-time human resource leadership. As such, EPL lawsuits—which are growing in number—can be damaging to a company's morale and can create huge financial exposure for any medical practice. I've found that the majority of orthopaedic practices do not have effective risk management plans or insurance coverage to deal with an EPL lawsuit. Most orthopaedic surgeons are unaware they can be held responsible for any claim arising from a third-party vendor representative who is found liable for harassing an employee of the practice. As employers, orthopaedic surgeons and their practices are also responsible for employment-related claims involving discrimination, wage and hour claims, wrongful termination, and failure to promote. These claims are expensive and time consuming to defend, and can cost a practice in excess of $250,000 if they do not carry the proper insurance. Every practice should have a plan in place to respond to employee-related liability claims.
Dr. Marks: I have been told that as a director of the practice and as one of the individuals who helps select the retirement options, I have a fiduciary risk. Can you explain?
Mr. Burke: Fiduciary risks and negligence may arise if an orthopaedic surgeon or another practice colleague has some capacity in making decisions or hiring third parties to manage the employee pension, benefits, and health plans. Anyone with direct co-fiduciary responsibility—including directors, officers, and solo practitioners—is at risk. Fiduciary exposures include losses sustained from a fiduciary breach such as negligent investments, failure to diversify investment portfolio options, failure to file required paperwork, and conflict of interests. Even though a third party may have been hired to administer these tasks, as the employer, orthopaedic surgeons can still be held responsible when a loss occurs. In many cases, part of that responsibility includes educating employees about their options. I recommend that practices investigate the proper fiduciary liability insurance options available and consult with a knowledgeable financial advisor about the changing fiduciary laws.
Michael R. Marks, MD, MBA, is a member of the AAOS Medical Liability Committee, AAOS Patient Safety Committee, and mentor for the AAOS Communications Skills Mentoring Program. He is employed by Marks Healthcare Consulting. He can be reached at email@example.com
Smith Brothers Insurance Healthcare Division provides professional and management liability risk mitigation techniques and insurance transfer options to their clients nationally. David Burke can be reached at firstname.lastname@example.org
Editor's note: This article is the first of a two-part series on liability management. Part two will focus on cyber attack insurance, medical battery insurance, and errors & omissions (E&O) insurance.
Editor's note: Articles labeled Orthopaedic Risk Manager (ORM) are presented by the Medical Liability Committee under the direction of Robert R. Slater Jr, MD, ORM editor. Articles are provided for general information and are not legal advice; for legal advice, consult a qualified professional. Email your comments to email@example.com or contact this issue's contributors directly.