Article In Brief
Residents and fellows who had to be relocated after the closing of Hahnemann Hospital last September will be offered tail insurance. Experts discuss the takeaways from the scenario and important lessons about medical malpractice insurance.
Neurology residents and others caught up in the bankruptcy of Philadelphia Academic Health System (PAHS), the parent company of two Philadelphia hospitals, breathed a $9.3 million sigh of relief in late February when they learned that their professional liability insurance—in limbo for months—would be paid for by the bankrupt company.
PAHS, which owned Hahnemann University Hospital and St. Christopher's Hospital for Children, filed for Chapter 11 bankruptcy protection on June 30, just days after announcing that Hahnemann, the primary teaching hospital affiliated with Drexel University College of Medicine, would be closing.
Panic ensued as residents scrambled to find ways to continue their training. As Neurology Today reported in September, all 17 “orphaned” neurology residents were accepted into other residency programs. Twelve moved to residencies in the Philadelphia area—Temple University, Thomas Jefferson University, and University of Pennsylvania—while others were matched at institutions across the country.
Although they were unaware of it at the time, those residents—along with hundreds of other trainees and attendings who worked at Hahnemann or St. Christopher's in recent years—would soon learn the medical malpractice insurance that covered their work at those hospitals would lapse on January 11.
Affected physicians were warned that they might have to buy their own professional liability insurance to cover the time they worked at Hahnemann or St. Christopher's. A one-time premium, which must be paid upfront, can cost up to $50,0000 or even more, depending on a physician's specialty and other factors.
As the initial cut-off date got close, the policy was extended to February 11. And a few days before that deadline, it was extended another month. On February 20, PAHS filed a motion with the bankruptcy offering to purchase the so-called “tail insurance” needed to protect the physicians who had worked at its hospitals. At press time, a hearing was scheduled before a bankruptcy judge to approve the settlement.
The worrisome situation affected approximately 1,400 physicians who thought that their professional liability insurance had been secured by PAHS, the for-profit company that bought the two hospitals in January 2018. According to the American Medical Association (AMA), that includes 107 attendings, 571 orphaned residents and fellows, and 400 residents and fellows who had previously trained at Hahnemann, as well as 60 residents and fellows previously trained at St. Christopher's and 15 attendings previously on staff at the children's hospital.
Although the physicians affected by the PAHS bankruptcy likely had no way of protecting themselves, their plight makes clear that all physicians should understand the fundamentals of professional liability coverage before signing employment contracts.
“This is sort of a cautionary tale,” said Karen E. Davidson, an attorney retained by the Philadelphia County Medical Society to help work through some issues stemming from the PAHS bankruptcy.
What to Know
Professional liability insurance is expensive, but going without coverage, even for a brief period, is never a good idea, experts told Neurology Today.
Residents typically work under the supervision of an attending physician who is ultimately responsible for the patient's care, so they may perceive their risk of malpractice claims to be low. In the PAHS situation, some observers worried that residents would choose not to obtain liability insurance for their time at Hahnemann or St. Christopher's. But “going bare” may have career-long ramifications even if no malpractice claims are ever filed, said David J. Aizenberg, MD, former program director of Hahnemann's internal medicine residency program.
Pennsylvania and seven other states require physicians to have uninterrupted professional liability to obtain a medical license, said Janis M. Orlowski, MD, chief health care officer for the Association of American Medical Colleges (AAMC). Beyond that, some hospitals around the country will credential physicians only if they attest that they have had uninterrupted insurance coverage throughout their professional careers, she said.
“Having a gap may make you unemployable,” said Andrew N. Wilner, MD, FAAN, associate professor of neurology at the University of Tennessee Health Science Center in Memphis who researched professional liability insurance for a book he published in 2018. “If, say, my policy expires tomorrow and I don't get a tail and there was a month where I wasn't insured before I got a new job, that could be a disaster because nobody wants to take responsibility for that month.”
The most comprehensive type of professional liability insurance is “occurrence” insurance, which protects a physician into perpetuity, even for claims that are filed long after the physician leaves the hospital or other employment.
A less-expensive option is “claims-made” insurance, which covers physicians for claims made during a specific policy period. Claims made after the policy expires will not be covered.
An “extended reporting endorsement”—commonly known as tail insurance—is needed to provide that “into perpetuity” protection for a physician covered by a “claims-made” policy that will result in a lapse of coverage. The purchase of tail insurance essentially converts a “claims-made” policy into coverage equivalent to an “occurrence” policy.
Tail insurance can be “prohibitively expensive, particularly for residents,” according to Dr. Orlowski. In an AAMC post on January 7, Dr. Orlowski cited a filing in the PAHS bankruptcy proceeding in which one resident had received a quote of more than $65,000 for tail insurance.
The one-time premium for tail coverage typically costs between 100 and 200 percent of the annual premium for a physician's claims-made policy, Davidson said. Factors affecting the tail-policy premium include a physician's specialty, geographic location, claims history, and the length of time for which coverage is being purchased. For example, if a physician whose claims-made policy had a $40,000 annual premium left a position after one year, the tail policy might have a one-time premium of $80,000.
The type of insurance an employer provides should be stated in a physician's employment contract, Davidson said. If the policy is claims-made rather than occurrence, the contract should also stipulate whether the employer or the physician is responsible for paying the tail-policy premium if the physician leaves that employer.
Physicians are often reluctant to negotiate the terms of their insurance coverage with a prospective employer, believing that the employer will be unwilling to modify its standard policy for an individual physician.
“That's not necessarily true,” Davidson said. “And even if it is the case, you should still know the risks that you are assuming in any contract you sign.”
What Happened in Philadelphia
Historically, attendings and trainees employed at Hahnemann and St. Christopher's were covered by an occurrence policy, but that changed after PAHS bought the hospitals in 2018, said Mark Austerberry, executive director of the Philadelphia County Medical Society.
PAHS purchased a claims-made insurance policy for its residents and attending physicians, which only covered physicians for claims made during the time they were employed by PAHS. Hahnemann residents who completed training in June 2018, for example, were covered under a claims-made policy that provided no protection after they graduated.
“He didn't tell anybody,” Austerberry said, referring to Joel Freedman, the California investment banker who founded PAHS and serves as its president. “It was in the handbook that was always handed out (to physicians) that you are getting an occurrence policy.”
Indeed, when the new interns who started at Hahnemann in June 2019 signed their contracts earlier that spring, their contracts specifically stated that they would be covered by occurrence-based insurance, Dr. Aizenberg said.
A few weeks after PAHS filed for bankruptcy, Hahnemann closed, and in December, St. Christopher's was acquired by Tower Health and Drexel University, allowing it to continue in operation.
PAHS ultimately agreed to pay for the physicians' tail coverage because of the work of an ad hoc committee comprised of the AMA, Philadelphia County Medical Society, Pennsylvania Medical Society, AAMC, and others.
The AMA hired an attorney to represent displaced residents and fellows in the bankruptcy proceedings. Although Pennsylvania law required PAHS to be responsible for the residents' ongoing insurance coverage, Hahnemann maintained it had no obligation to do so, according to the Philadelphia Inquirer. The AMA attorney argued that, if PAHS failed to maintain adequate insurance, the PAHS bankruptcy should be converted from Chapter 11, most favorable for the debtors, to Chapter 7 liquidation in which the debtors would lose all control over their assets.
Citing a desire to avoid “difficult litigation” over the insurance issue, PAHS opted to provide the coverage the physicians are owed.
Can It Happen Elsewhere?
Hahnemann's closure is noteworthy because the hospital was so big, it was a major teaching facility and its demise was unexpected. But it was the 17th teaching hospital to close in the past decade, said Ivy Baer, the AAMC's senior director and regulatory counsel. Most of the other closures were much smaller hospitals with relatively small residency programs, she said.
“We're certainly very concerned about teaching hospitals closing,” she said. “There's a lot of talk in the academic medical community about the possibility that this could happen again.”
Meanwhile, 121 rural hospitals have closed since 2010, according to the Cecil G. Sheps Center for Health Services Research at the University of North Carolina-Chapel Hill. While residents generally would not be directly affected by rural hospital closings during their training years, the number of closings shows the fragility of some hospitals' financial situations.
“Unfortunately, it puts physicians in the position of having to ascertain, before they go to work somewhere, the financial viability of the organization,” Davidson said.