"For example, in OB-GYN, it is not uncommon for physicians to have at least one suit or settlement in the past, so it's not unusual for the tail coverage to be somewhere in the range of $100,000 or more," he says.
Hospitals generally keep the tail coverage for five years, Arnold says. "What the new employer is doing is making sure they don't take a catastrophic hit."
Once the hospital has committed to paying the tail, it has to determine the best way to cover the cost. Hospitals without a captive (in-house) insurance company typically purchase the coverage from the physician's existing commercial carrier, if they can. These hospitals can often negotiate with the insurer to bring down the rate.
"If you don't have a captive, sit down with the insurance company and walk them through what you are thinking," says Arnold. "They are going to want to work with you because it is incremental business."
The majority of hospitals, however, are now self-insured, and the numbers are trending up. According to the Hospital and Physician Professional Liability Benchmark Analysis released in October 2012 by the American Society for Healthcare Risk Management and Aon Risk Solutions, nearly 80% of U.S. hospitals are self-insured, up from 73% the previous year.
Some self-insured health systems are designing programs within their own captive as a strategy for providing tail coverage to newly hired physicians and are achieving meaningful savings on the cost of the insurance.
"Physician employment is becoming more and more popular, and physicians are looking to join large organizations like hospitals. The problem is one of the deterrents is the fact that they have this chain around their necks for past liabilities," says Charles Kolodkin, executive director for enterprise risk and insurance at Cleveland Clinic, an 11-hospital health system with 2012 net patient service revenue of about $6 billion.
In 2006, Cleveland Clinic decided to cover tail policies through its captive as a way of trimming costs and liberating physicians who could not afford the expense.