"We determined we could bring physicians on in a much lower-cost way," Kolodkin says. "We use our captive to provide prior act coverage. We do it at a pure loss cost. We don't have a profit margin built into it, and we don't have administrative overhead. Our prices are anywhere from one-quarter to one-half of the usual cost of a tail."
For example, Cleveland Clinic now spends less than half on the tail policy when onboarding a primary care physician as compared to when it was purchasing the coverage through a traditional insurer.
"We may charge somewhere in the neighborhood of $15,000 for a premium for prior acts where the tail premium might have been $35,000 to $50,000 through a commercial carrier," says Kolodkin. "We're their new employer, and we're going to insure physicians anyway for all their coverage once they are an employee, but now, separately, we are also going to insure their prior acts."
Cleveland Clinic has seen solid results since starting the program. "We have 172 physicians insured, representing $4.2 million in premiums. … The cost of tail coverage had it been purchased from commercial carriers is estimated to be approximately $9.2 million," Kolodkin reports.
"The premiums we have been taking in for the past seven years have been extremely adequate," he adds. "The actual claims are still under $1 million, at about $900,000. Our loss ratio has been … a real positive."
Overall, Cleveland Clinic has been more than pleased with the results, Kolodkin says. "We've considered it to be exceedingly successful. It's been successful beyond our initial expectations. When we first started it, we hoped to break even, and also to use it as a way to remove that barrier for physicians who wanted to go to an employed model. Our experience in this program continues to be outstanding."
Leaders at Annapolis, Md.–based Anne Arundel Medical Center, which operates a 380-bed hospital with 2012 operating revenue of $575 million, have learned that physicians in their market expect to have the tail covered when joining the staff and say most physicians with good legal histories will not consider employment without it as part of the deal.