On August 24, 2004, J. Richard Ludgin, M.D. testified before the Ohio Medical Malpractice Commission. Dr. Ludgin is an AMC/NOMA Board Member and Chair of the group’s Physician Advocacy Committee. Prior to Dr. Ludgin’s testimony, Joel Whitcraft from the Actuarial Department of GE Medical Protective Company presented testimony on medical malpractice “tail” coverage”. Then, Dr. Ludgin gave the physician’s perspective on “tail coverage”.
First, Joel Whitcraft explained the history and difference between “occurrence coverage” and “claims-made coverage”. He also clarified “tail coverage” is the provision for the extended reporting of claims after the latest “claims-made” policy has expired. He said “tail coverage” was originally intended to eliminate the potential for gaps in coverage that could arise when claims are reported after the latest “claims-made” policy has expired.
Whitcraft told the Commission “claims-made coverage” will be discontinued due to the following: retirement, death or disability or interruption in “claims-made coverage” such as a sabbatical or additional training as well as when there are changes in carriers. He said carriers address changes in medical practice differently. Carriers may require a “tail” when the practice changes substantially such as a relocation or change in specialty practice.
Mr. Whitcraft also tried to explain to the Commission how the rates are determined. In response to a question from Commission member Ann Womer-Benjamin, director of the Ohio Department of Insurance (ODI), Whitcraft explained medical malpractice insurance companies are required to supply data to ODI based on their predictions. Then ODI determines what they believe the range of rates should be. ODI does not just accept a medical malpractice insurance company’s prediction, but makes a separate determination.
Richard Ludgin explained to the Commission that medical staff by-laws require physicians to be covered with at least $1 million/$3 million in malpractice coverage and, generally, physicians do not put large sums of money aside for making bad decisions. He explained the difference between “occurrence policies” and “claims made policies”. He then discussed and compared how certain medical malpractice carriers treat “tail coverage” in their policies and how this applies to retired physicians. He said the value of the “tail” is only equal to the value of the company that issued the “tail” to the physician. Dr. Ludgin discussed various factors contributing to why physicians are leaving practice and retiring early: patient demands, reimbursement problems, the loss of physicians independence due to health system consolidations, exclusive insurer contracting, and economic credentialing by hospitals.
Richard Ludgin then presented to the Commission four case examples of physicians receiving their “free tail coverage” from their insurer and what happened when the physician later tried to go back to work. Needless to say, the conclusion of each example was that the physician would lose the “free tail coverage” or would have to buy a “tail” from the prior insurer.
Dr. Ludgin offered the Commission some suggestions for relief for these physicians. He felt exceptions should be provided for physicians working in free clinics and for physicians training other physicians. He suggested a definition of retirement could be limited to a finite period of time. He also felt the “free tail coverage” should be portable. Finally, Dr. Ludgin suggested a physician trust fund or some type of fund could be created for handling claims made more than a certain number of years after retirement of the physicians.
Richard Ludgin concluded his testimony by stating he felt there should be a review of “tail” costs to the insureds. There was a need to review actuarial pricing for evidence that the premium envisions the issuing of a certain number of “free tails”. There is also a need to calculate premiums collected where the “tail” is issued at cost and at no cost. He said, data needs to be gathered regarding the tail cost to the insurer. For purchased tails, the data collected should be: the total premium received, the total loss by category, specialty, and care as well as segregated by the time the claim asserted past the date on which the endorsement is issued. For free tails, the data collected should be: the reason the tail is issued, the total loss by category, specialty and care as well as segregated by the time the claim was asserted past the date on which endorsement is issued.