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a compelling case history
Marc Singer, CFP & Neil Sosler, MBA
Over the last year, the malpractice landscape changed dramatically in Florida. We estimate that there are now 7,000 bare physicians in Florida. In 1986, when we provided financial planning advice to the first physicians who went bare, the basic premise was then, as it is now, that going bare and protecting assets should considerably reduce the frequency and severity of lawsuits by removing the financial incentive from plaintiff attorneys. Now, 18 years later, we can present some very compelling evidence proving how significant the savings are by going bare.
The following is an actual case history of a mid-sized OB/Gyn practice in South Florida.
In 1986, a 5-physician OB/Gyn group utilized Singer Xenos to assist them in going bare and protecting their assets.Their malpractice premium had risen to $100,000 for $1 million coverage or $58,000 for $250,000 coverage. Over the next 18 years, this busy group practiced bare, serving tens of thousands of patients. OB premiums continued to rise, eventually reaching $125,000 for $250,000 minimum coverage. Analysis of this group revealed that the true cost would have averaged $71,000 per year for 4.9 doctors for 18 years. (See our website for the table.) After adding 6% interest, this amounts to a staggering $10.3 million of premiums that were not spent! What actually happened during the time period was that this group had 5 lawsuits after they went bare.Total legal fees spent were $158,000. Total settlements paid out were $275,000.Total judgments were $0. Since they were self-insured, it was easier to settle the lawsuits without going to trial, thus no judgments were assessed and legal fees were reduced. The real total cost to the group was $433,000 compared to $10.3 million in saved premiums.
Were they just lucky?
No.The group was sued with about the same frequency as other bare South Florida OBs. (Insured OBs seem to be sued more.) The difference was in the intrinsic incentive to sue. When doctors have $250,000 of coverage, the insurance company starts with a $250,000 ceiling and trys to negotiate down.The plaintiff attorney wants the full $250,000 or more. On the contrary, the bare doctor starts the negotiations from zero up - with no available insurance and no reachable assets. A settlement offer often follows. Logic dictates that the bare doctor has extraordinarily more leverage in this type of scenario.
The group saved $10.3 million over 18 years, and spent only $433,000 settling 5 claims.
Is insurance worth it?
In the past, doctors were forced to go bare because they couldn't afford coverage. Now there is the additional question. Is it worth it? Doctors making $300,000 per year can afford an $80,000 premium. They can also afford a $1,000 hot dog. That does not make it worth paying. With declining reimbursements and increasing overhead, having another $40,000 to $100,000+ per year of potential savings has an incredible economic impact! In the group described, this translates to $2.1 million of saved premiums for each physician. This helps towards college tuitions, retirement and other expenses.
Why Doctors fear going bare
The old "standard of care" dictated that the moral, responsible course of action was to carry insurance from training forward. There were no med school courses about asset protection and strategies for self-insuring. Doctors fear losing patients, losing managed care contracts, and losing their life savings, if they go bare. With proper planning, none of these concerns have materialized. The obstetricians in this practice have absolutely no qualms about having taken this course of action.
How does going bare feel?
Usually, physicians spend months preparing, psychologically and financially, to drop coverage. Naturally they are nervous, especially after carrying insurance for their entire professional career. After the fact, words like "empowered" or "liberating" are used to describe their feelings.
Conclusion
Physicians should give careful consideration to the reality that malpractice insurance costs may no longer make economic sense. It is, of course, mandatory that physicians fully protect their personal and P.A. assets prior to going bare.
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