In part one of this series I talked about a wide range of contract gotchas and what to look for during negotiations so you’re not surprised years down the road. This second part will focus on how to watch out for the tail coverage gotcha, in particular, after you leave a job. With 70% of physicians leaving their first job within 2 to 3 years after residency, the more contract gotchas you can protect yourself against the better.
Regardless of the reason for leaving a job, many physicians get blindsided with a hefty tab for the tail coverage bil on the way out the door. The questions arises, ‘How? What? Where the f#%@ did this come from? Because often times tail coverage clauses in your contract are ambiguous, don’t exist or you don’t fully understand them. Tail coverage can severely strap you emotionally and financially after you leave a job and you must be proactive when negotiating these matters upon employment to protect your future emotional & financial sanity.
The big deal with tail coverage
While you’re working at a group you’re covered under their claims-made policy. However, once you leave the group, and are no longer covered under their policy, you’re stuck with the tail coverage bill in case you are hit with a future malpractice suit.
If you leave a group practice, unbeknownst to you, you may have a contractual obligation to buy or pay for tail coverage upon departure. Many employment agreements for physicians don’t address who bears the expense of malpractice tail coverage or are ambiguous on the subject in the case of the physician leaving the group.
Here’s an example of a physician who wanted to leave their group practice but could not because of a $50,000 tail coverage cost. Their employment agreement stated that the group wouldn’t pay for the tail coverage after the cancellation of their claims-made malpractice policy. (The claims-made policy protects the insured for claims that occur and are reported while the policy is in force but not for those reported after the policy is cancelled.) So if you’re left with a gargantuan bill like this physician, you might be stuck working at a group you’re unhappy with for a long time or you leave and cough up the cash to pay the bill.
What’s the key takeaway from this example? Avoid the tremendous tail coverage costs by structuring your practice agreement where the employer pays the bill – not you.
How can contracts be ambiguous about tail coverage? Here is a personal, real world example. This is an excerpt from one of my contracts:
See the parts about tail coverage? As a physician I would’ve been responsible for 100% of the tail coverage if I left in the first year or responsible for 50% of the tail expensive therein after if I stayed. Come to find out, if you’re a non-partner, 100% of tail expense was $20,000 (or $10,000 for 50%). Sounds like a lot of money, right? Just for leaving a job for any reason you’d have to pay your employer anywhere from $10-20K.
Even worse, I found that if you were a partner and left the job you were still stuck with a $50,000 bill. Yes, at the level of a partner and wanting to change jobs you owed your employer $50,000.
Most groups are more sane – but you still need to be aware of tail coverage costs. Groups by and large consider tail coverage as a cost of doing business and will cover it for you. Only one of the 6 groups I worked for did not cover tail costs. Oddly enough, it was a group where I was a W2 employee that they didn’t cover the costs; as a 1099-independent contractor at 5 other groups they paid for the tail coverage in full.
Tip: If possible, consult an employment attorney when joining a new practice or signing a new agreement.
Corner your employer before you sign your contract to ensure they cover your potential tail expenses – everything is negotiable. If they refuse, then tell them to contact you when they will cover it and go work elsewhere.
In today’s healthcare staffing marketplace you can control your own destiny. Never feel bad about saying no. That two-letter word is the most powerful negotiating tool out there. The ability to say no puts you in the driver’s seat in choosing the trajectory of your medical career.
Part 3 of this series on contract gotchas will explore how to further take control of your contract since everything is negotiable … Ciao!