Old News – across America many hospitals | health systems are facing financial challenges.
New News – many hospitals | health systems are looking for the right upstream partner. Choosing the right partner and executing the transition period are examples of Strategic and Hazard Risks. Today, I will focus on the Hazard Risk of “How to tie up all liabilities when selling your hospital.”
If you are like most hospitals you will have some “Occurrence” policies and some “Claims Made” policies. If you have an Occurrence policy, the process is quite simple. However, most Medical Professional Liability policies are written as a claims made policy, thus “Tail” coverage is needed.
If you have a more sophisticated alternative risk model in place, you will most likely need to have a commercial carrier take on the risk via a new insurance policy. This is most often done when self-insuring your Medical Professional Liability or Workers’ Compensation.
Common types of coverage that need to be addressed include:
- Self-Insured Workers’ Compensation Plan
- Medical Professional | General | Umbrella Liability
- Management Liability
- Directors + Officers Liability
- Employment Practices Liability
- Fiduciary Liability
- Cyber Liability
If you have a commercial insurance policy in force, the policy will most likely indicate what the Tail coverage terms are. i.e. 200% of the annual premium. If you are currently self-insuring a risk such as your Medical Professional Liability or your Workers’ Compensation plan, you will then need to explore a Loss Portfolio Transfer.
Key Considerations – Medical Professional Liability Loss Portfolio Transfer (LPT):
- Financial strength of the carrier – will they be here 5, 10, or 20 years into the future to pay your claims?
- Claim Defense – what is the carrier’s track record for paying claims in your state, region, or city? Your facility will continue to operate and protecting your reputation and provider’s reputation will be critical.
- Profit Sharing – if your program performs better than expected, could you negotiate a profit sharing component? If so, what entity would these future dollars be payable to?
Key Considerations – Workers’ Compensation Loss Portfolio Transfer (LPT):
- State approval – does your state require their approval to move you out of a self-insured model and transfer those liabilities to a carrier? If so, what experience does the proposed carrier have in your state?
- Choice of TPA – does your new carrier provide claims service or will they be hiring a TPA? How long will the lag time be before they begin paying claims?
- Assignment of prior policies – most LPT carriers will request assignment of prior policies as they would have the rights to any prior recoveries.
Clearly there are many details that go into the development of a Loss Portfolio Transfer. The above is simply meant to spur some thoughts as you begin this journey. Lastly, please don’t forget to work with your insurance carriers and plan for the return of premium as most likely your existing policies will be cancelled midterm (Pro-rata vs. short rate is critical to negotiate the renewal prior to sale year).
For more information on how to effectively utilize a Loss Portfolio Transfer to tie up the liabilities of your Alternative Risk plan, please contact Kelly Reed | 906.315.7227 | firstname.lastname@example.org.