Why Physician Executives Need D&O Insurance

In past articles we have covered a variety of legal and liability issues routinely faced by physicians all over the country. Proactive risk management is the best form of asset protection and some of that risk management includes various types of insurance beyond just your basic medical malpractice insurance.

We have provided details on some of these in the past, including both ELPI and Data Breach, and this week we take a look at D&O or “Directors and Officers” insurance policies that protect executives in medical practices and organizations from the exposure they face for decisions made by them in their professional/executive capacity or even those made by the board of a practice or hospital. In my conversations with clients across the country I routinely find that they have no idea if they have this coverage in place and if they are adequately protected and indemnified.

A simple (non-medical) example is American hero football player Jim McMahon. The FDIC brought a lawsuit against Illinois Broadway Bank and former NFL player McMahon is one of the seven former board members for the bank. The FDIC is suing to recover $104 million from 17 bad loans that the bank made before it shut down in 2010. Now, we know why you put sports stars on the boards of banks: It’s not for their financial acumen; it’s to use them as “bait” for middle-age men and for PR. And unfortunately that has not protected McMahon. See more here, in the article “NFL player sued over service on board of directors.” I include this example because I am keenly aware that many successful physicians I work with serve on a variety of boards or as executives in various types of businesses and corporations, both medical and non-medical.

In relation to medical practice-specific exposures* consider the following:

• HIPAA violations

• Excess benefit transaction tax violations: Liability related to the tax status, services, and value provided to the organization. If it’s disputed you face personal liability;

• Internal revenue code violations: For tax status filing and reporting requirements imposed on the business. Someone in your organization is responsible;

• Medicare/Medicaid fraud and billing liability;

• Emergency Medical Treatment and Active Labor Act (EMTALA) Violations: This law provides care to indigent patients seeking emergency care; and

• Antitrust violations.

We warn all clients about Board Member, Officer and Director Liability issues as this has been an increasing source of third-party exposure. This liability extends to both for-profit and nonprofit enterprises and has become increasingly onerous and a source of negative publicity, stress, and serious financial risk.

How bad and serious can it be? It’s often finically deadly and can even include criminal liability. Recent cases like the meningitis outbreak linked to infected steroids distributed to pain management clinics and others nationally show how wide and diffuse liability can be. In that case over 500 people have been infected with a potentially fatal disease. The types of healthcare organizations at risk include: Physician groups, hospitals, managed-care organizations/HMOs/PPOs, community health centers, assisted living facilities, surgical centers, psychiatric and rehab facilities, nursing homes, emergency medical facilities, clinics, Labs, healthcare foundations, and hospices to name just a few.

Before joining or continuing to serve on any business or even charitable foundation board (including church, synagogue or the like, as we’ve seen lawsuits from these as well), be sure and have written confirmation of the insurance policies they may have in place in place and their indemnity policy as it applies to your specific role. If they don’t have one, tread carefully and understand you are serving at your own risk and expense. Even if they do, assume it won’t be adequate against a liability of the kind pointed out here and have your personal assets properly firewalled. As a physician executive you are likely among the most collectible people in the, pool, if not the most and if you’ve learned anything from our discussions here it is that lawsuits follow the money.

*My thanks to liability insurance expert Dallas Cowan with Minard-Ames in Phoenix, Ariz., for providing details on the scope of the liability.