After practicing internal medicine for 25 years, Dr. B began preparing for retirement. He cut back his hours and transferred many of his assets to a trust for his wife and children. In order to expedite his plan, he cut expenses where he could.

Unfortunately, he lived in a state with exceptionally high malpractice premiums. Dr. B had a small hospital practice and needed to retain his privileges. A state statute allowed a physician to maintain privileges by showing proof of malpractice insurance, an escrow account, or a letter of credit for $100,000 (per claimant)/$300,000 (per occurrence). In the absence of these, the physician could opt out of the system by agreeing to pay the first $250,000 of any judgment against him before the hospital could be sued for the balance. Dr. B took this route, dropped his malpractice insurance, and pocketed the money he would have spent on premiums. He was pleased with his decision until he faced a lawsuit.

The patient, a 35-year-old woman whom Dr. B had previously treated, came to the emergency department (ED) one night complaining of the worst migraine she had ever suffered. The ED physician called Dr. B in to assess her. She had a typical one-sided migraine but without prodromal symptoms. Dr. B ordered a shot of ketorolac (Toradol), which had been effective in the past.

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The woman improved and was discharged after being told to follow up with Dr. B in one week. She collapsed at home three days later and was rushed back to the ED. A massive intracerebral bleed irreparably destroyed a large part of her cerebral hemispheres, and she was declared brain-dead. Life support was eventually discontinued.

A malpractice suit filed a few weeks later alleged that Dr. B failed to recognize cerebral aneurysm as a possible cause of the patient’s headache. Dr. B hired a defense litigator (who usually worked for insurance companies) to represent him. Ever the pragmatist, he also hired a bankruptcy lawyer just in case he lost the malpractice case.

After a year of litigation, a jury awarded the plaintiff $1.4 million. Dr. B did not pay the $250,000 required to retain his privileges. Instead, he promptly told his bankruptcy lawyer to file the necessary papers to protect against seizure of his assets under a judgment lien.

While Dr. B’s bankruptcy claim was being processed, the plaintiff’s lawyer sued the hospital. The lawsuit claimed that the hospital was responsible for paying the balance of the $1.4 million. The hospital lawyers refused, and the plaintiff’s lawyer asked the trial court for an order to pay the money.

The trial court judge ruled that since Dr. B could not pay, the hospital must. The hospital lawyers appealed, and the appeals court reversed that decision, reasoning that the hospital was responsible for compliance with the statute, not the payment of a judgment that the physician could not afford. To rule otherwise would make the hospital the guarantor for its employees’ malpractice verdicts.

Dr. B’s retirement plans were dashed, and he returned to practicing medicine—without hospital privileges. Although the suit wiped out his personal savings, he and his wife lived comfortably on the trust that he had created earlier.

Legal background
Dr. B was able to “go bare” but retain his privileges by guaranteeing the first $250,000 of any award against him. At the time his case was decided, he was able to wipe out all his debts by declaring bankruptcy, but federal reform has limited this option. 

This case illustrates the quandary faced by a clinician forced out of practice by high malpractice premiums. Is it worth the risk to go bare after implementing financial safeguards? Or is it better to retire early or take a salaried job that includes malpractice insurance?

Unfortunately, changes by federal and state legislatures continue to cloud the issue and make it difficult to recommend one alternative over the other. 

Protecting yourself
Risk management involves asset protection as well as limiting litigation vulnerability. Malpractice insurance is usually not prorated according to the intensity of your practice.  As a result, clinicians who do not want to or can no longer physically handle a full workload are forced to drop out of the profession rather than work part-time. This leads to loss of the accumulated experience and contribution of senior physicians who could continue to participate in the health-care system, especially in its educational and administrative aspects.

Dr. Starr is a retired physician and lawyer in the Austin, Tex., area. His legal practice included defending clinicians in malpractice litigation.