Medicare Compliance & Reimbursement

Skyrocketing malpractice costs require drastic measures

A hospital facing a severe shortage of neurosurgeons did the only thing it could - it agreed to subsidize malpractice costs for two neurosurgeons who were thinking of retiring.

This unorthodox arrangement could have looked like a kickback, but the HHS Office of Inspector General said it wouldn't prosecute the deal in advisory opinion 04-19, published Jan. 6. The two neurosurgeons unexpectedly lost their malpractice coverage, and their new insurance company wanted to charge much higher premiums.

Meanwhile, their original insurer offered to give them free "tail" coverage for any claims based on prior practice - but only if they retired immediately. Otherwise, the "tail" coverage would be quite expensive.

To keep the neurosurgeons from retiring, the local hospital agreed to pay some of their malpractice coverage costs as long as they stayed in the area and served the local community. The payments weren't linked to the surgeons' referrals to the hospital, and they were free to practice elsewhere in the area. The hospital had tried - and failed - to lure other neurosurgeons to the area in time.

There were a few factors, besides urgency, that swayed the OIG to accept the arrangement. For one thing, even with the arrangement the physicians' malpractice costs would be higher than in previous years, so they're not receiving a windfall. Also, the physicians aren't getting the subsidies for free, but instead have to provide call coverage, indigent care and membership on hospital committees. And the malpractice insurance covers their services at sites other than the hospital, which reduces the risk that the subsidy could be linked to referrals.