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January 9, 2020

A hospital's closure leaves doctors 'scrambling' for malpractice coverage

Daily Briefing

    Nearly 1,000 medical residents who worked at the now-closed Hahnemann University Hospital spent the final weeks of 2019 "scrambling" for malpractice insurance after the hospital's closure left them with a massive "hole" in coverage, Peg Brickley reports for the Wall Street Journal.


    Hahnemann University Hospital was a Level I trauma center, a medical training facility, and a public safety-net hospital that had been in operation since 1848.

    Hahnemann was already struggling financially when its former owner, Tenet Healthcare, in 2018 sold the hospital to Joel Freedman, a California investment banker and CEO of American Academic Health System, in a $170 million deal. In June 2019, the hospital filed for Chapter 11 bankruptcy and announced that, after 150 years of service, it would cease operations. According to the bankruptcy documents, Hahnemann faced greater-than-expected losses and other financial disputes, losing $69 million in pre-tax dollars in 2018.

    The hospital officially shuttered in the fall 2019. Medical residents who were training at Hahnemann were moved to other locations and more than 1,000 workers received severance notices.

    Former Hahnemann residents left vulnerable to malpractice suits

    But after the hospital closed, medical residents found themselves in a bind: Their malpractice insurance is set to expire in a few weeks, leaving them vulnerable to any malpractice lawsuits that might arise for work they did while at Hahnemann, Brickley reports. 

    A malpractice suit without insurance could leave the residents with permanent blemishes on their records and in extreme cases could cause them to lose their licenses in dozen of states, according to Brickley. 

    Now, doctors are scrambling to find new insurance coverage.

    According to Brickley, most residents spent their last weeks of 2019 attending webinars on insurance options and scheduling consultations with insurance advisors to find coverage.

    Sukhdeep Singh, a doctor of obstetrics and gynecology, said he found most insurance policies cost between $35,000 and $65,000. "I don't have the money to pay for this. Many of my colleagues are either still in residency or are pursuing further training in fellowship, and this amount is easily more than half of their current salary," he said.

    Why did providers lose coverage?

    According to the Association of American Medical Colleges (AAMC), teaching hospitals like Hahnemann typically offer occurrence-based malpractice insurance, which covers the provider for medical liability for care provided during training, even if the physician is no longer at the hospital and the lawsuit is filed years after the alleged injury.

    When Hahnemann was owned by Tenet, it offered occurrence coverage, Brickley reports. But when American Academic Health System purchased the hospital, it exchanged the occurrence malpractice coverage for claims-made coverage, Brickley reports.

    Claims-made coverage, according to Brickley, is a cheaper coverage option that only protects against suits that were filed during the policy period. That means that unless residents are able to find and purchase "tail" insurance for future claims, they will be left with a "coverage hole" for malpractice claims for care provided at Hahnemann but filed after the policy expires, according to AAMC.

    The issue is a key part of the bankruptcy court's hearing. Lawyers representing the residents have asked the bankruptcy court to require American Academic Health System to purchase the tail insurance. In papers filed last week, lawyers for the hospital last week said the malpractice insurance issue "is the unfortunate nature of bankruptcy."

    Associations rally behind Hahnemann residents

    The interests of the residents who lost coverage are being backed by the Pennsylvania Department of Health Authorities as well as multiple professional associations, including the American Medical Association, which Brickley reports hired legal representation for the residents, Pennsylvania Medical Society, and the Association of American Medical Colleges.

    Jeremy Ryan, the bankruptcy lawyer AMA hired, said, "One of our goals is to make sure that everyone who can be held accountable for the situation is held accountable." He continued, "That involves looking at everyone at the highest levels of Hahnemann who made the switch. Those people who controlled Hahnemann and made these economic decisions must be held accountable."

    In the meantime, Ryan told his clients that they should move as quickly as possible to find new insurance before they're left without any coverage at all.

    American Academic didn't respond to requests for comment, Brickley reports (Brickley, Wall Street Journal, 1/2; Orlowski, AAMC release, 1/7).

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