Medical practices and healthcare facilities are subject to some unique litigation. When structuring insurance for healthcare institutions, policyholders should be acutely aware of these unique risks and whether or not their D&O, E&O, or other specialized policies, will respond when such claims arise.
 

Medical fraud. False Claims Act Claims, Stark Violations and Illegal Kickbacks
 

Healthcare organizations may encounter litigation or regulatory actions stemming from violations of the False Claims Act, RICO, Stark Laws and/or anti-kickback statutes. These claims may allege the organization submitted false or inflated invoices, performed unnecessary procedures, self-referred treatments or procedures, or provided kickbacks for referrals. Allegations may also arise following a merger or acquisition or triggered by a whistleblower. The financial damages associated with these claims can be large, with some estimates stating settlements can reach upwards of 10 Mill against even small physician groups. Policyholders can purchase coverage for such claims, as most Healthcare D&O forms do offer this coverage as an option, however it should be noted, most carriers will sublimit coverage for claims brought by regulators. Additionally many carriers will apply higher retentions and may apply coinsurance (upwards of 50%). Implementing strong compliance programs can assist in significantly reducing those high retentions and coinsurance percentages. Conversely, claims brought by private parties or those brought in the form of class actions would typically not be subject to these separate sub-limits.

With Healthcare D&O forms varying considerably, it’s also important to note, carriers can take different approaches when extending coverage for medical fraud claims. Some endorsements clearly apply only to regulatory actions arising from violations of these specific acts, whereas other policy forms contained endorsements that appear to extend those sub-limits and high retentions to any and all regulatory actions.

While coverage may also be afforded under some E&O policies depending on the claim specifics, policyholders should be aware that some E&O policies may contain explicit RICO and/or billing related exclusions which can create coverage challenges. There are also specialized insurance policies such as medical billing policies which can also cover costs associated with these claims. One advantage of these policies, is their ability to affirmatively cover audit/investigational costs associated with over-billing claims (such as RAC, DOJ and OIG audits).

Finally, we should note that false claims act claims can create inherent coverage issues – claims served under seal can create uncertainty as to when a claim was actually made and during which policy period it should be (or should have been) reported.
 

Anti-Trust Litigation and Provider Selection Claims
 

Healthcare organizations are also prone to anti-trust claims, particularly following mergers and acquisitions. Claimants may allege employee poaching equates to intentional business interference, and/or any referral programs (or any exclusive arrangements) violate anti-trust laws. With the majority of D&O policies containing an exclusion for anti-trust claims, coverage is often only carved back via endorsement on a healthcare form. Another risk specific to healthcare organizations, are claims involving peer review and credentialing, and provider selection claims alleging an organization has engaged with providers that have provided inadequate. Coverage for these anti-trust and provider claims can be secured under some healthcare D&O forms, however, like the medical fraud insuring agreement, most carriers will apply a sublimit, higher retention and potentially coinsurance, although those sublimit terms are generally less aggressive than the medical fraud insuring clauses.

When assessing coverage for provider selection claims, it’s critical to review the policy’s bodily injury exclusion. Nearly all medical D&O policy forms contained broad exclusion preambles, excluding coverage “for, based upon, related to, or in connection with” any bodily injuries. Most provider selection claims will initially involve some degree of bodily injuries. Limiting the exclusion to apply only to claims “for” bodily injuries would be an acceptable amendment, however most D&O carriers are reluctant to make such a change. Absent such an amendment, it’s critical to obtain appropriate carvebacks. Broader policy forms will carve back all loss on account of a provider selection claim, whereas poorer policy forms may only provide a “provider selection carveback” pertaining to losses associated with alleged mental anguish or emotional distress.
 

Additional Insurance Structuring Considerations
 

Obtaining appropriate wording on the professional/medical services exclusion is even more critical, as most claims will have some nexus in the providing of medical services. Broad exclusions that preclude coverage for claims “related to, or in connection with” the providing of professional or medical services can severely jeopardize coverage. Interestingly, the majority of carriers’ forms contain these broad exclusions and most insurers are unwilling to soften their language which is problematic. Nevertheless, as with the bodily injury exclusion, policyholders should aim to have that exclusion’s preamble amended to apply only to claims “for” such claims. In situations where carriers are unwilling to accommodate – while less favorable, the exclusion can alternatively be limited to apply only to claims against the entity (preserving coverage for claims against insured persons), or other carvebacks can be obtained, such as those pertaining to provider selection and medical fraud claims.

The policy’s contractual exclusion should also be reviewed carefully and softened appropriately. Where policies contain more specific exclusions pertaining to billing, fees, or insurance/claims services, similar attention should be given. Given the propensity for allegations of fraud, it’s also critical to review the fraud exclusion, ensuring that defense costs are provided until there is a final adjudication of guilt in the underlying action. Policies that allow the carrier to cease defense costs per a separate finding or judgement, put the insured at risk having defense coverage pulled from under them prematurely. With some allegations of fraud triggered by whistleblowers, any policy purchased should also contain appropriate whistleblower carvebacks to the policy’s “insured vs insured” exclusion.

With many of these claims having the potential of triggering regulatory proceedings and investigations (including those brought by state medical boards), careful consideration should be given to the scope of regulatory coverage provided by any E&O, D&O or medical billing policies. When reviewing policy language, it’s critical to understand, amongst other items, when coverage is triggered (receipt of a subpoena, requests for documents, requests for interviews, etc), and what damages are insurable under the policy (defense costs only, document production costs, reimbursement for certain fines and penalties, etc). Lastly, when reviewing the definition of “loss”, policyholders should ensure any policy purchased is inclusive of punitive, multiple and exemplary damages (where insurable), as many policy forms expressly exclude such coverage.