By David Shaffer, Insurance Office of America
If you own or operate a medical aesthetics practice, dealing with medical malpractice insurance is a part of your professional life. And if you don’t pay close attention to the specifics of your practice’s policy and/or the type of information shared with your insurer, you could certainly end up paying more for it than you should; or find yourself without coverage if—or when—a claim occurs.
It is important to note that multiple factors should be taken into consideration when a medical aesthetics practice is being underwritten. Additionally, underwriting rules, rates and guidelines vary between insurers. The following mistakes are those commonly observed when the entities of the medical aesthetics practice are shown as the policy’s named insured. When coverage to a medical aesthetics practice is extended through a physician policy, the underwriting review process does change, even though many of the same underwriting criteria are evaluated.
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1. Inflated Treatment Counts
When underwriters underwrite medical aesthetics practices, they will often consider the number of treatments the practice administers when determining pricing. It stands to reason that if a facility administers a greater number of treatments, there is greater potential of being sued when compared to a facility that administers fewer treatments. But how do underwriters actually view treatment counts?
Most insurers’ underwriting guidelines are seeking treatment counts based upon a medical aesthetic practice’s patient visits. Some practices confuse this and report, for example, the number of units injected or the number of times a laser is fired. What exactly is meant by “patient visits?” Here’s a real-world example. Assume a client undergoes a Botox treatment. The facility should attribute one treatment count for the patient, regardless of how many times he or she is injected or the number of units that are injected. If the patient chooses to have another type of treatment during the same day’s visit (laser hair removal, for example), it would count as a separate treatment. This patient then accounted for one Botox treatment and one laser hair removal treatment.
In fact, I just had a client going through the renewal process, and they saw a 64% increase in price because they greatly overestimated the number of treatments expected to be perform in the coming policy year. Once we went back and looked at their renewal applications, we saw that their year-over-year projections had almost tripled, yet their anticipated gross receipts only reflected a marginal increase. With an updated and more accurate treatment count in hand, underwriting was able to adjust the facility’s pricing to a level comparable to the insured’s actual growth.
2. Revenue Overestimates
Another underwriting factor that is commonly used when determining malpractice pricing for a medical aesthetics practice is annual estimated gross revenues. It is not uncommon for new facilities to greatly overestimate their projected revenue. After all, there is really no way for them to know exactly how much revenue they are going to generate in their first year. Unfortunately, this could likely result in these practices paying more than they need to for insurance. When a business is just starting out, unnecessary additional expenses can be the difference between success and failure.
I usually tell prospects to be realistic and attainable with their first-year revenue projections. Underwriting knows that new medical aesthetic practices cannot accurately predict their revenues. However, the projections establish an initial exposure baseline for reviewing underwriters. Unlike workers compensation policies, the vast majority of the malpractice insurers offering malpractice to aesthetics practices do not audit policy revenues (or treatment counts) at the end of the policy term. Therefore, if a projection of $1 million is shared and only $250,000 in revenue is generated, the insurer will not return any premiums resulting from overestimation.
3. Improper Medical Director Coverage
Medical director coverage is another confusing area of the application process. Although the roles and responsibilities of a medical director may be clearly defined in an agreement/contract, the coverage afforded or needed may not. If a medical aesthetic practice’s medical director is working in a purely administrative capacity (no direct patient care or patient interaction), the facility’s policy customarily will extend adequate coverage without the need for adjustment. However, if the medical director wants or needs to become involved in patient care (i.e. patient consultations and/or good faith examinations), an adjustment to the practice’s policy or even separate coverage is usually required.
During the application process, an aesthetics practice needs to clearly explain the medical director’s role at the practice. Once clarified, there needs to be a determination of where coverage for the doctor will be provided. This could be through the practice’s malpractice policy, the doctor’s individual policy or perhaps a separate policy intended solely for medical directorship duties.
In my experience, nearly all medical aesthetic practice policies will automatically extend to a doctor’s administrative duties. By that I mean, those services such as creating and updating policies, procedures, consents, signing charts, etc. - all responsibilities that do not directly involve the patient. Assuming the medical director is involved to a greater extent, such as, performing good faith examinations, conducting patient consultations before or after a treatment and actually performing treatments, additional coverage would be required.
4. Failure to Identify Multiple Locations
It is important that a medical aesthetics practice with more than one location discloses each location when applying for medical malpractice insurance; otherwise, it could face enormous gaps in its coverage.
Most policies will include a location-specific endorsement restricting coverage to a scheduled insured location. Practices with more than one location need to make certain their underwriter is aware of all locations so they can either be added to the location endorsement, or have the location endorsement completely removed.
Along the same lines, if a medical aesthetics practice is performing treatments, such as Botox or fillers, at off-site locations—in traditional spas, for example, or even in patients’ homes—it must be declared on the application.
4a. Insurance and Botox Parties
A lot of underwriters will hesitate at offering coverage when a treatment provider wants to perform treatments off-site. This occurs most often when treatments are performed within a patient’s home: A Botox party is a perfect example.
Multiple underwriting concerns arise from such events such as:
- Alcohol is being served, potentially resulting in impaired judgment;
- The space is unsanitary;
- There is less control over the space, resulting in potential slip and fall accidents;
- …and more.
Some insurance companies won’t have problems with off-site events, as long as the same policies, procedures and consents are used. Others don’t like the exposure and will elect not to provide coverage.
5. Failure to Maintain a Retroactive Date
It is important for an aesthetic medical practice to maintain its retroactive date—the first date for which an insurance company will provide coverage for claims occurring from treatments that have been provided—from one policy to the next. If a practice retains coverage with the same insurance company, this will likely not be an issue; however, if it moves from one insurance company to another, it must make sure that the retroactive date is carried forward. Should this not happen, claims made from treatments that occurred prior to the inception of the current policy will not be covered.
When an aesthetic medical practice retains its retroactive date upon switching insurers, the new insurance company will assume the defense and indemnification of a claim arising from services performed while a prior insurer provided insurance. This would be the case even though the new insurer didn’t provide insurance during the policy term in which the treatment was administered. When a practice elects to forego its retroactive date, they are choosing to self-insure against any claims that may still arise from treatments occurring prior to the establishment of their new retroactive date.”
6. Improper Named Insured
In many cases a medical aesthetics practice is operated by both a medical corporation and a management company, especially in those states where it is illegal for anyone other than a physician to own a medical aesthetics practice. And often, one or the other will be left off the application for medical malpractice insurance.
I always encourage people to show both medical corporations and management corporations as the applicant when completing their malpractice application. Including both entities on the policy will give the most flexibility to the practice if the relationship between the two corporations should experience turmoil and the relationship fails. In addition, including both entities ensures that each corporation is provided insurance if a claim does occur.
7. Failure to Accurately Depict a Physician’s Activity
Most policies that are written for medical aesthetics practices have the ability to incorporate physician coverage, but that coverage should be restricted to a physician’s activity at said practice. His or her activities outside the medical aesthetics practice, such as those at a private practice or at a different facility, should not be incorporated into their application when seeking coverage through the medical aesthetic practice’s policy.
While completing an application for inclusion in a medical aesthetics practice policy, it’s important for physicians to limit their exposure bases to what is actually being performed at, and on behalf of, the medical aesthetics practice. This includes items, such as the number of hours worked, the treatments administered or any supervision. Restricting the exposures will help to reduce the pricing applicable to the physician’s inclusion in the practice’s policy. Practices don’t want to pay for physicians’ full-time premiums when they are only working 10 hours a month.
8. Failure to Address Claims Remedies
Although it may not be terribly common for claims to occur within a given medical aesthetics practice, when they do arise, a practice needs to clearly demonstrate that it has taken steps to address the issues that caused the claim.
To help reduce their premiums, a practice needs to show that they have been proactive with risk management and have taken steps to become a better underwriting risk. This could be in the form of implementing additional staff training, amending policies and procedures, incorporating new safety measures, requiring direct supervision for a given treatment, terminating problematic staff or any other steps necessary to prevent the reoccurrence of a similar claim. Essentially, underwriting needs to see that the practice has taken positive steps forward with claim prevention.
9. New Procedure Additions
If a medical aesthetics practice is planning on incorporating a new procedure into its services menu shortly after securing a malpractice policy, it has a couple of options. It can seek underwriting approval and add coverage to its policy when the new treatment is actually added; or, alternatively, if the addition is imminent, the practice could consider a different course of action.
What I’ve found is that, if a new procedure is going to be added within a reasonable amount of time—usually one to three months of the policy’s effective date—I encourage my clients to incorporate it into their new business or renewal application. When the underwriters are conducting their initial valuation, they can usually add a treatment into coverage at a lower cost than doing so mid-term. A mid-term change may require an additional premium just because the adjustment needs processing.
For many, working through malpractice applications for the first time or at each renewal may seem like a dreaded but necessary evil. With any luck, by implementing these tips, your practice could potentially see lower annual premiums and, more importantly, prevent possible gaps in coverage.
David Shaffer has been working in the medical professional liability insurance field since 1996, where he uses his unique combination of underwriting expertise and broker knowledge to assist medical aesthetic facilities, medical spas, hospitals, healthcare facilities, physicians and physician groups with their insurance needs. In addition to medical professional liability, Shaffer also has the ability to assist clients with other insurance needs, such as employment practice liability, directors and officers, business office packages, workers compensation and various other lines of coverage customary to the healthcare industry.