The CEO of a malpractice insurance carrier once told me “insurance is the strangest business; you don’t know what your costs of goods sold are until 4-5 years after they are sold."
The way you pay for malpractice insurance is no different. If you have been in business for several years, the cost of your malpractice insurance has as much to do with what placements you did yesterday, if not more than, what placements you project your are going to do tomorrow.
The time it takes from the date of treatment, to the date of claim, is usual 2-4 years. This, of course, varies by specialty and procedures (just to disclaim the common assumption that the “statue of limitations is 2 years”…the statue of limitations varies by venue. But, the most common interpretation is that it is 2 years from the “date of discovery” and not 2 years from the date of treatment with the "date of discovery" being a "reasonable time"). With that being the case, the premium you are being charged for this years policy has as much to do with your placements you did the last 4-5 years as it does what you think you will do next year.
So, that brings up the next dilemma. How do I know what placements I will do next year? The short answer, you don’t. So, with all these variables, how do you determine what one of your bigger expenses, your malpractice insurance, are per day/hour/specialty/territory? Easy. There are only 3 real options.
There are three ways most people determine their actual costs: the weighted rate, the audit rate, and the mature rate. Two of these ways can work, one can result in disaster. Unfortunately, the disaster route is the one most people use; the weighted rate.
To review all of these is beyond the scope of this site due to the particulars of each company. But, if you would like more information, please feel free to contact us and we will be happy to review your program and rates.
How do you decide your true cost for malpractice insurance per day/hour?
(If you ave an occurrence policy, you can disregard
this part and just ask your broker or carrier to provide).