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A health care worker exits Hahnemann University Hospital on July 9, 2019. (Christopher Evens/Alamy Stock Photo)

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Bankruptcy court approves request from Hahnemann owners to purchase liability insurance for residents and attending physicians

Janis M. Orlowski, MD, MACP , Chief Health Care Officer
March 4, 2020

Hospital owners had asked court to approve $6.2 million payment to ensure physicians’ liability insurance coverage will continue now that Hahnemann has closed.

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On March 4, U.S. Bankruptcy Judge Kevin Gross signed an order allowing the owners of Hahnemann University Hospital to use the now-closed hospital’s assets to purchase tail insurance for residents and attending physicians who otherwise would have faced a loss in coverage.

Facing the prospect of protracted litigation and expressing a “genuine desire to mitigate at least some of the harm to the regional medical community caused by Hahnemann’s closure,” Philadelphia Academic Health System (PAHS), LLC, on behalf of the debtors in the bankruptcy proceeding, had notified the court on Feb. 20 that it wished to purchase tail insurance from Hahnemann’s professional liability insurer. 

The judge's ruling will ensure that the 572 residents and approximately 100 attending physicians displaced by Hahnemann’s closure — plus about 300 additional residents who previously trained at the hospital — have the necessary professional liability insurance to cover their time at Hahnemann. 

Teaching hospitals typically provide occurrence-based medical liability insurance to cover episodes that may have occurred during training or other times when care was provided. This insurance provides physicians with liability protection and it extends in perpetuity, even for claims that are filed long after a physician leaves the hospital.

Instead, PAHS purchased a claims-made insurance policy for its residents and attending physicians, which only covered physicians for claims made during a specific time period. That policy was set to expire on March 12.

Tail insurance coverage to cover future claims had been a key component of the Sept. 2019 sale of Hahnemann in bankruptcy court. However, the Department of Health and Human Services appealed the bankruptcy court’s approval of the sale and a U.S. District Court postponed the sale’s closing until the appeal was decided. With the sale on hold and the insurance lapse deadline looming, the Pennsylvania Department of Health and an ad hoc resident committee filed motions on Dec. 11, 2019, asking the bankruptcy court to order PAHS to obtain tail insurance. The resident committee’s motion warned that failure to have continuous liability coverage in some states, including Pennsylvania, can result in the revocation of or the inability to obtain a physician’s medical license.

In its Feb. 20 filing, PAHS notified the court that it had solicited quotes from insurers and identified the insurer with “the most attractive payment terms.” It asked for permission to use its assets to pay $6.2 million to purchase this coverage. PAHS also reported that its collections on accounts receivable had been more successful than anticipated, resulting in its liquidity being far better than initially projected. 

The AAMC is very pleased with this development, as the affected physicians can now have peace of mind as they move forward in their careers. 

The Feb. 20 court filing also disclosed that a group of hospitals led by Thomas Jefferson University Hospital had withdrawn from its agreement to pay $55 million for Hahnemann’s residency program assets.  

The Pennsylvania Medical Society has additional information about the insurance requirements for displaced residents on its website.

In addition, feel free to contact Janis Orlowski at jorlowski@aamc.org for more information.

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