YFP 155: Why You Need Professional Liability Insurance

Professional Liability Insurance for Pharmacists

Tim Baker talks through what professional liability insurance is, why it’s important, who needs it and what to look for when shopping for a policy.

Summary

On this episode sponsored by HPSO, Tim Baker discusses the ins and outs of professional liability insurance for pharmacy. Working as a pharmacist without professional liability insurance or malpractice insurance is a risk that could cost you your assets including your home or retirement and could also leave you bankrupt or with your wages being garnished.

He explains that insurance is essentially a risk transfer, meaning you’re moving the risk by contract from yourself to an insurance company. The company takes a premium from you and if an incident is filed, then the policy will pay you out. Tim says that facing a lawsuit for malpractice can be absolutely devastating to your financial plan and future independence, and the cost of the premium for professional liability insurance is so low that everyone should really look into being covered.

A liability insurance policy provides coverage in a number of areas, including $1 million for each claim, license protection, loss of wages, attorney fees, actions taken against you while volunteering or giving verbal advice, and claims from previous employers. If your employer offers liability insurance, Tim says that this is more of a perk and not a plan. The employer policy is there to protect the institution and not necessarily the employee. If you have an employer plan, you need to find out if the coverage is high enough to cover all of the employees and if it will protect your license or provide money for lost wages or board hearings.

Tim shares that when shopping or evaluating a policy, it’s best to work with an insurance provider who is plugged into your profession. He says that you have to also look at what is being covered, how easy it is to set up, the education provided and how good their customer service is. He recommends HPSO as they insure over 100,000 pharmacists, lead in terms of education and are sponsored by APhA. You can learn more about HPSO here.

Mentioned on the Show

• Get Professional Liability Insurance with HPSO
• Seven Figure Pharmacist by Tim Church, PharmD and Tim Ulbrich, PharmD
• YFP Planning
• YFP 044: How to Determine Your Life Insurance Needs
• YFP 045: How to Determine Your Disability Insurance Needs

Episode Transcript

Tim Ulbrich: On the day of the incident, the patient was admitted to the hospital due to nausea and vomiting to rule out possible gallbladder disease. The admitting provider ordered Reglan 5 milligrams IV push four times per day. The Reglan did not relieve the patient’s nausea, so the nurse requested the provider change to another drug. The provider discontinued the Reglan and order Promethazine 25 milligrams IV push four times a day. After the medication order was received and reviewed by the pharmacy, it was delivered to the medical floor. The nurse administered the medication via IV push in less than one minute, and that was undiluted. The patient immediately experienced pain, complaining that his left wrist felt like it was on fire. The nurse flushed the IV site several times after administering the Promethazine and stated the pain would subside in a few minutes. About an hour later, the patient’s IV site was noticeably swollen and continued to hurt. The nurse made the decision to remove the IV and notify the admitting practitioner of the patient’s complaints. Initially, the patient’s practitioner treated the IV infiltration conservatively. However, over the next several hours, the patient developed progressive swelling, discoloration, and numbness. Once it was determined that the patient had developed compartmental syndrome, he was urgently taken to surgery for decompression of the compartments of the left hand and surgery of the left hand. After surgery, the patient developed sepsis and was transferred to a higher acuity care hospital, which had a hand surgeon who took over the patient’s care. After his physiological status improved, he underwent two additional surgeries. He was then discharged home with daily wound care and physical therapy to be performed by a home health provider. Currently, the patient has very limited motor control over his left wrist and arm due to contractures and nerve damage from the compartment syndrome. He experiences a constant aching in his extremities as well as severe burning, stabbing and electric shock-like pain, which is associate with complex regional pain syndrome. Because his injury occurred to his dominant hand, he was unable to return to work as an aircraft mechanic and was forced into disability. The nurse, pharmacist on duty, director of pharmacy, and hospital were all included in the lawsuit. Allegations against pharmacists on duty included failure to provide written and/or oral instructions on the causative effects of Promethazine when given IV as well as providing a causative medication Promethazine in undiluted form without any instructions as to how to appropriately dilute and administer the medication. Allegations made against the director of pharmacy included his failure to establish a pharmacy policy on Promethazine detailing how to administer the medication safely. The hospital declared bankruptcy prior to filing the lawsuit, leaving the two insurers as the main defendants. During deposition, the nurse testified that he was unaware how to administer Promethazine and dependent on the pharmacist and the pharmacy department to provide medication safety instructions and warning. Both insurers acknowledged during their depositions that they understood how caustic Promethazine can be if it extravagates into the tissues and how serious consequent injuries can be. Neither could explain why a pharmacy protocol had never been developed for Promethazine administration. The likelihood of prevailing at trial was estimated to be between 35-40%. A collective settlement was made on behalf of the pharmacist on duty and the director of pharmacy with indemnity payments and expenses in excess of $740,000. Wow. Tim Baker, when you hear that story, if that is your client, whether it be the pharmacist or the director of pharmacy, what are the implications for them personally and to their financial plan?

Tim Baker: Yeah, I think it’s devastating. That type of catastrophic loss is — it’s almost impossible to come back from. So you know, from a personal perspective, obviously your heart goes out to the patient that was negatively affected for the rest of their life and obviously losing a lot of function in the hand and everything. But from the client perspective, you know, this is a — obviously it’s a shot in the arm, to say the least, with regard to the ability to grow wealth. You know, this is probably looking at wiping out assets like a home, retirement savings, you’re probably looking at bankruptcy yourself, garnishes of wages, even the likelihood of return to pharmacy in some form or fashion is probably gone. So what most of us are striving to, and it’s really our mission, is to help pharmacists achieve financial independence. That’s going to be different for a lot of people. Regardless, a loss like this is going to put a dent in that no matter how you define financial dependence. So this is one where, you know, when I first read through this case study — and I’m not a pharmacist — like it gave me anxiety because you’re just thinking like you could see where this was going. And it’s devastating. That’s the word that comes to midn the most.

Tim Ulbrich: Yeah, and I think, Tim, you know, as we continue to see the pharmacist’s role expand, which is a great thing for our profession and great thing I think for patients as we know the expertise they can bring to the medical team, I think we’re going to see more and more opportunities where the expansion of that role leads to pharmacists being brought into lawsuits, right?

Tim Baker: Yeah.

Tim Ulbrich: So we’re now obviously seeing a good evolution away from just the distribution function of the medication, which in and of itself can bring potential errors and lawsuits that we have I think been well versed in and know of. But when you start to get into the clinical realms and the variety of clinical roles that we’re seeing pharmacists play, that certainly is going to expand. And I think it’s helpful to hear stories. This is one example, so I know our hospital pharmacists listening are going to hear this and say, yeah, you know, they can see this. They can visualize, they can relate to it. And I know when I was in school and we were taught about professional liability insurance, like it’s just hard to wrap my arms around like what would this be? And what are the situations? And how really significant is this risk? And so I think it’s helpful to hear examples, and this is one. You know, there’s some other examples that we highlighted in “Seven Figure Pharmacist” that have involved a pharmacist, a prostate gland suppository (?) that’s given instead of Progesterone that resulted in premature delivery of an infant that had neurological complications, a man who obtained sensitive medical information about his wife without her consent, a young child who received propylthiouracil instead of mercaptopurine that resulted in recurrence of leukemia and eventually in death. So these are unfortunate but true stories of pharmacists’ errors. And these errors obviously can result in significant financial implications. And so I think it’s important, Tim, that we take a step back and just think about what is insurance? So here, we’re talking about professional liability, but health, home, auto, life, disability, we’ve talked about many of those on the show. What’s the basic definition and purpose of insurance and the role that it plays in the financial plan?

Tim Baker: Yeah, so this — what insurance really is is it’s risk transfer. So we’re essentially moving the risk of some — so a risk is basically a condition where there’s a possibility of at least two outcomes: one being undesirable. And typically, those undesirable outcomes, you know, they’re losses. So this could be a loss of income, this could be a loss in a lawsuit where you have a liability to pay. The loss is really that disappearance or reduction in value. So what we do is, you know, we transfer that risk by contract from ourselves, the individual, to an insurance company. And basically, the insurance company is taking the premium, so this is what we pay for the policies, and they’re using the rule of large numbers. So basically the group is paying for these policies, and then if one member of the group has a loss, then you know, that’s where the policy pays out. So you know, a lot of us when we think about insurance, we use different methods to manage that risk. So you know, the big one that we’re talking about here is transfer the risk, but you know, a lot of us, we retain that or we self-insure. The example that I give for self-insurance is we have Benji the dog. And Benji, we looked at pet insurance, but we knew that those premiums would go up, so we just have an Ally account where we would have put those premiums toward that policy, we self-insure that risk.

Tim Ulbrich: Right.

Tim Baker: You know, there’s ways to avoid it. So like if you’re not in hospital pharmacy, we’ll talk about maybe some of the careers in pharmacy where you don’t need it. But at the end of the day, you know, this is something that is so — it can be so devastating. And I think the tradeoff in terms of the cost of the premium for professional liability that we’re talking about today, it’s almost — I don’t want to say it’s a no-brainer, but it’s almost a no-brainer. And if you are unsure because of where pharmacy practice is evolving and headed, I would buy a policy because it’s very cheap. And the downside is so great. So — and I think one of the things that we want to talk about here is you know, and it’s evident in this case, is there’s an over — we have an over-reliance or we make assumptions about our employer that aren’t true. So I know I’ve worked with some big companies and big organizations, and you think that walking in there that everything is pristine, there’s a policy and a procedure for this and that and your employer is always out for your best interest. And unfortunately, it’s not the case. You know, there are lots of things that we do in life, and I think that you’re going to see this just as hospital systems become more stressed where things are kind of — you wing it in some cases. There are things that change, and that’s a harsh reality. But I think in this case, it’s like, well, we never had that policy and procedure. You’re assuming the next guy down the line, maybe the nurse that is administering knows what they’re doing, but we make assumptions here. And you know what my mom said about when you assume, it’s not necessarily something that’s going to turn out well. So yeah, I mean, we can definitely go through the professional liability and why it’s important and what it is. But at the end of the day, if we look at this broad strategic part of the financial plan that is the protection of the financial plan, this piece of insurance that’s with insurance in general is going to be so important because things just happen that we don’t expect. And you can’t self-insure everything. You have to have that rule of that group to basically help shoulder that for you. So that’s really the purpose of insurance.

Tim Ulbrich: Great definition overview. And you know, I was just thinking as you were talking, in the pharmacies that I’ve worked in and many that are listening can relate if you’re working in a traditional community retail setting, the number of prescriptions you touch per day and you extrapolate that out to a week or a year and the number of patients that you interact with per day or if you’re in a hospital setting up on a floor distributing in a hybrid role, it doesn’t matter. Just from a statistical standpoint, when you talk about the risk and the things that could happen along the way, obviously there is risk that can be had there and making sure that you’re protected and the rest of your financial plan. But let’s be honest, even when we talk about a policy that is relatively inexpensive relative to the coverage it provides, nobody wants to pay for insurance. And I think for many, myself included, the thought of paying for something that may or may not bear fruit in terms of providing a benefit can be frustrating. And unfortunately, because of these feelings, I think many people forego implementing proper insurance coverage. So Tim, generally speaking, how do you work with clients to find this balance of ensuring the right insurance protection and that that is in place while they are trying to prioritize other goals such as paying down student loans, investing, or saving for a home?

Tim Baker: Yeah, I think there’s this misnomer that working with a financial adviser — and I think maybe it’s not a misnomer because I think, you know, we’ve earned it in some regard — there’s this misnomer that it’s all about growth of assets, invest, invest, invest. You know? And for a lot of pharmacists, you know, when they think about insurance, they’re left with a bad taste in their mouth because probably during pharmacy school, just like many physicians and other healthcare providers, you know, there’s this push by financial professionals like me to sell you a crappy whole life policy or something like that. So you’re already kind of from Jump Street a little bit wary of it. And to your point, Tim, a lot of people can view it as a sunk cost. So this is the idea that money that you’re spending towards these premiums cannot be recovered. And I think you’re really — it’s missing the point. And one of the analogies — or one of the examples I give is we talk about whole life, these are policies that are typically more expensive. And a lot of whole life advocates will say, “Well, term insurance, they only pay out 4% of the time.” But the point is that they did their job. Most of the — if you have insurance and you have a 30-year policy and you live beyond that policy, like you were protected during those 30 years. And it did exactly what it needed to do. And the same is true for professional liability. It’s like you don’t want to have a claim, even if you’re covered. You don’t want to have a claim. But you want to have that — the insurance is that safety net so you’re not in the poorhouse, your assets are protected, you’re not filing for bankruptcy. So what we say, you know, and kind of it’s just our messaging, every time we meet a client, like our mantra, our thing is how can we help you, the client, grow and protect your income, grow and protect your net worth, while keeping your goals in mind? And the protection is so much baked into the insurance piece, the estate plan, those types of things. But we want to make sure that we’re doing both of those things, not just growing the assets because we want to make sure that we are accounting for those dark moments. And I think we as humans, we sometimes suffer from the optimism bias, which is a cognitive bias that causes someone to believe that they themselves, Tim Baker, oh, I’m not going to experience a loss. I’ll never have anything; that’s going to be someone else, you know, a faceless person in the crowd. It’s never going to be me until it’s me. I often hear on repeat, “Hey, my employer has me covered. I’m not worried about it.” And that could be not just from professional liability but it could also be from life and disability insurance. So at the end of the day, what we say is insurance provided by your employer, it’s not a plan. It’s a perk. So we, if we’re doing this financial planning thing the right way, it’s just something that we have to bake into it. Now, when I say for things like life insurance, typically the things I say is for life insurance to make sense, it’s typically you have to have a spouse, a house and mouths to feed. Sometimes people that are single, they don’t have a house, they don’t have dependents, maybe it doesn’t make sense unless they have loans that are not going to be forgiven upon death. So the same thing with professional liability. We want to make sure that it makes sense for the scope of practice that they’re in and that they have things that could potentially be lost. But you know, for the most part, it is something that you want to take a hard look at if you’re a pharmacist. And I kind of hearken back, Tim, to the story that was done about kind of the — I know they interviewed a community pharmacist, and I’m blanking on who wrote the story, but the amount of scripts that that pharmacist filled in one day, it was like it’s crazy. So there’s potentially going to be mistakes, and those mistakes could have far-reaching effects. So you know, again, strategically it’s something that we definitely, we need to work through all those different parts of the insurance and make sure that we are properly covered in that regard.

Tim Ulbrich: So Tim, to that point, you know, just like health and life and disability, we’re trying to determine who needs it and how much do they need? So talk to us — and you alluded to this a little bit already — when it comes to professional liability insurance from your point, who needs to be evaluated and what considerations should they have as they’re doing that evaluation?

Tim Baker: Yeah, so you know, when we’re looking at professional liability, basically what this is, it’s coverage for a pharmacist that provides protection in the event a claim is made against the pharmacist involved in an actual or alleged or admission while carrying out his or her duties that are within the scope of practice for a pharmacist. And the hard part is that the scope of practice is a moving target. And it’s going to be defined by your respective state, so in your state licensing board. So again, it’s not necessarily a black-and-white issue for a pharmacist in whatever state USA. So to me, from our viewpoint is the idea is that if you are a practicing pharmacist and you’re interacting with patients, if you’re volunteering, if you’re giving advice, like I said, when we talk about side hustling a lot, there are a lot of pharmacists that they might moonlight and work in a hospital pharmacy. These are all instances that expose you to risk that you want to cover. And even policies — even claims that come up where hey, you worked at a hospital and now you don’t work there anymore and a lawsuit is filed, you’re not necessarily going to be covered under that employer plan, so having your own policy is kind of what we’re looking for. So to me, again, it’s going to depend on kind of what the day-to-day is of the pharmacist. Now, I can say — I kind of admit here most of the time, I would say probably 90% of the time, I say this is something that you really should consider if these are some of the blocks that you’re checking off. And part of that is because they are very inexpensive. But you know, these are going to be policies that for many of our listeners is going to be something that we want to have in play for sure.

Tim Ulbrich: And I’m glad you mentioned the piece about scope of practice because that is a moving target. You know, in Ohio, we’ve seen changes to scope of practice, significant changes, that have happened in the last 12 months. And I expect we’ll see that continue to happen as other states are. So in my conversations with some of these providers, I think we’re going to see these policies catch up to scope of practice, but many of them are not there yet. And so there’s a pretty standard policy that you’ll see. But obviously a pharmacist’s role in Setting A versus B versus C can be very, very different. So I think that’s an important consideration that people are thinking about. So anytime you’re purchasing a policy, again, whether it’s life, disability or home, auto, here professional liability, it’s good to know not only the purpose but what it’s going to do in the event that you need it. So if I’m purchasing a professional liability policy, what benefit would there be? What would it ultimately cover in the event that my employer, any coverage through my employer, may not be doing exactly what I need it to do?

Tim Baker: So typically, you know, the big thing here is it’s going to cover the — basically the professional liability itself. So you know, typically these policies will cover you for $1 million for each claim, $3 million in aggregate liability policies. So if you have a judgment against you, and in this case it was I think right around — what? — $750,000, you know, if you have this policy and it’s going to cover you — like your part of that is going to be covered by the professional liability. If you don’t, then that’s again when you are dipping into retirement, selling your house, that type of thing. License protection — so sometimes these issues don’t go to lawsuit, they’ll go to the licensing board. And you’re having to protect yourself with attorneys and things like that and investigation. So they’ll cover you a certain amount of money each year for those types of claims. It could be loss of wages. It could be for, again, hiring an attorney for your defense. It could be for, you know, just actions taken against you while providing pharmacy services while volunteering or giving Uncle Dave verbal advice or claims brought against you from a previous employer. So these are all things — and again, at the end of the day, the policies that your employer has are for your employer. They cover you by extension because you are an extension of your employer. So but at the end of the day, they are there to protect the institution, not you. And you know, there can be some certain instances where you think you’re covered and you’re not. So things to think about, you know, with regard to your employer’s policy is the coverage they have high enough for all your coworkers? So if that judgment that we talked about in the case study was $5 million, as an example, like would that be able to cover everyone? Does it cover your lost wages or licensing board hearings or things like that? Does it cover outside of work? Most of the time, it will not. They don’t want that liability. And what happens if you’re employed? So at the end of the day, it’s going to provide you with your own counsel, your own attorney. It’s going to pay all the reasonable costs incurred during the defense and investigation and cover for lost wages because this is something that’s going to take up time. You know, you’re going to be probably not practicing or not able to. So these are some of the things that you’re going to be looking or be covered when these policies are in place and definitely good to have your own.

Tim Ulbrich: So Tim, what about those that are listening to this show that are self-employed, work as an independent consultant, or work part-time for another employer in addition to their full-time job? How does this come into play?

Tim Baker: It’s definitely — yes. Like yes, yes and more yes. So I would say definitely look at the professional liability. So you know, this is going to cover you for professional pharmacy services outside of your employer setting, as long as it’s within the regular duties and activities of scope of practice. So again, that’s the moving target, and that’s the challenge to organizations like HPSO and some of the other ones that provide because it’s — or provide these types of policies — because it is ever-changing, and it’s changing by state. So but the best thing that you can do, what’s in your span of control is to buy the policy, purchase the policies that are there and just make sure that you are operating within the scope of practice of the state that you are practicing as a pharmacist. And for some people, I would venture to say a lot of people don’t know that. So maybe the second part of that is just to say, “OK, what is in bounds? What is out of bounds?”

Tim Ulbrich: Yes.

Tim Baker: And again, it’s something that you don’t — to reiterate the point — you don’t want to make the assumption, right? You don’t want to make the assumption that you’re covered or what you’re doing is because that’s how it’s always been done because things change and assumptions are made, and that’s typically where people run into a problem.

Tim Ulbrich: Tim, one area we haven’t talked much about, if at all, on this show before is where umbrella policies fit in and don’t fit in and really, what type of coverage they provide. And here, I’m thinking, as many may be wondering, if I have an umbrella policy or if I don’t and I were to get one, is that applicable at all here in terms of additional coverage if a professional liability issue would come up? So talk to us about not only that question but maybe some intro first into what are umbrella policies.

Tim Baker: Yeah, so an umbrella policy is an extra liability insurance coverage that typically goes beyond the limits of your property and casualty insurance. So property and casualty insurance being typically homeowners and an auto policy. So I’ve heard this before where, you know, someone will say “Well, I don’t necessarily need professional liability because I have an umbrella policy that covers me.” And I would say just separate lanes here. Just like life insurance is a separate lane from disability insurance, an umbrella policy, separate lane. It’s still liability, but we’re talking about kind of the personal liability side versus the professional liability side. So you know, typically, people that have umbrella policies have maxed out their homeowners and auto liability coverages. So typically, the maximum you can purchase for a personal liability policy under homeowners is like $500,000, you know, $250,000 per person, $500,000 per accident. And then you know, the same is true with the auto is kind of along those lines. So once you reach out to your auto provider and you max out those coverages, then they might say, “Hey, because of your profession or because of this or that, you have rental properties, do you want additional coverage?” which is very, very inexpensive just to go be above and beyond that. So there’s a little bit of a misnomer that if you have an umbrella policy, you’ll be covered from a professional liability. And they’re typically separate lanes with regard to the financial plan. So those, you know, those are policies that are going to really just sit on top of what you already have from auto and homeowners.

Tim Ulbrich: Last thing I want to talk about is just the actual purchasing, shopping, evaluating process. And we’ve talked before on the show and on the blog about when you shop for life and disability insurance — and we talked about this on episodes 044 and 045 of the show — how complex that process can be in terms of the range of options that are available, you have a whole host of different riders and often, you may not feel like you’re comparing apples to apples. And I think when people go into that shopping process, they can quickly get overwhelmed and maybe never get past that to be able to actually purchase what they need or end up with something that might be more than what they need. So what is really different here in terms of a pharmacist who’s looking to evaluate a professional liability insurance policy?

Tim Baker: Yeah, so you know, I hate to say that sometimes insurance can be a bit of a commodity, you know, and I think one of the reasons that we like HPSO in particular is I think they do lead in terms of education, which I kind of hold near and dear to my heart because I’m a big believer in the better educated the client will be, the better client you will be. So but I think also, you know, you want to work with a provider here, an insurance provider here that’s plugged into the profession. So — and I can say I’ve worked with different ones over the years and I feel like I’m really looking to point clients in the direction where they’re going to be responded to and good customer service and all that type of stuff. So I think the big thing is in terms of policies is what is actually being covered? And am I educated in terms of what my risks are and what my coverage is, you know, to mitigate those risks? And then how easy are they to get to set up? And then how confident am I in the ability to — the policies to ebb and flow and evolve over time? So HPSO is for health providers, it’s in the name. So we want to make sure that we’re working with a provider that kind of checks those blocks and makes sure that our listeners, our clients, are covered in the uneventful — or unhappy time that could be a judgment against you because of a professional liability error.

Tim Ulbrich: As we wrap up this week’s episode of the Your Financial Pharmacist podcast, I want to again thank our sponsor, HPSO. HPSO is the leading provider of professional liability coverage, insuring more than 100,000 pharmacists nationwide and sponsored by the American Pharmacists Association. As I mentioned before, when I was a practicing pharmacist, I carried my malpractice insurance through HPSO. And with individual policies for qualified persons starting at just under $150 per year, it’s a no-brainer compared to the cost of a claim and worth the extra peace of mind. Plus, discounts are available for qualified students and recent grads. So head on over to HPSO.com/YFP to learn more. Again, HPSO.com/YFP. And as always, if you liked what you heard on this week’s episode of the Your Financial Pharmacist podcast, please do us a favor and leave a rating and review in Apple podcasts or wherever you listen to your podcasts each and every week. Have a great rest of your day.

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