July 7, 2020
If a storm ripped through your town and damaged the roof of your pharmacy, how would you pay for it? What about if your delivery driver got in a car accident? Or you accidentally dispensed the wrong medication, and a patient sued you?
With thin profit margins, unplanned expenses like these can be a killer, which is why pharmacies need to make sure they have a full suite of insurance to cover them. Fully protected pharmacies will have multiple lines of insurance, and cookie cutter policies from national or neighborhood insurance agents probably won’t cut it.
“There are coverage forms that are standardized and used by the majority of insurance companies in the country, and those forms exclude, from a professional standpoint, many activities pharmacists do on a daily basis,” said Michael Egan Jr, program director at the Pharmacy Insurance Network, a division of The Selzer Company. Because of this, pharmacies have to be aware of their specific needs to make sure they are getting the right kind of coverage.
Before you can get an insurance policy, the insurance agent will request information regarding the operations of the pharmacy including historical insurance claim experience. The historical claims reports are called “Loss Runs,” and they identify the claims that were reported and paid during the past three to five policy periods, even if you had zero claims. Eligibility is determined differently for different kinds of insurance policies, but Egan said, “Underwriters are using previous loss experience to predict future loss experience, and then using that data to support the price of the policy.”
For property insurance, the location of your building plays a big factor in price. Crime statistics in your neighborhood or living in an area susceptible to natural disasters like hurricanes can affect how much you pay.
“Professional liability is a unique underwriting gem when it comes to pharmacies,” Egan said. “That’s really where the most exposure is.” Professional liability insurance covers claims made against the pharmacy for bodily injury caused by professional error. To determine your eligibility and rates, underwriters will go through your operations. One of the most important eligibility factors is if you perform sterile or non-sterile compounding. While most patient-facing pharmacies only do non-sterile compounding, Egan explained, “Sterile compounding is a lot riskier for the underwriters.” Pharmacies that perform sterile compounding do have insurance options, but the cost is significantly higher.
Another factor evaluated by the insurance company underwriter is the ratio of pharmacists to prescription volume. “Lopsided ratios are potential warning signs for a loss in the future,” Egan said.
Insurance agencies also want to know about other facets of the business, like if a pharmacy provides durable medical equipment, respiratory equipment, or rentals.
When you buy health insurance, you typically find yourself trying to choose between a high deductible plan with low premiums or a low deductible plan with high premiums. But when it comes to pharmacy insurance, that relationship doesn’t play a huge role. For the large percentage of retail pharmacies, deductibles are only found on the policies that provide first-party coverage like property and auto insurance. “When you switch from a $1000 deductible to a $5000, typically the savings aren’t substantial enough to justify that increased deductible,” Egan explained. “You’d have to have five or six years of no claims to realize the savings of having a higher deductible.”
With that in mind, the key to finding the right insurance policies is making sure they provide the coverage you need. This can be harder than it seems. Egan commonly sees pharmacies with “Swiss cheese coverage with a lot of gaps in it.” Most insurance agents develop one-size-fits-all plans for major players and don’t spend time learning the needs of smaller businesses like community pharmacies, he said, which is why it’s important to find a provider that specializes in independent pharmacy.
One of the gaps Egan often sees in coverage is professional liability. Most pharmacies don’t properly scrutinize the details of the policy, which will vary among insurance companies and commonly fall short. Boilerplate insurance policies often use language that excludes consulting, diagnostic, or referral services like blood tests; prescribing or administering drugs; and managing drug therapy. In other words, the bulk of pharmacists’ job duties. “If a pregnant woman comes in and asks what kind of Tylenol she should take, that’s consulting,” Egan said. “Or they may show a patient how to use diabetic test strips, which could trigger the blood test exclusion.”
For pharmacists who want to dig into the nuts and bolts of their coverage, Egan recommended looking specifically at what is excluded from the policy to see if the services they provide are on the list. Professional liability insurance designed with pharmacies in mind typically has very few exclusions. Egan said, “The only exclusions you might run into are requirements that you are performing services you are licensed for and you are not breaking the law.”
Even if you’re happy with your coverage from an agency that has experience with pharmacies, Egan urged that owners shouldn’t blindly renew their policies year after year. Though the coverage could remain flawless, their insurance company may be passing on un-justified rate increases that are cutting into the pharmacy’s bottom line. If that’s the case, it’s probably time to shop around.
This article was published in our quarterly print magazine, which covers relevant topics in greater depth featuring leading experts in the industry. Subscribe to receive the quarterly print issue in your mailbox. All registered independent pharmacies in the U.S. are eligible to receive a free subscription.
Read more articles from the June issue:
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