Do I Need Error and Omissions (E&O) Insurance for My Billing Company?

by  Christine Woolstenhulme, QMC QCC CMCS CPC CMRS
Sep 9th, 2014 - Reviewed/Updated May 1st

Do I Need Error and Omissions (E&O) Insurance for My Billing Company?

Over the years Medical billing has been considered low risk, now it has developed into a huge liability with HIPAA, E&O and Business Associate Agreements to name a few.

HIPAA has rocked the world for small businesses. Looking at the new Business Associate agreement is enough to scare the business right out of you. If you have not seen or used the new Business Associate Agreement, you will want to take a close look at it, pay attention. Medical billers are a separate covered entity and as just as liable as the providers when it comes to medical billing.  HIPAA is not just for Doctors anymore, patients are now much more educated and will encounter a complete set of HIPAA uses and restrictions at their doctor visits. Therefore, companies that offer services to health providers have been greatly affected by HIPAA.

Business Issues, even if claims are found to be unwarranted, can quickly eat up a company’s cash reserves in no time, causing a financial hardship including legal fees and other related expenses. Most errors and omissions insurance policies cover judgments, attorney fees, court costs and settlements up to the limits of the policy, as well help with defense costs, regardless of fault as well as protection for judgments, court costs and more.

Under the new Business Associate Agreement, section 7. a) a.ii) states. BUSINESS ASSOCIATE shall maintain during the term of this BAA a policy of errors and omissions or other comparable insurance with an insurer acceptable to PRACTICE in the amount of covering BUSINESS ASSOCIATES obligations under this BAA. The policy of insurance shall name PRACTICE as an additional insured. BUSINESS ASSOCIATE shall furnish to PRACTICE such evidence of this insurance as PRACTICE deems satisfactory upon the commencement of this BAA. BUSINESS ASSOCIATE shall notify PRACTICE of any threatened or actual cancellation or termination of the insurance coverage, at least ten days prior to any such action.

What is E&O insurance? E&O coverage provides protection for you in the event that an error or omission on your part has caused a financial loss for your client. E&O insurance is specialized liability protection against losses not covered by traditional liability insurance. It protects you and your business from claims if a client sues for negligent acts, errors or omissions committed during business activities that result in a financial loss for the client. E&O covers your company or you individually, in the event that a client holds you responsible for a service you provided, or failed to provide, that did not have the expected or promised results. For doctors, dentists, chiropractors, etc., it is often called malpractice insurance. Whatever you call it, it covers you for errors (or omissions) that you have made or that the client perceives you have made. Most E&O policies cover judgments, settlements and defense costs. Even if the allegations are found to be unjustified, thousands of dollars may be needed to defend the lawsuit. They can bankrupt a small company or individual and cause financial hardship with a lasting effect on the bottom line of large companies. Cases like these can be resolved with the purchase of E&O insurance.   Don’t forget you are at risk for an event that may have occurred several years in the past, and the first time the mistake is apparent is when a court summons arrives in the mail. That’s when the retroactive date on the policy is very important. The farther back the retroactive date of the policy, the more coverage and protection it offers.

Who needs E&O insurance? In Short, If you are in the business of providing a service to your client for a fee, you have an E&O exposure. You may want to consider what will happen if the service is not done correctly or on time, and it costs your client money or harms their reputation.

Why does my company need coverage? To put it very simply, everyone makes mistakes. Even with the best employees and the best risk management practices in place, mistakes will be made. But what happens, and who pays, when you fail to catch a typographic error?  No one is perfect.

Billing companies have a lot of responsibility getting the claims filed on time, with correct documentation, clean claims with all of the proper identifying numbers any/all interaction between the provider and the insurance company (payer). What could possibly go wrong? Failing to perform these duties within specific guidelines may result in a federal investigation. It could be as simple as not filing a claim within the correct filing time and it was a very costly procedure, who will pay for the loss? Is it possible to make a mistake that may cause your clients to lose patients, contracts or reputation? 

When should I buy E&O insurance? Although HIPAA rules themselves do not require E&O insurance, you are taking a risk.  Keep in mind if you sign a BA agreement and agree to carry E&O you are taking responsibility to carry it. This will also give your providers peace of mind of knowing they will be compensated if there is an error or omission. Be sure to retro-activate the effective date on your policy,

Where do you find E&O coverage? There is no “one size fits all” E&O policy, and there is no “standard” coverage for the policies. Each plan will be customized to your needs. Each policy must be read carefully to ensure that the coverage offered fits your exposures. Having a retroactive date is very important. Claims that arise out of acts committed prior to the retroactive date will not be covered. The farther back the retroactive date, the more coverage is provided. Insureon compiled quotes from several underwriters such as HISCOX, Travelers, Philadelphia, Hartford, and my own underwriter, Farmers.

What is covered by E&O coverage, and how much coverage do I need? Some policies include the defense expenses within the limit of liability. Some will exclude punitive damages. The wording of these policies can vary greatly; again, each policy must be read carefully to ensure that the coverage fits the exposure. Different information may be needed depending on the service you are providing and the exposure you have. Some will have huge deductibles; I was quoted double the payment for half of the coverage, so be sure to do your homework. Also, remember to inquire about backdating the coverage.

• Limit of Liability Options
• $1,000,000/$2,000,000
• $2,000,000/$2,000,000
• $3,000,000/$3,000,000
• $4,000,000/$4,000,000
• $5,000,000/$5,000,000
• Errors and omissions insurance policies usually cover the business owner, both salaried and hourly employees, and subcontractors working on behalf of the business.

How much will I pay for E&O coverage? Some will have huge deductibles, and I was quoted double the payment for half of the coverage, so be sure to do your homework. Pricing is anywhere from $300/Year to $1500/Year. There are no set costs for E&O insurance. It may vary greatly depending on the class of business, location, and claims experience (both of the individual insured and of the industry they are in).  Each Quote will need to be customized to fit your needs. In my search for E&O I have been asked for copies of contracts, a description of quality control procedures, documentation procedures, training procedures, etc., and others required nothing more than a completed application. You will be asked where your business is located if you have had any claims, and the number of employees and your payroll. If you have had claims, what steps have you taken to ensure that the same errors will not continue to occur?

What steps can I take to avoid claims? First and foremost be sure to have guidelines for implementing the HIPAA Privacy, Security, HITECH and Omnibus Final rules in your office. I recommend a great book published by InstaCode, “Complete & Easy HIPAA Compliance 4th Edition.” This book is available at innoviHealth.com. It is a complete guide to understanding and implementing HIPAA and HITECH Requirements, including the Omnibus rule.

• Always have contracts that explain exactly what will be done and the fees, your responsibilities, and their responsibilities.
• Keep communication open throughout the job and keep the expectations realistic.
• Be sure to have office procedures for control procedures in place and use internal and external audits to check them.

 Christine Woolstenhulme, CPC, CMRS