The Doctors Company’s $1B Buy May Spur More Malpractice Insurer Deals

News that The Doctors Company is spending $1.3 billion to buy ProAssurance and take the specialty medical insurer private could be a sign of more consolidation among companies in the business of selling medical malpractice coverage.

The Doctors Company’s purchase comes with healthcare costs rising and a wave of consolidation and buyouts among physician practices of all sizes. The Doctors Company is one of the largest physician-owned providers of medical malpractice coverage in the country and will broaden its position as a more diversified partner to physicians and healthcare systems, analysts say.

“The acquisition will increase The Doctors Company’s scale and strengthen its position as a leading medical professional liability insurance carrier,” Fitch Ratings said in a report analyzing the deal.

Terms of the deal call for ProAssurance stockholders to receive $25 in cash per share, representing an approximately 60% premium to the closing price per share of ProAssurance common stock on March 18, which was the last day of trading on the New York Stock Exchange prior to the deal’s announcement. The transaction was valued at $1.3 billion.

The top executive at The Doctors Company acknowledged the need to do a deal to grow in today’s consolidating healthcare industry.

“Healthcare is a team sport and the teams are getting larger,” said Dr. Richard E. Anderson, chairman and chief executive officer of The Doctors Company. “In order to provide them the best imaginable service requires a mission-based company with nationwide scale, resources, and dedication to all medical professions and healthcare providers. The addition of ProAssurance to The Doctors Company significantly enhances our ability to serve healthcare professionals now and well into the future.”

To be sure, most physicians coming out of residency aren’t buying their own medical malpractice coverage because they are going to work for someone else whether it be a hospital or health system or medical group. The larger entities therefore provide the malpractice coverage.

Meanwhile, where physicians practice is also changing rapidly as hospitals and health systems merge and other entities look to buy and consolidation physicians whether they be large retailers or private equity companies

The combination of The Doctors Company and ProAssurance hopes to draw physicians given their long-time ties to doctors and doctor ownership.

“Both ProAssurance and The Doctors Company were founded by physicians in response to the medical liability crisis of the 1970s,” said ProAssurance president and chief executive officer Ned Rand.

“Both companies have grown over the years by bringing together other physician-founded companies,” Rand added. “This shared history has helped both companies fulfill our shared mission to protect others and given us similar operating philosophies and cultures. Bringing the strengths and capabilities of our companies together now will allow our teams to continue to serve today’s healthcare providers with the necessary scale and breadth of capabilities.”