The Supreme Court justices hold the fate of the Patient Protection and Affordable Care Act of 2010 in their hands, but that hasn’t stopped medical malpractice liability insurance experts from preparing for healthcare industry changes, many of which they say will happen even if the reform law is scuttled.
Some are continuing to develop products that take Obamacare into consideration.
There is a lot happening in terms of healthcare reform exposure education, and not just with insureds, says Frank Castro, national healthcare practice leader for Willis North America, in Los Angeles, Calif.
“We are doing a significant amount to educate commercial insurance carriers on risks we see facing clients and prospects [as a result of healthcare reform],” he says. “We are seeing some innovative discussions going on within [insurance] organizations about what some of the most important needs are for clients and simply around healthcare reform preparedness.”
Willis’ discussions have yielded one product so far for the post-healthcare reform medical liability marketplace called Accountable Care Organization Insurance Liability Policy. Accountable Care Organizations, or ACOs, are defined as networks of providers working together to provide full-spectrum healthcare services for patients. The ACO model will also employ billing systems that pay healthcare operations based on the quality of patient care they provide, rather than on each individual service.
Castro says even if the current healthcare bill is overturned by the Supreme Court, ACO-like structures will still be developed, meaning policies like Willis’ will become necessary.
“The healthcare organizations in North America realize that the [fee for care] policy we have now cannot go forward,” he says. “The payment methodology change is occurring either with or without healthcare reform.”
The Willis policy is a standalone product that addresses the risks these ACOs will face, including: privacy; regulatory risks; vicarious liability; employment issues; IT network development; group billing challenges; capital investment needs; legal challenges created by interplay of state and federal laws; and distribution of shared savings and/or loss payments to stakeholders.
The policy, underwritten by IronHealth, a division of Ironshore, includes director and officers liability (D&O) coverage, managed care operations liability, medical professional liability, general liability, third-party privacy protection and first party privacy protection, fiduciary liability, and a billing errors and omissions liability option.
Another cause for concern for medical malpractice insurance companies, according to a recent report by Hiscox, is the rise in large claims, or “super losses” of $50 million or more. The report, which covered incidents from March 2010 through January 2012, found medium-size losses of $2 million to $10 million are also growing steadily.
Thompson said the major worry is that there were a number of large losses in a short period of time, and it raises questions for insurers about how they handle claims and bind policies going forward.
“We have observed over a period of 18 months a number of catastrophic losses at a level we haven’t seen before,” says Ian Thompson, senior vice president of healthcare for Hiscox in Bermuda. “Is that a trend? Will we see these losses on a more regular basis, and if so what do we need to do about this as an industry?”
The medical malpractice market has enjoyed low severity and low claims frequency for several years, partly because of better risk management and patient care, so, Thompson says, carriers need to be asking why this is happening and if it is something to look out for.
“We are concerned that hospitals and healthcare have done a great job to mitigate losses, but the bar continues to rise,” he says “It’s more worrying when you have an industry that does a terrific job at sorting itself out and the losses are still happening. If we take our foot off the pedal things could get significantly worse.”
Healthcare reform could contribute to this worsening, says Thompson, because it could affect the way healthcare institutions buy and manage their risk.
Agents also need to make sure their clients are buying enough coverage if losses do start to creep up, or they are opening themselves up to errors and omission (E&O) exposures.
“There are some bargains to be had for buyers, and I would encourage them to look at new layers and limits,” says Thompson.
MMIC Group CEO Bill McDonough, who is located in Minneapolis, Minn., says the company has not seen a rise in claims, nor is a rise reflected in the national data he has been following. However, he says the medical malpractice arena has been in a period of low frequency for the last five years and that it is just a matter of time before that will end.
Of more urgent concern, says McDonough, is the consolidation of the healthcare industry that will continue no matter what happens with the Supreme Court’s decision on the current healthcare bill.
“Many more physicians are becoming employed in healthcare systems and large groups where decisions are being made by administrators instead of the physicians themselves,” he says. “More cases will settle than in the past because of concerns about press and public relations. That is something we are monitoring very carefully.”
The company launched a risk retention group in January because of the consolidation happening in the industry. It needed to do so to work with insureds expanding beyond the company’s current eight-state territory.
Castro says Willis also has not seen evidence of anything that could turn the medical liability market quickly, and expects the market will remain flat for the foreseeable future.
For now, he says, agents should focus on how they can best serve their clients when, not if, healthcare reform takes place.
“Agents need to know and be keenly aware of the business needs of clients in a post-healthcare reform environment,” says Castro. “The traditional product solutions in the market today will not meet the needs of organizations on a go forward basis. They need to understand the new risks and what solutions are needed.”
