The Supreme Court is holding the fate of the Patient Protection and Affordable Care Act of 2010 in its hands, but that hasn’t stopped the medical malpractice liability market from developing new products and taking other factors of “Obamacare” into consideration.
Frank Castro, National Health Care Practice leader for Willis North America in Los Angeles, said there is a lot happening in terms of health care reform exposure education, and not just with insureds.
“We are doing a significant amount to educate commercial insurance carriers on risks we see facing clients and prospects [as a result of health care reform],” Castro said. “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 health care reform preparedness.”
Willis’ discussions have yielded one product so far for the post-health care reform medical liability marketplace, called Accountable Care Organization Insurance Liability Policy. Accountable care organizations, or ACOs, are defined as networks of health care providers working together to provide full-spectrum health care services for patients. The ACO model also will employ billing systems that pay health care operations based on the quality of patient care they provide, rather than on each individual service.
Castro said even if the health care bill is overturned by the Supreme Court, ACO-like structures still will be developed, meaning policies like Willis’s will become necessary.
“The health care organizations in North America realize that the [fee-for-care] policy we have now cannot go forward,” he said. “The payment methodology change is occurring either with or without health care reform.”
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 includes 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. The policy is through IronHealth, a division of Ironshore.
Cause for Concern
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,” which are those of $50 million or more. The report, which cited losses from March 2010 through January 2012, found medium-size losses of $2 million to $10 million are also growing steadily.
Thompson said the major concern 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,” said Ian Thompson, senior vice president of health care 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. Consequently, Thompson said, carriers need to be asking why this is happening and if it is something to look out for.
“We are concerned that hospitals and health care have done a great job to mitigate losses, but the bar continues to rise,” he said. “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.”
Health care reform could contribute to this worsening, Thompson said, because it could have a big impact on the way health care institutions buy and manage their risk.
Insurance agents also need to make sure their clients are buying enough coverage if losses do start to creep up, or they will be opening themselves up to E&O exposures.
“There are some bargains to be had for buyers, and I would encourage them to look at new layers and limits,” Thompson said.
MMIC Group CEO Bill McDonagh, who is located in Minneapolis, said the company has not seen a rise in claims, nor is that reflected in the national data that he has been following. However, he said the medical malpractice arena has been in a period of low frequency for the past five years and that it is just a matter of time before that will end.
Beyond the Supreme Court
Of more urgent concern, McDonagh said, is the consolidation of the health care industry that will continue regardless of what happens with the Supreme Court’s decision on the current health care bill.
“Many more physicians are becoming employed in health care systems and large groups where decisions are being made by administrators instead of the physicians themselves,” he said. “More cases will settle than in the past because of concerns about press and public relations. That is something we are monitoring very carefully.”
MMIC launched a risk retention group in January because of the consolidation happening in the industry. The company needed to do so to work with insureds expanding beyond the company’s current eight-state territory, McDonagh said.
Castro said Willis also has not seen evidence of anything that could turn the market quickly, and expects the market will remain flat for the foreseeable future.
For now, he said, independent insurance agents should focus on how they can best serve their clients when, not if, health care reform takes place.
“I think agents need to know and be keenly aware of the business needs of clients in a post-health care reform environment,” Castro said. “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.”
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