The way health care is delivered and financed is undergoing major change, and this is reshaping the risks that hospitals and physicians face on a daily basis.
Among other challenges, hospital risk managers are grappling with greater physician integration and changes in state legislation that influence professional liability costs, according to an annual industry study by Aon Risk Solutions.
The 13th annual “Aon/ASHRM Hospital and Physician Professional Liability Benchmark” report identifies other trends as well, including a rise in hospitals using their own self-insurance to provide medical malpractice coverage.
The report captures key statistics on the performance of the hospital professional liability market, including:
The projected loss rate for hospital professional liability is $3,030 per occupied bed equivalent (OBE) for events occurring in 2013. The frequency of claims is projected to be 1.93 percent per OBE, and the severity of claims is expected to be $157,000 per claim.
Projected loss rate for physician professional liability is $7,510 per class 1 physician for events occurring in 2013. The frequency of claims is projected to be 3.81 percent per class 1 physician, and the severity of claims is expected to be $197,000 per claim.
The projected loss rate for obstetrics is $193 per birth; surgery is $124 per in-patient surgery; the emergency department is $7.04 per visit.
Health care-acquired conditions such as infections, injuries, medication errors, objects left in surgery and pressure ulcers account for 29 percent of total hospital professional liability costs.
The hospital professional liability benchmark database includes claims from 48 states. Florida ($7,660), Pennsylvania ($5,150), New York ($4,080) and New Mexico ($4,050) have the highest projected loss rate for 2013. Indiana ($950), Minnesota and New Jersey ($1,100) and Texas ($1,660) have the lowest projected loss rate for 2013.
Analysis provided by The Beazley Group shows the pediatric and academic health care systems exhibit lower frequency but significantly higher severity compared to other systems.
New types of state legislation are emerging as the Affordable Care Act is implemented. Two states recently enacted laws that address professional liability, or medical malpractice, and are focused on delivering quick and fair compensation to patients suffering a medical injury.
Massachusetts enacted a law that adopts a mandatory 180-day cooling off period, where providers are given the opportunity to disclose the event, offer an apology and negotiate compensation.
New Hampshire lawmakers passed an act establishing an early offer alternative in medical injury claims. The program provides patients the option to settle medical liability claims within 90 days of injury.
“These states are at the forefront in changing the environment for health care providers as the laws move away from traditional tort reforms, such as caps on non-economic damages, and move toward restructuring the patient/provider relationship,” said Erik Johnson, Health Care Practice leader for Aon’s Actuarial and Analytics Practice and author of the analysis. “This legislative trend shares a synergy with the health care reform legislation in that they are focused on innovations that would promote efficiencies and unlock savings that are currently ingrained within the system.”
Physician Employment Trends
Hospitals are employing more physicians and using self-insurance facilities to provide medical malpractice insurance coverage. Hospitals point to cost savings, streamlined claim defense and uniformity of risk management practices as benefits of such a strategy. Yet self-insurance involves unique challenges, such as consideration of physician tail and prior acts coverage.
According to survey respondents, the majority of health care systems provide tail coverage for physicians leaving the organization, but most (67 percent) do not respond to claims related to prior acts that occurred before employment.
“The ability to mitigate, transfer and/or manage the current traditional risks facing health care providers should be considered an assumptive core competency of health care providers and their business partners,” said Ron Calhoun, managing director at Aon. “The new health care landscape will be impacted by a range of developments, such as new alignments across all providers and care settings, and among multi-hospital and multi-physician groups; payer-provider links for risk sharing; data integration and patient management; and financial and data transparency. IT infrastructure and process improvement will be critical to success.”
“This challenging environment increases the pressure on health care providers to seek the most appropriate and cost-effective insurance programs,” said Dominic Colaizzo, chairman of Aon Risk Solutions’ Health Care Practice.
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