Don't fear the change


Don't fear the change

The scale and pace of healthcare reform in the US means a rapidly shifting landscape in terms of the risks healthcare providers must consider. But healthcare risk managers must not fear change—instead, they must embrace it, says Paul Greve of Willis Healthcare.

The US Supreme Court’s decision to uphold the constitutionality of the Patient Protection and Affordable Care Act (PPACA) reinforced the already rapidly accelerating movement towards healthcare reform. Despite political opposition and the possibility of a weakening or repeal of PPACA, healthcare reform will permanently alter the landscape of what is perhaps the most important industry, one that affects virtually every American citizen’s life from birth to death.

At present, there are too many variables to predict what kind of a healthcare delivery system will exist five or 10 years hence. Even if PPACA were overturned, there would still be a strong movement towards clinical integration. The healthcare industry’s payers—the Centers for Medicare and Medicaid Services (CMS) and other commercial health insurers and health maintenance organizations (HMOs), along with hospital systems—are the primary drivers of reform. The rapid acceleration of healthcare costs is a societal concern. Payers will primarily focus on payment methodologies that will require hospitals to manage populations through metrics that will improve outcomes and directly affect reimbursement.

Whether or not PPACA is upheld, the movement towards clinical integration will continue virtually unabated. Clinical integration seeks to create a more aligned and efficient healthcare delivery system at macro and micro levels. The goals of clinical integration are alignment, efficiency, prevention, lowest cost, and highest quality.
Change presents challenges and opportunities. New liabilities can arise and risk management strategies should be refined. These challenges include:

• Increased healthcare (hospital and medical) professional liability exposures;

• Increased non-professional liability exposures: cyber, fraud & abuse, directors & officers, errors and omissions; and

• More complex claims defense.

Healthcare reform may also reduce clinical risk in numerous ways. Regardless, risk management strategies of healthcare providers must evolve to address the challenges posed by reform.


Although the national environment for hospital and medical professional liability is surely the best it has been since the mid-1970s, thanks to widely enacted malpractice reform laws and a focus on patient safety, the potential for hospital and medical professional liability claims continues to exist. One trend that must be closely observed is the increased number of ‘jumbo’ malpractice verdicts since the beginning of 2011.

Healthcare systems have become increasingly larger through mergers and acquisitions. They are highly capitalized and as potential defendants, they are perceived to have ‘deep pockets’. Healthcare systems’ increased size could adversely affect public and patient perceptions thus leading to more litigation if they are perceived to deliver impersonal care.

The acquisition of physician practices and other entities such as ambulatory surgery centers and imaging facilities, for example, creates the potential for increased vicarious liability. The exposures are often new and may be unfamiliar, such as claims for physician misdiagnosis. 

The formation of networks and accountable care organizations (ACOs) creates increased exposure for allegations of ostensible agency and contractual liability.

Financial incentives could distort medical necessity decisions. Whereas a fee-for-service payment methodology can lead to over-utilization through increased testing and therapies, bundled payments to provide care for large populations may lead to under-utilization. Providers will need to evaluate when utilization can be safely decreased at the macro and micro levels.

The potential also exists for an increased volume of patients entering the system to seek primary care. There is real concern that there are inadequate numbers of primary care physicians and physician extenders, such as physician assistants and nurse practitioners, to serve these new patients. Patient encounters could be shorter and healthcare professionals may be spending less time with patients, thereby contributing to errors resulting in harm.

With new reimbursement methodologies driving new approaches to patient care delivery, the legal standard of care will evolve accordingly. But the standard of care will remain fluid for the indefinite future. Claims and risk management strategies of healthcare providers must take this into account.


Cyber/network privacy liability

Reform and clinical integration will require vast volumes of protected health information (PHI, under the Health Insurance Portability and Accountability Act [HIPAA] laws) to be transmitted among healthcare providers. Financial information will be transmitted as well. This creates the potential for cyber/network privacy liability. Internal policies and practices must be adopted to address these exposures but human error will still occur.
The classic healthcare scenario is the lost laptop computer with PHI on potentially hundreds or thousands of patients. Commercial insurance policies are now available to insure this risk.

Directors & officers liability

Another exposure is antitrust when providers are excluded from ACOs or other healthcare delivery organizations or networks. The chief allegation is economic credentialing. Directors & officers policies can address this exposure.

Regulatory liability

HIPAA violations, fraud and abuse violations and other government fines and penalties come into play in the increasingly regulated healthcare industry due to reform. Commercial insurance policies that can assist with defense and legal costs and payment of fines and penalties for regulatory actions, if permitted by statute, are available.

Errors & omissions coverage

If providers accept bundled payments, they will be making decisions about utilization and appropriate methods of treatment. This is primarily a management decision but can cross over into clinical decision-making and thereby create a professional liability exposure as well. Commercial errors and omissions policies are available that can also include coverage for clinical liability if that is not found elsewhere in a provider’s insurance program.

Financial risk

Evolving reimbursement methodologies, such as bundled payments, may cause providers to accept the financial risk of caring for large populations of patients. This has been compared to the capitation payment methodology that was increasingly utilized in the 1990s. A commercial insurance product is available to help mitigate financial risk. It is called either provider excess or provider stop loss and works much like an employer stop loss policy or a HMO reinsurance policy.

For all these non-professional exposures, commercial insurance coverages are available, although cost may be prohibitive for some, such as regulatory risk. Many large healthcare systems are assuming some or all of the risks for these exposures through self-insurance vehicles, chiefly captive insurance companies. A need for higher limits of coverage may be created through the impact of reform and should be discussed with defense counsel and insurance brokerage staff.

Many healthcare organizations are also devising enterprise risk management (ERM) strategies. ERM goes beyond addressing the traditional property/casualty risks and takes into account organization-wide risks created by operations and finance.


The defense of healthcare professional liability claims will become more complex with reform and clinical integration. There potentially will be more co-defendants due to more participants in delivering patient care to large populations such as within an ACO where not all participants are owned by a single entity.

More patient encounters may potentially increase claims and as stated previously, there can be more vicarious liability for newly acquired entities and physician practices. Contracted entities may create ostensible agency exposure but this can be addressed with contractual indemnification language.

Hospitals will be defending physician claims and their claims staff may lack the experience of defending individual physician claims. The hospital’s full excess insurance limits can potentially be exposed in a physician claim.

More telemedicine risk may result if healthcare systems cross state lines. This means managing claims in unfamiliar venues using defense firms that are new to the claims staff of the healthcare system.

These claims defense issues raised by reform are all manageable as long as there is a conscious effort made to address them even before litigation results. Joint defense and collaborative defense agreements can be attempted, particularly with local physician carriers. Healthcare systems that are self insured for the first layer of coverage may have more flexibility in this regard. 


Evolving risk management strategies must be focused on patient populations and on individual patient encounters. If there truly will be a major increase in patient volume due to PPACA’s impact on those currently uninsured, then managing patient expectations as to wait times, comparative brevity of patient encounters, and the use of physician extenders must be taken into account in risk management programs. Managing patient expectations can be done verbally, through written materials, and through online applications.

There must be more focus on risk management for physician extenders. Historically, these professionals have not generated a high volume of claims but the increase in patient encounters may challenge their diagnostic skills. Protocols must address physician supervision and the limits of physician extender practice.

Implementation of the electronic medical record (EMR) presents huge operational challenges and increased potential for liability. Defense counsel should be consulted as to medical record preservation, discovery, and other defense implications of the EMR.

With more physicians being employed, critical test results management becomes important in risk management strategy. Technological solutions are available to reduce this risk.


Although new risks will certainly emerge from the impact of reform and clinical integration, it is important to recognize that it may reduce risk as well. Patients may be less likely to sue if health insurance covers the cost of poor outcomes.

One goal of reform, for example, is to reduce over-utilization. Less treatment should mean less patient exposure to harm. The focus on preventive care should reduce the need for more acute care therapies that can create side-effects or errors.

The EMR will improve communication among professionals and reduce errors over the long term although implementation glitches may cause errors in the short term. Bedside clinical informatics through the EMR or other technologies can reduce errors and help professionals make better and more timely diagnoses and treatment. Telemedicine makes specialty care available that would not have been in the past.


The era of healthcare reform is just beginning and the pace of reform is rapidly accelerating. New risks pose new challenges for healthcare risk managers.

It is important that organizational risk management strategies take into account the emerging clinical and non-clinical risks of reform and clinical integration and consciously address them. Claims defense strategies must also evolve accordingly.

In devising these new risk management strategies, risk managers can call on the expertise of their business partners, such as defense lawyers, insurance brokers, insurance carriers and their risk management consulting staff.

Risk control approaches can be devised as can risk financing strategies to deal with the challenges of reform. The commercial insurance market can assist in transferring many risks created by reform. Alternative risk transfer strategies can also be devised. ERM is increasingly being utilized by large healthcare organizations.
For healthcare risk managers, the catch-phrase should be: “Don’t fear the change! Be the change!”

US Supreme Court, Patient Protection, Healthcare, Clinical integration, Liability, Privacy