Moving with the times


Moving with the times

What will the Affordable Care Act mean for medical professional liability? HRMR examines the current situation and looks to the future.

The newly released Aon/American Society of Healthcare Risk Management (ASHRM) Hospital and Physician Professional Liability Benchmark Report states that the costs associated with medical malpractice are growing at the slowest rate in the 14-year history of the study. In addition, Aon is projecting zero growth in the number of total medical malpractice claims in the US.

“We conclude that given the fact that healthcare professional liability claims are subject to a pretty complex set of geographic, societal and technological influences we feel these influences are for the most part under control and in check—and that has resulted in a pretty low inflationary environment for medical malpractice,” says Ron Calhoun, managing director, US Healthcare Practice, Aon Risk Solutions.

Another contributory factor is physician employment trends. “A lot of healthcare organizations are continuing to employ physicians and they’re using their self-insured facilities to cover the medical malpractice for those employed physicians,” says Calhoun.

“There’s a tremendous amount of cost savings in doing so because they can have much more of an influence on patient safety initiatives. There’s a uniformity of risk management in that environment and the physician and facility piece of a claim can be jointly defended when that happens, so there are some efficiencies driven there.”

Calhoun says that the PIAA (Physician Insurers Association of America) insurance companies that sprang out of medical malpractice crises in the 1990s and early 2000s are now losing their market share to the self-insurance vehicles adopted by the new integrated healthcare delivery systems that are springing up as a result of the Affordable Care Act (ACA).

Maintaining market share

A result is consolidation within the PIAA community, with larger organizations buying up the smaller ones.

“That’s creating downward pressure, and maintaining the current soft market,” he says. “These are forces that are purely market-driven; they’re not driven by frequency or severity, they’re purely driven by the PIAAs trying to maintain their market share.”

This is just one way in which the ACA is having a significant impact on the field of medical professional liability. Another question raised by Aon’s research is whether the flattening out of medical malpractice claims is in any way affected by the changes—particularly the consolidation and clinical integration—that are coming about as a result of the ACA. The link to physician employment patterns suggests that the ACA is playing its part.

“An important focus of the ACA is to improve the quality of care provided by healthcare professionals and entities. To accomplish this, significant efforts are being made by healthcare providers (physicians, nurses, hospitals) to coordinate care, which is really positive,” says Derek Jones, principal and consulting actuary for Milliman.

“The twist with respect to medical professional liability is that there could be a higher standard of care to which care providers are held—this could actually increase exposure to claims. And while everyone hopes that coordinated care decreases the frequency of all errors, it’s conceivable that coordinated care will reduce the number of small claims without having a significant impact on the number of catastrophic errors.”

The formation of accountable care organizations (ACOs) is of course aimed at improving quality and cost containment. “On the positive side there could be better communications, better collaboration and coordination of care, which could all be positives to reduce adverse outcomes and reduce liability costs,” says Ed Wrobel, managing director in Towers Watson’s medical professional liability practice.

He says that the potential new liabilities that emerge out of that are concerns similar to those the industry experienced in the past when HMOs (health maintenance organizations) first came about; if there is an attempt to control costs and then an adverse outcome, there is the potential that a patient will view this as denial of care.

“In other words you may not get all the procedures you want, you may not be able to sign up to every test under the sun, you may not have entirely free choice of who your physician is. Those things have the potential to create some new risks and increase some costs, and in fact there are insurance coverages being developed around ACOs and these new liabilities related to utilization review, credentialing of physicians in the organization, and the like,” Wrobel says.

Risks of cost reduction

Jones agrees that the focus on reducing costs could lead to problems for risk managers. “Many ACOs have been formed to facilitate coordination of care and cost management,” he says. “If cost management leads to a reduction of diagnostic testing, it is conceivable that medical professional liability claim frequency could increase due to increased failures to diagnose medical conditions that would have otherwise been identified.”

Another possible effect of the ACA, says Wrobel, centers around the focus on wellness and preventive care. Before the ACA and the launch of the health exchanges, more people were without health insurance. They were more likely to present themselves in the emergency room having already become seriously sick, leading to a higher risk of adverse outcomes—which can lead to malpractice claims.

“Those situations have potential for adverse outcomes but if you’ve got people focusing on wellness earlier on, you may be preventing more serious adverse outcomes that would have occurred later on—so that’s generally a provision that could be helping the malpractice situation in the future.

“If, however, the system isn’t utilised properly then we don’t have that wellness in preventive care taking place; we simply have more people in the system and more patients coming through. There’s more potential for medical malpractice as there are more units of service coming through. So those are the pros and cons in a very general increase of the insured population,” he says.

Related to the increased population of insureds is a shortage of primary care physicians and a corresponding focus on non-physicians such as nurse practitioners and physician assistants playing a bigger role.

“There are pros and cons to this, too” says Wrobel. “Those folks tend to follow evidence-based practices and algorithms and the like that could improve care, but if you’ve got more non-physicians seeing patients and complications occur, there is the potential for increased malpractice. Those are the things that our clients are concerned about and that we’ll be keeping an eye on.”

Another area of focus for Wrobel is value-based payments; the goal of healthcare reform is not only to increase the insured population but also to focus on quality, and as such payers including Medicare will be focusing on value-based payments, including non-payment for services such as hospital readmissions.

“That’s a good incentive for improving on patient safety and that could be a good thing if the incentives are aligned and there’s appropriate reaction to that so patient safety is improved. From a pure liability standpoint, however, risk managers are concerned that a non-payment for services could be interpreted and translated very directly by the plaintiff’s bar as verification of negligence.”

Risks in transition

Another issue risk managers should be alert to is the increased focus on discharging patients from hospital earlier and transitioning them into alternative care settings.

“That’s the area that risk management needs to focus on,” says Calhoun. “I would say they need to be making sure that as patients transition into lower level care settings with higher levels of acuity, they need to make sure that liability coverages stand appropriately between the acute care facility and those alternative care settings so there’s a direct liability consequence.

“There’s also a vicarious liability consequence because you have these transitional care models that are owned and controlled by the healthcare institution that’s providing the care as opposed to the commercial insurer, and there are some vicarious liabilities that are tied to those models as well.”

In the light of this changing landscape, some insurance providers have responded with new product offerings. Jones points out that with the emergence of ACOs, there has been a need for risk managers to obtain medical professional liability (MPL) coverage for the entire group of care providers. 

“The insurance industry has begun to address this need for a package of coverages—for example, Willis and IronHealth recently unveiled an ACO liability policy that is intended to address the MPL coverage needs, together with other liability coverages such as D&O and GL, for the ACO as a whole,” he says.

The new larger health systems have more capital and have the ability to retain more risk than perhaps smaller segmented entities did, adds Wrobel. Many of these health systems have captive insurance companies in place focusing on medical malpractice.

“We’ve been in this period in the medical malpractice arena where results have been pretty favorable. They’ve built up a lot of capital in these captives so they now have a solid base to be looking again across the enterprise at the various risks that have been presented and areemerging—so we’re definitely seeing a lot of activity and strategic thinking around the future use of captives.

“The traditional physician insurers are thinking more about how they can support these new hospital systems.”

Notwithstanding all these changes, Jones believes the role of the risk manager has not changed dramatically as a result of the ACA. 

“For care providers that participate in an ACO or are otherwise coordinating care with others, there are some potential logistical challenges. For example, an ACO’s risk manager might have to balance the physician’s desire to defend against MPL suits to the end with a corporate entity’s desire for the most efficient outcome, which might lead to settlements when the cost to defend vigorously could be very expensive,” he says.

From Calhoun’s perspective, the number one challenge facing healthcare providers across the country now is the necessity for many providers in the US to become much more clinically integrated in order to survive successfully in the new world of value-based payment models. With this comes the need to forge an alignment between the clinical aspects of these models and the quality and clinical risk management side, and to make sure they are in harmony.

“Another consequence of that is to make sure that they are financially protected as they begin to assume more of the financial risk behind the clinical risk,” he adds.

It’s clear that while the ACA may usher in an era of more streamlined, better integrated healthcare, the attendant risks need careful monitoring, and are yet to be fully understood.

The Aon/ASHRM report: key findings

The 2013 Hospital and Physician Professional Liability Benchmark Report was released in November by Aon Risk Solutions, the global risk management business of Aon, in conjunction with ASHRM.

“We project zero growth in the number of malpractice claims,” says Erik Johnson, healthcare practice leader for Aon’s Actuarial and Analytics Practice and author of the analysis. “Healthcare professional liability claims are subject to a complicated set of geographic, societal, and technological influences. These forces are largely in check, resulting in a low inflationary environment for medical malpractice.”

Alternative ways to express professional liability costs

New in this year’s report is the use of hospital admissions and revenue as a basis for benchmarking medical malpractice cost levels. The report estimates that in 2014 medical malpractice claims will represent $0.60 per every $100 of hospital revenue, or an average of $135 per hospital admission. Using simple, accessible statistics such as revenue and admissions translates benchmark statistics into tangible terms with direct meaning for healthcare financial managers.

Physician employment trends

Healthcare organizations are achieving efficiencies and savings by employing physicians and using their self-insurance facilities to cover medical malpractice, states the report. The cost savings are achieved by promoting patient safety, uniformity of risk management and jointly defending claims, when they happen. However, Johnson warns: “Some costs that would have traditionally been covered by the physician are now shifted to the hospital.”

“Risk management involvement and investment in patient safety have translated into improved medical malpractice results,” says Calhoun. “Hospitals are focused on containment of traditional risks such as medical malpractice while they take on new opportunities introduced by the ACA and the transition from fee-for-service models into outcome-based models.”

Noteworthy statistics from the 2013 Aon/ASHRM HPL report:

•  Projected loss rate for hospital professional liability is $2,940 per occupied bed equivalent (OBE) for events occurring in 2014. The frequency of claims is projected to be 1.67 percent per OBE and the severity of claims is expected to be $176,000 per claim.

•  Projected loss rate for physician professional liability is $6,030 per class 1 physician for events occurring in 2014. The frequency of claims is projected to be 2.97 percent per class 1 physician and severity of claims is expected to be $203,000 per claim.

•  Projected loss rate for hospital general liability is $119 per OBE; the average general liability claim is expected to be $36,000 for claims occurring in 2014.

•  Projected loss rate for obstetrics claims occurring in 2014 is $171 per birth; emergency department is $6.16 per visit.

The hospital professional liability benchmark database includes claims from all US states and provides specific benchmarks for 28 states. Florida ($7,440) and Pennsylvania ($4,720) have the highest projected loss rates for 2014; Indiana, ($800) and Minnesota ($810) have the lowest projected loss rates for 2014.

Using its excess claims database, the Beazley Group provides analytics detailing the increasing severity of the largest claims by venue and highlighting the disproportionate impact of obstetric claims on large claim trends.

Data from Aon’s self-assessment tool, the Risk Maturity Index, indicates that hospitals are advanced in their approach to risk but have room to further integrate risk management throughout their organizations.

The full 2013 Hospital and Physician Professional Liability Benchmark Report is available to purchase by following the link on the ASHRM website  

Affordable Care Act, Aon, medical professional liability, Ron Calhoun