NATIONAL HARBOR, Md. — Reduced health care utilization, state-level tort reforms and broad economic factors have held market conditions for medical malpractice insurance largely in check during the past few years, but panel discussions and industry reports distributed recently at the American Society for Healthcare Risk Management's 2012 conference in National Harbor, Md., warned that those trends could be on the verge of reversing themselves.

Medical malpractice claim severity and frequency for hospitals and employed physicians nationwide are projected to have grown by 2.5% and 1% respectively by the year's end, according to the 2012 Hospital and Physician Professional Liability Benchmarking Analysis released by ASHRM and Aon Risk Solutions during the conference. The report also noted loss rates for hospitals and physicians have been mostly stable since 2009, and are projected to have grown in both segments by 3.5% nationally by 2013.

Overall, earned rates and direct written premium pricing for medical professional liability coverage has been flat to down 5% since 2007, according to a presentation at the conference by managers with New York-based PricewaterhouseCoopers L.L.P. The relative stability in the medical malpractice marketplace is due partially to the rising number of physicians closing their private practices for positions with self-insured hospitals, which has reduced loss experiences for commercial malpractice insurers, said David Kaye, a Philadelphia-based assurance manager at PwC.

Eighty percent of hospital risk managers surveyed in the ASHRM/Aon study indicated their facility self-insures its physicians against medical malpractice exposures. Only 7% said most of their facilities' doctors are insured through the commercial market, and 13% said they use a combination of self-funded and externally purchased coverage.

“That tends to decrease the amount of premium need from insurance companies, because now you have a lot of those physicians and physician practices buying their (medical malpractice) coverage from the hospital system as opposed to the market,” Mr. Kaye said.

Reduced health care utilization — primarily as a condition of stubborn unemployment rates — and state-level reforms on malpractice litigation also have contributed to buyer-friendly conditions in the medical professional liability market, he added.

%%BREAK%%

Those conditions are not expected to last, the PwC panelists said. Medical malpractice coverage costs are expected to experience modest increases in the short term, driven upward primarily by the combination of continued consolidation among providers and projected increases in health care utilization.

“We certainly don't expect the supply of health care providers to increase as fast as the demand for care,” said Mark Proska, a Philadelphia-based assurance director at PwC.

With fewer doctors on hand, Mr. Proska said the sustained increase in the demand for medical care among aging baby boomers likely will lead to a rise in medical malpractice claims.

“We're anticipating anywhere from a 7% to 10% increase in the number of physicians from 2010 to 2020, compared to a much steeper increase in the anticipated growth in the percentage (36%) of people over 65 in the U.S. over the same timeframe,” he said.

Additionally, risk consultants at Aon warned providers of the considerable challenges associated with self-funding an employed physician's professional liability exposures, including providing transitional or “tail” coverage, as well as coverage for prior acts of doctors while associated with their former employers.

Challenges to tort reforms and changes to the health care industry at large resulting from the Patient Protection and Affordable Care Act could lead to rate and premium firming in the medical professional liability market, the PwC panelists said.

In the past decade, limitations on malpractice litigation, including caps on economic and noneconomic damages, shortened statutes of limitations for filing lawsuits and caps on attorneys' fees have contributed substantially to controlling medical malpractice cost inflation, Mr. Proska said.

“Trial attorneys today are not terribly enthusiastic about taking on malpractice cases. In fact, they're largely going away from it,” Mr. Proska said. However, he noted, seven states — including Massachusetts, Mississippi, West Virginia and Nevada — have recently overturned or rolled back previous caps on maximum jury awards for damages, and further rollbacks of existing reforms could accelerate growth in coverage rates and premium pricing.

Mr. Proska also said several tenets of the PPACA could significantly affect short- and long-term cost trends for medical malpractice insurance, including new federal standards for accountable care organizations and other provisions designed to push the industry toward value-based health care delivery and reimbursement models, federal funding for state tort reform alternatives, and the formation of an independent Patient-Centered Outcomes Research Institute, a nonprofit entity designed to provide health care providers greater access to unbiased medical research.