Robert J. Dubraski, president and CEO of Dubraski & Associates Insurance Services L.L.C., and Mark Manzi, chief operating officer and property/casualty practice leader for the San Diego-based brokerage, spoke with Business Insurance Associate Editor Sheena Harrison about emerging risks that health care risk managers and insurance buyers are facing. Edited excerpts follow.
Q: What are the biggest risks that health care organizations are facing right now?
Mr. Dubraski: If I look back from a big-picture standpoint, really what's happening is health care reform and the economics of health care are causing the biggest change in the business that we've ever seen before. So there, as a result, are all kinds of new challenges and risks that these organizations are facing across the board. There's unprecedented change, unprecedented risk and unprecedented financial challenges that health care organizations are facing due to reform and the economics of health care.
Mr. Manzi: Not only do health care organizations need to manage their traditional risks like medical malpractice or workers comp, they need to address some of their emerging risks as their organizations change. Many hospitals are acquiring physician practices and many hospitals are acquiring other hospitals. So the questions that arise are how will they handle their extended reporting period or tail issues? How will they integrate their physicians into their programs? Are current (insurance) limits, retentions and aggregates adequate? Will they commercially insure their physicians, especially problem physicians or those with high-risk specialties? By acquiring a hospital or a physician practice, do we have an employment practices exposure that we might not have had?
There is definitely going to be and already is increased regulatory scrutiny on fraud prevention. Government billings, regulatory compliance, fines and penalties, medical billing and (errors and omissions) are all going to be concerns for these new organizations. The push to electronic records presents a whole host of data privacy and security issues. Also, providers now understand that for them to stay competitive or survive, they're gong to need to provide good outcomes based on value-based care. But they're also going to need to be involved in the financing side of the equation. So many systems are finding the best way to do so is by either launching their own insurance plans or purchasing a hospital that already owns one. So then the result of that is the need for a managed care E&O policy or some sort of stop-loss (coverage).
Q: Do you expect the increased patient load from the Patient Protection and Affordable Care Act to generate increased medical malpractice exposures for health care organizations?
Mr. Manzi: Given the increase in the number of patients coming into the system, we can conclude that health care organizations are going to see more patients and have more patient encounters. Therefore, we would probably see the number of claims going up. In addition, with the greater emphasis on value and outcomes and increased transparency, health care organizations will be held to a higher standard for their results. So with the combination of this higher standard, the physician shortage and the already-stressed provider system, we would expect to see an increase in claims activity when mistakes are made or are alleged to have been made. The interesting thing to remember is while there are going to be a lot of new insureds, many of these patients were already in the system as uninsureds.
Q: Do you expect the Affordable Care Act's move toward bundled payments to create additional exposures?
Mr. Manzi: Now that organizations will receive a single payment for services delivered by various providers, we do see some additional exposures coming out of that. Some health care providers will now need to purchase stop-loss insurance … to provide financial protection against catastrophic claims incurred from patients who are included in the bundled payment contracts. In addition, these organizations or contracts are going to present exposures similar to those addressed in managed care E&O policies, such as antitrust, negligence, utilization review, credentialing, breach of contract, etc. The fortunate thing is there are policies available in the marketplace that can address those.
Q: Have you seen med mal and other professional liability insurance rates falling or stabilizing in recent years? What's driving the trends you're seeing in pricing?
Mr. Manzi: Yes, med mal rates have been falling over the last several years. While we've seen some pockets of rates stabilizing recently, the continued favorable underwriting results and ample capacity by current underwriters and even new underwriters coming into the market lead us to believe that there'll be continued pressure on carriers to offer favorable premium rates for their insurance. The combination of improved underwriting results and the current capacity and new capacity should provide competition.
Q: Do you see hospitals and health care organizations moving toward self-insurance or captives in order to manage some of their risks?
Mr. Dubraski: Employee benefits and captives are challenging because you cannot put (Employee Retirement Income Security Act-protected) plans in a captive without Department of Labor approval. The one exception is stop-loss for self-insured medical plans. Some of the big, sophisticated health care systems are, in fact, using their captives for employer stop-loss in some form or fashion. But it's not a huge audience. I see limited growth there. The managed care area is also very interesting. There are so many new risks out there because of … health care reform, because of all the managed care contracting techniques that are now happening. Those organizations that have captives or want to establish captives may, in the future, use their captives for part of this risk. In general, only the huge health plans or very large hospital systems that have the data are able to truly effectively use their captives.
Mr. Manzi: We have seen this to some extent. I've heard a lot of health care executives say they need to control their own destiny, so we have seen an uptick in conversations regarding the use of alternative risk solutions, such as captives. However, the competitive pricing that remains in the medical malpractice market is there. So the broker and the client need to determine what the right mix of self-insurance and risk transfer is. On the other hand, we have seen some carriers who have some clients who have actually closed their captives. But mostly there is a conversation about alternative risk because clients still want to control their own destiny, and that's smart.
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