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HARTFORD, Conn.-The shift from fee-for-service to integrated managed care systems is creating "severe growing pains" for medical malpractice insurers, according to a new report by Hartford, Conn.-based Conning & Co.
The forces affecting the malpractice insurance market could ultimately cause policyholders concern over availability, pricing and the stability of malpractice insurers, according to health care risk managers.
Competition has become "extremely heated" as "too many insurers are chasing too few points of sale," according to the report.
"In an environment where pricing may be out of sync with upwardly trending loss costs, a crisis may be in the making," according to the Conning analysts.
The continuing strong competition among medical malpractice underwriters may spell trouble in the future as insurers weaken reserves, warns the report.
"The temptation may be to continue to weaken current accident-year reserves to compensate for this soft market. The problem is there is no guarantee that a hard market is just around the corner."
New liabilities have arisen for health care providers because of the shift to managed care. Managed care organizations are attractive targets for lawsuits because they are perceived as having the health care world's deep pockets, according to Conning.
"As health care delivery systems get bigger, risks will continue to become more concentrated. As a result, medical malpractice writers may well get more of the high-risk, high-volatility claims. Under these circumstances, the requirements for large amounts of surplus to cover such risks will accelerate consolidation among medical malpractice writers," says the report.
The prospect of a market with fewer, larger players doesn't surprise health care risk managers.
"Competitive pressure can act to promote consolidation," according to Nancy Rapp, risk manager of Alliant Health System in Louisville, Ky., and a board member of the Chicago-based American Society for Healthcare Risk Management.
"Those underwriters who can offer insurance packages such as medical malpractice together with managed care liability and general liability will survive. Health care institutions and risk managers are seeking to move away from policies covering only specific and isolated risks and toward seamless coverage for the entire process of the delivery of health care in a rapidly changing market," said Ms. Rapp.
Another health care risk manager said consolidation among the malpractice underwriters will have a mixed impact on health care risk managers' ability to secure coverage.
"Few medical malpractice carriers may mean more market leverage for them and fewer choices for us," said William B. Reisbick, director-risk management for Virginia Mason Medical Center in Seattle and an ASHRM board member.
"If the return on equity continues to dwindle, the trend may be to move away from the present soft-market approach. However, malpractice carriers are acutely aware of the practice of self-insuring more risk, combining into risk retention groups, captives and other alternative risk financing methods. The commercial carriers understand their need to remain financially attractive. If not, many larger provider groups may seek only catastrophic coverage from such carriers," he added.
"To the extent that underwriters price premiums at levels that are unsound, an unstable market may result. This could lead to availability or affordability concerns if the industry overreacts," he said.
Liability awards against managed care organizations will help determine the market's stability, he said.
"The bottom line will depend on whether large managed care verdicts will remain the exception rather than the rule. Institution of policies and procedures requiring consideration of the patient's best interests first, and cost reductions second, will help make these cases more defensible," Mr. Reisbick explained.
The report left no doubt liability exposures are on the rise, for a variety of reasons.
"All attempts to monitor quality of service and access are a direct result of the growing concern about some managed care practices. High-profile news stories about drive-through mastectomies, one-day new baby stays and wrongful denial of benefits have raised concerns. However, many managed care practices, including the use of primary care physician gatekeepers, financial incentives to physicians for restricting care, utilization review and gag rules, to name a few, may lead to an expansion of potential physician liability exposures and/or new legislation to control practices. For medical professional liability and perhaps managed care liability, the list of perceived abuses continues to grow and includes, among others: failure to refer; improper referral; failure to diagnose; inadequate treatment due to capitation; delay in diagnosis; lack of follow-up; withholding information; breach of patient confidentiality; withholding or withdrawing futile care; denial of treatment, test or procedure; (and) use of lower-cost prescription drugs.
"Perhaps of more serious consequence in the long run is the vulnerability of managed care organizations-the deep pockets of the health care world-to new exposures. With the potential erosion of ERISA and utilization review more often being considered a diagnostic rather than an administrative procedure, managed care liability could develop into a new business with totally new underwriting considerations," the report says.
"Medical Malpractice to Managed Care Liability-Fifty Ways to Meet the Future" ends with a list of 50 ways medical malpractice underwriters can meet the challenges of the changing marketplace. The list was drawn from the responses of 101 malpractice insurer executives polled in April. Among the suggestions, which were arranged alphabetically rather than in terms of importance, were "sell risk management, not insurance," "reinsure managed care risks heavily," "increase risk management/loss control efforts" and "innovate new risk management tools."
Copies of "Medical Malpractice to Managed Care Liability-Fifty Ways to Meet the Future" cost $495. To order, call Lisa Pesci at Conning & Co. at 860-520-1521 or 888-707-1177.