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Where to draw the line

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CHICAGO—Commercial insurers of physicians' professional liability exposures are facing increased competition from alternative markets as well as new underwriting challenges created by the physicians themselves, experts say.

The new challenges stem from physicians' increased use of assistants in medical offices and physicians' greater willingness to provide medical services—such as botox treatments—in nontraditional settings that include spas and health clubs, according to panelists at a Professional Liability Underwriting Society symposium last month in Chicago.

In addition, panelists discussing medical professional liability coverage said they expect many problems, especially if millions of previously uninsured people enter the U.S. health system with high expectations for care.

"It's a very interesting and dynamic time," said Craig R. Rowland, vp-large group, facility and new products for Medical Protective Co. in Fort Wayne, Ind.

The overall loss picture for physicians medical malpractice insurance coverage hasn't changed much in the past 15 years, according to National Practitioner Data Bank statistics presented by Hal Kinsey, the St. Louis-based division senior vp and managing director of national health care practice at Gallagher Healthcare Insurance Services, a unit of Arthur J. Gallagher Risk Management Services Inc.

Essentially, the frequency of claims against doctors is declining, although the severity of losses—especially those costing $500,000 or more—is increasing, said Mr. Kinsey, the panel moderator.

Physicians have reacted by seeking greater control of their insurance coverage, which includes turning to alternative markets such as risk retention groups or captives, he said. Specifically, 32 of 58 new RRGs formed from January 2005 to September 2006 were related to health care insurance: 17 for physicians, eight for hospitals and affiliates and seven for nursing homes, according to statistics Mr. Kinsey cited from the Pasadena, Calif.-based Risk Retention Reporter.

In addition, "as an (excess and surplus) market, we see a lot of impact from captives and risk retention groups," said Eugenie H. Shea, the Houston-based president of the medical professional liability underwriting unit of Catlin Underwriting Agency U.S. Inc.

"The competition is still quite fierce," she said. A lot of medical professionals tapping the excess and surplus market are more interested in what those alternative entities can offer than in being insured by an A-rated company with a solid financial base, she said.

Helping fuel that competition is an increased interest on the part of admitted insurers to write noncatastrophe risks, panelists said.

One "very positive development" among some RRGs and captives is their crafting of loss control programs for individual medical specialties, Mr. Rowland said. "This change has focused (doctors) on risk management and patient safety."

alternative awareness

Now that the admitted market is willing to be competitive, alternative entities are "struggling for relevance" and are faced with a concentration of risk that can make them more financially "volatile," he said.

Robert E. White Jr., president of First Professionals Insurance Co. in Jacksonville, Fla., said he is concerned that alternative entities attract the best physicians. "Those are the people we don't want to lose," because the physicians who are left in the standard market generally have average or worse loss experience, he said.

Health care professionals should be aware that a good alternative entity typically costs more upfront to establish than might be expected and may take longer to pay out dividends to owner-policyholders with a good loss experience, Mr. White said.

Some panelists noted that although the commercial insurance market is generally better capitalized than alternative risk market options, capitalization levels are not as important as they once were. That is because when medical malpractice coverage was hard to find, many hospitals liberalized bylaws requirements that insurers be A-rated by a major rating agency. Some are reversing that now, panelists said.

From a reinsurers' perspective, though, most alternative entities have been set up "quite well," with responsible rates and appropriate startup contributions, said Nick Gralton, London-based managing director of Guy Carpenter & Co. Ltd., a Marsh & McLennan Cos. affiliate. He also heads Guy Carpenter's U.S wholesale casualty specialty unit.

"We'll see more (alternative entities) survive for the long haul," Mr. White said, "so, if you can't beat 'em, join 'em." His company is unbundling its services so that the alternative entities can purchase only those that they need.

The softening market for noncatastrophe risks may cause some physicians to leave a RRG or captive and return to the admitted market, panelists said. In that case, most underwriters on the panel said they would consider writing coverage for "prior acts"—like those that may have occurred while the physician was a member of an alternative risk vehicle—but only after examining the situation carefully.

Underwriting challenges

Underwriters agree that they are facing new challenges in writing physicians professional liability insurance because of physicians' increased use of physician assistants and nurse practitioners in their medical offices.

Among the factors driving the use of "physician extenders" are aging physicians, a desire for efficiency and reimbursement caps that encourage doctors to see more patients to maintain their income level, panelists say.

A key issue in such situations is the quality of oversight that the physician provides to assistants who see patients on the doctor's behalf, panelists said. The oversight process can be difficult to determine from an underwriting submission, they agreed.

When writing coverage for a physician, the underwriter may have to take information about oversight "on blind faith" but should follow up with an on-site audit, Mr. White said. "In many cases, you see a lack of supervision when the claims come in."

In the current liability climate, patients file claims because they have very high expectations about the quality of care they expect to receive, panelists agreed. "The expectation is that you get great care. Period," Ms. Shea said.

That situation will be exacerbated to the extent that governmental entities are successful in making health care more available to previously uninsured people, some panelists said.

"I think one of the big issues isÖour courts are trying to hold physicians accountable for what they could have done" rather what they did do was reasonably prudent, Mr. Rowland said.

Physicians can find themselves in difficult situations, Mr. White said. Consider the case of a woman patient who is supposed to take one pill daily but decides to save money by taking her medicine only every other day. When she dies, her heirs may question the doctor's care and file a claim, he said.

Drawing the line

From a reinsurer's perspective, "there are a lot of problems brewing," Mr. Gralton said. That is especially true if plaintiffs' attorneys educate the formerly uninsured about expectations for care, he said.

Underwriters also are facing new challenges because of physicians' increased willingness to provide medical services in nontraditional settings such as spas, health clubs and stores.

A number of physicians are willing to provide services such as botox injections at spas and other nonclinical settings, said Mr. Gralton, who added he expects to see "some very significant claims coming out of them."

"I was at a Sam's Club the other day, and there were nurses there doing cholesterol checks," Mr. Rowland said. "It occurred to me that as long as (the test results) were all OK, that's fine. But if one of them is not OK, what's the follow-up care that Sam's Club is committing to?"

Mr. White warned that in a litigious state such as Florida, "If they haven't set it up right to protect themselves, they will be (named) in the (lawsuit)."

He said medical services delivered in nontraditional settings raise other questions, including: Does a major drugstore chain need a professional liability corporation-type policy because of the in-store tests? Does the pharmacy chain have to insist on certain protocols? Are they in the practice of medicine now?

"Florida requires tattoo parlors to have medical directors," Mr. White said. "We want to be customer friendly to our agents and to the doctorsÖbut we have to draw the line somewhere about where the practice of medicine ends."

In such a case, "we see that as the risk of the entity. It's a business risk that the entity faces," he said.

"I think that is a question that all of us have to ask ourselves: Where that line ends. It's becoming so blurry today that it takes an extreme example like a tattoo parlor to see it," Mr. White said.

"The people who do well are the people who have the clearest vision of where that line actually lies," he said.