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Health care providers exposed to broader executive liability risks


NATIONAL HARBOR, Md. — Traditionally, executive liability exposures do not rate among the highest priorities of risk managers in the health care industry, according to panelists at the American Society for Healthcare Risk Management's 2012 conference in National Harbor, Md.

That all may change very soon, panelists said, as emerging economic trends and new legislation could significantly broaden the scope of legal and financial exposures threatening executives and board members of health care providers.

“As risk managers in the health care industry, we deal day to day with professional liability and general liability, but we really don't deal all that closely with executive risks,” said Amanda Mount, an attorney in the national health care practice of Houston-based McGriff Seibels & Williams of Texas Inc. “We're not involved in the high-level board meetings; we're usually not involved in mergers and acquisitions, or any of the large property purchasing, of any of the other things that the executives really are seeing day to day. Because of that, executive risks tend to be a bit overlooked.”

That hands-off attitude toward executive liability risk management might not be tenable for much longer in the health care industry, though. Panelists said there has been a sharp increase during the last year in the number of mergers, acquisitions and other consolidations among hospital groups, physicians' practices and miscellaneous medical care providers.


In fact, more than 290 mergers and acquisitions have been recorded in the health care services industry since the beginning of the year, a 9.3% increase over totals recorded through the first two quarters of 2011, according to a quarterly study by Norwalk, Conn.-based Irving Levin Assoc. Inc.

“Just think of all of the mergers and acquisitions that have been going on in the health care industry recently,” said SouWei Brune, an Atlanta-based senior vice president of Willis North America Inc.'s financial executives practice, adding that studies have demonstrated that a wide majority of M&A activity typically generates at least one lawsuit against individual directors and officers.

“Usually, it's against the company being acquired,” Ms. Brune said. “So if there is M&A activity going on or being planned in your organization, you definitely want to make sure that you're brought into the loop, because your underwriter is going to be very interested in the due diligence process.”

The growing trend of health care providers, particularly hospital systems, directly hiring physicians also could have substantial implications on an organization's executive liability insurance portfolio — particularly its employment practices liability coverage — panelists said, especially if those physicians will be granted hiring power.

“It used to be that if you had a couple of bad-egg doctors that threw a tantrum and chucked some equipment around an OR, but they weren't yours, they were there on contract,” Ms. Mount said. “Now, most likely, those are your employees, so that's definitely going to be your liability if someone alleges a hostile work environment.”


Of course, health care providers and their insurers are all waiting to find out how the emergence of the accountable care organization as an alternative health care delivery model will shape executive liability in the health care industry going forward. The federal government has created a couple of safe harbors enabling health care providers to do things that otherwise might have fallen under the purview of antitrust laws, panelists said. However, there is presently very little claims data to offer much guidance for risk managers in terms of absolute exposures.

Still, Robert Snyder, a Houston-based senior vice president of Willis North America's national health care practice, said it is not difficult to predict how certain liabilities could be assigned to an organization's executives under the right circumstances.

“Some of the concerns are issues such as doctors and entities that are not included in your ACO, and the possibility that they could have some cause of action on the basis of having been excluded from your ACO,” Mr. Snyder said. “We can be assured that we will see some claims arising from the failure to reimburse providers who participate in ACOs. All of that would undoubtedly name in a complaint the senior executives of a particular health care organization, including the ACO itself.”