PLUS seminar explores health care market
problems and possible solutions
By John Maes
Today's managed health care industry is bruised, battered and beleaguered. And times may get worse before they get better, experts said at a recent symposium sponsored by the Professional Liability Underwriting Society (PLUS). Held in Chicago in March, the symposium was attended by more than 400 insurance and health care professionals.
"Managed care is an industry under siege," said Dana Switzer, senior vice president with AON Health Care Alliance in St. Louis. The industry is currently embattled with lawsuits, along with legislation and regulation in many states. It also has taken a black eye in the court of public opinion. Various novels, films and television programs depict people struggling against what is portrayed as a monolithic, uncaring health care establishment, according to Switzer, who presided over a panel discussion on current and future issues facing the industry.
In addition to their tarnished image, managed care organizations also must struggle with a variety of business issues that continue to drive up costs while threatening the quality of operations and services, Switzer stated. "How would you like to be the chief executive officer of a managed care organization and have to deal with controlling the rapid rise in health care inflation plus trying to satisfy the growing demands of your enrollees while all time keeping in mind the very critical issues of quality and safety?" asked Switzer.
In the courts, managed care organizations are being "litigated to no end," said James M. Bream, partner with the Chicago law firm of Querrey & Harrow. Court cases are causing extension of liability, and the result threatens to continue forcing costly changes in order to accommodate the requirements of litigation, Bream explained.
Litigation patterns, "could change the very way in which managed care organizations do business," he said. Some of the cases are expanding not only the liabilities of the organizations, but their partners as well, said Bream.
The industry also faces suits by attorneys general in several states, explained Alice Johannson, assistant vice president with Chubb Specialty Insurance in Simsburg, Connecticut. Such cases are currently active in Connecticut, Minnesota and Texas. In these cases, managed care firms are being challenged over prompt payment disclosures, coverage denials and timely claims payments.
On the legislative front, 42 states have passed external grievance review clauses, 12 now have health plan liability laws, 22 have enacted mandatory point of service options and 43 require direct access to medical specialty services, she said.
Despite the significant number of states that have legislated the industry in one form or another, for the time being, "health care issues have dropped down farther on the legislative agendas" in many states, she said.
Class-action suits for wrongful disclosure of information threaten the managed care field since the privacy rules of the Health Insurance Portability and Accountability Act of 1996 (HIPAA) took effect a year ago, according to panelist Mark Lutes, of the Washington D.C.-based law firm of Epstein, Becker and Green. He warned employers to be wary of increasing risk of lawsuits over disclosure of information on individual employees. "Class actions are a real possibility because we now have a federal standard to judge negligence by," he said.
While there's nothing wrong with the overwhelming majority of information disclosures, it's the one or two mistakes that will cause trouble, he explained. "Mistakes get made every day," he said. "There are moderately inappropriate disclosures and those that are very seriously inappropriate," he said.
Lutes recommended that companies take a "holistic approach" to managing disclosure risks by developing a corporate-wide policy through multiple departments: risk management, security and legal. Company practices should be specifically inventoried so they can be documented in the event of a lawsuit. The policy should be comprehensive, specific, in writing, and it should be constantly monitored. There should be regular meetings to discuss changes, trends and developments, he said. "You should only disclose what's minimally necessary for a function to be performed," according to Lutes. "Look for opportunities to disclose as little information as possible."
Another panelist, Susan Angelo, assistant vice president for Lexington Insurance Co. of Boston, said the managed care field has evolved over the last 20 years, presenting challenges to its survival. Many managed care entities have been merged into large corporations, an inviting target for plaintiffs' attorneys who look to sue deep pocketed defendants, she said. "The mentality is that plaintiffs today think they've hit the lottery when they take on a managed care organization," according to Angelo.
The increases in health care inflation, 9% last year and a projected 8.6% this year, continue to press the industry, she added. Twenty years ago, the rate was usually about 5% annually. Not only that, the strict utilization review and more limited choice of doctors of the early '80s has given way to relaxation of those standards along with more liberal ideas of what constitutes medical necessity.
At the same time customer expectations are higher. "Consumers these days want much more coverage than they pay for," she said.
Can managed care survive the tough times? Yes, says Angelo but the industry will continue to change, with the costs of coverage continually rising to accommodate public pressure on the industry to provide more services. "Health care costs will go nowhere but up," she said.
The medical malpractice insurance market is also suffering from higher insurer loss ratios, higher jury verdicts and less available, more restrictive coverage, another group of panelists said.
E. Dow Walker, chairman of Willis Healthcare Practice, Inc., in Nashville Tennessee, pointed to loss ratios of as high as 143 for medical malpractice insurance, compared with the 112 combined overall ratio as an illustration of the current state of the market. "And there's nothing to indicate there's going to be a big change anytime soon," according to Walker, a panel moderator.
The number of multi-million dollar jury verdicts in malpractice cases is of increasing concern, said Jayme Taormina, assistant vice president for claims with the Doctors Company of Napa, California. "Verdicts are up; we're seeing dramatic increases; and it's making our jobs a lot harder," she said. In New York state alone, there have been malpractice jury awards of $114 million and $107 million, while Texas juries have awarded $102 million and $82 million in separate cases, she said. In addition, there are frequent out-of-court settlements of $500,000 or more, she said.
One reason for this spiral is that the health care establishment is finding little sympathy among jurors, many of who are dissatisfied with the quality of the medical care they receive. "Juries are angry at medicine today," said John Bashant, senior vice president with ProNational Insurance Co. of Okemos, Michigan.
The situation causes insurance claims departments to devote huge amounts of time and resources to "case preparation and jury issues" in dealing with malpractice cases, he said.
Although malpractice is a national issue, insurance professionals can help engineer significant changes if they work at local levels, especially to promote state tort reform laws, panelists said. Those from all segments of the industry should interact locally with judges, the trial and defense bar and area legislators to promote tort laws that will cap damages and jury awards, said Sarah Dore, a panelist and Naperville, Illinois-based insurance consultant. "Just because you're a national company doesn't mean you have to be only a national player," she said.
But the state of the market is not all bleak. Despite tighter conditions, compounded by the St. Paul Companies' exodus from medical professional lines, doctors can usually find coverage, Walker said.
Some malpractice insurers are successfully writing the coverage.
J. William Newton, a panelist and president and chief executive officer of NORCAL Mutual Insurance Co. in San Francisco, said his company has returned policyholder dividends for
24 consecutive years.
The reason for their success? "The emphasis we place on individual risk management, claims causation and claims issues supported by data has been hugely successful for us," he said.
Though the market void created by the St. Paul pullout will eventually be filled, it may not be done entirely by conventional insurers. Look for alternative risk transfer mechanisms such as risk retention groups and captive insurers to continue
gaining in popularity, said Phillip E. Reischman, executive vice president of Gallagher Healthcare Insurance Services in Houston. "Alternative risk financing (ART) can serve as a bridge in this hard market," he said during a panel discussion.
More premiums have been placed in the ART market over the last five years, said Seamus Tivnan, managing director of Marsh Management Services Cayman, Ltd. In 1997, one of every three premium dollars was in ART but today the total is virtually "dollar for dollar," and it could someday overtake the primary market, he said.
The author
John Maes is a Chicago-area
freelance writer.