Medical professional presents opportunities
Fast-changing health care business requires greater expertise
By Dave Willis
An aging population, health care reform and an efficiency quest are driving changes in the health care arena and having an effect on medical professionals and, as important, medical professional liability insurance.
"By 2015, some 45% of the population will be over age 50," explains Bill Yurek, area president of specialty wholesaler RPS Healthcare. "Between 2000 and 2050, the number of citizens age 85 or older will increase by 350%." This aging of the population will drive continued growth in the need for high-quality health care.
As demand increases, providers face several challenges. "We're seeing greater integration and amalgamation of health care delivery," explains Rob Francis, chief operating officer of The Doctors Company. "Solo, small and large group practices are being purchased by larger practices or hospitals, and this is substantially changing insureds' service needs."
Jeanne Braun, executive vice president for hospitals and special programs at Physicians' Reciprocal Insurers, sees a couple of factors driving the consolidation wave. "First is a shrinking pool of dollars available to pay for Medicare patients," she explains. "Second, small doctor groups can't negotiate what they consider to be adequate fees from managed care companies."
Bigger hospitals and doctor groups carry more leverage, Braun adds. "This brings increased scrutiny, more competition and a greater investment in quality," she says. "These factors offer new medical professional liability opportunities that brokers should evaluate, as long as they are knowledgeable and keep current about the health care dynamics."
At the same time, explains Francis, consolidation is eliminating many practices formerly in the small group or sole practitioner market. "Agents specializing in these smaller accounts may face a drop in business," he notes.
As health care reform implementation moves forward, the medical community is witnessing the emergence of Accountable Care Organizations (ACO), which coordinate care between patients and medical providers. "ACOs are part of a federal initiative, enacted as part of the 2010 health care reform act, and are designed to improve quality of care and deliver savings by offering financial incentives," Braun says. "Hospitals and participating doctors, which together make up the ACO, can get a 'bonus', so to speak, for meeting benchmark targets." She says bonuses will be small at first, but are projected to be substantial going forward. "There also are penalties for non-compliance," she adds.
A quest for greater efficiency and lower costs has led to more Medicare audits of health care providers. Dale Nelson, area vice president and broker at RPS Healthcare, explains that Recovery Audit Contractor (RAC) audits were created by the Tax Relief and Healthcare Act of 2006 to identify and recover erroneous Medicare payments to health care providers. The audits are performed by independent contractors, who are paid a percentage of the revenue they recover.
"It's a question of when, not if, providers will face such an audit," Nelson asserts. An audit can cost a small physician group up to $100,000, he notes, "and it can take up to 24 months to complete." Agents should be mindful of RAC audits—and opportunities to address them with insurance—when talking with clients and prospects.
Another trend in the health care industry is growth among allied health facilities—operations generally smaller than hospitals, which offer a range of ancillary medical services. "These include ambulatory surgical centers, imaging centers, medical labs, urgent care centers, and even medi-spas," Yurek explains. "They all need medical professional liability insurance.
"Growth is being driven by economic factors and the population's aging," he says. "Today there are more than 5,500 surgicenters throughout the United States, 2,800 imaging centers, 5,000-plus medical labs, and more than 11,000 home health facilities."
Mixed bag of opportunities
Retail agents and brokers can expand their medical professional liability business by uncovering market needs and finding appropriate solutions. "The biggest opportunity is with the new, larger, emerging groups," explains Francis. "Insurance needs and buying decisions are changing within this evolving market space. Agents and brokers must identify the key players and enter into key partnerships to remain viable."
Francis continues, "While these changes represent opportunities for a number of agents and brokers, they are a threat to others, given their current service and sales models. Larger agencies and brokerages with more sophisticated risk management capabilities may find a good fit, but some agencies may find their business drying up."
This is particularly true if their book consists primarily of smaller medical facilities or practices, or if they don't have the expertise or markets to handle the complex needs of larger health care organizations. "If the average medical professional liability account size increases from 2.5 doctors to 20, will smaller agencies be able to compete against those with broader contacts, markets, and experience, and greater system-based risk management capabilities?" Francis asks.
When working with larger groups, Yurek suggests that agents focus on coverages that address specific exposures. "There's an emerging opportunity to cover ACOs for managed care liability and vicarious medical malpractice," he explains. "Also, consider aggregate stop-loss coverage, because these organizations will contract with other providers to provide care for certain patient groups."
He also sees a growing opportunity to create a loss-portfolio transfer. "Insurance companies will come in and take over all known claims of an acquired hospital, and even provide tail liability for claims that are incurred but not yet reported," Yurek says. "Similarly, as health care systems buy up physicians' practices, carriers are offering tail liability coverage at relatively attractive rates."
He says some are offering premiums up to 30% lower than the current carrier's. "The hospital might even negotiate on behalf of a physician to have somebody else pick up his tail as part of his employment contract with the hospital," Yurek notes.
Braun encourages agents and brokers to evaluate the adequacy of each client's current liability limits. "I'd recommend holding a strategic planning session with clients to learn more about where they expect to be in two or four years, so that the future absorption of doctor practices is adequately supported with insurance," she says. She recommends the use of surveys that capture information about strategic planning, expansion goals, potential acquisitions and more.
She also sees opportunities for agents driven by an increased interest in self-insuring via captives. "Many independent agents and brokers know little of this segment," Braun says. "They must build up their resources in this area, and they might do well partnering with captive specialists that bring extra value to the discussion."
Agents and brokers should identify and build relationships with a few key underwriters, Braun adds. "They can offer customized features or suggest risk-sharing structures that offer aggregate limit protection," she notes.
Braun warns agents and brokers to not overlook issues on the smaller end of the spectrum. "I'm worried that a number of smaller facilities are underinsured," she comments. "They may have built up their staffs and facilities and expanded their marketing, but they still operate with medical professional liability limits more suitable to a solo practitioner."
According to Nelson, agents and brokers should incorporate RAC audits into client and prospect discussions. "Many health care providers don't know there's affordable, comprehensive insurance coverage available to mitigate the effects of these," he says. "This is a tremendous opportunity for agents and brokers to build their client base, increase commissions, and open the door to selling other lines of coverage."
Nelson, who helps agents and brokers sell audit insurance, says virtually all producers report that new clients ask why their current agent hasn't mentioned this coverage. "That's the cue to ask to review all of their medical professional liability and other insurance needs," he says.
Yurek reminds agents of opportunities to grow their medical professional liability business by pursuing allied health care facilities. "This part of the industry is growing," he says. "They're not caught up in the mergers trend." He encourages agents to build expertise in allied health or find a partner who can complement their own capabilities. "We partner with agents and brokers quite a bit on opportunities they uncover," he notes.
Braun reminds agents to address cyber risks. "Facilities and doctors will continue to be plagued by opportunists who steal their patient data," she remarks. "These breaches aren't being treated as seriously as they should be. Brokers should highlight the importance of this protection."
In summary, Braun says, "As doctor practices grow and facilities expand, the broker's role also should expand. Exposure evaluations and clear communication about value-added services must continue to be a priority."
Dave Willis is a New Hampshire-based insurance freelance writer and regular Rough Notes magazine contributor.