Malpractice premiums rise, and some can’t obtain insurance: How to survive
In this unstable market, you must sell your program to insurers
When the insurer covering Bristol (TN) Surgery Center got out of the medical malpractice business, the prospects were not good. Initially, the manager thought the facility might have to pay $36,000 just for tail coverage.
The University of Pennsylvania Health System has seen its insurance premiums for the facility and physicians increase $20 million, according to David W. Kennedy, MD, FACS, professor and chairman of the department of otorhinolaryngology: head and neck surgery at the University of Pennsylvania Medical Center in Philadelphia.
The story is similar in same-day surgery programs and in other facilities across the country. Many primary carriers have stopped writing medical malpractice coverage. Prices are up, and limits of liability are capped. Some carriers are getting out of the medical malpractice insurance business altogether, including St. Paul, MN-based The St. Paul Companies, which was the largest facility writer and provided coverage in all states.
"Their sudden exit has created great anxiety and instability in the [medical malpractice] market," says Brad Shannon, vice president of James G. Parker Insurance Associates, a Fresno, CA-based network of independent insurance agents and brokers. "Remaining insurers are struggling with the flow of business and the capacity to provide coverage," says Shannon, who spoke on this topic at the April meeting of the Federated Ambulatory Surgery Association (FASA).
Bristol Surgery Center wasn't alone. Quail Surgical and Pain Management Center in Reno, NV, is facing a November deadline to find a new carrier because the facility's current carrier is St. Paul. And Lebanon (PA) Outpatient Surgery Center lost its carrier, and now it's facing the possibility of losing a couple of "excellent" physicians who may move out of the state due to insurance premiums, says Anita Fuhrman, RN, director of the center and president of the Pennsylvania Ambulatory Surgery Association.
Physicians' premiums have risen 15% to 40% in Pennsylvania, Kennedy says.
So what are the reasons behind the dramatic changes? One is that the number and value of severe claims are up dramatically, Shannon says. "Claim value has increased from $2.2 million in 1999-2000 to $3.6 million in late 2000 to present," he says. "This dramatic sudden increase in claim value has caused insurers to view their pricing as inadequate."
Freestanding surgery centers generally have had limited malpractice losses, so many centers have been able to maintain reasonable prices for their insurance, Shannon says. However, surgery centers are not considered a separate group from an insurer’s perspective. Instead, these centers are pooled with large regional hospital systems, teaching hospitals, physicians, nursing homes, and other entities that together have experienced significant malpractice losses, he says.
"I think it’s a ripple effect," Fuhrman says. "All health care providers are really going to have to help pay for those payments to plaintiffs." She points to payments in malpractice cases in some Pennsylvania counties that have been higher than payments for entire states elsewhere in the country.
So what can surgery centers do? Consider these suggestions:
• Explain your active involvement in risk management. "Show it to the underwriter," Shannon suggests. "When sending in a bid, attach a copy of your risk management plan."
• Demonstrate your accreditation. Show insurers that you have been accredited by the Joint Commission on Accreditation of Healthcare Organizations in Oakbrook Terrace, IL, or the American Association of Ambulatory Surgery Centers in San Diego, Shannon advises.
• Demonstrate your involvement with national and state associations. "All of these serve to promote good loss experience, which will positively affect underwriting decisions and pricing by insuring companies," Shannon says.
• Start at least three months before your renewal date. Start working with your carrier or broker well in advance of your renewal date, Shannon advises. "You have to give enough time for them to go to the market and make sure underwriters have plenty of time to evaluate the risk," he says. Carriers are overloaded with business because of narrowing of the market, Shannon warns. "It may take 30 days for them to begin to look at it," he says. "They’ll come back with questions, and you’ll go back and forth."
• Consider technology that will reduce your premiums. Some same-day surgery programs have been advised by their insurance companies to consider active electrode monitoring (AEM) as a way to boost safety and reduce premiums. AEM reduces the risk of injury during surgery with electrosurgical instruments because the shielded and monitored instruments are continuously directing stray energy away from the patient via a protective shield, sources say.
The "Recommended Practice for Endoscopic Surgery" in the Standards, Recommended Practices & Guidelines (2002) from the Denver-based Association of periOperative Registered Nurses states, "Use of active electrode monitoring devices minimizes the chance of insulation failure, direct coupling, and capacitive coupling."1
A program specifically for surgery centers
Help may be on the horizon. Shannon is working to establish a national medical malpractice program for surgery centers and surgical hospitals. There are three potential carriers, and he hopes to have something finalized by August 2002. He maintains that such a program could accomplish two goals:
1. It could establish specific loss experience that, on a large scale, could lead to "appropriate" pricing.
2. It could provide a profitable volume of premiums to give surgery centers leverage for coverage and pricing.
In the meantime, medical malpractice markets are changing daily, Shannon says. "Insurers and re-insurers are indicating additional rate increases," he warns.
Also, expect some regional carriers to fail and additional companies to have their "A.M. Best" rating downgraded, Shannon says. "Some have gone from A to C in one year," he says. This will affect all areas of professional liability coverage, including directors and officers (D&O) coverage, which already has seen large price increases, Shannon says. "The staggering number of dot.com failures and the resultant lawsuits by investors has created additional loss-ratio hardships for insurers, especially in D&O insurance," he says.
Also on the agenda is a legislative effort, "The Help Efficient Accessible, Low-cost Timely Health Care Act" (HEALTH Act), which is modeled after California’s Medical Injury Compensation Reform Act of 26 years ago. The HEALTH Act would include the following: a $250,000 limit on noneconomic damages, limited plaintiff attorney contingency fees, limited statute of limitations, and damage awards based on culpability, among other reforms, according to the Chicago-based American Hospital Association (AHA). At press time, it wasn’t certain whether the legislation would pass. In April, Sen. Jay Rockefeller (D-WV) said there was no chance of liability reform passing in the Senate this year.
Trying to predict what will happen long term is like trying to forecast the weather, "only more difficult," Shannon says. "Hopefully, within two years, the market will stabilize for primary carriers and re-insurers," he says. "As capacity problems ease for insurers, more insurance companies will participate in providing medical malpractice coverage."
1. Rohlf S. Electrosurgical safety consideration for minimally invasive surgery. Minimally Invasive Surgical Nursing 1995; 9:26-29.
For information on malpractice insurance, contact:
• Etta Curtis, Director of Nursing, Bristol Surgery Center, 350 Blountville Highway, Suite 108, Bristol, TN 37620. Telephone: (423) 844-6120. Fax: (423) 844-6126. E-mail: firstname.lastname@example.org.
• Anita Fuhrman, RN, Director, Lebanon Out-patient Surgery Center, 830 Tuck St., Lebanon, PA 17042. Telephone: (717) 228-1620. Fax: (717) 228-1642. E-mail: email@example.com.
• David W. Kennedy, MD, FACS, Chairman, Department of Otorhinolaryngology: Head and Neck Surgery, University of Pennsylvania Medical Center, 3400 Spruce St., Philadelphia, PA 19104. Telephone: (215) 662-6971. Fax: (215) 662-2939.
• Brad Shannon, Vice President, James G. Parker Insurance Associates, 5377 N. Fresno St., Fresno, CA 93710. Telephone: (800) 266-7721. Fax: (559) 228-6464. E-mail: firstname.lastname@example.org. Web: www.jgparker.com.