More providers opt for self-insurance

The move toward physician collaboration is likely to create a number of risk management challenges, along with more interest in physician self-insurance, according to the results of the 12th annual Hospital and Physician Professional Liability Benchmark Analysis from Aon Global Risk Consulting and the American Society for Healthcare Risk Management (ASHRM).

Mergers, acquisitions, and joint ventures are likely to be more common as hospitals and healthcare systems across the country look to deliver high-quality care while reducing unnecessary expenses, says Erik Johnson, FCAS, MAAA, healthcare practice leader for Aon Risk Solutions' Actuarial and Analytics Practice in Charlotte, NC, and author of the analysis.

Health systems will face significant risk management challenges associated with integrated physician-hospital medical malpractice and professional liability risks, says Ron Calhoun, managing director for Aon Risk Solutions. "This expected increase in hospital and physician collaboration can be directly linked to the Patient Protection and Affordable Care Act, which is motivating a shift in the marketplace," Calhoun says. "Hospitals are moving from volume-based reimbursement methodologies to outcome-based solutions. This requires a more integrated approach to care delivery to achieve the cost efficiencies necessary to compete in today's evolving market."

Calhoun says that in addition to the regulatory scrutiny that is likely to come with such changes, risk managers will have to watch for these potential problems:

• experience rating variables;

• allocation strategies;

• tail coverage issues;

• capital requirements;

• increased premium flow;

• financial reserve methodologies;

• coordinated defense strategies;

• clinical risk management efficiencies.

The survey found that 73% of systems surveyed will self-insure the combined hospital-physician malpractice risk. "Our findings reflect that when hospitals team up with physicians, they are effectively doubling down on medical malpractice risk," Johnson says. "As a result, medical malpractice for new physician-hospital arrangements will be a critical issue."

The collaboration trend can challenge healthcare systems in a number of ways, Johnson says. He offers these examples:

• Smaller regional and local hospitals might find themselves without the capital, infrastructure, or expertise to develop as an accountable care organization.

• Regional hospital systems might not own the assets needed to be competitive and could be looking to buy specific physician practices to fill the gaps.

• Middle market hospital systems are looking to develop capabilities to help drive efficiencies in specific clinical specialties, such as radiology and orthopedics.

• Integrated health systems might be rethinking relationships with home health agencies, home infusion companies, hospice agencies, and behavioral health firms to achieve a more seamless delivery of service post-discharge.

The Aon study details the growth of integrated self-insurance strategies and highlights the challenges faced by systems as they pursue the cost of risk savings. Included in the analysis is an examination of malpractice claim frequency and severity for hospitals and physicians by state, service, and type of claim. In terms of claims, the report looks at trends in frequency, severity, and overall loss rates related to hospital and physician professional liability for more than 10 years.

The 12th annual "Hospital and Physician Professional Liability Benchmark Analysis" is based on the participation of 117 hospital systems and more than 2,300 facilities.

Hospital liability figures have been holding steady, Johnson says. Premiums for coverage are generally flat or decreasing, he says, largely because the insurers are lower rates to remain competitive.

"We see a very consistent trend in liability for hospitals. Claims frequency is increasing at a very modest 1% rate, and the severity of the claims continues to grow at a steady rate of 4% per year," he says. "That is very similar to what we've seen in past years, so it is a stable trend."


• Ron Calhoun, Managing Director, Aon Risk Solutions, Charlotte, NC. Telephone: (704) 343-4128. E-mail:

• Erik Johnson, FCAS, MAAA, Health Care Practice Leader, Actuarial and Analytics Practice, Aon Risk Solutions, Raleigh, NC. Telephone: (919) 786-6246. E-mail:

• The 12th annual "Hospital and Physician Professional Liability Benchmark Analysis" is available for a fee from the American Society for Healthcare Risk Management at this site: Select "ASHRM store" and then enter "liability benchmark analysis" in the search box. The cost is $269 for members and $369 for non-members, plus $23.95 for shipping and handling.