More hospitals ‘going bare,’ taking big gamble on med mal
More hospitals ‘going bare,’ taking big gamble on med mal
With a tough economy and mounting pressures on healthcare providers, more hospitals are going bare and foregoing medical malpractice insurance coverage in the hopes that they can cover any judgment on their own. While such a step usually does not violate any laws or state requirements, going bare should be the last resort for a hospital in crisis, sources say.
Many states do not require hospitals to carry malpractice insurance, and self-insured hospitals are more likely to be found in regions with a history of large malpractice verdicts, notes R. Stephen Trosty, JD, MHA, CPHRM, president of Risk Management Consulting in Haslett, MI. Trosty previously worked for an insurance company.
“I think we are seeing an increase in hospitals going bare,” Trosty says. “Part of it has to do with the economy, but part of it has to do with the increase in frequency and severity – especially severity, and particularly in large urban areas.”
Hospitals also find themselves facing tough decisions about how to spend a sometimes shrinking or static pool of money while the cost of healthcare increases steadily, he says. When a hospital is in crisis, the choice often comes down to hiring nurses or paying a medical malpractice insurance premium, he says.
When the choice is that desperate, many hospitals choose to hire the nurses and try to convince themselves that going bare is a legitimate, if risky, strategy. (See the stories on p. 114 for the risks associated with going bare.) “Going bare should be a last resort. This is not a creative budgeting strategy that might help you manage your finances better,” Trosty says. “You do this when you don’t have any other choice, because there is the risk that you’re taking a bad situation and making it worse.”
Going bare or self-insured is not something to undertake without considerable study, Trosty says. Simply dropping the insurance premium and socking that money away for self-insurance is not enough. It is crucial to have accurate actuarial studies to determine how much money should be set aside for self-insurance, for example. The goal is to set aside as much as you need, but not considerably more, Trosty explains. “If you don’t set aside adequate funds, it becomes an exercise in futility,” Trosty says. “If you go this route to avoid closing your doors and you don’t do it right, ultimately it can end up forcing you to close your doors.”
When that happens, that doesn’t mean the crisis is over, notes Gary Patterson, MBA, CPA, CEO of FiscalDoctor, a financial consulting firm in Alpharetta, GA. Even if the hospital is out of business, the board of directors can be held liable for a malpractice award, he says. (See the story on p. 114 for risks to board members and executives.)
For-profit hospitals are at somewhat less risk of having a malpractice payout bring them to their knees because they sometimes can obtain support from a parent organization, Patterson says. Non-profits often are on their own, he says.
“How many board members are going to quit when you announce you’re going bare?” Patterson says. “After a big loss, the plaintiff’s attorney is going to bring in a financial expert like me who will claim that you could have afforded that malpractice insurance if you hadn’t given the CEO such a large bonus or you had cut physician pay 5%. Then it becomes an issue of board governance.”
Patterson advises risk managers to document that they advised board members to obtain a legal opinion of their personal exposure from going bare, so that there can be no claims later of dereliction of duty.
“Your personal brand reputation is at stake as a risk manager,” Patterson says. “If the hospital closes because of financial problems, that is not going to look good on the resume of any administrator. At a minimum, you need to be able to show that you saw trouble coming and tried to warn them.”
Sources
• R. Stephen Trosty, JD, MHA, CPHRM, President, Risk Management Consulting, Haslett, MI. Telephone: (517) 339-4972. E-mail: [email protected].
• Gary Patterson, MBA, CPA, CEO, FiscalDoctor, Alpharetta, GA. Telephone: (678) 319-4739. Email: [email protected].
With a tough economy and mounting pressures on healthcare providers, more hospitals are going bare and foregoing medical malpractice insurance coverage in the hopes that they can cover any judgment on their own.Subscribe Now for Access
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