|Medical Professional Liability
||Flat to tightening
||Flat to slight increase
|Managed Care E&O Liability
|Medical Stop Loss Liability
||Flat to tightening
||Flat to slight decrease
MEDICAL PROFESSIONAL LIABILITY
The first half of 2018 was an interesting time for the Medical Professional Liability (MPL) marketplace. While there continued to be significant capacity in the industry, there were definite signs of premium tightening. Traditionally strong healthcare carriers began changing their strategic approaches to pricing renewals and started requiring rate increases or taking more dramatic steps to protect their healthcare books. For instance, Zurich Healthcare announced its decision to exit specific, more challenging venues effective October 1, 2018, due to the number of high severity MPL claims and verdicts in those venues (e.g., Cook County, IL; Baltimore, MD; Philadelphia, PA; counties in Florida and other venues that impacted their healthcare book).
The challenges associated with operating in a soft market where Medical Malpractice insurance rates have not changed significantly in more than a decade began to affect underwriters, who sought rate increases for renewals in the first half of 2018. Such pressure for rate increases will continue throughout the remainder of 2018. In other instances, some underwriters began reducing the limits they provided to clients, historically, to try to mitigate the impact to the high severity claims that rippled through the towers of coverage.
The uncertainty surrounding the Healthcare landscape continued in 2018, with the following issues on the forefront:
- Health system mergers continued, creating “Mega-Healthcare Systems,” although a new set of religious directives from the U.S. Conference of Catholic Bishops could make it more complicated for Catholic and non-Catholic health systems to forge merger or partnership deals
- Hospitals’ continued employment of physicians
- Continued influx of private-equity backed acquisitions of physician and surgeon practices
- The changing landscape of health plans, including CVS’ announcement to acquire Aetna, United Healthcare and Optum; and Humana’s acquisition of Kindred
- Anticipation of disruptive technology, such as Amazon; Walgreens’ collaboration with New York Presbyterian; and Walmart’s ambitious goal “to be the number one healthcare provider in the country”
While these changes influence point-of-care service in the U.S., underwriters and brokers in the Healthcare sector are “re-thinking” the most cost effective and efficient models to protect the assets of Insureds and to mitigate claims risk.
Insurance and reinsurance carriers noted that combined ratios increased to over 100% in 2016 and 2017, a trend which is expected to continue through 2018. Impacting these results were multiple large medical malpractice verdicts, with over 30 in 2017 that exceeded $10 million. For example, in 2017:
- A $61.6 million judgment in Rhode Island was awarded to a patient who sued two doctors and a hospital for taking him off blood-thinning drugs, a decision that led to severe blood clots in his legs and lungs and required the amputation of his right leg. The September verdict was the largest Medical Malpractice or Personal Injury award in the state’s history.
- In March, an Arkansas jury awarded $46.5 million to the family of an infant who suffered brain damage, finding that doctors at a hospital were negligent by failing to undertake procedures to prevent a skin condition the child had from worsening.
- Following a bench trial, a Pennsylvania federal judge ruled in April that the federal government must pay $41.6 million to a couple after finding that a doctor at a federally-funded health clinic negligently used forceps to deliver the couple’s baby, which caused permanent brain damage.
The high severity settlements continued in 2018, with the Muskegon Chronicle (MI) reporting July that:
- A Wayne County jury awarded $135 million to the plaintiff in a Medical Malpractice lawsuit against the Detroit Medical Center Children’s Hospital of Michigan, according to Southfield-based Fieger Law. The lawsuit filed in 2013 focused on the care provided to Faith DeGrand of Wyandotte, who underwent a spinal surgery for scoliosis at DMC Children’s when she was 10.
The increase in the severity of MPL claims continued throughout 2017, and similar increases are expected throughout 2018, as inflation for medical expenses outpaces CPI; the cost of medical experts continues to rise; and plaintiff attorneys continue to utilize higher-cost experts.
For renewals during the first half of 2018, underwriters in the U.S., London, and Bermuda were unwilling to offer decreases to many clients and indicated their willingness to walk away from accounts if the client was unwilling to bind a flat or, in many instances, increased renewal proposal.
Additional factors that continued to challenge underwriters include:
- Claims inflation
- Batch claims
- Tort reform
- Coordination by plaintiff attorneys
- A shrinking client market
- Oversupply of insurance capacity
- Reduction in the availability of reserve releases
CYBER PRIVACY AND NETWORK SECURITY
While there have been no reported attacks on the scale of last year’s WannaCry and NotPetya attacks, the number of breaches so far this year is tracking with last year’s numbers and the Healthcare industry remains a prime target. Last summer’s ransomware attacks continued to drive increased focus on business interruption as a key component of a cyber purchase, with more availability for systems failure and contingent business interruption. The impact of the inability to either access electronic health records or of a third party vendor’s inability to process billing on a timely basis has impacted healthcare organizations’ appetite for Cyber insurance in the U.S.
Along with ransomware, the quantity of wire fund transfer fraud via social engineering continued to rise and is approaching epidemic proportions in the Healthcare sector. While coverage for this exposure can be provided via a crime or cyber policy, in most circumstances, it is substantially sub-limited in both policies. However, excess capacity is beginning to appear. Through July, the Identity Theft Resource Center (ITRC) identified 181 data breaches in healthcare organizations involving a known loss of personal identifiable information (PII). At mid-December last year, ITRC reported 366 breaches, so last year’s trend appears to be continuing into 2018.
The Office of Civil Rights (OCR) breach portal lists a total of 2,384 healthcare-related breaches since its inception in December 2015, with the makeup of the breaches as seen below:
As of April 14, OCR has now received 184,614 HIPAA complaints relating to such breaches. Civil penalties were imposed in 55 cases, for a total of $78.8 million in civil penalties. Penalties have been as large as $5.5 million in 2017 and two cases this year carried penalties of $3.5 million and $4.348 million.
Despite this activity, there remained competition for risks with good security maturity and loss histories, and improving coverage. Major insurers continued to enhance their cyber risk management tools, providing additional benefits to those clients who choose to use those resources.
MANAGED CARE ORGANIZATION E&O
Managed Care Organization E&O continued to grow as an area of exposure. Considerable activity persisted with health systems formulating Accountable Care Organizations, creating their own insurance companies to write health benefits, and participating in contracts with insurance companies in which providers assume expanded responsibility for disease management, enrollee tracking and management, and advisory services to outside practices.
Although the creation of smaller MCOs by hospital health plans has allowed insurers to diversify their books to include a portfolio of smaller accounts, underwriters are concerned about the increasing complexity of healthcare organizations. At times, that complexity has made it difficult to identify and quantify the potential risks of plan design, case management and general population health.
On a macro level, carriers continued to be concerned with the uncertainty of the repeal and/or replacement of the ACA and continued consolidation of managed care entities. Carriers closely monitored changes to the ACA. Changes in the funding and structure of the ACA may have a material impact on the managed care market.
Underwriters were increasingly concerned about current or future claims alleging:
- Design and/or administration of cost control systems (incentives, quotas, etc.)
- Down coding (insufficient revenue to providers) and allegations of deliberate slow reimbursement
- Civil rights actions from patients who are denied care
- Allegations of miscalculation of medical expense ratios
- Releases of protected health information, personally identifiable information, and payment card information
- Cyber coverage being increasingly pulled out of the Managed Care E&O policy
The marketplace for Managed Care E&O coverages remained competitive. Many healthcare accounts placed this coverage in their captives, but on smaller accounts that insure these coverages the following trends emerged:
- There were fewer overall markets writing this coverage.
- Ironshore, One Beacon, AWAC and AIG appeared among the leading insurance carriers in Managed Care E&O cover, consistently providing competitive quotes.
- Some markets offered a credit (0% to 3%) if the small grant of Cyber coverage was pulled out of the policy to be covered under the Insured’s Cyber policy.
- Rates remained static unless: (1) the Insured had adverse claims development; and (2) there was a material change in exposure (e.g., number of enrollees, type of services provided, etc.).
- For this coverage, underwriters did not seem to have any mandatory rate increases unless warranted due to changes in exposure or claims experience. However, the carriers will seek rate and premium increases comparable with an increase in exposure.
- Retentions (SIRs) depend on the type and size of the organization, but there should not be significant deviations from the past year. However, when claims or material increases in exposures (enrollment) occurred, underwriters generally tried to increase retentions and increase premium (rate).
- Overall market appetite in this space remained unchanged and underwriters will continue to entertain everything from small managed care contracting vehicles on up to large national health plans.
MEDICAL STOP LOSS: HEALTH RINSURANCE, EMPLOYER RISK & PROVIDER RISK
In the first half of 2018, the Medical Stop Loss and Reinsurance market continued to see upward pressures on rates driven by the rising costs of specialty drugs and increased frequency of high cost ($1+ million) claims. Such pressures could be countered by high-quality data and a willingness to adapt. High standards and detailed data often returned a competitive, but disciplined market, while poor data resulted in a difficult market. Additionally, the established and growing use of captives in this business lead to a wider access of markets being willing and able to accurately price the risk.
Government regulations remained an important consideration moving into 2018. Despite the current administration’s unsuccessful attempts at repealing the Affordable Care Act in 2017, the legislation has faced some serious challenges in 2018. The lack of federal action to improve specific weaknesses in the ACA and actions by the current administration to exacerbate those weaknesses continued to cast doubt on the ACA’s longevity. The ability to adapt in this ever-changing healthcare landscape and find underwriters who have adapted with it remained essential.
Mergers and acquisitions of clients was a distinct challenge in 2017 and remained so thus far in 2018, as new leadership brought new risk management strategies different than the ones that had suited clients in prior years. The uncertainty of renewal in many cases created a need for greater client management and a push to win new accounts.
These types of market conditions present the Insurance and Reinsurance industry with both challenges and opportunities for innovation.
A few ongoing trends and updates to note regarding the Medical Stop Loss market are:
- PartnerRe reported a $120 million net loss to its shareholders for Q1 2018.
- In June 2018, a significant number of PartnerRe executives and underwriters in their Managed Care and Corporate team left the company to form a new Reinsurance market entry named Sequoia Reinsurance, financially backed by ELMC Risk Solutions and led by CEO Dan Bolgar. PartnerRe’s remaining leadership has said that the company remains fully committed to the market sector. Staffing additions will be a challenge due to talent scarcity.
- HM Life announced that their 12-year relationship with MGU Risk Based Solutions (RBS) is ending and they are bringing underwriting and claims in house. The RBS team is exploring options. HM has hired industry veterans Scott Machut and Mark Lawrence. HM intends to expand in the Provider and ACO market sectors.
- Munich Re announced in late 2017 that they were exiting the HMO Re, ESL and PXS markets. The managers underwriting this business facilitated buyouts of Munich’s current accounts and left the company to continue underwriting HMO Re, ESL and PXS. The Munich MBO team formed a new MGU, using Nationwide and Everest paper to write ESL and HMO/PXS, respectively.
- The final ACA exchange enrollment for 2018 was 11.8 million lives, which is a 3.3% decrease from 12.2 million lives in 2017. This indicates strong interest from consumers in getting or remaining covered, despite actions by the current administration to undermine the ACA. Signs point to the further erosion of insurance coverage in 2019, including: the repeal of the individual mandate penalty included in the 2017 tax law; recent actions to increase the availability of insurance policies that are not in accordance with ACA minimum benefit standards; and support for Medicaid work requirements.
- Major markets (i.e., Aetna, Anthem, Blue Cross Blue Shield, and Humana) reduced their presence in the exchange market in 2018, citing large losses and growing uncertainty surrounding the future of the Affordable Care Act under the new administration. Aetna and Humana pulled out completely, while Anthem and Blue Cross only offer exchange plans in select states.
- A number of major markets had extremely poor experience with newly Insureds, which resulted in higher rates and large losses. With more data of the newly Insured population becoming readily available, there is a push to better understand how to most efficiently and effectively serve this market segment.
MEDICARE SHARE SAVINGS PROGRAM (MSSP) AND NEXT GENERATION ACOS
- The total number of MSSP ACOs increased from 480 at the beginning of 2017 to 561 in January of 2018. Similarly, the total number of assigned beneficiaries increased from 9.0 million to 10.5 million.
- With many of the Accountable Care Organizations (ACOs) in the final year of their upside-only risk contract (MSSP Track 1) for 2017, they began shifting into the MSSP’s two-sided risk options effective 2018.
- To ease this transition to Track 2 or 3, the Centers for Medicare & Medicaid Services (CMS) introduced Track 1+. Based on Track 1, this intermediary model tests a payment design that incorporates more limited downside risk compared to Tracks 2 and 3 (as well as elements of Track 3) to help ACOs better coordinate care. Furthermore, Track 1+ ACOs will be eligible to participate in advanced Alternative Payment Models (APMs) under the Quality Payment Program created by MACRA.
- The introduction of the Track 1+ model combined with the shift of many ACOs to two-sided risk contracts has increased the percent of ACOs in risk-based tracks from 9% in January 2017 to 18% in 2018.
- The Next Generation ACO Model is an initiative for ACOs that are experienced in coordinating care for populations of patients. It will allow these provider groups to assume higher levels of financial risk and reward than are available under the MSSP.
- In 2017, it was difficult to find markets that were willing to price ACOs moving from Track 1 to Track 1+ or higher in 2018 due to their unfamiliarity with the risk. As more performance years of results are published by CMS, markets should feel more comfortable effectively pricing ACOs. Additionally, increased use of captives by ACOs will provide better market access.
MEDICAID ACCOUNTABLE CARE ORGANIZATIONS
- Ten states have implemented Medicaid Accountable Care Organizations (ACOs) to align provider and payer incentives with the goal of managing costs and delivering quality care to beneficiaries. At least 13 more are actively pursuing them.
- These ACOs, similar to their Medicare counterparts, will focus on value-based payment structures, measuring quality improvement and analyzing data.
- Medicaid ACOs will also be required to provide financial guarantees, such as a letter of credit or surety bond. Consistent savings have been available through surety bonds over letter of credit pricing for Medicare ACOs and similar results are expected for Medicaid ACOs as they continue to emerge across the U.S.
MEDICARE ACCESS AND CHIP REAUTHORIZATION ACT OF 2015 (MACRA)
- This Act creates a new Quality Payment Program to reward physicians for providing higher quality care to Medicare beneficiaries by implementing two payment tracks: Merit-Based Incentive Payment Systems (MIPS) where providers are evaluated on their performance in four categories; and Advance Alternative Payment Models (AMPs), that are designed for providers who have experience coordinating care. Risks and rewards are accepted by the provider with the promise of meeting quality measures. These two tracks will begin in 2019.
- The first year of performance measuring began in 2017 and results will determine the payments to providers in 2019.
- Costs related to pharmaceuticals continue to increase year over year and cause financial challenges for health systems. Reinsurers continue to be impacted by multi-million dollar pharmaceutical claims.
- Both high-cost orphan drugs and drugs developed to treat conditions like Hepatitis C are driving costs up due to their heavy use and high demand. Additionally, high-cost drug claims often require more time for the reinsurer to review, which can lead to delayed claim payments.
- Since the Affordable Care Act (ACA) passed, there has been significant growth in self-funding. Many fully insured plans contemplated and successfully transitioned to self-funded plans.
- Benefits of self-funding include more control over the plan document, less regulatory oversight, and flexibility to choose providers and networks that best fit the plan. Additionally, the ACA implemented the removal of limits, making Medical Stop Loss insurance a tailored solution for protecting those plans that elect to self-fund.
- The number of claims exceeding $1 million more than doubled in the past five years, and now, although less than 2% of Stop Loss claimants produce costs over $1 million, those claimants account for 18.5% of the total Stop Loss payments. These higher associated claims costs are expected to somewhat slow revenue growth in the Stop Loss market; however the risk-mitigation, customization, and regulatory savings aspects of the market will continue to make it an attractive segment of Health insurance.
Technological advancements; disruptive innovations threatening core business models; recurring natural disasters with catastrophic impact; soaring equity markets; turnover of leadership in key political positions; cyber breaches on a massive scale. These and a host of other significant risk drivers are all contributing to the risk dialogue happening in boardrooms and executive suites according to a report by Protiviti and North Carolina State University’s ERM Initiative (July 2018).
Key stakeholders in healthcare organizations are requiring greater transparency about the nature and magnitude of the risks they are undertaking in executing an organization’s corporate strategy,
SHIFTING DYNAMIC IN CARE DEMANDS
As population health and value-based payment models take center stage, there is a shift from providers having control over the price and quality of care, to patients having ultimate control based on their ability to view provider quality scores and perform comparisons in order to make more informed decisions about who will provide their care. Also, a generational shift to Millennials as active decision-makers is fully underway. New approaches for receiving and obtaining care are necessary, and providers are having difficulties identifying and being flexible enough to address new requirements on a timely basis.
The epidemic of opioid misuse and abuse continues to have a profound economic impact on individuals, employers, and other groups that sponsor Health insurance plans, as well as on the care delivery system. Costs associated with opioid abuse have increased dramatically in recent years, including drug abuse treatment services and lost productivity. In just five years, claims charged to insurance companies to treat opioid dependence or abuse grew from $72 million to $722 million — an increase of almost 1,000%.
No one should be surprised that the personal injury lawyers’ national trade group in Washington hosted a seminar in September 2017 entitled: “Rapid Response: Opioid Litigation Seminar” to educate attendees about how they might leverage growing litigation opportunities involving opioid misuse and abuse. One of the breakout sessions was even titled, “Opioids: The Next Tobacco.”
Advances in technology, the current physician shortage and the dramatic increase in the number of patients seeking care under the Affordable Care Act have led a growing number of healthcare facilities to expand their use of telemedicine to deliver services to patients in hospitals as well as in remote locations. Over half of all U.S. hospitals now use some form of telemedicine to treat patients.
The delivery of healthcare via telecommunication technology presents healthcare providers and organizations with unique risks and challenges. Some of the main areas of concern are licensing, credentialing/privileging, online prescribing, informed consent, and the privacy/security of confidential health information.
Last year, a JAMA study found that nearly one-third of women in academic medical faculties reported having experienced workplace sexual harassment. According to that report, women also perceived and experienced more gender bias than men.
According to Becker’s Healthcare Review (6 December 2017), at least 3,085 employees at general medical and surgical hospitals filed claims of sexual harassment with the U.S. Equal Employment Opportunity Commission between fiscal years 1995 and 2016.
According to EEOC data obtained by BuzzFeed News, 170,000 sexual harassment claims were filed during the 21-year period. Roughly 83% of the claims were filed by women, while 15% were filed by men. Two percent of individuals filing complaints did not specify a gender.
This trend illustrates, among other things, a lack of sexual harassment and diversity training and sexual harassment policies as a general matter in the industry.
Hospitals may be places of healing, but they also have become the scene of an increasing number of violent incidents. Such incidents not only put patients at risk but also medical professionals, who are often the targets of attacks, harassment, intimidation and other disruptive behavior. The incidence rate for violence and other injuries in the healthcare and social assistance sector in 2012 was over three times greater than the rate for all private industries.
THE COMPLEXITY OF SEPSIS RELATED CLAIMS
Healthcare-Acquired Infections (HAIs) cost the U.S. healthcare system billions of dollars each year and lead to the loss of tens of thousands of lives. At any given time, about 1 in 25 hospital patients has at least one such infection, according to the Centers for Disease Control and Prevention.
Growing concern about Ebola and other infectious diseases has forced healthcare facilities to review their current practices and consider the impact that a potential nationwide pandemic would have on their organizations and the communities they serve. The ability to deliver care with minimum disruption and safeguard the health of workers and patients will depend on planning and preparation measures that organizations undertake today.
The softness of the market over the past decade is changing. Continued tightening in the marketplace is expected. While capacity is still available, the recent consolidation activity of Medical Professional Liability carriers is likely to continue in order to sustain market share and create underwriting efficiencies.
Underwriters, such as Zurich, Berkley, C.N.A., and the Aon/ASHRM report, expect the upward trend in claim severity to continue, as detailed in their benchmarking analysis. While there are fewer malpractice cases filed, they are more expensive to defend, thereby driving up legal and related expenses for carriers and self-insured entities.
Emerging risks are evolving and present real concerns for healthcare organizations that require a proactive risk management approach. Consumers demand a healthcare experience that mirrors the convenience and transparency of their banking, retail, transportation and other purchasing experiences. Healthcare organizations need to evolve with these changing demands from their customers while insurance carriers and brokers must provide cutting edge solutions to address developing risks.