Medical Professional Liability
The Medical Professional Liability Insurance (MPL) marketplace remained challenging. There was significant capacity in the industry, but most, if not all, of the MPL Insurance and reinsurance carriers sought rate increases due to high severity claims impacting the industry.
Traditionally strong healthcare carriers changed their strategic approaches to pricing renewals, requiring rate increases or taking more dramatic steps to protect their healthcare books by limiting the amount of capacity. For instance, effective October 2018, Zurich Healthcare exited specific, more challenging venues, such as: Cook County, IL; Baltimore, MD; Philadelphia, PA; Rhode Island; and Miami/Dade County, FL due to the number of high severity MPL claims and verdicts in those venues.
Pressure for rate increases was expected to continue throughout 2019.
Uncertainty surrounding the Healthcare landscape continued into 2019, with the following issues on the forefront.
- Uncertainty with the Affordable Care Act (ACA). The Trump Administration argued in lower court that Title I of the ACA is unconstitutional, but that it is severable from the rest of the law, and the rest of the law can and should stand if Title I is invalidated. In a notable pivot, the DOJ filed papers making a different argument: if the individual mandate is rendered unconstitutional, the whole law should be struck down. This significant shift caused a flurry of activity in the White House, Department of Health and Human Service (DHHS) and the halls of Congress. Republicans did not have a plan to replace the ACA. As was the case prior to the ruling, the Administration did not plan to dismantle all of the elements of the law, such as the Centers for Medicare and Medicaid Innovation; Medicaid expansion; health insurance exchanges; Accountable Care Organizations; and Food and Drug Administration biologics approval pathways. Democrats focused on buttressing the ACA, but continued to wrestle with when and if incorporated universal health (i.e., some form of “Medicare for All”) makes sense.*
- Health system mergers continued, creating “Mega-Healthcare Systems.”
- Hospitals continued to employ physicians, although this trend was decelerating for most specialties, with the exception of primary care physicians.
- An influx of private-equity backed acquisitions of physician and surgeon practices continued.
- Anticipation of disruptive technology remained, including Amazon, artificial intelligence and consumers’ changing expectations in how they accessed healthcare services.
Insurance and reinsurance carriers noted that combined ratios increased to over 100% the past three years and were expected to continue through 2019. Impacting these results were multiple large medical malpractice verdicts and settlements, which exceeded $10 million. Examples include:
- A $220 million settlement of a batch claim with USC stemming from multiple sexual abuse victims of an OB/GYN college and team physician.
- A $140 million settlement of a batch claim in New York, including multiple cases involving one physician who committed fraud and caused multiple injuries to more than 220 patients.
- A $44.5 million settlement in Ohio stemming from a failure to diagnose that led to brain infection and paralysis in a nine year-old boy.
The increase in the severity of MPL claims continued and similar increases were expected throughout 2019, as inflation for medical expenses outpaced CPI; the cost of medical experts continued to rise; and plaintiff attorneys continued to utilize higher-cost experts. According to a report by CRICO Strategies titled Medical Malpractice in America: A 10-year Assessment with Insights, which examines national trends in claims frequency, the frequency of medical malpractice claims dropped substantially, but average case management expenses and indemnity payments continued to rise.
The rate of MPL claims declined 27% from 5.1 cases per 100 physicians to 3.7 cases over 2007 – 2016, according to the report, which analyzed events affecting 124,000 patients. However, the report highlighted notable trends related to higher costs for managing MPL claims; average case management expenses increased by 3.5% annually and reached $46,000 per case in 2016, outpacing both consumer and legal inflation indices.
“Cases with multiple defendants reflect both the complexity of team-based care (patients encounter more clinicians) and policy limit “stacking” (plaintiffs adding policyholders to an MPL case to increase potential indemnity),” the report stated. “Typically, cases with more defendants require individual legal representation, adding complexity and cost to case management. Beyond legal fees, the use of MPL defense tools (e.g., mock trials, computerized renderings, jury studies, witness preparation) is increasing, as are their costs.” *
*CRICO Strategies. “Medical Malpractice in America: A 10-Year Assessment with Insights.”
Additional factors that continued to challenge underwriters included:
- Claims inflation
- Batch claims
- Tort reform
- Coordination by plaintiff attorneys
- Shrinking client market
- Oversupply of insurance capacity
- Reduction in the availability of reserve releases
Cyber, Privacy and Network Security
The Identity Theft Resource Center tracked a total of 363 breaches in healthcare, exposing just fewer than 10,000,000 records. The healthcare industry remained a prime target for cyber attacks. There was an increased focus on business interruption as a key component of a Cyber Insurance 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 impacted healthcare organizations’ appetite for Cyber Insurance in the U.S.
Along with ransomware, the quantity of wire fund transfer fraud via social engineering approached epidemic proportions in the healthcare sector. While coverage for this exposure could be provided via a crime or cyber policy, in most circumstances, it was substantially sub-limited in both policies, although excess capacity began to appear.
The Office of Civil Rights (OCR) handed down its largest ever fine of $16 million. According to the OCR:
OCR has concluded an all-time record year in HIPAA enforcement activity. In 2018, OCR settled 10 cases and secured one judgment, together totaling $28.7 million. This total surpassed the previous record of $23.5 million from 2016 by 22%. In addition, OCR also achieved the single largest individual HIPAA settlement in history of $16 million with Anthem, Inc., representing a nearly three-fold increase over the previous record settlement of $5.5 million in 2016.
Despite this activity, there remained competition for risks with good security maturity, loss histories and improving coverage. Even more competition was evident, with major Insurers providing extremely competitive terms when competing for primary layers. Major Insurers continued to enhance their cyber risk management tools, providing additional benefits to clients who chose to use them.
Managed Care E&O
The risks facing Managed Care Organization were complex and continued to change quickly. Therefore, Managed Care E&O continued to grow as an area of emerging risk exposure because no two Managed Care Organizations are the same.
Considerable activity persisted with network design as health systems developed Accountable Care Organizations (ACOs), which allowed them to create their own insurance companies to write health benefits, and participate in contracts with insurance companies. In such contracts, providers assumed expanded responsibility for disease management, enrollee tracking and management, and advisory services to outside practices.
- Standalone ACO managed care E&O programs were most likely placed when there was a separate board for the ACO as compared to the current health system board.
- ACO retentions on a stand-alone managed care program were generally significantly less than healthcare system management lines retention.
Carriers continued to be concerned with the uncertainty of the repeal and/or replacement of the ACA and continued consolidation of managed care entities. 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 (e.g., incentives, quotas, etc.)
- Down coding (insufficient revenue to providers) and allegations of deliberate slow reimbursement
- Civil rights actions from patients who were denied care
- Allegations of miscalculation of medical expense ratios
- Releases of protected health information, personally identifiable information, and payment card information
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:
- Stand-alone commercial insurance carriers writing Managed Care E&O were still limited and include Ironshore, One Beacon, AWAC and AIG, which appeared among the leading insurance carriers, consistently providing competitive quotes.
- The aforementioned carriers typically sought rate increases of 0% to 10% on renewals, and there was frequently movement toward requiring higher retentions on renewals than expiring.
- 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 healthcare system cyber policy.
- Rates remained from 0% to 10% increase 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 seemed to seek 0% to 10% rate increases, unless more was warranted due to changes in exposure or claims experience.
- Retentions (SIRs) depended on the type and size of the organization. We noted carriers offering higher retentions than expiring when exposures or claims increased.
- When claims or material increases in exposures (enrollment) occurred, underwriters generally tried to increase retentions and premium rate.
Medical Stop Loss: Health Reinsurance, Employer Risk & Provider Risk
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. This trend of frequency and severity in high cost claims continued from recent years and showed few signs of slowing. The pharmaceutical industry continued to develop and release extremely costly drugs for a variety of diagnoses. Many of these drugs were marketed directly to consumers, resulting in increased costs to health plans, hospitals and employer health plans.
Upward pressures were successfully countered by focusing on 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 harder market. Additionally, the established and growing use of captives in this business led to a wider access of reinsurance markets willing and able to accurately price the risk. Overall, rates increased in 2019 on average by 9% from 2018.
The impact of the GOP tax bill, which included an effective repeal of the individual insurance mandate in 2019, has yet to be seen. As more data becomes available, the industry will be able to evaluate how much influence it actually had on Americans. The ability to adapt in this ever-changing healthcare landscape and find underwriters who have adapted with it remained crucial.
Mergers and acquisitions continued to pose challenges. New organizations and leadership modifying the risk management landscape required more innovation and strategy. The uncertainty of renewal in many cases created a need for focused client management, deliberate advisory services, and a push to win new accounts.
This dynamic marketplace allowed for continuous, but challenging, growth opportunities in the insurance and reinsurance industry. Notable ongoing trends and updates regarding the market included:
- In June 2018, a significant number of PartnerRe executives and underwriters in its 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. They have been successful in writing 2019 effective business and were expected to continue growing.
- PartnerRe’s remaining leadership stated that the company remains fully committed to the market sector, underscored by its hiring of Kelly Munger (formerly of SCOR) as Head of U.S. Health in late 2018.
- HM Life announced that its 12-year relationship with MGU Risk Based Solutions (RBS) was ending and they were bringing underwriting and claims in-house. The RBS team was exploring options and HM intended to expand in the Provider and ACO market sectors.
- Munich Re announced in late 2017 an exit from the HMO Re, ESL and PXS markets. These markets were then underwritten by their former underwriters, who facilitated buyouts of Munich’s current accounts. The Munich MBO team formed a new MGU (TMS Re), using Nationwide Mutual Insurance Company and Everest Reinsurance paper to write Stop Loss Insurance and Reinsurance coverage, respectively.
- The final ACA exchange enrollment for 2019 was 11.4 million lives, which was a 3.4% decrease from 11.8 million lives in 2018. This indicated strong interest from consumers in coverage, despite actions by the current administration to undermine the ACA. Signs pointed to the further erosion of insurance coverage in 2020, as the status of the ACA’s future remained in doubt.
- 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 the growing uncertainty surrounding the future of the ACA.
- Despite these concerns, insurance company margins improved during 2018. This drove several Insurers to enter the market or expand their service area in 2019. In 2018, the average number of insurance companies per state was 3.5 and 58% of enrollees had a choice of three or more Insurers. In 2019, those numbers grew to four and 58%, respectively.
Medicare Shared Savings Program (MSSP) and Next Generation ACOs
- In December 2018, the Centers for Medicare and Medicaid Services issued their final rule that dramatically overhauled the MSSP program. The new program, “Pathways to Success,” reduced the amount of time an ACO could participate in the program without holding risk from six years to two. Additional changes were made regarding benchmark calculation, shared savings rates, and beneficiary engagement.
- The total number of MSSP ACOs declined from 561 at the beginning of 2018 to 487 as of January 2019. Physician-led ACOs dropped out at a higher rate than Hospital-led ACOs.
- The market for ACO stop-loss grew. New entries to the market in 2019 included Sequoia Reinsurance and Scor Re. As market competition increases, improved rates were being realized for ACO insurance buyers.
- Next Gen ACO performance improved slightly. In 2017, 63% of NGACOs performed below benchmark compared to 61% in 2016.
- Multiple new markets are writing aggregate stop loss for ACOs, a trend that began in 2018 and was expected to continue as more data becomes available and carriers become more comfortable pricing this risk.
- Starting in 2018, Next Generation ACOs have been permitted to opt out of the government provided individual stop loss. Multiple ACOs have done so, with some seeking commercial insurance as a replacement, and others electing to have no excess loss protection.
Medicaid Accountable Care Organizations
- Twelve states implemented Medicaid ACOs to align provider and payer incentives with the goal of managing costs and delivering quality care to beneficiaries; at least nine more were actively pursuing them.
- These ACOs, similar to their Medicare counterparts, focused 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 were expected for Medicaid ACOs as they continued to emerge across the U.S.
Medicare Access and CHIP Reauthorization Act of 2015 (MACRA)
- MACRA created 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 were evaluated on their performance in four categories; and Advance Alternative Payment Models (AMPs), which were designed for providers with experience coordinating care. Risks and rewards were accepted by the provider with the promise of meeting quality measures. These two tracks began in 2019.
- The first year of performance measuring began in 2017. Results determined the payments to providers in 2019.
- Costs related to pharmaceuticals continued to increase year over year, causing financial challenges for health systems. Reinsurers continued to be impacted by multi-million dollar pharmaceutical claims.
- Both high-cost orphan drugs and drugs developed to treat conditions like Hepatitis C continued to drive costs up due to their heavy use and high demand. Additionally, high-cost drug claims often required more time for the reinsurer to review, leading to delayed claim payments.
Association Health Plans (AHPs)
- AHPs allowed members of a group or profession to band together to negotiate better premiums for their members; similar to the way an employer-sponsored health plan would work. Except the members of an association or group did not work for the same employer; rather, they shared an industry, interest or other common thread that allowed them to define themselves as an association.
- In June 2018, the U.S. Department of Labor expanded access to affordable health coverage options for America's small businesses and their employees through AHPs. The rule allowed more employer groups and associations to form AHPs, based on common geography or industry.
Self-Funding & Employer Stop Loss
- Since the ACA) passed, there was significant growth in self-funding. Many fully-insured plans 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.
||17.4% Immature/Developing Market
||29.2% Rapidly developing/Growth Market
||78.5% Mature Market
Source: North American Industry Classification System (NAICS)
The number of claims exceeding $1 million more than doubled in the past five years. Although less than 2% of Stop Loss claimants produced costs over $1 million, those claimants accounted for 18.5% of the total Stop Loss payments. These higher associated claims costs were expected to somewhat slow revenue growth in the Stop Loss market; however, the risk-mitigation, customization, and regulatory savings aspects of the market continued to make it an attractive segment of Health Insurance. Additionally, there was a growing trend toward reference-based pricing, which helped control the cost of catastrophic claims for some self-funded employers.
Significant risk drivers contributing to the risk dialogue happening in boardrooms and executive suites included: technological advancements; disruptive innovations threatening core business models; recurring natural disasters with catastrophic impact; soaring equity markets; turnover of leadership in key political positions; and cyber breaches on a massive scale. Key stakeholders in healthcare organizations required greater transparency about the nature and magnitude of the risks they assumed in executing an organization’s corporate strategy.
Convergence and collaboration between health systems and plans was more important. In 2019, the most successful health plans connected consumers to their health care. Health plans were the only players in the health care ecosystem with a complete data set for each insured patient—information important to health systems and physicians as they take more responsibility for patients’ long-term health. Care providers relied on health plans for their technology and expertise in managing care, and health plans turned to providers who understood care delivery and clinical effectiveness. Both sides leveraged each other’s strengths to create a better and stronger U.S. health system.
Health systems focused more on patients than illness. Adoption of the Medicare Access and CHIP Reauthorization Act, which is more than three years old, accelerated in 2018 as health plans forged closer relationships with health systems to share risk. The law will likely affect health systems more profoundly throughout 2019 as more choose to take on shared and full-capitation risk contracts.
Additionally, many health systems explored how to grasp the entire continuum of care. Historically, this has been more the responsibility of health plans but, in a value-based payment model, health systems and doctors were well served to consider the full spectrum of care within a fixed-premium payment. This could be another opportunity for health plans and providers to collaborate.
Technology could help doctors focus on treatment. According to a study, physicians spent 21% of their time on nonclinical paperwork, which took away from their time with patients and contributed to burnout. AI, robotics, and cognitive technologies could automate many daily duties and give physicians and clinicians more time to practice medicine.
Over the next three to five years, 100% of health care providers expect to make significant progress toward adopting these technologies, according to Deloitte’s Human Capital Trends research; however, respondents acknowledge little progress to-date. Enabling technologies such as electronic health records (EHRs); and emerging technologies, such as blockchain and AI, will play a large role in helping to improve connectivity and engagement among health systems, health plans, and patients and families. For example, doctors could use EHR data to help manage chronic illnesses, saving frequent patient appointments.
More patients could consider virtual health. Few people enjoyed going to the doctor, and some waited until a condition worsened before seeking care. This drove up costs, including expenses related to ER visits. Virtual health technology could allow patients to communicate directly with caregivers, while helping physicians see and support more patients. Only 14% of physicians have implemented technology, however, that allows them to conduct virtual visits with patients; and only 175 physicians use it for physician-to-physician consultations, according to the results of Deloitte’s 2018 Physician Survey on virtual care.
Implementation is often costly for providers, and many organizations are still weighing ROI and existing fee-for-service reimbursement rules. Health system leaders can strive to determine when physicians and other caregivers should be at the site of care delivery and when their work can be performed virtually. Last summer, the U.S. Centers for Medicare and Medicaid Services proposed that Medicare pay physicians for virtual check-ins and other tech-enabled services. Telehealth is also becoming a common feature in commercial health plans. As of 2016, 74% of large employer-sponsored health plans had incorporated telehealth into their benefits, up from 48% in 2015.
Increased focus on population health. Health systems were looking at managing outcomes for patients on a broad basis; and at using resources more effectively and efficiently to improve lifetime health and well being for specific groups. In recent years, there was an increased focus on the social determinants of health, with recognition that many influences have less to do with care and more to do with environment, stressors, income and education, as well as the level of social interactions and sense of community. While health care organizations might struggle to measure ROI for these efforts, they may be critical as the focus shifts to wellness.
Health systems can give people incentives to engage as early as possible to help reduce injury and illness and manage chronic disease more effectively. This can also reduce health system usage and resource consumption, while improving patient experiences can strengthen customer loyalty and build reputation and brand. In order to stay on the right trajectory, health plans, health systems, and patients will benefit from working more collaboratively in 2019 and beyond.
|Medical Professional Liability
||Expectedd rate increases
|Managed Care E&O Liability
||Flat to slight increase
|Medical Stop Loss Liability
||Flat to slight increase
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, CNA, and the Aon/ASHRM report, expect the upward trend in claim severity to continue, as detailed in their benchmarking analysis. While fewer malpractice cases are being filed, they are more expensive to defend, driving up legal and related expenses for carriers and self-insured entities.
Emerging risks are evolving and present real considerations 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.