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Urgent Care: Medical Liability Coverage Gaps

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How the health care overhaul is exposing huge medical liability coverage gaps – and huge opportunities for intrepid agents

Is there such thing as a bulletproof sector of the economy? Maybe. When times are tough, people may delay vacations, rein in their discretionary spending, downsize their living arrangements, even postpone higher education. But however bad things get, waiting to treat a major health issue often just isn’t an option – and gaps in medical liability coverage are being exposed.

Demographics also insulate the medical sector from downturns. Since people tend to need more medical services and personal care as they get older, the 78 million Baby Boomers who have just begun to enter their senior years will assure growth in the medical sector, notes Jason Belanger, senior broker, professional liability, at Burns & Wilcox. Medicare, Medicaid or another publicly funded program will cover the bulk of those costs for most seniors, eliminating a barrier to services.

And when the economy is improving as it is now, people are more likely to seek help for lesser medical problems or to opt for elective procedures. No wonder the health care economy is thriving.

The Deluge Begins

Next year, the Affordable Care Act will start impacting many of the estimated 32 million Americans who currently lack health insurance, offering them the carrot of affordable policies provided by state insurance exchanges, along with the stick of penalties for failing to buy coverage. More people with health insurance means more demand for care and more jobs.

The first ripples of the coming deluge already are being felt in the medical insurance sector. For example, home health care is now the fastest growing errors & omissions (E&O) segment in the industry, according to Belanger.

“It’s a simple equation, really,” says David Derigiotis, assistant vice president, Professional Liability Center of Excellence at Burns & Wilcox. “More demand for services means more staff providing those services, which means more people applying for coverage.”

But for the insurance industry, more subtle fundamental factors also figure into the equation. The growth to which Derigiotis alludes involves changes in the medical industry. Those changes not only impact how insurance is bought, but the exposures themselves, too.

To see how these dynamics likely will play out, let’s start at the top of the professional food chain. Where once we saw single physician offices consolidate to form multi-physician practices and small partnerships morph into large ones, now we are seeing further consolidation as physicians eschew private practice altogether for the shelter and ease of employment in hospitals or in hospital-owned practices. Meanwhile, hospitals themselves are also merging or creating ancillary operations like rehabilitation facilities, observes Belanger. Since hospitals provide professional liability coverage for their employees, a hospital’s professional and general liability premium can be several million dollars. They buy their insurance through trade groups or through the specialty market, or they self-insure.

“Of course, if the hospital self-insures, as an estimated half now do, the insurance industry loses some of its revenue,” Belanger says. “And when physicians start working for these hospitals full-time, they usually no longer purchase their own medical malpractice policy.” Apparently, not all changes ushered in by the new health care regime will impact the insurance sector favorably.

More Room for Error

Not only are doctors tough to replace, they are in short supply at some facilities. So additional responsibilities in many instances are falling to physician assistants, nurse practitioners, and nurse aides. What happens when these people are not properly trained and/or supervised? New exposures emerge.

As much as it’s viewed as a major challenge, the healthcare industry’s increased demand for unskilled workers to provide patient care presents another opportunity for the medical insurance sector to develop products that address an entirely new type of need. A home health care agency, for instance, must fill its jobs, but it is not easy to find or retain an aide willing and able to drive to clients and perform their duties — bathing, dressing, feeding, shopping for and toileting a client — for a paltry $9.70 per hour on average, roughly four cents less than fast food workers and short order cooks make, according Belanger.

Many industry observers predict the Affordable Care Act (ACA) will put additional strain on the professional workforce that provides hands-on care, causing liability to rise. “Under the ACA, a significant number of people will now qualify for health care services, but there are limits to the number of patients a physician can effectively care for,” says Derigiotis. “If a physicians panel — the number of patients the physician is responsible for and treats annually — expands from 2,500 patients to 3,000 without the addition of a team of skilled care providers, doctors and their practices will have increased room for error.”

“Healthcare workers will max out and the new people coming into the field won’t necessarily have the qualifications, training or experience to provide these services,” predicts Belanger. “Liability coverage is an important need for skilled workers like nurses and therapists, but that’s especially true for unskilled caregivers like home-health and personal-care aides.”

In one extreme illustration of that scenario, a home-health aide spent the required time at the patient’s home but performed none of the required services. Eventually the client dropped significant weight due to malnutrition and later perished from the caregiver’s negligence.

Colony Specialty, which writes E&O for assisted-living facilities, is seeing an uptick in claims from these facilities, especially the for-profit institutions. The flailing home market has left many people unable to sell their homes to enter a facility, so beds were not being filled. Facilities governed by the philosophy of “heads in beds,” are taking in clients, like patients with dementia, who they are not qualified to handle, with some unfortunate results, according to Kevin Price, Colony Specialty’s vice president of allied medical.

The insurance industry has a multilayered role to play, both in protecting the resources of the fast-growing health care industry and in promoting practices that limit monetary and human losses. Where health care is concerned, it really is a matter of life and death.

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