Challenges and solutions in medical professional liability
ProMutual Group takes an entrepreneurial approach to designing coverages for health care providers
To anyone who was involved in the medical malpractice business during the mid1970s, the word that instantly leaps to mind is “crisis.” As lawsuits against health care providers escalated, so did insurance premiums-while coverage availability moved in the opposite direction. Major malpractice insurers closed their doors to existing and prospective insureds; state-supervised joint underwriting associations were created to provide essential protection to all comers; physicians began to establish their own insurers, known colloquially as “bedpan mutuals”; and in what once had been a fairly stable and predictable market, chaos reigned.
Over time, the crisis in medical malpractice availability and pricing eased as rate increases and coverage limitations encouraged insurers to return to the market, restoring a measure of stability to the severely troubled line. But the market as it existed before the crisis is gone forever, and those who survived that troubled era take nothing for granted in today’s vastly altered landscape.
In this article we’ll learn about the ProMutual Group, which began life in 1975 as a joint underwriting association and now is putting its knowledge and experience to work as it forges solutions to the challenges of today’s medical practice market. We’ll talk with president and chief executive officer Steve Brueckner, whose extensive background in health care finance is proving to be an invaluable asset in powering ProMutual’s can-do approach to the shifting forces in both health care and professional liability insurance.
From JUA to insurer
What is now the ProMutual Group was established as a joint underwriting association (JUA) in 1975 under the name Massachusetts Medical Joint Underwriting Association. From 1975 until 1988, administrative services were provided under contract by St. Paul Insurance; MMJUA then formed its own company and moved the service functions in house. In 1992 the entity’s name was changed to Massachusetts Medical Professional Insurance Association, and in 1995 it converted to a mutual insurer. It now employs a staff of 170 persons and has assets in excess of $1.5 billion.
The ProMutual Group consists of three companies-ProMutual, ProSelect, and ProSelect National Indemnity-and serves physicians, dentists, certified nurse-midwives, hospitals, and other health care professionals and organizations. In addition to Massachusetts, the group is an active writer of insurance in Rhode Island, Connecticut, Vermont, Maine, and New Jersey Rated A- (Excellent) by A.M. Best, the group is endorsed by the Massachusetts Medical Society, the Massachusetts chapter of the American College of Emergency Physicians, the Massachusetts Society of Anesthesiologists, the New Haven County (Conn.) Medical Association, and the New London County (Conn.) Medical Association.
Menu of coverages
Unlike some carriers, ProMutual offers insureds a choice between claims-made and occurrence coverage. Claims-made policies provide protection based on when the claim was reported, whereas occurrence coverage applies based on when the incident occurred. (Occurrence coverage was virtually unavailable to health care professionals during the medical malpractice crisis because of its “long tail,” which made this form of protection extremely difficult to underwrite and price.)
Insureds may choose from a wide range of policies, limits, and premium modification programs; available coverages vary by state. Below is a listing of policies and payment options.
Professional liability policies
* Physicians professional liability
* Physician group practice
* Dental professional liability
* Certified nurse-midwives
* Managed care liability
* Health care facility directors and officers
* Health care facility comprehensive catastrophe liability
* Hospital/institution comprehensive liability Long term care
* Home health care
* ProSolutions for integrated medical groups
* ProSolutions for integrated delivery systems
* Medical waste and related pollution liability
* Billing errors and omissions
* Defense costs of sexual misconduct and board of registration hearings
* General liability
* Excess coverage Payment options and premium discounts
* Payment plan
* Deductible plans for hospitals and physician groups
* Claim-free credits
* Experience rating
Risk management and claims
A key component of the ProMutual strategy is to help health care providers reduce their risk of claim and loss. To that end, a variety of risk management programs is available at no extra cost to the insured. The risk management effort begins with an office appraisal, which combines the observations of experienced staff members with the objectivity of a computerized appraisal. During on-site meetings with the insured’s representatives, ProMutual risk management specialists examine patient safety and confidentiality issues; administrative systems, including the release of medical records and termination of care; practice issues such as telephone triage and the prescribing/dispensing of medications; questions about documentation and informed consent; and regulatory compliance issues. These specialists analyze the risk management profile of the practice and suggest specific strategies for improvement. In followup consultations, the effectiveness of recommended measures is monitored and evaluated.
During business hours, a risk management representative is always available to answer policyholders’ questions and offers advice. Insureds who are facing a claim or lawsuit can participate in a free, confidential, facilitated emotional support group where they can share their concerns with other medical professionals who are undergoing the same experience. Other risk management services are hospital appraisals (including highrisk areas such as obstetrics, emergency services, and surgery), one-on-one consultative services, focus groups, continuing medical education programs, and publications.
On the claims side, insureds are represented by top attorneys in their region who specialize in professional liability defense. Expert witnesses are provided to help support the case. Publications and white papers keep insureds informed of trends in malpractice and ProMutual’s response, and a claim representative is available during business hours to answer questions about claims and related issues.
Aggressive defense strategy
Since becoming a mutual insurer in 1995, ProMutual has maintained an active physician involvement on its board, and today it is comprised chiefly of health care professionals. “This is a significant point of difference between us and insurance generalists that write medical professional liability,” President and CEO Brueckner comments. “The physician influence has heightened our resolve to mount a strong defense in behalf of our insureds. Commercial carriers often settle suits to reduce their loss adjustment costs. Our physicians want us to distinguish between meritorious claims and situations that involve no negligence but may not have produced the desired outcome. Like other physician-led insurers, we use fairly aggressive litigation management techniques; we stay with a claim file longer than commercial carriers might. We don’t spend more than we need to settle; and we close almost 70% of our claims without payment.”
Changing trends, emerging needs
Both before and during his tenure with ProMutual, Brueckner has acquired a number of useful insights into the nature of the medical professional liability insurance market. “Medical malpractice is a very mature line of business,” he comments. “The number of doctors isn’t growing, and there’s a decline in the number of hospitals.” Not only emerging medical technologies but also modern business practices are changing the nature of the malpractice insurance business, Brueckner observes. As a result, “Insurers that specialize in medical malpractice, whether physician led or not, have begun to expand their product lines to include errors and omissions, employment practices liability, and related coverages.” ProMutual’s ProSolutions for Integrated Medical Groups, for example, offers a combination of professional liability, commercial general liability, employee benefits liability, managed care services liability, managed care errors and omissions, and medical payments coverages.
Also changing the face of the medical malpractice landscape is a trend toward geographic expansion on the part of physician-led insurers, Brueckner notes. “Physician-run carriers have been state-based businesses. Now they’re expanding beyond their traditional geographic base and competing with each other beyond state boundaries.” As these insurers become a stronger force in the market, Brueckner believes, “Commercial carriers will probably become more physician friendly.”
Far from the virtual shutdown of availability that defined the medical malpractice market in the mid-1970s, Brueckner remarks, “The last three years have brought more commercial carriers back into the business. In the late 1980s and early 1990s, prices were higher than they needed to be, and this allowed medical malpractice insurers to build up their surplus and encouraged commercial insurers to reenter the market.” The inevitable result of increased capacity, of course, is increased competition. “Now pricing is down because of competition, not because of better claims experience,” Brueckner comments. “Four or five years from now, some carriers may again exit medical malpractice.”
Those that remain, he believes, will behave in a more disciplined and focused manner. He cites the case of St. Paul, a major writer of medical malpractice insurance, which recently announced the acquisition of MMI and which earlier had stated its intention to pursue a policy of rational pricing, as opposed to chasing business at any price.
At the heart of fluctuations in the medical malpractice market, of course, is the well-known “long tail” associated with this business, which makes it extremely difficult for insurers to accurately predict claims and loss costs. “Companies like ours will help maintain stable, appropriate competition in the market, with several carriers offering a range of products physicians and institutions can choose from,” Brueckner says.
Agent’s vital role
ProMutual distributes its products almost exclusively through independent agents. “We have strong ties with our agents, and we consider it essential to create a close working relationship with them,” Brueckner says. “Our Agent Advisory Council has between 15 and 20 members, and they meet formally twice a year with senior executives. At these meetings, we share our strategies and new product plans with our agents and seek their input. We’re creating something special between us and our agents, and there’s a strong commitment both ways. It’s a trust– based relationship where agents have access to me and other senior executives, as well as to personnel in underwriting, claims, and marketing.” ProMutual has a mix of agents, Brueckner says: “Some have just a few policies with us, and others have up to $10 million worth of business. We’re successful in serving a wide range of producers.”
In today’s challenging market, “It’s more important than ever for agents to understand each medical malpractice insurer and the products it offers, so they can help their clients make good decisions,” Brueckner asserts. “Agents are often told by their clients,’Just show me the prices,’ so there’s less emphasis on value. As insurers, we need to spend more time communicating the extra value we offer. At ProMutual, we’re willing to invest the time it takes to build up this value proposition; we’re in it for the long haul. We’re not here to be a discounter. Our purpose is to understand the changing forces in the marketplace and respond to the needs those changes generate. Agents are a good source of local market knowledge for us as we formulate and communicate the extra value we can offer.”
Another way in which ProMutual acquires local market knowledge is via field representatives. “Our field sales representatives live and work in local markets,” Brueckner says. “They can identify successful agents and can work with agents to provide product information and sales support. Our risk management programs and our litigation management system are very well received by agents and buyers as an alternative to traditional options. We’re a responsible competitor, giving the market a choice it hasn’t had. A key to our success is our persistent, diligent effort to establish solid relationships with our producers.”
Joining forces for growth
“In a mature industry, insurers must grow both organically and via mergers and acquisitions,” Brueckner comments. “We intend to be a player.” In evaluating potential candidates, he says, “Acquiring companies like ours would be best, but those companies tend to have a ‘control mentality’ Many of them believe that unless they experience financial distress, it’s okay to maintain the status quo and there’s no need to consider merging.”
Structurally and financially, ProMutual is in a strong position to pursue an acquisition. “We have a downstream holding company, and we have the financial strength,” Brueckner notes. “We’d like to find one or more companies like ours, who share our philosophy and would like to join forces. In the hope of interesting some other companies, I’m sharing our operating models with them.” As noted earlier, Brueckner has a strong background in the health care field, and he believes this experience will prove valuable in shaping ProMutual’s direction as it embarks on its planned merger and acquisition initiative. “To bring our management efficiency up to par with our technical insurance expertise,” he explains, “we’re introducing successful techniques from the health care industry We believe this approach will help us stand out even more in the marketplace as a physician friendly insurer with a strong financial base and the perspective of the health care and health insurance industries.”
Winners vs. losers
In the volatile and challenging medical malpractice market of the new millennium, Brueckner believes there are a number of factors that will separate the winners from the losers. First, he says, is discipline. “Medical malpractice companies in general haven’t tried to be more efficient and precise in analyzing and pricing risks,” he observes. “Local and regional differences in medical liability exposures create the need for more segmented approaches. The winners will invest heavily in the technology needed to identify these differences and respond to them.”
Brueckner dismisses the idea that medical malpractice insurers can achieve only modest decreases in expenses. “I think we can make expense ratios significantly lower, and that we can reduce rates without endangering surplus,” he declares.
Another determinant of success, he points out, will be size. “The medical malpractice market consists of about $6 billion in insured business and $4 billion that is self insured, and the market is still dominated by relatively small companies,” he says. “Between 265 and 270 companies write medical malpractice, excluding trusts and retention groups. Of these, 118 write medical malpractice as their principal line of business. But only 38 companies write $30 million or more in annual premiums.” The current number of carriers, Brueckner believes, is “way too many to serve the marketplace efficiently. I foresee a substantial increase in consolidation.” In the future, he predicts, “The assets and market share will be held mostly by mutual companies like ours that can’t be bought. We’re playing offense instead of defense. It’s becoming harder to get new customers, and we think our more analytical, entrepreneurial approach will prevail in today’s dramatically changed health care environment.”
The key factor contributing to that dramatically altered environment, of course, is managed care, which has changed forever the face of health care delivery. Brueckner identifies other trends that are shaping the medical malpractice market. One is tort reform, which is proceeding slowly because of differences in approaches at the state level. Here, he says, “There’s increased pressure for federal efforts because of the growth in multi-state health care delivery.” He also cites the patient rights debate, which centers on the nature and extent of a patient’s legal remedies against an HMO or other health care delivery system; and the study released last fall by the Institute of Medicine, which found that some 98,000 patient deaths per year are caused by physician and hospital error. Although the study results are controversial because they were extrapolated from a small patient sample, Bruecker believes the findings unquestionably are cause for concern among health care providers and their insurers.
“The industry has a strong role to play here,” he says. “Companies like ours with a deep market presence need to be more proactive in dealing with patient safety issues. Increasingly, agents will align themselves with carriers that play a leading role in this effort.”
The bottom line? “Medical malpractice is a serious business. Companies that respond to market needs will be rewarded with more opportunities to provide coverages and services. At ProMutual, we’re committed to being a positive force in health care delivery, patient safety, and the reimbursement of meritorious claims.”
Copyright Rough Notes Co., Inc. Feb 2000
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