Medical Malpractice Rates To Increase Due To Provider Consolidation?

“…………..due to the rising number of physicians closing their private practices for positions with hospitals, whose tendency to fold newly hired and acquired providers into their self-funded medical professional liability insurance programs has reduced loss experiences for commercial malpractice insurers……………”

NATIONAL HARBOR, Md. — While macroeconomic conditions reduced consumer health care utilization and state-level tort reforms have held earned rates and direct written premium pricing for medical professional liability coverage at year-over-year decreases between 0% and 5%, those trends could be on the verge of reversing themselves.That’s according to a presentation by managers with New York-based PricewaterhouseCoopers L.L.P. at the American Society for Healthcare Risk Management’s 2012 conference in National Harbor, Md.For now, the medical professional liability market continues to outperform the broader U.S. property/casualty industry composite on combined ratios, according to PwC’s presentation. That is partially due to the rising number of physicians closing their private practices for positions with hospitals, whose tendency to fold newly hired and acquired providers into their self-funded medical professional liability insurance programs has reduced loss experiences for commercial malpractice insurers, said David Kaye, a Philadelphia-based assurance manager at PwC.However, ongoing provider consolidation, along with projected increases in health care utilization, challenges to state-level malpractice tort reforms and changes to the health care industry at large resulting from the Patient Protection and Affordable Care Act probably will change the medical professional liability marketplace permanently in the next one to three years, Mr. Kaye said.

Modest short-term increases

Primarily, medical malpractice coverage costs are expected to experience modest increases in the short term, driven upward in reaction to the ongoing consolidation of hospital physicians’ offices and other providers in the U.S., due in large part to dramatic changes to health care delivery and reimbursement models.%%BREAK%%Conversely, the baby boom generation’s march toward retirement is predicted to trigger a sharp and sustained increase in demand for medical care, which likely will lead to an increase in medical malpractice claims, according to PwC’s presentation.  “We certainly don’t expect the supply of health care providers to increase as fast as the demand for care,” said Mark Proska, a Philadelphia-based assurance director at PwC. “We’re anticipating anywhere from a 7% to 10% increase in the number of physicians from 2010 to 2020, compared to a much steeper increase in the anticipated growth in the percentage (36%) of people over 65 in the U.S. over the same timeframe.”The net result, Mr. Proska said, would be a larger number of medical procedures being performed by a much smaller number of doctors and other health care providers, a condition that at least statistically increases the likelihood of an increase in malpractice claims.

Regulatory pressures

Another issue that panelists said could lead to rate and premium firming in the medical professional liability market is the anticipated wave of state-level legal and legislative challenges to established limitations on malpractice litigation, including caps on economic and noneconomic damages, shortened statutes of limitations for filing lawsuits and caps on attorneys’ fees. “Trial attorneys today are not terribly enthusiastic about taking on malpractice cases. In fact, they’re largely going away from it,” Mr. Proska said, adding that those reforms have contributed substantially to controlling medical malpractice cost inflation.%%BREAK%%However, seven states have recently overturned previous caps on maximum jury awards for economic damages, he said, and further rollbacks of existing reforms could accelerate growth in coverage rates and premium pricing.Mr. Proska also said several tenets of the federal health care reform act could significantly affect short- and long-term cost trends for medical malpractice insurance, including new federal standards for accountable care organizations and other provisions designed to push the industry toward value-based health care delivery and reimbursement models, federal funding for state tort reform alternatives, and the formation of an independent Patient-Centered Outcomes Research Institute, a nonprofit entity designed to provide health care providers greater access to unbiased medical research.