What You Can Do About Malpractice Insurance

By David E. Marcinko, MBA, CFP
This is known as the litigation equation and includes (1) patient communication factors; (2) provider healthcare delivery systems and reimbursement factors; (3) payer factors; and (4) revised liability legislation and patient encounter data factors. Patient communication factors include reduced economic and financial fear, possible cultural barriers, improved medical awareness through continuing education, concern for geographic access, focused primary and specialty care availability, management information systems, and the frequency and duration of utilization. Provider reimbursement factors and healthcare delivery systems include both soft and hard varieties. Soft provider factors include increased patient availability to services, accessibility to timely appointments, office and quality care satisfaction surveys, communication assessments, known fixed costs and technical information interchanges. Hard factors include managed operational procedures, reduced illness severity, defined treatment options, reduced clinical variations, outcomes measurements and quality monitoring, performance quotas, aligned financial incentives and predictable reimbursements. Payer factors include practitioner screening and shifting, quality assessment, behavioral modification and team care, provider discipline, complaint management, cost and call economic considerations and adequate capitalization rates. Liability factors include allegation frequency and severity, standards of care, defensibility, risk management, premium pricing, loss adjustment, settlement losses and administrative costs. To fully understand the CLT, one must recognize all four parts of the litigation equation. These factors, when integrated with underwriter data and experience, determine the level of liability risk and the ultimate cost of malpractice coverage. If capitated medical care is deemed to involve less risk than the indemnity environment, the cost of liability coverage should gradually decrease as the percentage of capitated managed care increases in a particular office setting. In actual terms, the CLT suggests that capitated insurance and patient care risk are inversely, but not necessarily proportionally related since experiential data will determine the percentages. Understanding The Intersection Of Reimbursement Models And Malpractice Claims Collectively, liability claim managers suggest that financial issues are a secondary, albeit precipitating, factor in 15 to 25 percent of all malpractice allegations. Adjudicators further state that aggressive attempts to collect account balances, deductibles, co-payments and non-covered services are a significant causative factor in litigious individuals. The liability factor is compounded if the medical outcome is less than desirable. With this in mind, let’s consider the following four reimbursement structures and models. The fee-for-service reimbursement model was the bedrock of healthcare financing until the last decade and was the dominant model of paying for medical services. This insurance driven and technology motivated approach was powered by utilization and consumption with limited concern for the total cost of care or economic consequences. While indemnity providers continue to be forgiving in the management of patient indebtedness, the incidence of financial hardship and subsequent litigation is believed to be the most frequent in this system. A review of provider owned insurance carriers generally supports this conclusion. Conversely, a capitated model reimbursement system views patients and the services they require as a cost driver to be debited against a fixed rate or constant reimbursement scheme. This system controls utilization, manages referrals and limits technology but also creates a new set of behavioral problems, stress, frustration and liability. However, patient indebtedness and personal financial hardship are substantially reduced and so is a precipitating liability factor. The quasi socialistic model is powered by entrepreneurs who believe that health care is immune to market forces such as competition or accountability. Reformer-change agents suggest consumer needs and social welfare in general will prosper through structured business systems with quantifiable and measurable processes. This top-down management structure embraces the general public opinion that affordable healthcare is a right and that managed markets are the best model for this philosophy.

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