What You Can Do About Malpractice Insurance

Author(s): 
By David E. Marcinko, MBA, CFP

A Guide To The Capitation Liability Theory Or Litigation Equation
The CLT considers four primary areas of potential significance in malpractice liability management and premium costs. 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.

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