What You Can Do About Malpractice Insurance

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

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. Although results remain uncertain, the market trend is irreversible.
A mixed model or transitional reimbursement system represents the best or perhaps the worst of both payment options and is a major administrative challenge for the healthcare provider. Services may be classified as a profit or debit depending on the payer arrangement and all care must be performed with equal concern for quality, medical necessity and appropriateness. Gatekeepers manage the capitated care, control referrals and provide care for at-risk patients for reimbursement with the ultimate payer intent of a 50/50 provider mix of primary care and specialists.
A preliminary evaluation of these four reimbursement methodologies suggests the level of malpractice risk and associated litigation is decreasing as the volume of capitated managed care increases.

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