Likewise, the insurance industry, particularly in P&C, has embraced innovation through Insurtech and other successful strategies. With its inextricable connection to healthcare, the medical professional liability (MPL) insurance industry can leverage innovation opportunities to both reduce MPL risks and costs and to better support the U.S. healthcare system’s financial
In a U.S. healthcare system under enormous financial pressure, MPL premiums represent a substantial cost. Some large systems pay more than $100 million annually for coverage. Imagine the potential benefit of saving these institutions hundreds of millions of dollars through reduced MPL risk and premium.
Past studies demonstrate that medical error is the primary driver of MPL indemnity claim costs. Healthcare institutions and physicians do make mistakes and sometimes, while rare, are responsible for medical negligence. These errors are often driven by poor system design and practitioner judgement, skill level, or behavior. The MPL insurance industry possesses the potential to create solutions for this problem through impactful risk management and patient safety innovation.
Can the MPL industry further innovate? While the industry has its challenges, the answer is definitely yes. The industry has a strong history of innovation. The current MPL industry was built on innovation in the 1970s and 1980s through the formation of physician mutual companies
and healthcare/hospital self-insurance vehicles. Over the decades, many of these programs have developed innovative business models, which have matured into highly effective insurers. Now is a good time to take our industry to the next level.
MPL industry faces 4 main challenges to innovation
The MPL insurance industry faces many challenges to innovation due to the complicated nature of healthcare in general and the causes of medical professional liability risk in particular. These include:
1. Complexity of healthcare: Healthcare systems are complex due to the ever-evolving practice and delivery of healthcare. These systems are often very large organizations providing patient care through varied entities over broad geographic regions. They also employ multiple physician specialists, subspecialists, and a myriad of other healthcare providers.
The science of medicine creates further complications due to its continuing evolution as new research, treatment protocols, and technology advance its efficacy in nearly all clinical areas. This requires physicians and other providers to continuously stay abreast of these latest advancements and modify their practice approaches accordingly.
This complexity is a critical challenge for MPL companies in implementing innovation. Some of the most innovative organizations in the world have been stumped by U.S. healthcare. The recent dissolution of the Haven collaborative between Amazon, Berkshire Hathaway and JP Morgan, and IBM’s potential sale of the Watson Health artificial intelligence initiative demonstrate the difficulty of innovating within the healthcare space. Even for leading healthcare experts, clinicians, and risk managers developing comprehensive, effective MPL risk management programs is difficult.
2. MPL claims data: Given the extensive number of medical procedures performed, MPL claims are relatively rare and can appear to be random events. Often, a multitude of system and human errors must occur to result in patient harm. Even then, claims frequently are not brought by patients. In addition, claims values vary greatly by state.
MPL claims are characterized by:
- Reporting lags
- Extended legal processes
- Significant severity
In essence, claims data are a lagging indicator for predicting future risk. This is a common criticism from clinical leaders when using claims data analyses alone for risk management.
3. Volatile business cycles: MPL risk for a healthcare system is highly volatile. Every decade or more, this insurance line endures “hard” market swings that significantly inflate claims values and premiums. These periods usually last two to four years and are followed by long “soft”
periods. During soft periods, MPL risk management efforts can struggle to advance because of the high cost and time intensive nature of initiatives. While MPL costs do stabilize in softer periods, claim values and premium levels do not typically recede to pre-hard market levels. In
essence, the healthcare systems become conditioned to these new, higher premium costs as a new normal.
4. Fragmented market segment: Most healthcare system MPL insurance programs are structured as “single parent” insurance structures—i.e., one healthcare entity owner. These structures are formed in several different state and international domiciles and number well into the hundreds. These programs rarely compete with one another or lose market share of their insureds. In addition, there are few forums for these programs’ leadership and staff to develop risk, claims, underwriting, and financial management strategies and practices and share successes. This impedes the establishment of leading practice business standards across the industry. Also, there are very few data standards consistently applied across these programs. This complicates the ability to conduct data analysis and benchmark across programs.
In addition, this fragmented environment impedes the ability of programs to bring coordinated scale to vendors. This creates a lack of incentive for vendors to invest in innovative products and services focused specifically for these programs. At a minimum, this has impacted information systems and business intelligence products. Such systems and information are critical to identifying areas for strategic investment to drive performance improvement and innovation.
Overcoming obstacles and defining innovation
Fortunately, these challenges are not insurmountable. With well-resourced, focused expertise and analyses, innovative risk management initiatives and standardized business practices can be successfully executed.
There are many potential areas to consider for MPL industry innovation, including:
- Risk and claim analytics
- Information systems
- Risk profiles
- Clinical and provider risk reduction
- Underwriting standards and practices
- Claims and financial management practices
Let’s examine these in more detail.
Risk and claim analytics—The MPL insurance industry is in critical need of improvement in how claims and risk management data are collected, analyzed, and evaluated. Insurers, providers, and stakeholders would greatly benefit from claims clinical data that would help define similarities between claims in specific clinical areas and identify patterns of causation. There is also a need for data that can normalize these analyses. For example, data on the numbers of clinical procedures and other volume and complexity measures could help the industry determine real trend rates and add context to the data. Linking clinical area risk data with claims clinical data could offer greater insight for healthcare leaders, who could then develop proactive strategies to better manage risk. Finally, the availability of individual physician risk data to better compliment physician claims data offers the potential to gain a better understanding of individual physician risk.
Information systems investment—The current status quo for information systems available to MPL insurers is not adequate to support their needs for a higher level of analysis. Most of the systems on the market lack an appropriate level of functionality and integration to support
many important MPL business areas.
Development of risk profiles—The availability of enhanced claim and clinical data and analytics as well as improved information systems would facilitate the development of risk profiles for healthcare systems, key entities, clinical departments, and high-claim frequency physicians. Adding healthcare industry benchmark data would complement these profiles and add to their credibility.
Development of targeted clinical area and physician risk reduction initiatives—Healthcare system clinical and risk management leadership can leverage the analytics and profiles to produce individual entity, specialty-specific, and physician risk strategies to reduce the overall
institutional MPL risk, improve patient care, and, over the long term,
reduce claims costs.
Development of physician underwriting standards and practices—A new approach could use the risk analyses/profiles to better align risk categories with premium. This would result in improved accountability for insured entities and physicians with high claim frequency and high-risk practice characteristics. Such an approach would also reward those entities and physicians with lower risk practice outcomes and behavior.
Claims and financial management practices—While the innovation described above focuses on risk management, organizations can also potentially benefit by collaboratively accessing the reinsurance markets, utilizing litigation experts, and defining successful legal/financial strategies.
Strategies to accelerate innovation
Each organization will need to identify and implement specific, targeted innovation approaches that will best advance its MPL goals. The challenge will be finding the adequate time of healthcare system leaders to define these goals, secure the necessary financial resources, gain system leadership support, and allocate significant staff resources to execute this work. Plainly stated, healthcare system leaders are extremely busy running their organizations, and MPL insurance is only one of many important areas that needs their attention.
With this in mind, a key strategy to improve the chances of successfully implementing impactful innovation should involve greater collaborations between multiple healthcare system insurance program leaders. This approach greatly enhances the level of expertise, potential funding, and critical mass for leveraging outside parties to support execution. Regardless of which of the implementation models described below is followed, this is a critical step to advancing innovation.
Three potential models should be considered to enhance the likelihood of implementation within a reasonable time frame:
- MPL healthcare system insurance program collaboration only: As described above, this model involves collaboration between several programs to define, prioritize, implement, and fund innovations. Ongoing meetings and communication would be required as part of this approach. The advantage of this model is that the programs would be in complete control of the innovation. As mentioned above, the major challenge of using this model alone is gaining the extensive leader time commitment and funding to accomplish this work.
- Partner with a large, well-resourced MPL industry organization: For this model, participating programs would partner with an existing MPL company to facilitate innovation definition, alignment, and implementation. For success, the partnering organization must possess the financial capability, skills, and scale to coordinate innovation development and execution. The advantages of this model include that the partner company would already understand the MPL business and healthcare and share a similar mission with the participating programs. It would also have the financial capability to support the necessary funding for timely innovation implementation. The major model considerations would include the level of ongoing operational control that this partner would want to fund/support these innovations and the compensation required for this support.
- Partner with a large insurance industry company: Here, the partnering company would have extensive financial capability and scale to develop and execute such innovation. The advantages would be the company’s funding resources and perhaps access to expertise in certain areas not currently within the MPL industry. The considerations would again involve the degree of control the very large organization would want to exert and the level of compensation required. In addition, the company may not fully appreciate the nuances of the MPL insurance line and the missions of the healthcare system insurance programs.
Rise to the challenge
Change is difficult. Innovation requires change in thought, challenging business norms, and taking risks. The real question is whether the MPL industry can afford not to implement this innovation. This work could lead to significant reductions in healthcare system MPL costs and
greatly improve patient care. It is an incredible opportunity with the potential to transform our industry.