MedMal Insurer Expands Product Offering to Meet Changing Physician-Employment Model

note: This article first appeared in the September 2012 issue of the Medical Liability Monitor, the medical professional liability insurance industry’s preeminent newsletter. To subscribe to the Medical Liability Monitor, click here.

The United States’ healthcare delivery system continues to be in a state of flux as it braces for 2014, when key provisions of the Patient Protection & Affordable Care Act will kick in and an estimated 32 to 50 million new Americans will have access to healthcare services. One of the more challenging aspects of this transformation for medical professional liability insurance companies is the migration of independent physician practices to large group or hospital employment.

During the past several years, an increasing number of community-based physicians—those previously working in smaller, private groups—have been selling their practices or seeking employment directly with healthcare systems. Some are doing so to gain stability in an uncertain business environment or reduce their administrative responsibilities; others, to gain improved access to healthcare IT tools, facilities or equipment; still others may seek a more manageable workweek. Hospitals are aggressively acquiring physicians to lock in staffing and secure patient volumes. Because these larger systems tend to self-insure or use alternative risk transfer mechanisms for their professional liability, this migration has narrowed the medical professional liability industry’s customer base.

“It’s not just the Affordable Care Act causing physicians to seek employment in larger groups or with hospital systems, but also an industry-wide recognition that the healthcare system is not sustainable the way it currently is,” said Mary-Lou Misrahy, president and CEO of Physicians Insurance A Mutual Company, which has traditionally written medical professional liability insurance in Washington state, Oregon and Idaho. The company is the largest writer of medical liability insurance in Washington. “We are seeing new economic pressures on physician practices. With the advent and reliance on technologies like electronic health records, smaller practices simply can’t afford those expenditures on their own. As a result, you see this migration of physicians either into larger practice settings or choosing to be employed by hospitals. And as these healthcare systems get bigger, they are also going to cross geographical boundaries. So we want a bigger footprint and different products that allow us to meet those needs. These are the happenings that have driven our strategies at Physicians Insurance.”

In August 2012, Physicians Insurance announced it purchased the alternative risk management companies that administer Emergency Medicine Professional Assurance Company (EMPAC) Risk Retention Group and SCRUBS Mutual Assurance Company Risk Retention Group for an undisclosed amount. According to the company, these were strategic acquisitions intended to expand their ability to offer alternative risk financing options to physicians, clinics, hospitals, single/multi-state associations and other healthcare facilities.

“I know several medical professional liability companies have recently started risk retention groups as a means to increase their geographical reach; what we did is different,” Misrahy explained. “We acquired established management companies to gain the expertise in how to establish and manage risk retention groups and captives. We founded an alternative risk financing division of Physicians Insurance with the management teams from EMPAC and SCRUBS, whose responsibility it will be to meet the evolving risk financing needs of healthcare practices.“

EMPAC specializes in emergency medicine groups and SCRUBS caters to urologists, but according to Misrahy, Physicians Insurance intends to leverage the management teams’ expertise to start and administer risk retention groups and captives that serve the interests of other specialties in the future. The acquisitions will also serve as a means for the company to expand its geographic footprint.

“Our strategy is that we want Physicians Insurance to be able to offer a full continuum of insurance products—from first-dollar coverage all the way to self-insurance,” Misrahy said. “Prior to acquiring the EMPAC and SCRUBS management teams, we could do things like deductibles and retrospective-rated programs as well as some risk-sharing programs, but now we can do first-dollar all the way to self-insurance.”

In addition to broadening its risk financing options, Physicians Insurance has started offering its support services in an a la carte fashion.

“We have started to unbundle some of our other services, offering claims administration of self-insured hospital liability exposures as well as risk management services,” Misrahy said. “We have been working with the larger regional hospitals where we will carve out the employed-physician exposure and provide insurance coverage on that while also offering the hospitals some of our other services.”

The strategy has been successful. While many of the industry’s mutual companies are losing insureds as they migrate to larger groups or hospital employment, Physician Insurance reports that it has experienced a growth of 800 physician insureds during the past three years.

“The sky is not falling, but insurers have to really look at the changing employment model and come to the market with tools that assist the clinic administrator and the physicians,” Misrahy said.