Not every new insurance idea is a roaring success out of thegate, but a change in delivery model helped jumpstart the successof one of NAS Insurance Services many specialty programs, thefirm's leader reports.

Richard Robin, chief executive officer of NAS InsuranceServices, described the evolution of MEDEFENSE, a policy coveringphysicians and health care entities for defense costs and fines andpenalties resulting from various types of regulatoryinvestigations, including probes of Medicare and Medicaid billingerrors and fraud allegations.

Mr. Robin explained that the concept was developed in the 1980s,when some physician groups and associations approached the Encino,Calif.-based managing general underwriter to develop a product tocover defense costs associated with peer reviews, hospitalcredentialing and state board proceedings.

The MGU responded by developing a low-limits policy covering abroad scope of physicians' disciplinary proceedings and hiring aretailer to go out into the open market to sell individualpolicies.

"That wasn't very successful. The premiums were low and theexposure wasn't that much of a feared exposure," he said.

Two factors changed to drive sales in the 1990s, he said.

First, there was an initiative launched in Washington underPresident Bill Clinton's administration to recoup funds from theMedicare/Medicaid system. That generated a lot of press "about 400FBI agents going out specifically to knock on physician and medicalgroup doors to audit and to find upcodings or miscodings," herecalled.

In fact, by 1999, NU was among the publicationsreporting on the rising exposures for health care providers–thepotential for damages and fines under the federal False Claims Act,like treble damages for amounts overcharged and additional finesfor every false claim.

Special provisions of the new laws put in place at the timeincluded the "qui tam" provision of the False Claims Act, Mr. Robinrecalled, noting that this was a whistleblower provision entitlingindividual citizens who reported fraud and abuse by health careproviders to actually participate in receiving some of the recoupedfunds.

In addition to the increased perception of risk, Mr. Robin saida new delivery model suggested by an underwriter at Lloyd's changedthe sales dynamic for MEDEFENSE. (NAS issues policies on behalf ofsyndicates at Lloyd's).

The Lloyd's underwriter, which was doing a substantial amount oftreaty reinsurance business for physicians malpractice mutuals inthe United States, suggested NAS hook up with reinsuranceintermediaries to be introduced to their clients–executives ofphysicians malpractice carriers.

"We came up with a new model, which was basically adding alow-limit [MEDEFENSE] benefit" to the physicians malpractice policyfor all insurers or members of a mutual.

In essence, the MEDEFENSE piece is reinsured to Lloyd's, heexplained, noting that the add-ons can be sold in this way to RRGsand physicians' associations also.

"Generally, with this model, we try to get the whole spread ofbusiness, and in return we waive underwriting. It'sadministratively efficient. It's like getting a benefit on yourcredit card," he said.

Mr. Robin said that "at this point, MEDEFENSE is really abenchmark. Just about every physicians' med mal policy out there[has regulatory defense cost coverage] in some way shape or form,whether or not we continue to participate."

Mr. Robin noted that over the years NAS has found new ways toexploit the distribution model with physician insurers, such asoffering additional policy add-ons and higher limits.

One increasingly popular add-on is e-MD, a cyber liabilityprivacy policy created in response to the emergence of HIPAA lawsput in place in the 1990s addressing the privacy and security ofelectronic medical records. "This year, all the med mal carriersare waking up to new red-flags rules," he said, referring toFederal Trade Commission rules requiring procedures to detect andmitigate identity theft.

There's also been increased demand for MEDEFENSE itself, drivenby the emergence of contractors known as RAC auditors, hesaid–referring to Recovery Audit Contractors hired by the federalgovernment to pursue large Medicare and Medicaid overpayments."They're sort of bounty hunter contractors that are going out tomedical offices trying to find issues," he said, noting thatMEDEFENSE's broad coverage for regulatory investigations capturesRAC audits.

MEDEFENSE has "always been treated like an accordion, so there'sa list of perils that we're happy to put in," he said, listingStark and EMTALA proceedings–the former relating to anti-kickbacklaws and the latter to emergency medical treatment laws.

"Those weren't that big a deal 10 years ago, but they are now.So we have it standard in MEDEFENSE policies [today]," headded.

"We've had policies that have included representation when aninsured has a federal tax audit," he said, highlighting theflexibility with which the policies can be written. "We've hadper-diem benefits, where a physician has to sit in front of a stateboard for some hearing, and they would have some daily benefit thatpays them for their time."