Insurers pouring into the medi-spa liability market need to be wary of the potential for seemingly harmless cosmetic procedures to disfigure underwriting results with claims that can range from laser burns to fatalities, experts warn.

Medical spas, which offer everything from botox injections and fat-dissolving treatments to alternative medicine and nutritional guidance, are getting a much warmer reception from insurers than they did five or six years ago, according to Edward Kuhn, owner of Liability Insurance Solutions, a Chicago-based agency specializing in this class of business.

“All of a sudden, there's almost a herd mentality involved with all these [insurance] companies getting in almost overnight,” Mr. Kuhn said, comparing today's environment to a time when only a “trickle” of insurance markets was available.

Since the work involved is “not high-risk, invasive, major surgery-type procedures,” insurers have decided “maybe we should take a look” at the segment, he said during a session of the Professional Liability Underwriting Society's international conference in November.

While he and other panelists noted the explosion in practitioners and users of such services, they also warned about the ugly side of aesthetic treatments that can produce serious claims, during the PLUS session on: “Beat the Clock! New Hopes and Risks in Anti-Aging Medicine.”

“These procedures are not without risk,” said Kathleen Johnson, senior claims attorney for Deerfield, Ill.-based Shand Morahan & Company, a unit of Markel Corp. There have been documented cases of severe systemic allergic reactions and cases of dysphagia from Botox injections, she said–referring to a condition leaving a patient unable to swallow, leading to the insertion of a feeding tube.

Ms. Johnson suggested that insurance underwriters providing coverage for medical spas offering botox should inquire whether a medical director is on site to respond to that type of situation, which can result when seemingly routine procedures go awry.

“Do they have someone on staff trained in advanced cardiac life support? These are relevant questions to ask,” she said.

Nancy Huddlestun, assistant vice president and senior underwriter for General Star Management Company in Chicago, said any insurance submission indicating that a medical director devotes less than 20 hours a month to a spa “is going to give us pause.”

Medical claims that have developed so far, she said, haven't come at the hands of professionals with years of medical training, such as physician's assistants or nurse practitioners, but “from licensed aestheticians [and] assistants who are trained on site to do some of the less challenging laser treatments,” she said, citing laser burns as the biggest cause of claims.

Ms. Huddlestun described a whole host of laser treatments offered by a class of medi-spas known as the aesthetics/cosmetic spas, including laser hair removal, intense pulsed laser and fraxel laser treatments.

Laser hair removal, a procedure in which a laser is used to kill hair follicles, is the top treatment for men and women, she noted. “Men are leaving their sport bars to enter into treatment” to remove hair on their backs and ears, she said.

She went on to explain that intense pulsed laser procedures treat uneven skin pigmentation, while fraxel laser refers to a procedure in which a laser “zaps the skin and creates spots” under the first layer of skin. As the spots are closed over, collagen is filled into the second layer to create more healthy looking skin, she said.

While the experts said claims result when unskilled technicians improperly set dials on the machines that operate the lasers, resulting in patient burns, and when patients develop red spots and other skin reactions, they also said the good news is these common claims are not costly to insurers.

They're typically settled within an insured's deductible, Ms. Johnson noted, explaining that the majority of burns resolve in a week, and that patients who shell out thousands of dollars for treatments can usually be appeased with refunds.

But injuries become severe and claim dollars escalate when laser-wielding aestheticians don't react to early signs of a skin reaction or burns. “They don't consult the medical director because there is not one there. They just keep on going,” Ms. Johnson said, warning underwriters they can't just review the menu of treatments when they offer coverage. “You do want to look at who exactly is doing the hands-on care,” she added.

“Don't let the fancy spa, the soft music and the hushed tones fool you. These are medical procedures, and [often] you're having nonmedical people administer them,” Ms. Johnson said.

Ms. Johnson admitted to having a tendency to focus on problematic scenarios, given her position as a claims professional. Still, while she said she didn't intend to crush the high level of enthusiasm among insurers entering this burgeoning market, “you need to go into this with eyes wide open.”

Providing an eye-opening simplification for insurers to consider with respect to the procedures themselves, she said, “you're injecting people's faces with poison” during a botox procedure, referring to the fact that the injected substance–botulinum toxin Type A–is a nerve toxin derived from a bacterium. “It is a paralytic.”

Later in the session, she described a California case in which a woman developed an infection on her face when too much of her skin was removed during a microdermabrasion. The woman was transferred to a hospital, where she developed MRSA and ultimately died.

In another case, a 23-year-old college student went to a medi-spa for laser hair removal and died from the self-application of prescription-strength numbing cream that was supplied in advance of the procedure without adequate instruction.

“There weren't histories and physicals taken before dispensing this”–and on top it, it was the receptionist at the front desk “who was just giving out tubes of this stuff,” Ms. Johnson said, noting that the only instruction given was to apply the cream an hour before the procedure to minimize discomfort. The patient applied too much and died from acute lidocaine toxicity, she said.

This particular case, which drew media coverage from NBC's “Dateline,” was “the perfect storm,” she said, noting that the injured woman was young and sympathetic, and that the case was taken by a former law partner of John Edwards, who up until recently was a presidential candidate.

The director of the medi-spa lost his license to practice medicine for six months, “and that was a negotiated settlement. They wanted two years,” she said.

Ms. Johnson reported that there is now some regulation of the industry developing aimed at trying to prevent such injuries, but even in California, which is leading the way, the regulations won't go into effect until January 2009, she said.

Ms. Huddlestun noted that, in general, there has been little regulation of medi-spas, because it's such a new industry. “Basically, medical boards have all agreed that the use of lasers is the practice of medicine, but beyond that it's not regulated,” she said.

During her presentation, Ms. Huddlestun identified three classes of medical spas: cosmetic/aesthetic, wellness/preventative (providing help with stress management, smoking cessation, weight management, disease screening, exercise, immunization and the like), and alternative medicine/anti-aging spas.

Dr. Charles Turner, owner of Innovative Medicine–an alternative medicine clinic in Lafayette, Ind.–suggested that not only is the last category the one that's the least risky for insurers, but that risks of severe injury are small for all three categories. “It takes a lot to hurt somebody–like using a laser that's not dialed in right by somebody who is new at it [and] not watched by the medical director,” he said. “Bad things can happen, but it's pretty uncommon.”

Although Dr. Turner characterized the “vast majority” of claims for all three types of spas as “very benign stuff,” he said he believes the patients most likely to sue are those who go to the first type for cosmetic reasons, suggesting they are a wimpier lot.

“If you give injections, there's pain and swelling with that. They get the pain and swelling and they're all upset,” he said.

“These are people who smoke, don't take vitamins, and all they want is their wrinkles taken care of–and they think they're going to look 19 again,” he added, noting that when treatment results don't meet unrealistic expectations, suits may be filed.

In contrast, he said, patients who purposefully seek out alternative medicine practitioners like him are interested in their health and are not litigious. “Often we have train wrecks come to us that mainstream doctors can't or don't want to take. [These patients] are very happy to find us; they develop a rapport with us. Even if something goes wrong, they're very unlikely to sue. It almost doesn't happen.”

Describing the alternative/anti-aging medicine field as one concerned with “being healthy from the inside out” through diets, nutritional supplements, antioxidants, hormone replacement and other therapies, Dr. Turner also said claims potential is reduced because practitioners work at a slower pace than traditional providers.

Dr. Turner, who also has a traditional family practice, said while he sees roughly 64 patients a day in his mainstream practice, he only sees five-to-10 in his alternative medicine practice. Patients appreciate the attention, he said, again lowering their propensity to sue.

The bigger worry for alternative medicine practitioners is how colleagues and boards of medicine will perceive what they're doing. “So we're especially careful,” he said, noting that attendance at educational seminars is high among such providers.

“We're good money for insurance companies. They're not going to lose money,” he told the liability underwriters.

In spite of any perceived lower claims potential, Mr. Kuhn suggested that Dr. Turner falls into a category of “doctors-in-transition” that presents challenges for brokers, because such doctors straddle two coverage markets–pure medical malpractice insurers, such as ProAssurance and Medical Protective, and surplus lines.

Mr. Kuhn listed three categories of submissions to brokers:

o A medical director of a non-physician-owned spa, seeking coverage as a medical director only.

o A “true medi-spa” advertising itself as such and not doing anything else.

o Physicians-in-transition, who already have a large number of existing patients and are trying to integrate spa procedures into their practices.

Mr. Kuhn said the latter group represents the bulk of his submissions, noting that many doctors seek to bolster their practices economically with anti-aging procedures that sit on “the cash side of the house,” alongside mainstream procedures paid for by patients' health insurers.

Physicians in traditional specialties such as obstetrics, emergency medicine and internal medicine may simply make alternative procedures available to current patients, or may create separate clinics specializing in medi-spa treatments.

An example of the first would be an OB-GYN offering post-delivery rejuvenating skin procedures to women who recently gave birth, he said. The second situation might have an ER physician who works three 12-hour hospital shifts, working at his spa the remaining four days each week.

“If you're 50 percent OB-GYN, 50 percent medi-spa [practitioner], then what are you” to an insurer, he asked, illustrating a broker's challenge. “Your standard company will write the OB-GYN side, but then I have to find a surplus lines company, or something else to fit the other side.”

The challenge is the physician really doesn't want to move their coverage completely, but the standard market won't cover botox injections, mesotherapy (a cellulite treatment) or chelation therapy (an intravenous therapy that some alternative medical practitioners use to treat heart disease). These move the physician out of the underwriting box of the core specialty (such as internal medicine) that the medical malpractice insurer used to write, he said, noting that the reaction of the carrier is to put exclusions on the policy for nonstandard procedures.

“We can't get a procedure-specific policy,” said Mr. Kuhn, who suggests physicians try to create “some kind of separation” between the traditional specialty and the medi-spa. “What we like to see is a medi-spa that's really dedicated to that specialty. Then we can more easily pull a product off the shelf and hand it to them, as opposed to working and painstakingly trying to craft something that may overlap over an existing policy and is kind of nebulous.”

In any case, “the submissions are monsters,” with requirements for a lot of documentation, such as training certificates and informed-consent forms, he said. “There's a lot more work involved,” he noted, adding that the good news is as doctors move over in transition, more insurers are coming to meet them.

“We're hitting that sweet spot in terms of how to get the pricing and coverage where it needs to be so that the physicians and insurers are comfortable with it,” he said, noting that prices have come down from a few years ago, when the $25,000-to-$30,000 range for a $1 million limit for someone practicing anti-aging medicine was typical.

Cynthia Hine–a registered nurse who is also a vice president in the Nashville office of Hylant Group, an insurance brokerage firm–said that coverage remains scarce for nurse practitioners and physician assistants who are moving into the medi-spa business.

“That is a huge part of the industry that has been hungry to find coverage–hungry to break into this from an entrepreneurial standpoint–and I think [they] have to be added to that prospective batch of insureds,” she told the PLUS attendees.

Panel moderator Ron Rumin, vice president of Worldwide Facilities in Phoenix, agreed. “Seventy-five percent of the submissions we see are non-M.D.-owned medical spas, and I certainly don't see that trend changing any time soon,” he said.

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