Checking Up on PPACA: Health-Care Reform’s Impact on Medical Professional Liability

Medicare, private insurance companies and employers are facing a new world that will consist of state-run insurance exchanges, coverage mandates and loss-ratio expectations. For health insurers to be successful, they will need to work with health-care providers to manage costs across a continuum of services. Similarly, insurers will want to work with providers that can eventually take outcome-based risk. The trickle-down impact to health-care providers has already started a shift in acquisitions, operations, employment and investment.

Here's an overview of key trends:

• Acquisitions: The MPL market has seen a wave of mergers and acquisitions in the hospital segment. This M&A activity, coupled with a growth of claims-made coverage, has resulted in the need for complex products to remove past liabilities. Extended Reported Period coverage, loss-portfolio transfers and Successor Liability policies are often requested to segregate and protect against the liabilities of an acquired entity. But here's the risk: Is the hospital (or physician group) being acquired securing the appropriate limits for incurred but not reported (IBNR) losses? In an asset-only purchase, can the successor be held liable for historical operations?
• Operations: The accountable care organization (ACO) is here to stay…for now. Physician hospital organizations (PHOs) were in vogue during the early 1990s—and now they are back. Whether it's an ACO or PHO, entities are being formed by hospitals/health systems to allow for clinical integration. Providers of MPL will look to insure these ACOs and PHOs. 
• Employment: PPACA has expedited the shift in physician careers from solo/group practice to hospital employment, which has been happening since the early 2000s. Greater accountability and the need for capital started this migration. What MPL underwriters have to examine is the shift in loss costs from individual MD policies to the hospital's policy/self-insurance program.
• Investment: The investment in electronic medical records (EMR) is not something individual practitioners can easily take on. With the integration/implementation of EMR, we have seen the health-care industry become one of the leading segments for loss of data (patient health and personal information). MPL underwriters for physicians have started adding coverage for Cyber Liability into their MPL policies. It is unclear whether the premium allocated to this exposure will be sufficient.

PPACA will enable an estimated 30 million new insureds to receive pre-natal care, wellness plans, etc., and theoretically reduce the number of times people show up in an emergency setting with acute conditions.

We should remember the health-care industry does not work on a supply-and-demand basis. A wise economist reminded me that creating more clinics or providing unlimited health insurance does not increase the number of sick people—it only changes how they access care. PPACA will shift where and how people receive treatment and remove the uninsured population that go through emergency-room settings for basic care.

While PPACA will not create new sick people, it will clearly increase utilization of primary-care providers. The finite number of health-care professionals will have to handle a higher number of annual physical exams and mild illnesses.

The surge in newly covered patients, coupled with a well-documented nursing shortage, is perhaps the greatest risk facing the industry. However, the health-care industry is morphing to find better ways to provide basic medical services. The creation of the "retail clinic" is an example of how services are expanding in urban and suburban communities.

Time will tell how all of these moving pieces affect the profitability of the MPL market.