More Accountable Care
More physicians are selling their practices and becoming employees of larger entities, as the Affordable Care Act encourages the creation of expanded accountable care organizations.
So far, underwriters are viewing the trend as a positive, with improved risk management practices and less “finger-pointing” between hospitals and doctors during the claims resolution process, as all parties are now covered under the employers’ professional liability policies (physicians working as employees typically no longer buy medical malpractice insurance.)
But as more patients are served under this model, experts said, certain issues need to be ironed out, such as whether health care organizations can meet new “pay-for-performance” metrics and whether they are buying as much limits as they should to adequately handle jury awards.
Berkshire Hathaway Specialty Insurance views the ongoing migration of physicians toward institutional employment as a favorable trend, both for the individual practitioner as well as for the institution employing them, said Leo Carroll, head of healthcare professional liability.
“Physicians are less distracted and burdened by some of the administrative responsibilities of running a practice, by handing that over to the institution to manage,” Carroll said.
Physicians benefit when they join an institution’s risk management program, in part by being able to use a common medical record system, usually electronic, to help to optimize technological efficiencies and promote consistent communication, he said.
Moreover, communication between physicians and institutions within the employment model generally is “a little tighter and more efficient,” as comprehensive treatment plans can be shared more effectively across a unified team.
Physicians are also integrated into a larger insurance program overseen by the institution, which allows them access to broader risk management training and promotes more time with patients, Carroll said.
Claims can also be resolved more efficiently because the “finger-pointing” between doctors and hospitals under separate insurance policies has been eliminated, and the cost of a coordinated defense using one law firm is typically much lower.
Still, a unified approach to resolving conflict “does come with compromise for all involved,” so that claims can be resolved in the best interests of all parties, Carroll said.
“The future is a pay-for-performance environment.” — Bob Allen, president, Pro-Praxis Insurance
“It’s really important for physicians to be open and well-informed about the culture of the institution they are joining,” he said.
“They need to make sure to understand that there may be differences in the way that care is delivered and what the expectations are of the physicians by the institutions.”
Medical specialists are also making the switch, said Mary Ursul, executive vice president at Coverys, a Boston-based provider of medical professional liability insurance.
In recent years, Coverys has seen instances where independent cardiologists in a community all become employed by a health system, Ursul said.
“Whether it is the push to upgrade equipment, implement electronic medical records, the uncertainty of future private payer and government reimbursement, or the predicted shortage of health care providers, the shift away from independence seems to be heavily weighted towards financial concerns,” she said.
The ACA’s call for more integrated care delivery is also prompting the move toward employment — as well as the increasing trend of hospitals and health care organizations to also acquire acute care, post-care, rehabilitation facilities and other entities across the health care delivery system, Ursul said.
As larger entities acquire physician practices, there are certain training protocols that should be considered to minimize risk exposure, she said.
“For example, something as simple but important as a new patient intake process within an unfamiliar electronic medical record can create situations where risk exposure can increase without sufficient training,” Ursul said.
“That could be a steep learning curve for staff in a physician’s medical office, therefore, time, training and appropriate resources are all important to make the transition smooth and to ensure that clinical information is handled appropriately so that risk can be reduced.”
While Coverys offers comprehensive clinical risk management services to its insured independent physicians, the carrier finds that not all physicians have access to such services, she said.
Coverys advises hospitals acquiring physician practices to conduct risk management assessments as soon as practical, a service that the carrier provides to insured hospitals.
“These assessments can provide a baseline of data on processes, possible gaps in best practices, and assist in determining what type of education and training staff may need,” Ursul said.
One benefit to being acquired is often access to professional clinical risk management resources through the hospital’s risk management department.
“This may not actually be viewed as a benefit from the physician side of the transition as physician practices are largely unregulated, so the level of oversight may be viewed as burdensome,” she said.
As hospitals and health care organizations acquire more physician practices and other entities throughout the health care spectrum, the risk in maintaining “the health of the community” becomes the new issue, said Bob Allen, president of Pro-Praxis Insurance in New York.
The Importance of Care Coordination
To manage the health within a patient population, there has to be coordinated care across physicians, hospitals and rehab services, Allen said.
“For example, one entity says that it can take care of all of the diabetes cases in its region for x number of dollars, and so the ‘risk’ is being able to have the hospital and the doctors on the same page to be able to take care of those cases at or under that targeted dollar amount,” he said.
That exposure is also translated into the financial risk of taking a flat fee for a particular type of care, what is known in the industry as a “capitated risk,” Allen said.
If a health insurer agrees to give a hospital and its physician network a flat fee to treat 1 million people in its area, the insurer may pay for office visits, including annual checkups, but it likely won’t pay if the network provides poor quality of care.
Insurers are now measuring that by “quality indicators,” he said. Insurers are increasingly reviewing the number of surgical infections or falls during hospital stays that occurred due to poor quality treatment or follow-up after surgeries, and determining whether the rates are too low, high enough or whether not to pay.
“The future is a pay-for-performance environment,” Allen said.
“If the network doesn’t perform well, it doesn’t get paid for services rendered — that’s the risk. It’s more of a business risk than a typical malpractice risk.”
To mitigate this financial risk, hospitals and physicians have to be on the same page, have greater collaboration, and “probably” the best way to do that is within an employer/employee structure, he said. Historically physicians had hospital privileges as independent contractors, but now as employees, there is better management of making sure doctors do checklists before performing surgery.
“As an integrated group, there are resources and rules for who will do the follow-up calls after surgery to make sure stitches are not going to be ripped open,” Allen said.
Pro-Praxis offers a professional liability program that covers every entity within the network — hospital, physicians and other employees such as certified nurse assistants, as well as other entities that hospitals have been acquiring such as nursing homes and outpatient surgery centers, as part of providing a continuum of care, he said.
Professional liability has taken the place of medical malpractice for individual physicians, Allen added.
For example, a hospital may pay $1 million in premiums, but after it brought a physician group of five doctors who each used to pay $100,000 in premiums for medical malpractice insurance, the hospital would now pay a total of less than $1.1 million in premiums.
In addition to less “finger-pointing” with a joint defense, typically the new employer/employee structure can result in “behavioral changes.”
“That is not to say that physicians didn’t behave well before, but now the hospital can better manage treatment and follow-up, and the workflow of all of its employees,” he said.
For insurers, the biggest challenge with the new structure pertains to policy limits, Allen said. Under the traditional structure, hospitals typically have a $2 million limit for professional liability and physician groups have a $1 million limit for malpractice. If they were sued and the jury awarded $3 million, the two entities could cover it with their respective limits.
“But now that there is no more sharing and just one health system that has to pay that $3 million jury award, the hospital would now have to pay $1 million out of pocket because its limit is still $2 million,” he said.
“This hasn’t happened yet, but from an underwriter’s perspective, we are concerned about loss allocation.”
Some health care organizations have been buying more limits and have been paying more in premiums, so they won’t have to pay out-of-pocket, something the insurers are hoping more will do as their exposure to losses increases.
“They have to be careful now that they’ve brought on all of those physicians as employees,” Allen said.
“Our job is to figure the impact of losses on how much limits they should get, and there is no hard data on that, yet.”
The ACA and International Assignees
The Affordable Care Act and its related implementation and reporting requirements make 2015 particularly challenging for employers with international assignees.
Employers are watching the Supreme Court case for its possible effects on employees and the employer penalties, but most are moving ahead with the reporting provisions, which are generally not directly affected by the provision being considered by the Supreme Court. This year may be particularly challenging for those with international assignees.
Some companies are still in the process of designing a health care plan that complies with the ACA; others are evaluating programs they already offer. Wherever your plan is along that continuum, large employers — with at least 50 full-time-equivalent employees as defined by the ACA — need to bear in mind the implications of international assignees and take steps to address compliance for their globally mobile employee base.
To start, note that the hours of service by employees performed within the United States determine whether an employer meets the 50 full-time-equivalent employee threshold.
A company that passes that threshold is a large employer that must offer the required health care coverage to actual full-time employees (those who work on average 30 or more hours a week, also within the United States) and their dependents in order to satisfy the law’s mandate.
The determination of a large employer must consider the employees of all the trades and businesses under common control — including foreign entities — under the U.S. controlled group rules of Internal Revenue Code section 414 (which apply to U.S. qualified plans and certain other benefits).
A foreign company with no U.S. entities or affiliates in its controlled group can still be considered a large employer based on the number of employees providing services within the United States.
Individual Mandate for International Assignees
The individual mandate under the ACA obliges individuals to obtain their own health insurance or incur their own penalties. Failure by an individual and members of the individual’s household to have health coverage — whether provided by an employer or obtained privately — may subject the individual taxpayer to penalties.
If any employer (large or not) pays for or reimburses employees for insurance purchased individually on a health exchange or from a private insurer, this coverage may satisfy the employee’s individual mandate requirement but may force the employer to pay a different IRS penalty.
Covering the employee’s cost for such coverage on a pre-tax basis may expose the employer to penalties of $100 per day per impacted employee.
Separate from this penalty, purchases of private coverage by employees on a health exchange or otherwise are not employer-sponsored coverage that satisfies the employer mandate.
Coverage That Satisfies the Employer Mandate
Eligible employer-sponsored coverage includes group health coverage under insured and self-insured employer plans typically offered by U.S. employers.
However, when an international assignee is covered under a non-U.S. plan, or a plan designated as an expatriate plan, only certain types of coverage qualify as minimum essential coverage (MEC) mandated by the ACA, including:
- Certain self-insured group health plans;
- Certain insured expatriate health plans (with plan years ending on or before Dec. 31, 2015); and
- Certain insured plans regulated by a foreign government.
Additionally, coverage offered for all full-time employees, including international assignees, must be minimum value and affordable to comply with the requirements of the employer mandate.
Failure to meet any of the above criteria may subject employers of international assignees to the employer shared responsibility penalty if any full-time employee obtains a credit or subsidy for coverage on a health care exchange.
Minimum value generally means the employer must pay at least 60 percent of the cost of the health coverage for the employee based on actuarial values — the equivalent of the “bronze” level of coverage available on health care exchanges.
To be affordable, the employee’s portion of the premium for single coverage generally must not cost more than 9.5 percent of the employee’s household income.
Because an employer cannot determine an employee’s household income, the regulations offer three methods to determine whether the cost is affordable for an employee.
Generally, the three safe harbors provide that the employee’s portion of the premium for single coverage cannot cost more than 9.5 percent (an indexed percentage) of:
- The employee’s Form W-2, box 1 wages;
- The Federal Poverty Limit based on the annual poverty rate for a family size of one; and
- 130 hours multiplied by the employee’s rate of pay at the beginning of the year.
Whichever method an employer chooses to use must be applied uniformly and consistently among a reasonable category of employees.
Understanding the Reporting Process
Effective Jan. 1, the IRS added new reporting responsibilities under the ACA and requires employers to submit new forms in early 2016. Company IT systems need to be in place to capture this information as required.
Draft versions of Form 1095-C, and the 1094-C Transmittal Form require large employers to demonstrate that the health care coverage they offer is MEC that meets the minimum value and affordability requirements.
This reporting is required of large employers, regardless of whether they offer health coverage or not, and is different than the requirement to report health care costs on employees’ Forms W-2 (which has been required since 2012).
The new forms require details of health coverage offered to each employee, including months of coverage offered, cost of coverage, whether coverage meets minimum-value rules and “affordability rules,” and whether the coverage was offered to almost all full-time employees and their dependents.
In addition, if any employer (large or not) self-insures health coverage, separate information is required on a separate part of Form 1095-C for large employers, and on Form 1095-B and the 1094-B Transmittal Form for non-large employers.
This information must include not just the employee, but all family members who are covered under the plan.
Foreign insurers and employers are also accountable for these reporting requirements; this may mean an employer identification number is required for a foreign entity (including those within a large employer’s controlled group).
Communication is Key
Organizations need to ensure that the lines of communications are open between HR, finance and IT, among other departments, to ensure that the right information is available to meet reporting requirements.
Employers should consider communicating with international assignees their obligations under the ACA, particularly if there are concerns that their foreign coverage does not meet the individual mandate and may subject the assignee to the individual penalty.
Employers may also want to consider whether the individual penalty should be part of their tax equalization policy.
Even if the foreign coverage is MEC for purposes of the individual requirement, employers need to consider whether it meets the employer shared responsibility requirements.
When evaluating or designing health care plans, organizations need to assess what systems are already in place that can be utilized for reporting purposes. Chances are large organizations are already collecting the information needed by the IRS.
As with other business challenges, globalization adds more pressure when it comes to efficient and accurate reporting.
This may mean communicating with foreign employers offering the coverage to the assignee, or foreign insurance companies if the plan is an insured plan.
Although these forms are not due until Jan. 31, 2016, they rely on data collected and compiled starting Jan. 1, 2015. If the information is not reported accurately or retained properly, even if the plan is compliant, the time spent resolving those gaps can translate into wasted resources and added expenses.
Healthcare: The Hardest Job in Risk Management
Radically changing cost and reimbursement models.
Rapidly evolving service delivery approaches.
It is difficult to imagine an industry more complex and uncertain than healthcare. Providers are being forced to lower costs and improve efficiencies on a scale that is almost beyond imagination. At the same time, quality of care must remain high.
After all, this is more than just a business.
The pressure on risk managers, brokers and CFOs is intense. If navigating these challenges wasn’t stress inducing enough, these professionals also need to ensure continued profitability.
“Healthcare companies don’t hide the fact that they’re looking to reduce costs and improve efficiencies in practically every facet of their business. Insurance purchasing and financing are high on that list,” said Leo Carroll, who heads the healthcare professional liability underwriting unit for Berkshire Hathaway Specialty Insurance.
But it’s about a lot more than just price. The complexity of the healthcare system and unique footprint of each provider requires customized solutions that can reduce risk, minimize losses and improve efficiencies.
“Each provider is faced with a different set of challenges. Therefore, our approach is to carefully listen to the needs of each client and respond with a creative proposal that often requires great flexibility on the part of our team,” explained Carroll.
Creativity? Flexibility? Those are not terms often used to describe an insurance carrier. But BHSI Healthcare is a new type of insurer.
The Foundation: Financial Strength
Berkshire Hathaway is synonymous with financial strength. Leveraging the company’s well-capitalized balance sheet provides BHSI with unmatched capabilities to take on substantial risks in a sustainable way.
For one, BHSI is the highest rated paper available to healthcare providers. Given the severity of risks faced by the industry, this is a very important attribute.
But BHSI operationalizes its balance sheet in many ways beyond just strong financial ratings.
For example, BHSI has never relied on reinsurance. Without the need to manage those relationships, BHSI is able to eliminate a significant amount of overhead. The result is an industry leading expense ratio and the ability to pass on savings to clients.
“The impact of operationalizing our balance sheet is remarkable. We don’t impose our business needs on our clients. Our financial strength provides us the freedom to genuinely listen to our clients and propose unique, creative solutions,” Carroll said.
Keeping Things Simple
Healthcare professional liability policy language is often bloated and difficult to decipher. Insurers are attempting to tackle complex, evolving issues and account for a broad range of scenarios and contingencies. The result often confuses and contradicts.
Carroll said BHSI strives to be as simple and straightforward as possible with policy language across all lines of business. It comes down to making it easy and transparent to do business with BHSI.
“Our goal is to be as straightforward as we can and at the same time provide coverage that’s meaningful and addresses the exposures our customers need addressed,” Carroll said.
Claims: More Than an After Thought
Complex litigation is an unfortunate fact of life for large healthcare customers. Carroll, who began his insurance career in medical claims management, understands how important complex claims management is to the BHSI value proposition.
In fact, “claims management is so critical to customers, that BHSI Claims contributes to all aspects of its operations – from product development through risk analysis, servicing and claims resolution,” said Robert Romeo, head of Healthcare and Casualty Claims.
And as part of the focus on building long-term relationships, BHSI has made it a priority to introduce customers to the claims team as early as possible and before a claim is made on a policy.
“Being so closely aligned automatically delivers efficiency and simplicity in the way we work,” explained Carroll. “We have a common understanding of our forms, endorsements and coverage, so there is less opportunity for disagreement or misunderstanding between what our underwriters wrote and how our claims professionals interpret it.”
Responding To Ebola: Creativity + Flexibility
The recent Ebola outbreak provided a prime example of BHSI Healthcare’s customer-centric approach in action.
Almost immediately, many healthcare systems recognized the need to improve their infectious disease management protocols. The urgency intensified after several nurses who treated Ebola patients were themselves infected.
BHSI Healthcare was uniquely positioned to rapidly respond. Carroll and his team approached several of their clients who were widely recognized as the leading infectious disease management institutions. With the help of these institutions, BHSI was able to compile tools, checklists, libraries and other materials.
These best practices were immediately made available to all BHSI Healthcare clients who leveraged the information to improve their operations.
At the same time, healthcare providers were at risk of multiple exposures associated with the evolving Ebola situation. Carroll and his Healthcare team worked with clients from a professional liability and general liability perspective. Concurrently, other BHSI groups worked with the same clients on offerings for business interruption, disinfection and cleaning costs.
Ever vigilant, the BHSI chief underwriting officer, David Fields, created a point of central command to monitor the situation, field client requests and execute the company’s response. The results were highly customized packages designed specifically for several clients. On some programs, net limits exceeded $100 million and covered many exposures underwritten by multiple BHSI groups.
“At the height of the outbreak, there was a lot of fear and panic in the healthcare industry. Our team responded not by pulling back but by leaning in. We demonstrated that we are risk seekers and as an organization we can deploy our substantial resources in times of crisis. The results were creative solutions and very substantial coverage options for our clients,” said Carroll.
It turns out that creativity and flexibly requires both significant financial resources and passionate professionals. That is why no other insurer can match Berkshire Hathaway Specialty Insurance.
To learn more about BHSI Healthcare, please visit www.bhspecialty.com.
Berkshire Hathaway Specialty Insurance (www.bhspecialty.com) provides commercial property, casualty, healthcare professional liability, executive and professional lines, surety, travel, programs, and homeowners insurance. It underwrites on the paper of Berkshire Hathaway’s National Indemnity group of insurance companies, which hold financial strength ratings of A++ from AM Best and AA+ from Standard & Poor’s. Based in Boston, Berkshire Hathaway Specialty Insurance has regional underwriting offices in Atlanta, Boston, Chicago, Los Angeles, New York, San Francisco, Toronto, Hong Kong, Singapore and New Zealand. For more information, contact email@example.com.
The information contained herein is for general informational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any product or service. Any description set forth herein does not include all policy terms, conditions and exclusions. Please refer to the actual policy for complete details of coverage and exclusions.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Berkshire Hathaway Specialty Insurance. The editorial staff of Risk & Insurance had no role in its preparation.