The medical field is a blend of science and art, a combination that typically leads to tremendous patient care and treatment breakthroughs. But it also can result in unexpected and unwanted developments for stakeholders in the health care community.
From doctors to hospitals, from pharmaceutical producers to medical device manufacturers, the unexpected can have a painful financial and reputational impact. However, stakeholders that implement appropriate loss prevention measures and purchase adequate liability coverage from an insurer with solid claims-handling services can materially limit their exposure to troubling developments.
A prime example of how dramatically an unexpected problem can affect an entire industry is the claims environment surrounding the use of pain pumps after arthroscopic joint surgery.
These fist-sized devices improve post-surgical pain management by allowing patients to administer non-narcotic medication directly to surgical sites. Compared to narcotic pain medication administered either intravenously or orally, the pain pumps work faster and allow patients to maintain steady pain relief that does not surge and wane, explains John A. Parente, Ph.D., Senior Science Advisor, for the Healthcare Division of Lexington Insurance Company.
Patients recovering from abdominal surgery and hysterectomies have used the devices without notable incident for decades.
Several years ago, the pumps became a popular way to manage pain following arthroscopic surgery on joints, particularly shoulders. Several months following the surgeries, some patients began alleging medical complications, claiming they experienced significant degeneration in the cartilage in their surgically repaired joints. This condition is called Post-Arthroscopic Glenohumeral Chondrolysis, or PAGCL.
Patients first filed medical liability claims against doctors and hospitals but then also began pressing product liability charges against pharmaceutical manufacturers, the pump makers, and medical products distributors.
Exacerbating the legal problems for many device manufacturers and medical products distributors are allegations that they promoted using the devices for off-label purposes--in other words, purposes the U.S. Food and Drug Administration (FDA) had not approved.
In recent pain pump cases, results have been mixed. A state jury in Oregon last January awarded a plaintiff $4.5 million in damages in a case against a pump manufacturer, while a federal jury in the state ruled in favor of three manufacturers in October.
Still, numerous claims have not been resolved. Scores of plaintiffs have filed cases in federal and state courts. One pump manufacturer alone faces $130 million in claims. And many online claim registries have sprung up to identify potential plaintiffs.
It is a claim environment that Andrew Faber, Product Line Manager-Life Sciences, Healthcare Division at Lexington, characterizes as "a significant industry event."
How can device manufacturers and medical products distributors take steps to help guard against a similar development?
One obvious preventative measure is to avoid promoting off-label uses of medical products, says Maureen Le Pochat, Senior Complex Director at Lexington. But while that will minimize a company's risk, it does not guarantee protection from potential liability, she notes.
For example, Le Pochat points out that plaintiff attorneys have alleged that even where a pharmaceutical manufacturers' sales-training materials do not overtly support off-label uses, their sales forces have encouraged the unapproved use. In such cases, plaintiff attorneys will examine a pharmaceutical manufacturers' sales figures to determine the percentage of units that were sold for arguably off-label uses. They contend that a significant percentage of such sales can strongly suggest the defendants promoted such off-label use.
So not only should companies avoid promoting off-label uses, they must also be careful that their actions cannot be interpreted as encouraging them.
Some stakeholders, like product distributors, should consider protecting themselves from being drawn into legal firestorms by securing hold-harmless agreements from business partners, Faber suggests. Of course, such distributors should still avoid actions that would indicate they promote off-label uses of the products they handle, he adds.
Because strong risk management can only minimize risk, and not absolutely prevent a claim--especially a frivolous allegation--carrying adequate insurance is critical, Faber says.
That is as important for small companies as it is for large organizations, he adds. For example, it is not uncommon for a small device manufacturer that generates $50 million to $100 million of revenue annually to carry $10 million of liability insurance limits. But one claim can eat up those limits quickly, leaving the company's profits at risk if a loss exceeds those limits or if another claim develops that year.
And even before indemnity payments consume limits, defense costs may begin eating them away, added Le Pochat.
Any company operating in this market segment should require their business partners to demonstrate that they carry adequate insurance, Faber points out. Otherwise, those with more coverage or limits that have not been exhausted make bigger targets for plaintiffs, regardless of their liability. Adequate limits can be required contractually, Faber notes.
With regard to their own exposure, companies should look closely at their own insurers. An insurer's claims-handling expertise is a critical factor in managing risk.
For example, Faber points out that Lexington and Chartis have a dedicated staff of experts to handle health care claims. This special department includes a tort unit that assists clients with arranging not only legal representation but also other related services, such as jury consulting experts and, if warranted, private investigators. Careful management of these services is critical to mount a solid defense.
As in managing serious medical conditions, managing risk requires far more than a bandage approach.
To learn more about health care related exposures and how Lexington can help, visit http://www.lexovations.com/healthcare.
(The above piece is part of our continuing Perspectives series designed to highlight key products and services to our readers. This paid-for Perspectives was written and edited by Risk & Insurance®
in conjunction with our marketing partner. Additional Perspectives can be found on our Web site at www.riskandinsurance.com/.)
December 1, 2010
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