Studies have suggested that the medical liability system costs the US billions of dollars annually. Components of the costs of the medical liability system include indemnity payments, administrative expenses and defensive medicine costs.
Studies have suggested that the medical liability system costs the US billions of dollars annually. Components of the costs of the medical liability system include indemnity payments, administrative expenses and defensive medicine costs. The indemnity payments and administrative costs are tangible, although not comprehensive.
How medicine is practiced and the costs associated with defensive medicine are exceptionally difficult to estimate. Most insurance professionals would likely argue that controlling indemnity payments and administrative expenses is their top priority.
Hospitals and healthcare systems, physicians and physician practice groups, midwives and other health care providers can access the medical professional liability marketplace in various ways. Common access points are through an admitted commercial insurance company, a surplus lines insurance company, or, more commonly over the course of the last decade or so, through a captive insurance company.
Over the past 25 years, the number of captives worldwide has steadily increased as more and more hospitals and other healthcare organisations are seeing the benefits outweigh the costs of purchasing malpractice insurance in the commercial marketplace. Captive insurance companies can offer more flexible coverage terms and more competitive premiums than those that are available in the standard commercial market.
In essence, a properly structured captive, with laser-like focus on patient safety and quality, will change the way care is delivered beyond the bottom line.
The financial incentive for most captives is not about generating a profit or surplus wealth accumulation.
Premiums represent the captive’s best estimate of expected indemnity costs and allocated loss adjustment expenses, plus an additional amount to cover administrative expenses such as, among other things, risk management and patient safety initiatives.
All insurance companies, whether in the commercial market or a captive, charge premiums, invest those premiums, and manage the indemnity and expense payments.
In the context of a captive that works well for hospitals and health systems, when initiatives are in place to promote a safer patient experience, medical malpractice insurance premiums are likely to be less. Those premiums will still be invested and the losses managed well, but the cost of risk is lower.
When hospitals and healthcare organisations form their own captives, they share both the risks and rewards of participation. A commitment to quality improvements naturally results in fewer medical errors and other untoward events, and therefore, an overall reduction in malpractice cases. With that comes meaningful cost savings for all members of the captive.
It is this inherent commitment among the captive participants to ensure the best possible outcomes for their patients that makes this type of coverage model unique and appealing. For the best possible results, it is in the best interest of all members of the captive to be working in close collaboration with one another to share insights, data and best practices, so they can work toward delivering the highest possible quality and safety standards in their organisations.
Through such close collaboration, these organisations are not only working to improve outcomes in their own hospitals or healthcare organisations, but throughout all other institutions that participate in the captive. In this way, a captive becomes an even more meaningful risk management and quality improvement tool by working to increase the quality of care for patients across an entire region or group of healthcare institutions.
Through their connection in a captive group, hospital and healthcare executives open up an invaluable pathway of communication. This constant communication between its members allows for the sharing of best practices that would otherwise not occur. The opportunity to collaborate with similar minds to improve their organisations is a special benefit that a group captive offers.
This is an opportunity that can distinguish captive insurance groups from traditional commercial insurance solutions, which tend to be focused exclusively on claims. The members of a group captive can participate in collective and cooperative efforts, sharing best practices and identifying emerging trends and issues in order to have a true learning organisation.
Ultimately, the captive’s ability to thrive will depend on the engagement of each of the members in its activities. A member that is not prepared to participate in management of the captive and in the programmes offered by the captive will not be able to maximise the benefit of involvement in, and may not contribute positively to, the captive’s overall results.
This is a risk that is inherent in group captives, but one that can be easily avoided by the obvious consequences of failing to actively collaborate and participate.
Ensuring at the outset that each member has the same goals and expectations as the rest of the group, and is willing to make the investment of time and resources, should go a long way toward eliminating this concern.
One important way to achieve open and meaningful information exchange and dialogue between the captive’s various members or owners is by forming a patient safety organisation (PSO). A PSO is a group, institution or association that improves medical care by reducing medical errors.
Its purpose is to create a collaborative and confidential environment of learning and knowledge exchange among its members, substantially enhancing their efforts to improve patient safety and quality of healthcare throughout their hospitals.
Information and experience shared by members serves as the backbone of a successful PSO.
This organisation will collect and analyse the data and information that is shared by its members, and in doing this, it will identify any trends or common issues occurring in the field.
A hospital acting alone would not be able to detect such things, showing the true value of creating such an organisation.
Through the PSO, hospital staff and insured physicians closely collaborate to discuss the liability issues and methods for identifying and managing risk exposures in the hospital and office practice settings.
This may be accomplished through several methods, including:
Another important feature of captives is that they give their members ownership and control. By having the members own and control the group, there is increased accountability and commitment to follow through with the group’s vision and goals.
Members will have the ability to direct the insurance programme and network with other shareholders to enhance patient safety and risk management initiatives.
Group captives will also employ a dedicated staff force, which will be held accountable for results.
What makes captives work particularly well is that their models are reverse-engineered, whereby improving patient outcomes is the first and foremost priority versus economic gains, unlike in the traditional insurance market.
And in doing it this way, everyone reaps the rewards—from the insured members and owners to their patients.
