Hospitals seek new insurance
Premium hikes, dwindling ranks of providers spark innovative solutions hereFebruary 12th, 2004
Inland Northwest hospitals have begun battling runaway malpractice insurance premiums by self-insuring, pooling their resources, and even outsourcing the operation of risk-laden departments.
Sacred Heart Medical Center here, for example, and other hospitals under the Providence Health Care umbrella soon will begin self-insuring, meaning they will set aside money to cover potential claims up to a certain amount, then will take out a catastrophic reinsurance policy to cover any claims beyond that level.
Kootenai Medical Center, in Coeur dAlene, and Shoshone Medical Center, in Kellogg, Idaho, both have joined risk retention groups, in which like-sized hospitals band together and, in essence, form their own insurance company. Shoshone also has contracted out operation of its emergency room to a Dallas company, mostly because that company will provide malpractice insurance for Shoshones ER operationsa department with high liability at any hospital.
There are a lot of things hospitals are doing to try to address this problem of rising malpractice-insurance premiums, says Cassie Sauer, spokeswoman for the Washington State Hospital Association, in Seattle.
Those premiums arent just rising, theyre skyrocketing.
Over the last two years, the average liability premium paid by Washington hospitals grew 123 percent, to $1.2 million, according to a hospital association study. The median premium increased 136 percent during that time period, to $370,000.
Hospital malpractice insurance covers claims that arise from medical malpractice or error, and premiums are based on a hospitals past claims history as well as its size. Rate hikes are driven by large jury awards for malpractice claims, as well as factors that affect the entire insurance industry, such as the economy, the hospital association says.
The situation has prompted some big providers of hospital malpractice insurance policies to announce in recent months that theyll stop providing such coverage, leaving hospitals scrambling.
Sacred Heart, for example, used to obtain its malpractice coverage from Western Professional Insurance Corp., of Seattle, but that company said late last year it was pulling out of the hospital malpractice insurance business. So we didnt have any choice but to seek another alternative, says Dr. Tom Miller, vice president of medical affairs for Sacred Heart and Providence Health Care.
The number of insurance companies out there that are insuring hospitals are diminishing, he says. We basically had to go with self-insuring our first layer (of claims exposure), then getting coverage for our excess.
Miller says Providences self-insurance system is pretty much in place, although it still is negotiating with insurers for reinsurance policies.
For Providence, self-insurance wont be a cheaper alternative, at least initially. Miller says the organization will sock away about 30 percent more this year than it had been paying in premiums to Western Professional Insurance because, We want to try to be as fiscally responsible as we can so down the road we dont get a big cash call, if you will.
Providences big competitor here, Empire Health Services, also buys its malpractice insurance from Western Professional and must find alternative coverage by April, when its policy expires, says spokesman Tracy Ellig. Empire, which operates Deaconess Medical Center and Valley Hospital & Medical Center here, is exploring all the options, everything from self-insurance to deductible programs, he says. Basically, there are a multitude of options available and we wont make a decision until weve seen all the quotes and run the numbers.
Kootenai Medical Center, in Coeur dAlene, previously was insured by Farmers Insurance Group, but that company said in September it also would withdraw from the medical-malpractice business.
You could renew for another year, but most hospitals tried to look for options, says KMCs CEO Joe Morris.
KMC chose to join a risk-retention group that was formed in 2003, which includes 16 western U.S. hospitals, Morris says. Those hospitals assess themselves a premium out of which smaller claims are paid, and the group has a reinsurance policy to cover larger claims, he says.
The premium KMC is paying the risk-retention group is about half of what Farmers would have charged it to retain coverage for another year, but the hospitals level of coverage is better than it was under its former policy, Morris says. Thats possible because were not in the business to make money on our investments, as a conventional insurance company would be, he says.
Shoshone Medical Center, like KMC, previously was covered by Farmers, and on Jan. 1 it also joined a risk-retention group, although not the same one as KMC, says Gary Moore, CEO of the Kellogg hospital. Shoshones group is made up of smaller hospitals, which is an advantage because none of the members offers the kinds of high-risk procedures, such as cardiac surgery, that can drive up malpractice premiums, he says.
When youre thrown into a pool of large and small hospitals, (youre) paying extra premiums for procedures that carry high risk that we never do, Moore says.
That move, in addition to contracting out its ER operations to Dallas-based EmCare, a big provider of such services nationwide, helped reduce Shoshones malpractice premium to about $120,000 a year, compared with the $150,000 year it was quoted for coverage by other insurance companies, Moore says.
Well see over the next five years how cost-effective those moves are, Moore adds. Its just an environment of roll the dice, almost.