The Current Malpractice Insurance Market: Coverage Red Flags for Docs

August 31, 2014

From inadequate cyber insurance to poor RAC audit coverage, many physicians are purchasing policies that could result in big losses down the line.

There is both promise and peril in today’s insurance marketplace. Promise, because intensified competition drives lower cost, innovation, and new product development. But it’s also perilous as intense competition can lead to substandard products, reduced service, and even careless underwriting. These can quickly lead to insurer financial trouble and ultimately, risk of insolvency leaving insureds without coverage or protection when it is needed.

A good example of this promising/perilous dichotomy is the flurry of add-on coverages, often offered free or at low cost. A carrier may offer $50,000 of cyber insurance at no additional cost as part of a standard medical malpractice policy. The problem is that this is dangerously inadequate coverage and leaves the policyholder with a false sense of security.

Here’s why: A typical medical practice has between 8,000 to 10,000 patient records per physician. A breach of that information would require several actions, including forensic investigation, retention of legal counsel, personal communication with all patients involved, ongoing account monitoring, and potential crisis public relations activities to mitigate damage to the physicians’ reputations. Just the cost of notifying patients averages almost $3 per record.

Separate cyber insurance is readily available with sufficient limits and at affordable rates. If you really have a cyber liability exposure (if you are a healthcare provider, you do) then you need a real cyber liability insurance policy - not a “freebie” add in with low limits and limited services.

RAC’ing it up
RAC audit coverage is another area where carriers, customers, and brokers may not fully understand or make the effort to become educated about true coverage needs and the potential coverage shortfalls that result from relying on limited, free add-on coverages used as enhancements to standard coverage.

RAC refers to Medicare’s Recovery Audit Program where physicians are audited for potential overbilling of Medicaid, Medicare, and commercial payers, unintentional or not. The IRS has been aggressively pursuing this area, recovering $6 billion since 2008. For a physician practice, RAC audits are time consuming, stressful and expensive - even if a problem isn’t found.

Recently new products have been introduced to provide protection for RAC audits, many as add-on coverages “thrown in” at little or no additional cost. Like their cyber protection cousins, these provide the false perception of security for a problem that can easily exceed the maximum coverage limits several times over.

The additional costs often come in the form of items you might not think about unless you’ve been through an audit previously. For example, during an investigation, additional staff or overtime may be required for extended periods, or the office many have to actually shut down temporarily.

Again, the issue is that while you may perceive you are getting adequate protection, in reality, the add-on coverage may barely cover the initial stages of a full investigation.

Steps to take
Don’t let concern and uncertainty about insurance products keep you from exploring those that could be needed or beneficial. Here are some steps to help make more informed purchasing decisions:
• Make sure the coverage matches your risk. Look at your organizational needs and risks and work with your broker to develop the insurance programs that cover those needs.
• Don’t give in to temptation. While it may be tempting to purchase a low-cost rider to cover a RAC audit, cyber risk, or other risk, remember you have options. Highly-rated carriers typically provide separate insurance products designed specifically for cyber insurance, RAC audits, and other risks healthcare providers face. These products offer sufficient coverage, bundled services, and claims support, and are often competitively priced.
• Become better informed. Take steps to understand the full extent of the exposure you face in today’s market and the reasons the policy your broker or carrier recommends is (or may not be) needed.
• Look for quality. A prolonged soft market has encouraged even top-rated carriers to offer highly-competitive pricing on coverage that fits the need. For little or no additional cost,  customers can purchase coverage from a highly (A.M. Best) rated insurer and avoid the peril of finding themselves without coverage - either because a lower-rated carrier cannot weather the financial storm, or because when the market turns around, they are unable to find a carrier willing to ensure them at a reasonable cost.

The Bottom Line
No one knows when this soft, competitive market cycle will end. That means for the foreseeable future there will continue to be intense competition for your business. Use the competition to get the most value from your insurance products - not just the best price.

Avoid the trap of buying a med-mal policy based on free add-ins, which often are dangerous distractions. Focus on the quality and value each policy should provide and then negotiate the best price.

Don’t let the “shiny objects” dictate the price. Become informed; look for broker partners who will provide you with the service and support to make better decisions; and look for insurance programs that assure you the promise of complete, effective and stable protection that will be there if needed.