Health Care Delivery Is Rapidly Transforming. Can Underwriters React in Time?
Health care has always been a dynamic industry with complicated risk exposures, but the effects of the COVID-19 pandemic will undoubtedly force underwriters to react more quickly and think more creatively than they’ve had to in the past.
Outsized health and safety risks will eventually subside once vaccines and improved treatments help to minimize the dangers of infection, but the damage will already be done to health systems’ operating models.
The financial impacts of COVID-19 could potentially accelerate the ongoing trends of consolidation and decentralization of services, creating risk management challenges. Meanwhile, the massive shift to telemedicine could amplify medical malpractice and privacy risks.
Though the effects of the pandemic will take many more months or years to unfold, health care’s risk landscape is sure to look different.
Here’s a look at how some key exposures will change, and how underwriters plan to adjust their approach to risk assessment.
A Closer Look at Reactions to Financial Instability
As of July, the American Hospital Association is projecting that hospitals will suffer $323.1 billion in COVID-related losses by the end of 2020. Underwriters will be looking more closely at their clients’ balance sheets, and how they plan to maintain high standards of care amid financial constraints.
“Financially strapped facilities could cut corners on the way they are providing care. The other concern is the extent to which facilities are retaining risk through large deductibles or self-insured retentions. We want to make sure they are able to pay. There’s definitely going to be increased emphasis on evaluating the financial position of customers going forward,” said Brandon Mezick, chief operating officer at IronHealth, a Liberty Mutual company.
More specifically, there will be increased focus on the strategies hospitals choose to bolster their battered bottom lines. Particularly strained organizations may seek new revenue streams through expansion of services or partnerships with larger, more stable companies.
In these cases, underwriters will be looking for a slow and sustainable approach to growth, and specific plans for enforcing risk management practices consistently across platforms and locations.
“When you decentralize any operating model, you have to place a premium on establishing and enforcing consistent operating procedures, including staffing adequacy, credentialing and licensing verification, billing and coding practices, data security, training and communication, among others,” said Tim Vlazny, assistant vice president, healthcare , CNA Insurance.
“There has to be a way to manage these exposures across multiple platforms.”
Scrutinizing Risk Management Consistency
There are a few ways to ensure consistent risk management: one is through continual reinforcement of a clear and well-defined organizational mission.
“Evaluation starts at the corporate level. Who are they? Who do they serve? What do they want to be? When an organization overreaches on different types of services and looks for scale right out of the gate, that’s probably more troubling to me as an underwriter than pure financial analysis. Performing a service and performing it well — thereby limiting the scope — is a better indicator that you’re taking a cautious approach to how you build and manage your business,” said Terry Dreyer, senior vice president and underwriting team leader, North American health care division, Allied World.
Previous mergers and acquisitions may also be analyzed to see how well an organization was able to integrate cultures and standards.
“We look for specific examples of how a system meaningfully included newly acquired entities in their management culture and operational systems, including electronic medical records. Where did they succeed or fail? Where did they have to make changes?” said Jeff Duncan, senior vice president and chief underwriting officer, healthcare, at Liberty Mutual.
“If they are self–aware of the factors that drove success or failure, it shows they are paying attention to the integration of cultures and trying to create a single risk management approach.”
According to Tom Warsop, CEO of One Call, decentralized health care organizations should focus on creating technology-driven tools that enable lower-level managers to enforce risk management protocols simply.
“Decentralized organizations need to be thinking about how to create a tool that allows people who don’t manage risk for a living to do it easily. It could be something as simple as checklists that a lay person can use to enforce risk management in a standard way across all locations. But it has to be that easy and it has to be auditable,” Warsop said.
The Risk Mitigation Advantages of Telemedicine
One of the greatest pandemic-driven changes in health care delivery has been the massive shift to digital medicine. Though telehealth platforms have existed in one form or another for more than a decade, they have never been so widely adopted so quickly. And they are performing better than most expected.
In some ways, telehealth has reduced exposures. “Underwriting a telemedicine-related risk is mostly going to be favorable for workers’ comp because health care professionals are less likely to be injured or contract an infectious disease. Virtual care creates a safer environment for both patient and provider,” said Matt Zender, senior vice president, workers’ compensation product manager, AmTrust Financial Services.
Because they are often integrated with established Electronic Medical Record (EMR) systems, many telehealth platforms also come equipped with strong cybersecurity controls. Despite fears of increased cybersecurity risk, telehealth platforms haven’t been major targets of attacks.
A Need for New Approaches to Medical Malpractice
The biggest risks associated with the sudden shift to digital medicine care have to do with verification of provider qualifications and adherence to standards of care.
“Every state has the right and responsibility to independently license healthcare providers to their standards. With technological advances, does it really matter where the practitioner is licensed, and are we implying that a clinician in one state is less qualified than a clinician in another?” said Alice Epstein, national risk control director of allied healthcare facilities, CNA.
“Government needs to figure this out; however, the industry and insurance companies also need to figure out how to manage this as well. If a provider is in a different state from the patient, does that present a coverage issue?”
Eliminating geographical barriers also presents challenges to traditional medical malpractice underwriting, which quantifies risk in part by the number of states an organization operates in.
“If I treat 100 patients in California, does my risk change if I instead treat 100 patients across all 50 states? Today when you get malpractice coverage, the price goes up significantly when you add a new state to your coverage, but with telehealth the exposure doesn’t actually change, unless the risk profile of the state I am entering is significantly different,” said David Lupinsky, vice president, medical review services, CorVel.
“These providers are not adding 100 new patients in every state, they are just expanding their geographical reach so I think there needs to be a better way to evaluate risk profile of a telehealth providers practicing across multiple state lines.”
With virtual visits, malpractice risk can also arise out of technology failure — poor connections, pixelated visual displays, or choppy audio that result in low-quality evaluations or inaccurate advice from a provider. To that end, underwriters will be looking for investments in updated technology infrastructure.
“In a perfect world, funding would be funneled into improving and providing greater access to care for the masses. There is a lack of technology hardware and without the widespread adoption of 5G technology, there could still be complications in virtual exams, such as poor camera quality and sound,” said Timothy Boyce, health care team leader, CFC Underwriting.
Relevance of Loss History
If models of care delivery change permanently post-COVID, it raises the question: is loss history still a reliable indicator of exposure to future losses?
Is past experience still relevant in a rapidly changing world? Most underwriters agree that a retrospective view of risk alone is insufficient and must be supplemented with real-time data and improved modeling.
But the underwriting process won’t be overhauled overnight.
“Loss history is still the best we have for right now, but we are wary of its credibility going forward,” IronHealth’s Mezick said. &