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Like every aspect of the health care industry, management liability risks have grown more complicated throughout the COVID-19 pandemic, driven by the heightened chance of errors in reporting COVID-related claims. Health care management liability is also facing additional obstacles tied to the increase in anti-trust exposure in hospital mergers and acquisitions (M&A), as well as a rise in wrongful termination claims by highly compensated medical professionals.
Hospital Consolidation and Increased Anti-Trust Exposure
Consolidation in the health care space has increased in the past several years to control rising fixed costs. Staff salaries and benefits, as well as increases in the price of essential supplies, have added to financial struggles, especially for smaller providers. Moreover, capital expenditures and maintenance expenses are all driving fixed costs higher. Many smaller facilities seek absorption to mitigate these financial burdens.
Additionally, hospital consolidation can be used to offset financial pressure from new reimbursement models. The health care industry has seen a continued move from what used to be a fee-for-service model to a value-based reimbursement model. As Medicare and Medicaid typically provide 60-65% of revenues for most hospitals, the value-based model reduces reimbursements for Medicare and Medicaid and puts pressure on providers’ margins, which can be offset by hospital consolidation.
When consolidation creates monopolization, hospital competition becomes less fair, which is concerning to the larger market. To mitigate this, the Biden administration set forth the Executive Order on Promoting Competition in the American Economy last July. Within its seventy-two initiatives is the order for the United States Department of Justice and the Federal Trade Commission to look at the differences in pre and post acquisition health care costs for hospitals involved in M&A activity. Just as recently as April 2022, dialysis provider DaVita and its former CEO Kent Thiry were brought to trial for labor-related anti-trust violations because of the administration’s Act.
Hospital M&A activity creates greater anti-trust exposure. Among CAT exposures, anti-trust lawsuits are one of the largest claims that could be faced. To manage the risks, companies involved in consolidation need to buy appropriate insurance limits, and secure Side A coverage to provide first-dollar coverage for claims targeting directors and officers.
Wrongful Termination Raises EPL Costs
Increases in the frequency and severity in wrongful discrimination, termination, and failure to accommodate claims from highly compensated medical professionals have led to higher Employment Practices Liability (EPL) retentions. Across jurisdictions, California has been most responsible for driving cost increases. Claims in the state have higher payouts, affecting the cost of EPL insurance retentions nationally.
There has also been a dramatic increase in social inflation for costs related to EPL. The relatively high salaries of many medical professionals create expensive claims. This has resulted in underwriters adding higher deductibles. As policies cover costs, indemnity, and settlements, this makes the cost of EPL soar. In addition, attorney fees make the cost of defending an EPL lawsuit increase as well.
For optimal protection, the best practice is to start the renewal process a minimum of 120 days in advance and seek competitive insurance options to navigate risks involving wrongful termination related EPL claims and find the most pertinent coverage possible.
False Claims Involving COVID Disbursement Funds
The Small Business Administration’s Office of Inspector General has estimated that more than $80 billion in potentially fraudulent loans were dispersed during the pandemic.
The health care industry was a substantial recipient of loans and funds from Government entities. With such large sums being dispersed so rapidly, the potential for fraud was heightened exponentially. In addition to the burden of repaying these loans, the industry needs to be prepared for irregularities and exposures that the False Claims Act and other regulatory investigations may discover.
Ensuring transparency of how funds were received under various Acts, as well as the timing of paying them back, should be fully documented to mitigate underwriter concerns and prepare for the future.
Staying Aware and Moving Forward
Many aspects of the future of health care remain uncertain due to new and emerging challenges as well as the ongoing impacts of COVID-19. It is essential for those in the industry to stay up to date to alleviate risks and stay ahead of complications as they arise.
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