Larry Hansard, area director for the healthcare practice, Arthur J Gallagher
Captive insurance companies can be great tools for telemedicine providers to self-insure future risks. They may create opportunities for premium savings and will certainly allow coverage to be written that is not available in the commercial insurance marketplace, says Larry Hansard at Gallagher.
Healthcare is a dynamic industry that is always changing and evolving. A significant portion of that evolutionary process has involved the use of telemedicine, which doctor and writer Liji Thomas has defined as “the provision of remote clinical services, via real-time two-way communication between the patient and the healthcare provider, using electronic audio and visual means”.
“Given that telemedicine is still in the early stages of adoption, even a reputational event at a competitor could be catastrophic for a telemedicine provider.”
Due to the effort to find new ways to control healthcare expenses, telemedicine has continued to gain popularity and its use has increased.
Telemedicine started within a few select specialties, including urgent care, radiology, and psychology. Urgent care for low acuity illnesses was a tremendous opportunity for telemedicine providers, as many routine ailments such as colds, flu, pink eye and skin rashes could be treated by such providers without the need for in-person care.
Radiology was also a natural specialty for telemedicine as it was not uncommon for a radiologist to do imaging reads from a location other than where the actual image was completed. Psychologists have also found telemedicine to be an efficient tool to engage patients, who may prefer the privacy of the remote encounter versus the stigma of being seen at the provider’s office.
Telemedicine use has been on the rise for many reasons. It is convenient and less expensive than the traditional in-person provider encounter, being less time-consuming than the traditional face-to-face visit. It also precludes potential exposure to others with contagious illnesses.
The overall satisfaction with telemedicine is high. A recent report from Massachusetts General Hospital suggests that 62 percent of patients surveyed in a study found telemedicine was the same as in-person visits, and 21 percent actually felt the quality was better with telemedicine than an in-person visit.
Modern Healthcare magazine reports that 76 percent of hospitals were fully or partially using telemedicine in 2017. The global telemedicine market is expected to swell to $130.5 billion by 2025, as reported by the same magazine.
This rise in popularity is drawing in a great number of new entrants in the telemedicine space. Offerings include men’s health, women’s health, substance abuse, psychiatry, cardiology and chronic disease management. With these new entrants, we will likely see an increase in acuity and most likely medical malpractice claims.
Med mal claims
So far, medical malpractice claims have been minimal in telemedicine. Actual results are often hard to establish, as most insurers do not break out telemedicine from their overall book of business.
The Physician Insurers Association of America (PIAA) published an article in July 2015 that compared telephone treatment medical professional liability (MPL) claims versus overall MPL results within a PIAA data-sharing project—a very large database of MPL claims. The study revealed that only 0.21 percent of total claims were associated with telemedicine-related care.
Telemedicine providers are now a more diverse group and new offerings are being introduced daily. Many are for-profit enterprises that focus on primary/urgent care or a single specialty, such as diabetes treatment.
The San Francisco Bay Area and Silicon Valley have been a fertile launching pad for many of these technology-oriented companies. Nearly all major hospital and healthcare systems also offer telemedicine options as part of their diverse offerings to patients.
There is an influx of international telemedicine providers, some with overseas headquarters that are offering services in the US, and some from the US offering services to patients residing outside the US.
With the acuity of diagnoses treated on the increase, coupled with the increase in utilisation, an increase in medical malpractice claims cannot be too far behind. The introduction of telesurgery will also be an issue for providers to address as it gains acceptance. Creative insurance and alternative risk transfer options will be high priorities for healthcare providers in the future.
Healthcare organisations have used captive insurance companies for many years to partially or fully self-insure various exposures, including MPL, due to their operations. Captives provide great flexibility, allowing their owners to legally insure third parties. It also allows non-profit healthcare systems to include for-profit subsidiaries in the same self-insurance vehicle as opposed to a self-insured trust, which is used by many healthcare systems.
Captive owners also benefit from the ability to manuscript insurance policies to address unique exposures such as telemedicine. Many captive insurance company owners may now be insuring telemedicine exposures without knowing some of the concerns emanating from the telemedicine space.
Should MPL loss results continue to be exemplary for telemedicine providers, funding the exposure through a captive insurance company could be a great opportunity for premium savings. MPL insurance carriers have been relatively slow to discount premiums for telemedicine providers and have largely rated them comparatively with traditional in-person providers.
This could allow captive owner insureds to take potential profits away from commercial insurers, when placing the risk inside their captive insurance companies. The captive would also allow for direct access to the reinsurance marketplace, which may offer less expensive risk transfer options than the insurance marketplace.
Licensure is a significant issue for telemedicine providers. The rule of thumb is that the physician or provider must be licensed in the state or country where the patient is at the time of treatment. This can become problematic when a patient crosses state boundaries during an encounter with a physician. The physician in question may be licensed in the original state but may not be licensed in the secondary state where the patient ultimately arrived and continued with the encounter.
Should a bad outcome occur and a suit is brought in the secondary state, will the physician be protected by her malpractice carrier or will the carrier deny coverage based on licensure? This unusual exposure can be addressed with specific language in an insurance policy provided by a captive insurance company.
Technology errors and omissions (E&O) exposure is also important to telemedicine providers, as the possibility of a technology product being linked to bodily injury is a rapidly growing exposure. Technology E&O is the coverage used to protect the producing organisations from third party claims associated with alleged damages caused by the technology product offering.
The line between human error contributing to a bodily injury and the failure of technology is becoming increasingly unclear. Telemedicine platforms and technology-oriented diagnostics tools can potentially fail to provide accurate or timely results. Many insurance carriers that provide technology E&O coverage will exclude bodily injury, thus creating a potential gap in coverage. Once again, the captive can be used to provide specific technology E&O coverage to address bodily injury.
Reputational risk is a contemporary concern for all businesses. The loss of revenue associated with a reputational loss could be dramatic if patients suddenly form a negative impression of telemedicine and responded by seeking alternative forms of treatment. A privacy breach or a very high severity medical error could cause huge reputational issues for a provider.
Given that telemedicine is still in the early stages of adoption, even a reputational event at a competitor could be catastrophic for a telemedicine provider, creating negative perception in the public and associated revenue losses if patients turn away.
There are precious few reputational harm risk transfer options in the commercial insurance marketplace and many are limited to cyber/privacy breaches only. Reputational risk insurance could be addressed by a captive insurance company, allowing the insured to pre-fund against losses for a risk they are probably already self-insuring anyway.
A 2014 study from accounting and consulting firm Deloitte described reputational risk as the “number one risk concern for business executives around the world”. The study also showed that reputation risk was considered “most important” or “more important” by 87 percent of executives who responded to the survey.
Given the popularity of telemedicine, many US healthcare providers are likely to offer services internationally. US citizens may prefer having access to US-educated and licensed providers while travelling or as expatriates. Foreign nationals may also prefer to access the high quality of US providers.
A captive insurance company may be used to provide insurance protection for international exposures. If so, careful consideration must be given to adhere to the rules and regulations in the respective country or countries were the exposure may exist.
Larry Hansard is area director for the healthcare practice at Gallagher in Washington, DC. He can be contacted at: firstname.lastname@example.org
Arthur J Gallagher, Captives, Insurance, Healthcare, Larry Hansard, North America