The Problem
The medical malpractice system is a heavy financial weight on the health care industry. Medical providers pay high malpractice premiums and perform under constant fear of being sued every time a patient suffers an injury as a result of medical treatment. This fear causes providers to practice defensive medicine, which adds millions to the cost of health care. Although patients do face risk of injury during medical treatment, our malpractice system is ill-suited to provide relief for most patient injuries.
Patients undergoing major medical treatment face two kinds of risk: the risk of injury due to the negligence of the medical provider (medical malpractice) and the risk of injury due to medical complications. Both are considered adverse medical events but studies show that medical malpractice is to blame for less than 30% of these injuries. Yet, under the current system, patients who suffer injury as a result of medical treatment have only one option to recover damages; that is, to file a claim for medical malpractice. The failure to provide patients another option results in an excessive number of malpractice claims being filed, which puts a heavy burden on the malpractice system and increases the overall cost of health care. To make matters worse, medical malpractice litigation is slow, inefficient and expensive. No matter who wins, all parties lose and the health care system continues to suffer under the weight of the problem.
The Solution
American Medical Risk Insurance Company (AMRIC) was formed to develop “Adverse Event Insurance” (“AEI”). AEI provides compensation to patients who suffer injury as a result of medical treatment without regard to the fault of the medical provider. Claims are based upon the “avoidability” of an adverse event rather than negligence of the medical providers. The coverage provides scheduled benefits for hospitalization, temporary disability, permanent disability and death without the tremendous expense of malpractice litigation.
AEI will be distributed through group health plans as part of member benefits. The annual premium for the basic program is very affordable at around $50 per member, which provides benefits up to $50,000. The benefits can be customized based upon level of premium. The product is fully developed and will be launched in to the market during the next few months.
In addition to providing direct benefits to injured patients, AEI coverage will improve patient safety and help reduce malpractice claims by providing patients an alternative source of compensation. Medical providers, patients, health networks and group health insurers will all benefit from this innovative product. Medical providers should encourage group health plans to provide the coverage and eventually offer discounts to those that do. As medical providers feel less threatened by malpractice claims, they will practice less defensive medicine, which will significantly reduce the overall cost of health care. Group health plans and their members will benefit from this savings.
Participants
AMRIC has partnered with USI for sales and distribution. USI is a Goldman Sachs company and is the largest privately owned insurance brokerage firm in the country. USI will identify the health plans/networks and create a sales strategy to launch the product.
AMRIC has engaged Aon Benfield (New York and London) to secure insurance capacity for the underlying risk. The potential size and scope of this product will require significant capacity. Aon Benfield is one of the world’s premier intermediaries.
AMRIC has also partnered with ProClaim America and Crawford & Company to act as the third-party administrators for the product. Claims will be administered by these companies using protocols developed by our consultants at Harvard (Mello, Kachalia, and Studdart) and The University of Oklahoma (Budetti). Our claims process has been carefully designed to adjudicate claims efficiently and accurately so that injured patients receive payment in a timely manner (3-6 months vs. 3-5 years for malpractice).
Consultants
AMRIC has been assisted by a highly credentialed team of consultants. Some of the leading scholars at Harvard University and The University of Oklahoma have assisted AMRIC in developing this product. These consultants completed a private research project for AMRIC on methods to identify adverse medical events. Identification and Study of Adverse Events in a Private Adverse Event Insurance System - A Report to the American Medical Risk Insurance Company, L.L.C. (AMRIC) - FINAL REPORT: September 18, 2006
They later drafted the specific protocols AMRIC will use to administer the coverage and also designed the database to compile claims data. Operational Report for a Private Adverse Event Insurance System - A Report to the American Medical Risk Insurance Company, L.L.C. (AMRIC) - FINAL REPORT: September 12, 2007. This proprietary data will become very valuable to the health networks and medical providers.
Peter P. Budetti, M.D., J.D. (Professor of Public Health and Chair Dept. of Health Admin. and Policy, College of Public Health, University of Oklahoma), Michelle M. Mello, J.D., Ph.D (Professor and Director of Health Policy and Law, Harvard School of Public Health), Allen B. Kachalia, M.D., J.D. (Instructor in Medicine, Harvard School of Medicine), David Studdert, L.L.B., ScD, MPH (Professor of Law and Public Health, Harvard School of Public Health)
AMRIC also engaged Ernst & Young to help develop the actuarial analysis needed to price our AEI coverage. The E&Y report provides actuarial analysis for determining pricing and benefits for the product. Using multiple sources and data years, this report provides estimates for the key features needed to price the coverage. Adverse Event Coverage - Actuarial Assumption Review – A Report to American Medical Risk Insurance Company, LLC -August 7, 2007, and June 1, 2009.
Ernst & Young – Actuarial consultants: Thomas Conway, ACAS, MAAA, Partner (Chicago) and Mark McClusky (Chicago)
The Market
Never in our history has there been more focus on medical complications and the costs associated with preventable adverse events. In October 2007, Medicare and Medicaid implemented a policy of not paying hospitals for medical bills related to adverse events. Many of the private health networks have since implemented similar policies and others are planning their own such initiatives. While these policies will save the networks billions, they put additional burden on doctors and hospitals that have to absorb these costs. In addition, they do not offer any direct benefit to the patients who suffer injuries from these adverse events.
AMRIC’s Adverse Event Insurance product is an attractive supplement to these network initiatives. It can be offered by the health plans/networks to provide valuable benefits directly to network members when adverse events do occur. At the same time, it will provide indirect benefit to the participating providers by reducing the likelihood of patients suing for these adverse events. By combining AMRIC’s product with the current policies, the health plans can further their goals of improving patient safety and reducing cost while also providing benefits to their members and participating providers. It creates a true win, win, win.