Underinsured? Who, Us?

When hospital leaders discuss the underinsured or the uninsured, they’re usually talking about patients, not their own facility. But increasingly complex processes within hospitals bring with them increasingly complex legal liabilities, say experts. As a result, hospitals’ risk profiles are building—and so are property and casualty insurance bills.

Max Douglas Brown, general counsel and vice president of legal affairs for Rush University Medical Center in Chicago, says his 613-staffed-bed hospital’s operating income has suffered due to high property and casualty insurance costs that in some respects are unique to the Chicago area, but have also hurt hospital margins nationwide.

Like many large academic medical centers, Rush has a multitude of pending malpractice cases—up to 175, Brown says—at any given time. Somewhere near 50 are filed against the provider each year, he says.

Since 2000, “the big factor has been the volatility of the legal venues. Cook County is such a volatile area,” says Brown.

So volatile, in fact, that obtaining coverage is getting more and more expensive. But the real hurt comes from the high “attachment points” insurers are putting on hospitals, especially in the highly litigious Chicago area. The attachment point refers to the dollar amount or deductible that the hospital pays in a lawsuit, for example, where excess insurance kicks in to pay a percentage of the balance. Like many hospitals, Rush is self-insured to the attachment point, says Brown.

Before 2000, Rush had a “very workable” $2.5 million attachment point. “That’s our self-insurance—the part we’re responsible for,” he says. “In the last 10 years, we started to see some huge cases in Cook County, so the insurers said we have to have a higher attachment point.” That attachment point grew like a weed, he says, from $4 million in 2001 to $22.5 million in 2006.

To help minimize the financial impact of such huge self-insurance sums, Brown, a 26-year veteran at Rush, says it’s important to use a broker that can accurately measure risk and help the hospital shop for reinsurance.

Denver-based Integro Inc., which serves as Rush’s broker, “is able to benchmark and help us to know what sort of risk we’re going to see in the future, lessening unpredictability,” Brown says. A broker’s ability to benchmark data from other institutions backed up by up-to-date case law is crucial to measuring the relative risk associated with certain procedures and services, he says. That helps keep the hospital from holding too much back for settlements, and helps it bargain for the best insurance rates.

“It helps us manage our risk from an enterprise, rather than a numbers basis,” says Brown.

—Philip Betbeze