Physician Malpractice Retention Program

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Elements of Malpractice - Insurance

• Coverage for negligent acts or allegations of
  malpractice
• Individual physician limits
• Medical Board hearing coverage
• This policy provides the same coverage as any
  other good medical malpractice insurance

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Elements of Malpractice - Service

• Ability to add physicians without immediate
  charge
• Group underwriting rather than individual
  underwriting no second guess of hires
• Grandfathered free tail
• Dedicated claims handling
• Risk Management Services

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Elements of Malpractice - Financial

• Financially this is very different from
  traditional medical malpractice
• Uses a Self-Insured Retention (SIR) which works
  differently than a deductible
• Uses an Aggregate Retention
• Gives financial control to the group without
  taking away coverage

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Differences

• We always view the group as a group and not as an
  association of individual physicians.
• Under this plan the group is insured, with each
  individual physician having their own individual
  limit of insurance.
• With one insurance policy.
• We underwrite the management, not the individual
  physician.

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Goals of the Malpractice Program

• Reduce the cost of physicians malpractice
  insurance.
• Provide exemplary service by simplifying the
  process and insuring the group.
• Use fluctuating market conditions to the
  financial benefit of the group.
• Align financial incentives to improve malpractice
  loss experience and further reduce premium.

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Basic Principle Number 1

• It makes no sense to trade premium dollars with
  an insurance company. Do not give money to an
  insurance company to pay claims that are,
  statistically, likely to happen.
• Any insurance company will want more money coming
  in than going out, so the premium will be greater
  than the amount of the likely claims.

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Basic Principle Number 2

• The first dollar of insurance protection costs
  the most. The final dollar of limit costs the
  least.
• The insurance company knows that it will probably
  pay out the first 1.00 of premium it collects to
  settle claims. Therefore it will charge much
  more than 1.00 for that first 1.00 of
  protection.
• With every additional dollar collected in premium
  the insurance company is less likely to have to
  use it to settle claims.

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Basic Principle Number 3

• The malpractice market changes. Sometimes
  premiums are high relative to risk, sometimes
  low. When premiums are high increase the
  amount of risk you retain. When premiums are low
  when insurance companies are willing to buy
  claims let them.

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Basic Principle Number 4

• Claims have two parts
• Claims management and litigation management
  requires a professional to handle the claims and
  includes legal representation.
• Claims payment requires the ability to write
  checks.

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Typical Deductible Program

• The typical physician malpractice deductible
  program has a per-claim deductible.
• For instance with a 1,000,000/3,000,000
  policy, and a 50,000 deductible. The
  policyholder would pay the first 50,000 of each
  and every claim.
• Some policies have an aggregate deductible. At
  2,000,000, for instance, this means that the
  total of all the individual claim deductibles
  could not exceed 2,000,000 out of pocket in one
  year.

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Anticipated Annual Loss Level

• The first step is determining the anticipated
  annual loss level for the group.
• We suggest the use of an actuarial firm much as
  Milliman.
• For the purposes of this presentation weve
  assumed that the anticipated annual loss level,
  after trending and development, is 1,000,000.

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Self Insured Retention

• If the anticipated annual losses are 1,000,000
  we will suggest a 1,000,000 SIR (Self Insured
  Retention).
• The group needs to be able to pay those claims
  when they are presented.
• The group pays the first 1,000,000 of claims and
  claims expenses regardless of the source.

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Hudson Specialty

• Hudson Specialty Insurance, in exchange for
  premium (which is much less than the cost of
  first dollar insurance) pays all claims and
  expenses over the 1,000,000 annually up to the
  individual policy limits.
• Hudson provides each individual physician with
  either a 1,000,000/3,000,000 or
  2,000,000/5,000,000 limit.
• Or a combination of limits within the same group
  depending on specialty.
• Hudson Specialty also handles all claims
  management in consultation with the group.

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What Happens to the Money?

• What happens if the group doesnt use the entire
  1,000,000 to pay claims?
• The group keeps the money, and interest.

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Physician Incentives and Loss Control

• Having physician money at risk and having the
  opportunity to keep money that is not used for
  claims has proven to be a tremendous incentive to
  active claims and loss control management.

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Premiums and Adding or Deleting Physicians

• Premiums are paid annually with some financing
  available on the entire group.
• Under certain circumstances the option is
  available to add or delete a certain number of
  physicians each year without a premium charge.

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Tail Coverage

• It is possible to grandfather physicians that
  have earned free retirement tail with another
  insurer.
• Tail coverage can be done on an individual
  physician or departed physician basis.
• Subject to the SIR or first dollar.
• Retirement tail is available after age 55 and 1
  year with Hudson, if the physician completely
  retires from the practice of medicine.

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Service

• Certificates can be provided on each physician
  within 48 hours because the group is insured.
• If the groups credentialing process is approved
  additional physicians can be added without
  underwriting or applications.
• Quarterly reports are provided to the group
  showing all activity (physicians added,
  terminated, locums, etc.), current rosters, and
  latest loss runs.
• There is a tremendous amount of flexibility in
  the program that allows for a sense of group
  ownership.

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Next Steps

• Written approval to work with the interested
  groups and Hudson Specialty.
• Information collecting.
• Past loss information
• Actuarial analysis
• Physician Rosters
• Entity Application
• Options that include the interested groups or the
  association.