Recently, AAOS Now featured the concept of risk purchasing groups (RPGs) as a potential member benefit for state orthopaedic societies. Both the New Jersey and Florida state orthopaedic societies have formed RPGs, and other orthopaedic societies are following their lead.
I participated in an RPG for 6 years, dually as an insured physician and as the chairman and chief executive officer of COPIC, which insured the RPG. I thought it might be valuable to share my experiences.
I must disclose that I am employed by COPIC, a medical liability insurance company with approximately 7,000 policyholders in Colorado and Nebraska, including more than 300 orthopaedists. Our mission is to partner with our doctors and institutions to improve the healthcare delivery system.
In 1998, the RPG of Colorado was formed, with 77 orthopaedists drawn from nine groups. An insurance agent put the RPG together. The RPG had no criteria for joining, and it never held a meeting. Most members—including me—had no idea who else was in the RPG.
The RPG’s objective was to use group purchasing power to lower office overhead expenses and ideally increase reimbursements. One expense—certainly a big-ticket item that caught everyone’s attention—was the potential for lower liability insurance premiums. We sought bids from various reputable carriers, and in 1999, COPIC received the contract, in part because of its local connection, its physician-centric reputation, and the 11 percent discount that RPG members would receive. For 6 years, everyone was happy. Then, COPIC’s vice president of underwriting removed the discount because it could not be justified from an actuarial perspective.
When COPIC underwriters evaluated the nine component groups, they found that one group had a loss experience 20 percent better than average; another group proved average; and a third group had a 300 percent increase in its loss experience. The better-performing groups essentially were subsidizing the losses of the poorer performer. COPIC had similar experiences with RPGs for obstetricians and general surgeons that were formed with no intent of risk sharing.
Thus, in 2005, COPIC declined to bid on RPG of Colorado as a single group. Instead, it offered a substantial discount to the group with better-than-average loss experience, offered performance incentives to the average group to improve its experience, and significantly surcharged the poor-performing group—in addition to implementing a group-specific risk management activity. Suffice it to say, not everybody was happy.
Risk sharing and risk management
This is not to imply that RPGs cannot work from an insurance perspective. Success is found where risk is truly shared and efforts are made to lower risk and improve outcomes. COPIC insures as a “supergroup” two large emergency medicine groups totaling more than 200 physicians. Each of these large groups has a true risk management arrangement. They have strict criteria for who is allowed to enter and who is allowed to stay. Board certification and recertification are mandatory, and one of the groups recently fired a doctor who had let his certification lapse.
The groups have a quality assurance committee that establishes protocols for disease management, and deviations from these protocols require explanations. Frequent deviations initially result in a call for review by the committee; continued deviations may result in dismissal. All unanticipated outcomes and “near misses” are reviewed by a quality committee and COPIC risk management physicians. The doctors and managers participating with this quality committee take these lessons back to their individual groups.
Because of their commitment to risk management, COPIC awards these groups an additional discount on the premium. A secondary benefit occurs when doctors leave the supergroup, taking with them the practice improvement tools they have learned. Thus, the entire pool of emergency medicine doctors indirectly benefits as the quality bar is raised.
Words of caution
I applaud those orthopaedic societies that want to bring an added benefit to their members, but I caution their members to look at the pros and cons of such arrangements. Medical liability is a long-term relationship between the insured doctor and the insurance company. Lawsuits may take years to resolve, with statutes of repose and limitations varying from state to state. Who will be watching out for a physician who frequently changes carriers? Will an insurance carrier step up to defend medicine that falls within the standard of care if it has no ongoing relationship and it is cheaper to settle the claim?
The insurance business is cyclic in nature. When the market hardens, the benefits of an RPG will be short-lived because carriers will exit the market or restrict the types of physicians they insure.
If an insurer has loose underwriting criteria, it will attract poor risks. Anyone who was in practice in the 1980s and 1990s will recall the exit of commercial carriers from the medical liability arena. As recently as 2003, one of the largest medical professional liability carriers in the country declared it would no longer write medical professional liability policies. This short notice created an insurance crisis in many states.
I also worry about the potential for RPGs to alter the stability of the liability pool in the markets my company serves. COPIC works hard to maintain stable liability rates for doctors in Colorado and Nebraska. We have spent significant amounts of money to maintain the enviable environment our physicians enjoy. And we have a success story: In 1988, the typical orthopaedist in Colorado paid $49,400 for a COPIC policy with liability limits of $1,000,000 per occurrence/$3,000,000 aggregate. In 2010—after distributions and discounts for risk management activities—that typical surgeon paid $32,723 for the same policy.
I recently asked the CEO of a large commercial medical liability carrier if his company would make an economic commitment to maintain and improve the tort environment. He noted they had never engaged in such activities. It is in the insurance carrier’s best interest to see rates increase. As any insurance professional knows, the profit in insurance is in managing the float—the money that is held between the payment of a premium and the payout of an award.
COPIC’s success in Colorado and Nebraska has been driven in part by our association with the states’ medical societies. With them, we have been able to make a strong case in tying the dysfunctional liability system to the larger issue of access and quality. This partnership has benefitted orthopaedists as well as other practicing physicians.
It is a myopic view to end a successful relationship with one medical liability insurer for a short-term break on premium from another. My colleagues who lived through such shenanigans with the commercial carriers that precipitated the medical liability insurance crisis of the late 1970s and early 1980s know this.
I would suggest that an RPG with poor entry criteria and no effort to improve risk will prove average at best. That was my experience with the RPG of Colorado as both an orthopaedist and the chairman/CEO of the company writing its business.
Theodore J. Clarke, MD, is chairman and chief executive officer of the COPIC Companies and a member of the AAOS Medical Liability Committee. He can be reached at email@example.com
Editor’s Note: Articles labeled Orthopaedic Risk Manager are presented by the Medical Liability Committee under the direction of contributing editor S. Jay Jayasankar, MD.
Articles are provided for general information and are not legal advice; for legal advice, consult a qualified professional.