Management liability claims increase as healthcare industry consolidates

The enactment of the Affordable Care Act in 2010 has created complicated changes for healthcare organizations.

Lower margins, changing reimbursement models, and other regulatory factors resulted in a wave of merger and acquisition activities among healthcare entities. Data from Kaufman, Hall & Associates shows that the number of health system partnership transactions rose 55 percent from 66 announced deals in 2010 to 102 in 2016. M&A activity continued its upward climb with a total of 115 transactions in 2017. This trend is expected to continue in the coming years as healthcare organizations seek to alter their structures and build their capabilities in response to market and regulatory factors.

These changes have also altered the management liability landscape for healthcare entities. Various programs and operations were carried out with limited resources, creating an inherent management liability risk, with the potential for more costly litigation.

According to Advisen’s Loss Database, management liability claims in the healthcare sector more than tripled between 2008 and 2016. From $2.2 million in 2008, average management liability claim payouts increased to $6.5 million in 2016.

In 2016, the healthcare sector saw a series of multi-million settlements. In January 2016, Kindred Healthcare agreed to pay $125 million to settle allegations that it knowingly caused skilled nursing facilities to submit false or fraudulent Medicare reimbursement claims. At the center of the issue were the improper relationships between medical equipment firms and healthcare professionals who prescribed or used that equipment.

In May 2016, Saint Francis Hospital and Medical Center has agreed to pay $107 million to settle a proposed class action in which workers claimed it violated the Employee Retirement Income Security Act (ERISA) by underfunding its pension plan by nearly $140 million.

These multi-million settlements point to the importance of management liability insurance. In the paper “Coverage in an Age of Healthcare Change and Uncertainty,” Advisen and CNA highlight that in the absence of management liability insurance, healthcare entities may become exposed to expensive lawsuits, high indemnity awards or complex settlements that may result from these claims.

To better understand healthcare management liability claims, download a copy of the free, three-page paper.