How Hospitals Can Cut Medical Liability Costs

Roxanna Guilford-Blake, for HealthLeaders Media , December 13, 2010

"The effects of operational and budgetary decisions generally are unlikely to manifest themselves in losses in the short term. By the time the losses show up on the balance sheet, the operational decisions that gave rise to them are often a distant memory."

Nevertheless, he adds, it is helpful to analyze spikes in losses "and attempt to correlate them to operational changes made at or shortly after the time of the events that gave rise to the losses. Increases and decreases in expenses in a particular department may correlate to incidents that later gave rise to claims."

 It is also instructive to track increases and decreases in premiums against risk assumption to determine the appropriate cost-effective level of risk assumption for the hospital, Spratt says. For example, a hospital may wish to self-insure at a higher deductible to reduce its premium. The savings achieved over the policy with a lower deductible may be more than sufficient to manage self-insured claims, allowing for a lower-cost, higher-deductible policy. But the opposite may also be true, he warns.

Rethink the culture
But these considerations notwithstanding, it comes back to a culture of safety, driven from the C-suite. "The integration of risk management with the quality function is the most important factor that will result?in fact is resulting?in a long-term trend of decreases in liability insurance costs. I haven't had a liability insurance surprise on the financial statements in many years," Rooney says.

"The best practice I've seen is a serious organizationwide commitment to patient safety, beginning with the CEO, to sharing the learnings from incidents of actual patient harm, and also from near misses."
The indicators that matter are cultural and intangible, he says, such as whether there's an organizational culture in which staff members and physicians feel free to challenge each other  to prevent an error at the point of care.

It's an investment that pays off in savings and safety, Rooney says. It takes time: "It's usually a period of years, not something you see in 12 months," he warns. But it does pay: "Hospitals [and health] systems that I've worked with have seen real decreases over time in medical liability and insurance expense, but the most important impact is a safer care environment for patients."

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