Nov/Jan 2012 Issue

THE CAPITATION LIABILITY THEORY

[Rethinking a Novel Professional Liability Insurance Cost Reduction Policy]

By: Dr. David Edward Marcinko, MBA CMP™
[Publisher-in-Chief]
By: Dr. Charles F. Fenton III, JD
[Chief-Legal-Counsel]

A physician owned mutual is a non-profit insurance company owned by its policyholders and structured for their benefit. A mutual insurer established under, and subject to, state insurance laws, is organized to provide the highest quality resources for its insureds at competitive rates. Each of its policyholders, be they physician/surgeon, dentist, hospital, managed care organization, or licensed healthcare facility, is able to participate in the operations of the company by establishing a Board of Directors

-AMA Council of Medical Services

Professional malpractice liability insurance protection is a major fixed operational expense in any at risk medical practice, clinic, hospital or healthcare organization.

In most practices and cases, liability insurance costs often represent one of the largest single line item expenses, often falling second only to staff payroll expenses. Current management literature is replete with information extolling the business virtues of fixed rate or capitated reimbursement models of medicine. These include: increased patient volume, consistent cash flow, improved collection patterns and fixed operational costs of this new payment structure.

Managed care business detractors, on the other hand, identify potential negatives, such as increased administrative costs, financial conflicts of interest, performance quotas and skewed medical liability risk. This has induced a shift in the focus of most practices over the past decade from being a profit center to a cost driver, and has greatly influenced the liability purchasing decisions of some medical practices as declining reimbursement rates have made most cost containment and efficiency an imperative.