“Beware of little expenses. A small leak will sink a great ship.” Wise words from the man that also said, “A penny saved is a penny earned,” Benjamin Franklin. The problem for medical practices today is that it seems there are no “little expenses.” All businesses are faced with large expenses that continue to grow, and that is especially true in healthcare. With the changes in reimbursements and the uncertainty of the future of healthcare in the U.S., it’s more important than ever for practice managers to control costs and cut spending where possible. The cost of medical malpractice insurance is one of the largest expenses that needs to be carefully considered.
Practice administrators are constantly managing the costs related to day-to-day operations. Some of those costs are variable, based on the volume of patients, such as office supplies, equipment, medical supplies, and pharmaceuticals. Many of these items are consumable, so when patient loads are high the costs in this area obviously rise. These are costs that can be controlled to some degree by choosing the most cost-effective suppliers. Saving a little here and there can make a difference to the bottom line.
However, the largest costs in a medical practice are the major fixed costs that must be budgeted for each year. These costs may change from year-to-year, but remain stable monthly and quarterly. Typically, personnel costs are a major fixed expense along with the various costs associated with occupying office space – rent, maintenance, etc. Short of moving or letting staff go, there is little that can be done to control these expenses throughout the year. The other major fixed expense is in the area of insurance: Health insurance for the group, Property and General Liability insurance, and Professional Liability insurance or medical malpractice insurance, which is usually the largest of the insurance related expenses. Practice managers can save money in this area by doing some homework and taking a few simple steps.
Here are 3 ways to save: In order to maximize savings on malpractice insurance, before renewing, managers need to look at all available options, check for additional discounts, and consider alternate payment methods.
1. Check out all the options available
In today’s medical malpractice insurance market there are more options than there have been in decades. Of course price should not be the only consideration when choosing a malpractice insurance company, but rates are extremely competitive and shopping around can usually result in finding lower premiums. There are several types of malpractice insurance companies available: Stock, mutual, exchange, and risk retention groups. Some of the previously higher priced “A” rated companies are now offering rates that compete with smaller alternative type companies. Making a decision on the type of company means knowing the differences in the options available. Some practice managers and physicians are willing to take on a little risk to save money, and some would rather pay a higher rate for security and stability.
What’s the difference?
- Stock Insurance Company – This is an entity organized as a for-profit corporation, with shareholders. Any profits of this type of company may be distributed as dividends to the shareholders or reinvested into the company or other investment vehicles.
- Mutual Insurance Company – The policyholders own this type of company, so earnings are distributed back to the insureds as dividends. These are often set up as associations with policyholders being members. The members have a vote in major decisions of the company. Losses are not usually charged back to policyholders unless the company is Assessable – some states allow for this.
- Insurance Exchange – This type of company is an entity that provides insurance coverage generally unavailable elsewhere, for unusual or non-standard risks. Unlike insurance companies, however, insurance exchanges do not underwrite insurance coverage. They are nonprofit organizations that oversee its underwriting members or “syndicates.” Exchanges receive premiums, issue policies, handle claims, supervise underwriters, and monitor their solvency. Like a mutual, an insurance exchange is owned by the policyholders who sometimes have a vote and a share in the surplus. Exchanges will often pay dividends to policyholders if there is excess beyond expenses.
- Risk Retention Group – This is a form of self-insurance. Individuals join together to pool their money to protect against potential shared risks. RRGs are not subject to the individual state laws that would otherwise prohibit the formation of group captives or make it difficult to form or operate them. Purchasing coverage from an RRG may require a capital investment in addition to premiums.
In states where the malpractice insurance market is stable and competitive most physicians and groups choose the stock companies and large mutuals because the rates are typically no higher than the alternative companies. However, in states where the market is volatile and rates are high, it’s often difficult to get affordable coverage, especially for higher risk specialties. That’s where the exchanges, and RRG’s can help save significant dollars.
2. Find out about discounts offered
In an environment where medical malpractice claims are steady and the rates are low, competition among insurance carriers can be fierce. This creates a positive result for physicians. Most malpractice insurance companies offer significant discounts to help set themselves apart from the competition. Physicians and practice managers need to be diligent about asking for any and all discounts that apply.
The most typical discounts available are for:
- New-to-practice physicians
- Large groups
- Members of medical associations, such as the AMA and others
- Individuals and groups with no claims or few claims
- Physicians who have completed risk management courses – online or at seminars
- Insureds that have stayed with the insurance company for a number of years
Working with a broker that has experience and long-term relationships with the insurance companies is a great way to get all the discounts available. Many times the carriers will not offer every discount unless they are requested.
3. Choose the best payment option
Most malpractice insurance companies will allow annual, quarterly, or monthly payments but be sure to find out if there are finance charges involved in the monthly or quarterly payment plans. While spreading payments out can greatly improve cash flow for a practice, it sometimes comes at a cost. Because of the cost, good budget planning can help avoid any surprises. Many practice managers and administrators choose to pay malpractice premiums annually to avoid the additional charges and set aside funds throughout the year so they are prepared to pay the lump sum at policy renewal time. This is especially important when the premium is one of the higher fixed costs for the practice. Depending on the malpractice market and competition, there may be companies offering quarterly or monthly installments with no finance charge. This is another way carriers are able to compete in a stable market where there are a lot of options. Other practices use a line of credit at a bank to pay malpractice insurance premiums. With interest rates being at all-time lows, this is another option worth considering.
These 3 simple steps can help practices maximize savings on one of the largest fixed expenses. The experts at eQuoteMD are constantly working to find the best coverage at the best rate, and we’ve partnered with many different types of companies all over the country that offer competitive discounts and help with financing premiums.