2016 January Affiliate Practice

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Next Generation Accountable Care Organization Model Can a New Care Model Save Family Medicine CMS Proposes Changes to ACO Benchmarks

JANUARY 2016

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C O N T E N T S

4 Next Generation Accountable Care Organization Model

6 Home Sweet Medical Home

11 CMS Proposes Changes to ACO Benchmarks

12 New Medicare ACOs Include First ‘Next Generation’ Cohort

13 Medical Practice Acquisitions, Mergers and Sales

14 As Consolidation Forces Health Systems to Get Bigger, How are They Managing Risk

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Next Generation Accountable Care Organization Model (NGACO Model) Overview The Centers for Medicare & Medicaid Services (CMS) has launched a new accountable care organization (ACO) model called the Next Generation ACO Model (NGACO Model). The twenty-one ACOs participating in the NGACO Model in 2016 have significant experience coordinating care for populations of patients through initiatives, including, but not limited to, the Medicare Shared Savings Program and the Pioneer ACO Model. Building on experience from the Pioneer ACO Model and the Medicare Shared Savings Program, through this new model, CMS will partner with ACOs that are experienced in coordinating care for populations of patients and whose provider groups are ready to assume higher levels of financial risk and reward. This is in accordance with the Administration’s goal of tying 30 percent of traditional, or fee-for-service, Medicare payments to alternative payment models, such as ACOs, by the end of 2016 -- and 50 percent by the end of 2018.

Medicare ACOs have grown to over 477 nationwide, currently serving nearly 8.9 million beneficiaries since the Medicare Shared Savings Program and Pioneer ACO Model began in 2012. The results from the past 4 years have demonstrated that ACOs can provide better quality of care for beneficiaries while producing savings.

Selected Organizations The NGACO Model organizations represent a variety of provider organizations and geographic regions, and were selected by fulfilling specific eligibility criteria outlined in the Request for Applications found at the Next Generation ACO Model web page.

These organizations were selected through an open and competitive process from a large applicant pool that included many qualified organizations.

The 21 organizations participating in the NGACO Model in 2016:

The NGACO Model’s Core Principles • Protect Original Medicare beneficiaries’ freedom to seek the services and providers of their choice; • Engage beneficiaries in their care through benefit enhancements designed to improve the patient experience and reward seeking care from ACOs; • Create a financial model with long-term sustainability; • Utilize a prospectively-set benchmark that: (1) rewards quality; (2) rewards both improvement and attainment of efficiency; and (3) ultimately transitions away from an ACO’s recent expenditures when setting and updating the benchmark;

4 AFFILIATED PRACTICE

• Mitigate fluctuations in aligned beneficiary populations and respect beneficiary preferences by supplementing a prospective claims-based alignment process with a voluntary process; and • Smooth ACO cash flow and support investment in care improvement capabilities through alternative payment mechanisms.

Medicare ACOs are comprised of groups of doctors, hospitals, and other health care providers and suppliers who come together voluntarily to provide coordinated, high-quality care at lower costs to their Original Medicare patients. ACOs are patient-centered organizations where the patient and providers are true partners in care decisions. Participating patients will see no change in their Original Medicare benefits and will keep their freedom to see any Medicare provider. Provider participation in ACOs is also voluntary. When an ACO succeeds in both delivering high-quality care and spending health care dollars more wisely, it will share in the savings it achieves for the Medicare program.

The goal of care coordination is to ensure that patients, especially those with chronic conditions, get the right care at the right time while avoiding medical errors and unnecessary duplication of services. Any patient who has multiple doctors has experienced the frustration of fragmented and disconnected care: lost or unavailable medical charts; duplicated medical procedures and tests; difficulty scheduling appointments; or having to share the same information repeatedly with different doctors. ACOs are designed to lift this burden from patients, while improving the partnership between patients and doctors in making health care decisions. Medicare beneficiaries will have better control over their health care, and providers will have better information about their patients’ medical history and better relationships with their patients’ other providers. For providers, ACOs hold the promise of realigning the practice of medicine with the ideals of the profession—keeping the focus on patient health and the most appropriate care.

Medicare beneficiaries whose doctors participate in an ACO will still have freedom of choice among providers and can still choose to see providers outside of the ACO. Patients choosing to receive care from providers participating in ACOs will also have access to information about how well their doctors, hospitals, or other caregivers are meeting quality standards.

Round 2 Application Process Round 2 Letters of Intent and applications will be made available in spring 2016.

The CMS Innovation Center The CMS Innovation Center was created by the Affordable Care Act to test innovative payment and service delivery models to reduce program expenditures while preserving or enhancing the quality of care for Medicare, Medicaid and Children’s Health Insurance Program beneficiaries.

Working in concert with the Shared Savings Program, the CMS Innovation Center is testing a number of ACO models and has sponsored learning activities that help providers form ACOs and improve their results. More information on all of these initiatives is available on the CMS Innovation Center website at https://innovation.cms.gov/.

Additional Resources More information about the NGACO Model, including payment arrangements, quality measures, and benefit enhancements, is available on the CMS Innovation Center website at the Next Generation ACO Model web page. Any questions about the NGACO Model can be directed to NextGenerationACOModel@cms.hhs.gov.

JANUARY 2016

5

Home Sweet Medical Home Can a New Care Model Save Family Medicine?

The medical home model puts the patient at the center of healthcare. It may also save primary care in the process.

by Chris Dimick Medicine is fighting to save the primary care physician.

With healthcare increasingly oriented around specialty physicians and large practices, market realities are leading to the decline of the primary care practice. Fewer physicians are entering family medicine; increasing costs and decreasing reimbursement have hit established practices hard.

But hope lies in a new model of healthcare, one that could transform family medicine and better the entire healthcare system, proponents say. The patient-centered medical home model may be the future of primary care.

Proponents of the model say the shift in care marks an important rethinking of patient-physician relationships. “When we talk about the patient-centered medical home, we are talking about healthcare as it needs to be versus where it is now,” says Douglas E. Henley, MD, FAAFP, executive vice president and CEO of the American Academy of Family Physicians (AAFP). “It is a vision for the future that is, first and foremost, centered on the patient and not on the physician or the practice.”

Several private and government demonstrations of the medical home model have recently begun. The Centers for Medicare and Medicaid Services (CMS), the country’s largest payer, is testing the waters.

What Is Medical Home?

The patient-centered medical home is an approach to healthcare in which primary care physicians act as coordinators of patients’ longitudinal care. The medical home physician works with and recommends specialists and other physicians as necessary and leads the medical team in coordinating a patient’s preventive, acute, and chronic care needs.

The model promotes communication and access to make healthcare more convenient for patients, Henley says. Patients would be able to e-mail their physicians for treatment, have access to appointment scheduling, and take advantage of expanded office hours. The model emphasizes preventive care, with physicians actively tracking a patient’s health over time.

Health information management systems play a role in the medical home. Physicians would use electronic health records (EHRs) and clinical decision support tools to improve quality and efficiency. They could offer Web portals that allow patients to access lab results or monitor a chronic disease.

A number of insurance companies, payers, businesses, and physician associations including AAFP have endorsed medical home and pledged support for the model. Studies have shown that areas with more primary care physicians in the community are healthier, Henley says. This is because primary care physicians can help integrate and coordinate medical care. Those contributions will only increase with the implementation of medical home, he says, and lead to better care with lower costs.

Curing Reimbursement Ills Making medical home a reality requires a change in the current reimbursement structure. The ills of modern healthcare can be boiled down to various causes, Henley says, one of which is the way primary care physicians get paid.

Primary care physicians are compensated for performing services. Because reimbursement is lower than in specialty services, primary care physicians are forced to fit as many patients as possible into a single day just to pay the bills. The switch to medical home could change this, but it all starts with payers setting up a medical home payment structure, Henley says. A large factor in getting physicians to become medical homes rests on the federal government—as a major payer—agreeing to change its reimbursement structure to fund medical home.

Though several large businesses have expressed interest in purchasing healthcare delivered via the model, it is nearly impossible for an employer like IBM to request the purchase of medical home healthcare without CMS first agreeing to fund such models, according to Paul Grundy, MD, MPH, FACOEM, director of healthcare technology and strategic initiatives for IBM and chairman of the Patient-Centered Primary Care Collaborative (PCPCC).

Because so many patients are enrolled in Medicare, most physicians can’t risk changing their care model without the assurance that their biggest payer will adequately compensate them for their services. Since medical home calls for a major reorganization of the way care is provided, it is essential to have Medicare on board with the model, Grundy says.

Saving Money, Reallocating Money Proponents say the model will help contain rising healthcare costs because physicians are paid in a much different way.

Traditionally, physicians are paid per patient encounter. The more procedures physicians perform and the more patients they see, the more they are paid. This results in stressed-out doctors trying to treat as many patients as possible, uncoordinated and piecemeal care, and skyrocketing healthcare costs, Grundy says. The patient-centered medical home’s reimbursement structure would be much different.

6 AFFILIATED PRACTICE

Physicians would be paid a per-patient monthly fee to manage their care and reimbursed for encounters such as e-mail and telephone consultations. Some payment would be tied to pay-for-performance, some by encounter. Physicians also would be paid for using computerized systems such as EHRs and patient registries. Other changes include payment for managing a population, not just a patient, through services like group visits and registry monitoring.

The reimbursement changes associated with medical home don’t necessarily create a demand for new money to be pumped into healthcare, Henley says. Instead, money that would be spent down the line on reactive medicine is shifted to the front end and used in preventive care.

In fact, one study has shown that for every $1 paid to physicians in care management fees, $6 are saved in future healthcare expenditures since preventive care avoids more costly procedures later, Henley says. “That is a pretty good return on investment,” he notes. “We make the point that this care management fee is not new money. It is money that can be saved elsewhere in the system through decreased hospitalizations, decreased hospital readmissions, decreased duplication of unnecessary testing.”

Roles for HIM in Medical Home Though technology will play a big part in the patient-centered medical home, experts admit that most physicians do not have the technical infrastructure in place to host the more advanced stages of the model.

Historically, primary care physicians have had trouble seeing the direct benefits of implementing an EHR, Grundy says. But it is expected that in the future payers will offer financial incentives to those medical homes that implement EHRs and other technology. This could lead physicians to take the technological leap, he says. HIM professionals could lend skills in preparing the practice, selecting the system, and overseeing the implementation.

In a fully implemented medical home, physicians will use EHRs, e-prescribing technology, patient registries, and other health IT systems. HIM can help physicians determine how these systems integrate and produce the records necessary for care, Henley says.

HIM professionals can also assist physicians in establishing and managing structured patient registries for population health studies. They can optimize registries to maximize their potential in managing chronic disease, providing alerts and reminders, and increasing compliance with recommended services.

E-mail and electronic records will up the ante on records retention, and many physicians will need assistance navigating the uncharted waters. HIM professionals can help establish e-mail hold and destroy policies, as well as assess and manage record systems for sound business and legal requirements.

Employers Want It It is not just primary care physicians and physician associations who are calling for the new model. Large employers are joining the medical home rally, hoping the switch will allow them to buy better, cheaper care for their employees. Some of these employers include IBM, GE, and Wal-Mart, who have joined PCPCC. The collaborative is a group of employers, consumer groups, insurance companies, and providers lobbying for the use of medical home. IBM formed the group in 2006 in response to high healthcare costs the company pays for its employees. Large employers have joined the task of changing the system to lower their own costs and increase their competitiveness, Grundy says.

Businesses are especially interested in medical home’s focus on saving costs through preventive care. “At IBM, we can buy a darn good amputation for our diabetics, but we can’t buy the kind of care that would prevent you from needing the amputation,” Grundy says. Joining employers are physician associations like AAFP, who feel the patient-centered medical home represents both the best care for patients and the best chance at survival for their physicians, Henley says.

Some organizations are listening, including CMS. The Medicare Demonstration Project In 2006 the Tax Relief and Health Care Act created the Medicare Medical Home Demonstration Project, a test of medical homebased care and reimbursement. A yet-to-be-determined number of practices in up to eight states will take part in the project beginning in 2009, when they will fully transform into a medical home and receive special reimbursement from Medicare. The project is a great first step toward nationwide medical home implementation, Henley says.

A big advancement for medical home supporters came in April when the Resources-Based Value Scale Update Committee (RUC), the group that advises CMS on reimbursement, set payment rates for medical home services. RUC recommended practices be classified in three categories based on their implementation of the model. The higher level a practice implements, the higher its reimbursement.

Practices at level 1, for example, would perform certain coordinating activities, but these would not require implementation of health IT. Getting to the next level likely would. RUC also recommended medical home physicians be paid a care management fee—per patient, per month—for care integration services as well as for other services such as e-mail communications or developing patient registries, Henley says.

CMS is not required to accept the RUC recommendations, but the committee’s proposal is a good sign that CMS will follow the JANUARY 2016

7

reimbursement structure supported by medical home proponents. The hope is medical homes would have a blended payment structure of traditional fee-for-service, pay-for-performance, and care management payments.

The structure would provide primary care physicians adequate compensation and increase their incentive to perform quality care, Henley says. In addition to the federal initiatives, at least 19 states have adopted or are considering legislation around the medical home model. Many are accepting it as their future healthcare blueprint, according to Grundy.

TransforMED TransforMED is another medical home implementation trial developed by AAFP in 2006. The national demonstration project successfully started the implementation of medical home in 32 physician practices around the country.

For two years, TransforMED aided half of the practices in their transition to the new model, while observing the other half selfimplement the change. The point of the pilot was to test how practices would have to change to successfully operate a medical home.

The study showed that medical home could be implemented, Henley says, but not without the expected productivity disruption and challenges of practice change. A report on the project is due in 2009, which will describe the successes and hardships associated with implementing the medical home model.

Though the official trial is over, TransforMED will continue to help transform physician practices into medical homes by operating as a consulting group. As for the newly transformed medical homes, Henley says many will continue to advance their medical home implementation, bringing in more elements of the model over time.

A Long Road Home Critics of medical home state that physicians don’t have the management skills or training to effectively manage a medical home practice. That is true for some today, Grundy admits, but residency programs are slowly changing to teach the new model of care. Medical societies such as AAFP understand there is an education gap and have created programs like TransforMED to aid physicians in the transition.

“Practices are going to need certain tools and information in order to become medical homes,” Henley says. “We told members, ‘You can’t just raise your hand and declare that you are a medical home. You are going to have to go through a designation process as a practice.’”

The RUC reimbursement recommendation was a great turning point for the medical home model and a starting point for change, Henley says. The hope is that Medicare will eventually implement the demonstration project system-wide. That could be the tipping point that causes physicians to start adopting the model, Henley says.

It will take time, and not every practice starting to transition will be a medical home from day one. But merely beginning is better than following a line of care that leads to suboptimal health and lower pay for services, Grundy says. AAFP agrees, and it is encouraging primary care physicians to start moving toward medical home even though there is not yet a promise for improved reimbursement, Henley says.

8 AFFILIATED PRACTICE

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CMS proposes changes to ACO benchmarks

By Virgil Dickson  The CMS is proposing changes to the way it evaluates whether accountable care organizations in the Medicare Shared Savings Program actually save money.

The CMS wants to move away from assessing ACO benchmarks based on historical spending, and instead analyze trends in regional fee-for-service costs. “Medicare payments are an important catalyst to improving care delivery, spending our resources smarter and keeping people healthy," Andy Slavitt, acting administrator for the CMS said in a statement. "This proposal allows ACOs in all parts of the country to be successful by recognizing both their achievements and improvements in how they provide care."

Slavitt added that he hopes the proposed changes will grow the number of ACOs and their model of coordinated care.

The proposed evaluation changes would result in $120 million in net federal savings between 2017 and 2019, according to the CMS. Benchmarking has been a sore spot for ACOs, industry insiders say. There is a feeling that the current methodology is unfair, and effectively punishes high-performing ACOs, according to April Wortham Collins, manager of customer segment analysis for Decision Resources Group, a healthcare consulting firm.

Specifically, ACOs have said they haven't been able to share in savings, Collins said in an analysis on the issue. Or, if they do get some sort of payout, it's a small amount. Under the ACO model, program results are measured against an annual cost target, instead of on year-over-year improvement. Using this method, healthcare systems with high baseline costs have a lot of room for improvement, while those with low baseline costs do not.

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JANUARY 2016

11

New Medicare ACOs include first ‘Next Generation’ cohort

By Bob Herman

The Obama administration has rolled out the newest participants in Medicare's accountable care programs, which now include 477 organizations across four different models.

More hospitals and doctors are shifting to accountable care models that put them at risk financially for the health and outcomes of their designated populations. But despite this progress, most participating in Medicare's payment experiment still have not yet made that full jump.

“ACOs are moving toward risk, but they are not necessarily moving as fast as some people predicted,” said David Muhlestein, a senior director at consulting firm Leavitt Partners who studies ACOs. This year, 8.9 million seniors and disabled people will be cared for through an ACO, a group of hospitals and doctors tasked with lowering costs and improving the health of each person, HHS said Monday. Medicare pays ACOs based on level of care they provide to patients, and ACOs with high quality scores that also happen to save Medicare money share in the savings. Those with poorer outcomes and higher costs may lose money. The program has netted variable results thus far for Medicare, as well as for private payers.

The federal government is banking on ACOs and other care delivery models developed under the Affordable Care Act to move Medicare away from the current fee-for-service payment system, which relies on volumes of services, and toward a system that rewards keeping patients healthy. Research suggests avoiding hospitalizations immediately benefits patients and saves the healthcare system money. By the end of this year, HHS wants 30% of all traditional Medicare payments to come from ACOs, bundled payments or other alternative payment models. That number will increase to 50% by 2018.

The newest of the ACO models, which went live at the beginning of this month, is the highly anticipated Next Generation ACO program. HHS and the CMS named 21 organizations and companies—including Henry Ford Health System, Detroit; MemorialCare Health System, Fountain Valley, Calif.; Steward Health Care System, Boston; Trinity Health, Livonia, Mich.; and ThedaCare, Appleton, Wis.—as Next Generation participants. The CMS originally expected 15 to 20 groups in the first cohort.

“The fact that they got 21 that have signed commitments tells you this is a strong and attractive program from organizations that are ready to go to full capitation at some point,” said Dr. Kavita Patel, senior fellow at the Brookings Institution and former policy director for the Obama White House.

However, the initiation of the Next Generation program has drastically cut into Medicare's Pioneer ACO program, the original demonstration project that has created frustration among several participants who disagreed with the government's benchmarking methodology. Only nine Pioneer ACOs still stand, according to Medicare's Innovation Center, the agency that runs the ACO projects. There were originally 32 Pioneer ACOs. “It was truly a version 1.0, and (this shows) that we've moved on to enhance and improve the program,” Patel said of the Pioneer ACO program. “Pioneer experience illustrated the nuances of taking risk, and not all risk-taking is similar. But the Next Generation ACO model has really refined the risk approach.”

Two risk-arrangement options exist for Next Generation ACOs: one in which providers can share in 80% of the savings or losses based on their quality and cost-control efforts, or one that involves 100% risk. Savings are determined by a formula that doesn't solely rely on an ACO's past performance.

Participating ACOs could be paid via fee-for-service or some type of mixed value-based payment. Those who participate in the second year can try capitation, meaning the ACO would receive monthly lump-sum payments for each covered Medicare member as Medicare Advantage insurers do. In essence, Next Generation ACOs that pursue capitation in year two will be like Medicare Advantage insurers, Patel said.

Next Generation ACOs can also offer financial incentives to keep beneficiaries in their network as well as other “enhanced benefits” such as telehealth and nursing home visits. Shared Savings and Pioneer ACOs don't have those options.

Of the 477 Medicare ACOs across the four different models—Pioneer, Shared Savings, Next Generation and Comprehensive EndStage Renal Disease Care—64 are in some kind of track that involves potential penalties (known as downside risk) in addition to the chance for bonuses, CMS said. Aside from the Pioneer and Next Generation models, providers can take downside risk in two tracks offered in the Shared Savings program.

Muhlestein said it's a positive development to see more hospitals and doctors accept the so-called two-sided risk contracts. But it will still probably be a couple of years before a majority of providers move to such agreements. He expects 2019 will be a big year to watch, since that is when Medicare's new merit-based payment system for doctors goes into effect.

“While there's more movement to risk than there's ever been, it's still important to note the vast majority of ACOs are not moving to two-sided risk yet,” Muhlestein said. “It's really hard to move toward risk-bearing because it's not just a payment model. It's a transition in how you're delivering care.”

12 A F F I L I A T E D P R A C T I C E

Medical Practice Acquisitions, Mergers and Sales It has been a decade since we witnessed the last buying frenzy that led many doctors to sell their practices to local hospitals.

The last time this happened, physicians received payments for their practices and employment contracts that guaranteed their income for a number of years. Most of those deals fell apart after three to five years with the hospitals cutting loose the medical practices without getting any of their investments back. Many of the doctors in those practices kept right on practicing, as they had before, but were able to pocket the money they made from the sale of their practices, a big win for the doctors.

We are again witnessing a buying frenzy. The Accountable Care Act and other economic pressures are generating significant interest in buying physician medical practices in virtually all specialties all over the U.S. Some of these are simple takeovers with the physicians guaranteed about 5 years of income. Some are very lucrative to the sellers, with the partners receiving significant multiples of their current incomes at the time of sale and guarantees of future income for about five years. This time, it does not look like the deals are going to unwind.

The future of reimbursement for medical care is moving in the direction of insurance companies and the government making a single payment for all services related to a particular ailment. For example, if a pedestrian is hit by a car, the insurance company or government will assign a value to the treatments needed for that injury and make single payment to cover the Orthopedist, Plastic Surgeon, Anesthesiologist, Radiologist, Surgery Center or Hospital and all other components of care. This is one of a number of factors driving large institutions like hospitals to purchase medical practices because they want to control how these payments will be divided up.

Also, many doctors understand that insurance companies are not paying a level fee across all similar specialties in their neighborhoods and that the best way to assure the highest level of reimbursement is to merge into large groups that can leverage that size into negotiating clout. After these mergers and subsequent negotiations with insurance companies, some doctors have seen their incomes for the same patient load increase by over 15%, a huge increase in take home pay. These factors, among others, have led to an upheaval in the way physicians practice, and in a reduction of solo practices.

The goal of this posting is to provide advice on managing some of the insurable liabilities associated with these transactions. In particular, it will deal with the Malpractice and Director’s and Officer’s exposures. This posting won’t be too detailed, but will give you enough information to make sure you are asking the right questions. Working with an experienced Healthcare Insurance professional is very important.

DIRECTORS AND OFFICERS EXPOSURE ON THE SALE OR MERGER OF MEDICAL PRACTICES We’ll deal with the Directors and Officers (D&O) exposure first because it’s the simplest. This is not an issue for solo practitioners and is probably not a big issue for small groups of 2-5 physicians, but in larger groups, particularly those composed of a mix of older and younger physicians, where the interests in selling the practice and giving up control may be far apart, this can be a major issue. The senior partners with retirements looming in the next 5-7 years may be delighted to take some cash up front for the sale of the practice, particularly with income guarantees at current levels at a time that they are seeing their reimbursements drop. The younger associates may feel that they didn’t enter private practice to work as an employee of a large corporation; they entered private practice to have some control over the future of their practices. Disagreement like these can lead to large lawsuits, much of which can be protected by D&O insurance coverage. Having said this, it may be hard to obtain this coverage if a group already is in negotiations for an acquisition or merger. All medium and large-sized groups should consider whether D&O coverage should be a part of their insurance portfolio. I can’t begin to tell you how often I’ve seen practices that run really well, with much camaraderie, fall into infighting over issues they never expected. D&O Insurance can often help.

MALPRACTICE INSURANCE ISSUES ON THE SALE OR MERGER OF PHYSICIAN PRACTICES MAKING SURE ALL PAST SERVICES ARE COVERED Malpractice claims can follow a physician for a long time after services are rendered, often 3-5 years and for over 21 years if children are involved so it’s very important to deal with this issue carefully during mergers and acquisitions. The focus here is not on claims for treatments provided after the merger or acquisition, it’s for those services rendered before the change in ownership. If the group being merged or acquired is covered under an Occurrence policy (one that does not require a tail, this is not a concern, because all future claims for services provided before the merger, will continue to be covered by those policies. If the group being merged or acquired is covered by a claims made policy, it is important to make sure the transition is completed without creating gaps in coverage. See our October 2009 blog posting http://www.medmalinsuranceblog.com/ index.php/2009/10/ DEMAND TRIGGER POLICIES CAN LEAVE YOU WITH A GAP IN COVERAGE Physicians insured by a claims made policy (which is most private practice physicians in the US), must secure a tail when they cancel that policy or make arrangements to have the same period that was covered by the claims made policy taken over by the new insurance carrier. If they fail to do this, any new claims that come in for that coverage period will not be covered and will expose the doctor’s personal assets to lawsuits. The free tails that are offered for death, disability or retirement, do not cover this situation.

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Also, it is important to know whether the claims made policy has an “incident” or “demand” trigger. If the policy has an incident trigger, transitioning to another company that takes over the prior exposure is usually not a problem because the company being replaced will continue to cover any bad outcomes they were told about before the policy was cancelled. If the previous policy had a “demand” trigger or some hybrid version of a “demand/incident” trigger, it is important to determine whether the insured doctor reported any bad outcomes (“incidents”) that were not yet claims at the time of policy cancellation. If incidents were reported and claims come in after the merger, they may not be covered by the old or new insurance companies. See our November 2009 blog posting See our October 2009 blog posting http://www.medmalinsuranceblog.com/index.php/2009/10/.

Having an incident doesn’t mean you cannot be part of a merger or acquisition; it requires special handling and has to be considered. Managing a merger or acquisition for large groups can get very tricky because of situations like this and making sure that you are using knowledgeable attorneys, accountants and insurance brokers is important.

DEALING WITH THE NEED TO SECURE A TAIL There is no rule of thumb on how Malpractice Insurance will be handled by the acquiring entity. Those that continue with traditional insurance may: • Allow you to keep your current policy • Require that you insure with its carrier, but the carrier will pick up the prior exposure • Require that you insure with its carrier, but the carrier will not pick up any prior exposure so you have to purchase a tail.

(There is a version I have seen where the doctor or group being purchased or merged is told “if you like your current Malpractice insurance, you can keep your current Malpractice insurance” only to be told a year later, if you want to remain part of our group or get all of its benefits, you’ll have to switch to the group’s insurance plan.)

If the plan is for the practice being acquired to move to the new entity’s self-insurance plan, this is handled by: • The physicians purchasing a tail with their own funds or with funds provided as part of the transaction or • The physicians initially continuing with their own policies for 3-5 years and, when the new entity feels they are far enough away from any exposures of the old practice, folding all the exposures including that from the old practice into its self- insured program.

There are, of course, infinite variations of the above.

IF YOU NEED A TAIL, WHERE DO YOU BUY IT It used to be the case, that the only place to purchase a tail was from the insurance company that insured you in the earlier practice (unless you were covered by a new claims made policy after the acquisition and the new company took over the old exposure, called securing a “nose.”) This is no longer the case. The premium for a tail from the physician’s current insurance company can range anywhere from about 125% of the expiring premium to over 300%. The usual cost is about 200% of the expiring premium. But there are quality companies that will provide a tail for another company’s policy at premiums that are anywhere from 10%-40% lower than the current company’s pricing. These are called “standalone” tails and are a good way to go.

CONCLUSION There are, of course, many other types of insurance that practices will have to deal with if they are merging or being acquired.

These include Workers Compensation, Office liability, Health, Pension Plan Bonds and more. Handling these is usually fairly straight forward. They usually are occurrence policies and can be cancelled after the practice being sold or merged ceases to exist, but even these should be dealt with only after obtaining professional advice.

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