Assisted living and miscellaneous medical facilities spur new growth

An aging population and a demand for new and unique medical services in non-hospital settings are driving growth in certain areas of medical professional liability coverage, in particular medical facilities coverage.

The four segments of medical facilities include social services facilities, hospitals, long-term care/assisted living facilities and a “miscellaneous” category consisting of surgicenters, LASIK centers, medispas, clinics and other facilities. While the first two segments are experiencing stagnant or negative growth, the last two, assisted living facilities and “miscellaneous,” are growing.

Assisted living facilities are defined as medical facilities for patients who require help with one or more daily activities, such as taking medications, eating or bathing. They serve a growing older population of Americans who can no longer live by themselves, but who don’t yet require the round-the-clock care offered by a nursing home.

Surgicenters are ambulatory, outpatient surgery facilities that do not provide primary health care, but upon referral provide surgical procedures in fields like ophthalmology or gastroenterology. They offer professional care without requiring a hospital admission.

Medispas offer cosmetic medical and non-medical procedures in a spa environment that may resemble a vacation resort more than a medical facility. These procedures may include face and eyelifts, breast augmentation, hair removal, Botox treatments, massages and other elective procedures.

Clinics encompass a broad category of facilities and include the health clinics being opened in retail stores like Target, Wal-Mart and CVS. They offer low costs, convenient hours and services like flu shots and school sports physicals. Operations like these have provided large chain stores with new sources of revenue and innovative ways to grow and maintain competitiveness in the marketplace.

Growing market

Just a few years ago, many of these types of facilities weren’t even on the radar screens of the medical profession or insurers. But now, demographic trends indicate these facilities are and will be the growth leaders in the medical professional liability coverage field for at least the next three years. For example, the number of surgicenters in the U.S. increased from 2,864 in 2000 to 5,063 in 2005, an increase of 76 percent, according to Verispan in its 2005 Outpatient Surgery Center Market Report.

In the two-year period from July 2004 to June 2006, the largest individual growth market in the U.S. total vision care industry was LASIK. LASIK revenues grew 97.7 percent to $2.56 billion in the period, according to consumer research study VisionWatch.

And a recent study in the Journal of Applied Gerontology stated that the number of beds in assisted living facilities nearly doubled from 1990 to 2002, to more than one million. This corresponds with trends showing that the percentage of the U.S. population over 60 is expected to increase from 16 percent in 2000 to 26 percent by 2040.

Surgicenters, medispas and clinics are increasingly popular not only with the general public and retailers, but also with health care insurers and medical practitioners. Typically, a clinic visit will cost a health insurer less than a comparable visit to a traditional medical facility. On the other hand, many health care professionals who find their margins squeezed by the insurers have opted to stake out on their own and operate private-pay facilities that cater to a wealthier clientele that pays cash or has better health insurance coverage. Many of these facilities also offer the latest and newest technologies to their patients, technologies that may not have existed just a few years before.

Special risks, opportunities

Facilities like these create special risks and opportunities for liability insurers that seek to provide insurance products for this industry. One risk is the lack of standardized certification for many types of facilities coupled with the difficulty of determining which facilities are well run and which are not. Additionally, many emerging technologies don’t have an established history of loss costs, which would tell the insurer how to price the product.

The risks and uncertainties cause many insurers to shy away from these emerging growth areas. But a company that possesses the proper expertise and an understanding of the underlying exposures can realize a higher margin when offering these specialized products.

Insurers must possess the ability to tailor coverages to meet the new and changing needs of these medical facilities. What fits a company’s needs one day may not fit the next, as facilities constantly add services or begin to offer complex procedures like bariatric surgery that were once the domain of hospitals and more traditional health care facilities. And oftentimes, the first time an insurer hears of a new procedure is when a claim arrives in the office.

Despite the risks, many excess and surplus insurers, such as Colony, General Star, Fireman’s Fund and Shand Morahan, offer medical professional liability coverage in these new and growing areas. Rates and coverage vary greatly depending on the particular company’s “appetite” for a certain type of medical facility, making it difficult for agents to stay abreast of trends and determine the best fit for a client.

It is important for agents to be cognizant of the growth of assisted living facilities, surgicenters, medispas and other new kinds of facilities that represent a growth market for them. With more and more excess and surplus insurers willing to insure these new facilities, agents shouldn’t shy away from writing business that was deemed too big a risk or too big an unknown in the recent past.