Increasingly complex reporting and compliance requirements have made it difficult for smaller, independent healthcare practices to survive – and thrive. For the robust medical group with capital to spend, the time may be right to consider acquiring a smaller, well-run healthcare practice.
The seller will be looking for the right medical group to join. Among other factors, they’ll want to know that their acquiring entity’s risk management program will help reduce losses and deliver lower insurance premiums. They’ll want to ensure that post-acquisition, their physicians will not encounter additional insurance expenses, resulting in reduced profitability and decreased value for the acquired entity.
To help position a medical group as an attractive suitor, buyers need to structure their professional liability program to include the following features:
- Claims management and loss control program
- Professional liability rating structure that provides a competitive advantage for the acquiring group, namely lower premiums, low loss ratios, rating structures designed to match revenue, and no tail required for the new physicians/entity being purchased.
- Limited levels and adequate structures for the practice territories, and not too high to encourage large settlements.
- A claim frequency and severity structure low enough to provide security for the new group’s physicians. Maintaining a low structure will let prospective suitors know the acquiring entity values/practices good medicine.
The acquiring practice’s insurance broker will be the intermediary between the medical practice and the insurance carriers, communicating and quantifying the firm’s risk management initiatives and losses. To ensure that the acquiring practice achieves optimum value and is positioned to provide the most competitive coverage structure, the acquiring practice’s broker should:
- Provide a root cause analysis history for claims and unanticipated outcomes.
- Complete a quarterly loss analysis to identify trends.
- Request target premiums that generate an acceptable loss ratio to the carriers.
- Convert group loss picks to loss picks per physician, per IME and medical treatment or patient encounter.
- Prepare target rating premiums to follow the number of historic treatments.
- Design the coverage structure as “claims made” coverage with limits “per encounter”.
Contact your HUB healthcare specialty practices consultant to determine if your medical group’s professional liability and insurance programs are ready to assume the additional risks of a medical practice acquisition.