The Importance of P&C Insurance in Physician Group Acquisitions

The healthcare sector is experiencing a surge in physician group acquisitions. While these mergers offer potential benefits, including economies of scale and enhanced care coordination, they also introduce significant risks for all parties involved, including patients. This makes it imperative that groups positioning themselves for acquisition fortify themselves with a program of robust risk management and customized property and casualty (P&C) insurance.

Inflation and COVID impact driving market uncertainty

Physician groups of all sizes face significant uncertainty in the insurance and reinsurance markets due to two main drivers:

1. Economic and social inflation: While economic inflation is moderating, social inflation — defined as the disparity between general economic inflation and the significantly steeper rise in claims costs — continues unabated. “Nuclear verdicts” and third-party litigation financing in liability lawsuits exacerbate the issue. Juries have become increasingly sympathetic to injured parties, especially when the defendant is associated with a large corporation. 
   
   According to PropertyCasualty360, “The real hallmark of nuclear verdicts is juror anger.” Anti-corporate sentiments concerning responsibility and unequal wealth distribution prompt juries to “attempt to level the playing field and redistribute the wealth.” 
    
2. COVID-19 aftermath: Many courts have yet to address the backlog of cases postponed during the pandemic. Insurers and reinsurers are concerned about the implications once these courts adjudicate. The expectation is that damages and awards will rise, influenced by economic and social inflation. 
   
   Stateline reports, “The pandemic worsened problems that already had caused state and local court delays, legal experts say. The hurdles include insufficient funding, judicial vacancies, lawyer shortages and delays processing digital and physical evidence.” In response, some states are introducing bills to help decrease the backlog. 

Migration from private practice to an institutional model 

Many physician groups, particularly smaller ones, struggle with the financial and infrastructural demands of independent practice and their insufficient strength in  negotiations  with insurance companies. Resulting economic pressure attracts such groups to the stability and resources of larger, institutionally backed models. 

As reported in Alera Group’s 2024 Property and Casualty Market Outlook, “Fewer physicians own their practices. The number of physician-owned practices continues to decline as hospital groups, major corporations such as CVS, health insurers and private equity firms increase their investment in physician groups. With less than 50% of physicians owning their practices, there is a rapid increase in the consolidation of medical care.”

Acquisition impact on insurance programs

Acquiring physician groups to enhance profitability and patient volume presents challenges, particularly in terms of balancing care quality with financial returns. Additionally, acquisitions create two challenges for the acquiring group’s overall insurance program: pricing and volatility. 

For example, acquiring a practice with a high-risk specialty, such as obstetrics and gynecology, significantly impacts the insurance program more than acquiring a lower-risk specialty like ophthalmology. This necessitates a strategic approach, such as placing portions of the insurance program in the excess and surplus lines market. 

Integrating risk management during acquisitions

Operational risk management helps physicians deliver quality medical care. Similarly, the successful integration of an acquired physician group requires proactive risk management, including: 

• Identifying potential loss areas. Examine the acquired group’s loss history to pinpoint areas of high risk. 
• Implementing loss-prevention programs. Develop targeted programs to address identified risk areas and mitigate future losses. 
• Fostering a culture of open communication. Establish an environment in which staff feel safe reporting issues, enabling early identification and resolution. 
• Establishing quality metrics. Implement clear quality-of-care metrics at all levels.
• Onboarding and credentialing. Strengthen onboarding and credentialing processes to ensure acquired physician groups meet required standards of care. 

Data drives underwriting decisions

“New underwriting methodologies are being tested,” the Alera Group Market Outlook reports. “Instead of the traditional underwriting factors such as location, specialty and prior claims, some insurers, including new startups, are focusing on data sets from value-based care programs, prescription tracking, demographics, etc. to find correlations with claim activity. If this proves valid, it will significantly change how medical malpractice insurance is underwritten.”

As the sector awaits the implementation of these new methodologies, it is important to prepare qualitative and quantitative data for underwriters. A quality submission should:

1. Demonstrate management depth and operational standards. Highlight management’s performance, longevity, planning and effectiveness in running the physician group. Showcase implemented protocols to deliver high-quality care and avoid common pitfalls. 
    
2. Differentiate your physician group. Quantify how your physician group outperforms your peers. Use tools such as loss runs, pivot tables and customized charts to illustrate loss values, and benchmark performance against peers. 

By combining qualitative and quantitative data, a skilled broker can organize the information and present your account to underwriters as a highly desirable risk. 

Partnering with a solutions-based broker 

Seek a consultative broker partner with healthcare specialization and strong references. A skilled broker will analyze your needs and translate them into effective insurance and reinsurance solutions for your physician group. The right broker offers flexibility that aligns with both your short- and long-term strategic goals. For instance, if your physician group plans to acquire another practice in six months, the broker will integrate strategic positioning into the insurance program.

An experienced broker also educates price-focused buyers, guiding them to become strategic buyers. This approach enhances risk management and supports quality patient care. 

CONTACT A SPECIALIST IN PHYSICIAN GROUP INSURANCE

About the author

Paul Curtis
Managing Partner
Alera Group

With more than 40 years of healthcare insurance experience, Paul Curtis is a preeminent expert in the New York market, overseeing and managing relationships with large physician groups and hospital systems. He specializes in reinsurance programs, complex risks and value-based care downside risk. Paul uses his in-depth knowledge of trusts, captives and risk-retention groups to develop tailor-made programs for complex risks. 

Contact information: paul.curtis@aleragroup.com