The management liability insurance market for managed care organizations (MCOs) – i.e., errors and omissions (E&O), directors and officers (D&O), and cyber insurance – is expected to remain a “hard market” in 2023. Systemic concerns exist around exposure to antitrust claims, class actions and other emerging claims. In addition, the carriers no doubt seek to improve loss ratios in light of the In Re Blue Cross Blue Shield Antitrust Litigation (MDL 2406) (BCBS MDL). While this market may begin to stabilize, MCOs will likely continue to face significant premium rate increases, albeit leveling off in trend.

What steps should you and your MCO take?

  • Start placement efforts early. Go to the market and actively shop your insurance programs in order to maximize interested carriers and coverage options. Push carriers on proposed pricing and language before “picking a horse.”
  • Assess options. Carriers may no longer unilaterally impose reductions in limits and increases in retentions for MCOs in 2023 as was the case in recent years, but MCOs should still assess retention levels, co-insurance and sub-limits, as well as seek pricing on various options. Some carriers are requiring both E&O and D&O placement in their quotes. Be aware those carriers’ policies will likely include “tie in of limits” provisions, such that the limit of only one coverage line applies to a “Claim” implicating E&O and D&O coverage (even though premiums were paid for both).
  • Scrutinize proposed policy language and exclusions. Seek preferred language and enhancements. In recent years, “Association”/“Enterprise Liability” exclusions for Blue Plans have become commonplace as a result of BCBS MDL. Likewise, carriers have imposed “Opioid” exclusions. MCOs may be unable to avoid these exclusions, but should still push for preferred policy language to “pressure test” the carriers’ flexibility on policy language.
  • Enhance risk mitigation efforts, such as increased focus on and investment in network security and information privacy protection systems. As carriers require more robust cyber applications and underwriting processes, including expanded use of underwriting calls with information security professionals, MCOs may reduce their exposure to risk and loss, but also assist their cyber placements through such information and network security efforts.
  • Explore alternatives, such as use of a “captive insurer” – an insurance company set up and owned by the MCO itself – for issuance of excess or other coverage to your MCO. In light of high premium pricing and narrowing of coverage, some MCOs are expanding use of captive insurers in their insurance programs, while other MCOs are looking to set up captive insurers for the first time.
  • Be proactive in claims handling matters to maximize insurance recovery. Carriers often assert hourly rate caps and litigation guidelines, not found in the policy language. Carriers also unilaterally impose improper reductions in defense fee payments through granular audits of defense invoices. In addition, carriers are becoming more aggressive in asserting “cooperation” obligations and consent to settle defenses to avoid coverage. Insurance recovery expertise must be brought to bear in order to properly manage carriers on these issues. There is ample support in the insurance case law and policyholder’s playbook for MCOs to combat these tactics.

In terms of claims trends against MCOs, False Claims Act (FCA) and Mental Health Parity Act claims are on the rise. Regulatory investigations have become more frequent and expensive. We expect more large and complex provider disputes, many of which are difficult to defend based on sheer volume alone of the “health benefits claims” involved. MCOs should report “Claims” under all potentially implicated coverages as a matter of course. Complaints need to be examined for allegations that present a potential for coverage and a possible defense fee payment obligation. Coverage should be evaluated at the outset and not as an afterthought.

A key insurance coverage case to watch in 2023 for MCO policyholders is Astellas US Holdings, Inc. v. Starr Indemnity & Liability, Co. In Astellas, the federal court in the Northern District of Illinois held that a $50 million component of Astellas’s settlement payment to the U.S. Department of Justice for settlement of its FCA investigation/claims was “covered Loss” under the company’s D&O policy. Astellas is currently on appeal in the Seventh Circuit. The case was briefed and argued in 2022. The parties await a decision, which is expected in 2023.

The district court held that the $50 million payment was not “uninsurable as a matter of law,” nor uninsurable “restitution or disgorgement of profits.” The district court found that the label of the payment as restitution to the United States in the settlement agreement did not preclude coverage because some forms of restitution are compensatory and the FCA provides for civil money penalties or compensatory damages, not restitution in the form of disgorgement.

The Astellas case is very important to MCO policyholders dealing with FCA claims or investigations. But, more broadly, the court rejected numerous carrier arguments often asserted against MCOs in many other contexts. The court also applied various insurance principles favorably for the policyholder, which will be useful in MCO coverage battles with carriers.

In conclusion, these strategies require effort and expertise. But, that investment of time and resources can provide handsome returns over time. Indeed, these recommended steps can mean millions in insurance recoveries for your MCO. Despite the historically hard market and carrier challenges in recent years, our insurance recovery team has recovered hundreds of millions of dollars for our MCO clients in the last three years alone.