Insuring a home health care equipment supplier is a complicated matter because of the variety of liabilities such a company may be exposed to, say insurers. For example, one threat that some companies are unaware of comes from continuing to sell products that have been the target of successful lawsuits. Doing so, even unknowingly, could end up costing you your liability coverage, either as a result of outright cancellation of your insurance or due to premiums hiked so high you no longer can afford the policy, insurers warn.

“Some years back, there were individual and class-action lawsuits from people claiming to have suffered serious allergic reactions to the powders found on latex gloves,” says John Liberty, CIC, vice president of Cushman Insurance Agency Inc in Herndon, Va. “Most manufacturers have since corrected the problem, but not all. The ones that haven’t are largely offshore companies continuing to make what is perceived by insurors as being a comparatively low-quality product. If you’re carrying those in a significant way, you may not be able to get insurance to protect you.”

Harsh though the insurers’ position on that may seem, it is understandable in light of current market conditions. The insurance industry is only now slowly recovering from a 3-year run of hard times, and insurers are anxious to avoid any further losses.

“We’re still in a hard market,” says John Spragle, president of VGM Insurance in Waterloo, Iowa. “With the economy improving, you wouldn’t expect this to still be the case. But it is, and it is because insurance companies suffered such extensive losses since 2001.”

Although the rate of price increases has slowed, insurance costs are still going up and availability continues to be severely limited, says Dennis Santoli, JD, CRM, CEO of the insurance company The Campaigna Group in Vienna, Va.

“I don’t see prices coming down for at least another year,” he says. “But you have to keep that in perspective—for a long while prices were artificially depressed. Historically, our base rate on coverage for a standard HME company was about $3 per $1,000 of sales or rentals. That remains true at present. But the broader-based insurance companies that came into the market and tried to write that same business for around $1.40 per $1,000 discovered they were grossly underpricing it and had to get out of the market when the economy went sour and their loss payouts went up after 9-11.”

This is not good news for those struggling with high insurance costs, but there may still be reason to be optimistic.

“We’ve heard from various underwriters that they think better times are just around the corner, that we’ll start seeing insurance rates on most industry groups start to level off and maybe even over the next couple of years start edging down,” Liberty says. “They’re even hinting they may be willing to write certain types of accounts that they have not had much of an appetite for over the last 3 or 4 years.”

However, although that may be what underwriters are saying, Liberty cautions that so far he has not seen a lot of new policies being written, especially in the HME market.

“The big players in HME underwriting that left the market aren’t exactly rushing to get back in,” he says. “They shut down their HME programs and aren’t doing anything to start them up again.”

Relieving Price Pressure
In the meantime, companies like VGM are exploring ways to relieve some of the price pressures responsible for today’s higher premiums, such as using reinsurers. As Spragle explains it, reinsurers are companies that accept a percentage of the payout loss an insurer has over and above a specific amount. This helps the insurance company minimize risk by spreading it around.

However, Bill Thompson, CIC, senior vice president and partner of the insurance company Smith Bell & Thompson in Burlington, Vt, is not convinced that reinsurance will prove as helpful as hoped.

“The reinsurance market is what continues to put pressure on the primary insurance companies,” he says. “The reinsurance market still hasn’t recovered from the poor results they’ve had, including the catastrophes of September 11 and general poor operating results during these past couple of years of economic downturn. If anything, they’ve kept their prices to the insurance companies higher. Not only that, but the availability of reinsurance product has been kept limited.”

Something primary insurers, like Thompson, say could help their industry more than improved reinsurance availability and price reductions is tort reform—state and federal legislation designed to limit the circumstances under which consumers can sue for injuries and, at the same time, place reasonable caps on the amount of money they stand to win should juries decide in their favor.

“It would be a shot in the arm for consumers and businesses because it would lower insurance rates,” Thompson says.

Unfortunately, tort reform—which seemed like an unstoppable juggernaut back in 2002—lost momentum in the past year.

“Pennsylvania was one state where they were very close to getting professional liability tort reform passed,” Santoli says. “But then the measure got bogged down in the legislature at the 11th hour. They’ll try again, I’m confident. Still, they’ve got a hard battle ahead. Trial lawyer lobbies are putting up a stiff fight to stop reform. It’s the same story in every other state where they’re trying to get reform enacted.”

Barring an overnight favorable reversal of fortunes for the insurance companies, implementing (or refining) a risk management program continues to be the smartest move an HME can make with regard to obtaining or hanging onto coverage that does not cost a king’s ransom.

“Companies still writing insurance are looking more and more favorably on HMEs that are serious about risk management,” Thompson says.

A key element of risk management is keeping thorough records concerning the things you have done to reduce risks, he says. A solid risk-management program could include everything from drug testing of employees and practices for screening potential new hires to delivery vehicle maintenance records and policies for how employees should report and deal with mistakes.

“We want to see your track record,” Thompson says. “We want to have a good sense of your loss control and incident procedures. That’s why being able to document what you’re doing about risk management is so important.”

Other tips include:

• Hire carefully. Taking pains to recruit the best people as your delivery drivers and setup technicians can go a long way toward reducing your risk, Thompson says. Then, once they are on your payroll, you should take steps to instill in them a strong sense of ownership in the operation of your company. As Spragle observes, employees who perceive the enterprise as theirs are more inclined to do what is necessary to minimize risks and reduce the company’s exposure to liability claims.

• Ask each manufacturer of the products you stock for sale or rental to give you a broad-form vendor’s endorsement. Under stream-of-commerce legal theory, the manufacturer is the one ultimately responsible when anything goes wrong with a product that you sold or rented (provided you have not in some way modified or relabeled it). As such, the liability protection the manufacturer carries usually can be made to apply to you—at no cost—through the instrument of a broad-form vendor’s endorsement, Santoli says.

• Mail your premium well in advance of the due date. Whereas the bank that holds your auto loan will not blow a gasket if your check arrives a day or a week late, the same cannot be said of health care business insurance companies. Miss the payment deadline by a mere 24 hours and your policy will be automatically cancelled. “There’s no grace period in this business,” Spragle says.

Another reason not to let your coverage lapse is that Medicare can use that as grounds to demand from you a full refund of payments made to you during the time you were without insurance.

“Medicare,” Spragle says, “has done this to HMEs, and it’s scary.”

Rich Smith is a contributing writer for Dealer/Provider.