Antitrust and regulatory coverage under directors and officers liability (D&O) policies was once widely available to healthcare organizations. With litigation costs soaring and enforcement intensifying, underwriters are scrutinizing this coverage more closely. Understanding how the market is changing — and how to respond — is critical for healthcare leaders seeking to safeguard their organizations against potentially substantial financial risks.
The changing D&O landscape
For more than a decade, antitrust and regulatory coverage was readily available, with minimal restrictions, to healthcare organizations purchasing D&O insurance policies. Over time, however, insurers have taken steps to restrict this coverage — and the trend has recently accelerated.
Specifically, carriers are increasing retentions, introducing higher coinsurance requirements, and narrowing policy language. Insurers appear to be targeting, first and foremost, large health systems with annual revenues of $1 billion or more. But all healthcare organizations are seeing coverage restrictions — in some cases, blanket exclusions.
Insurer behavior began to change around 2018 and 2019, when D&O profitability began to decline. Coinsurance requirements from carriers, for example, began to be introduced to antitrust and regulatory coverage, and in the last 12 months, they have increased from a standard 20% to as high as 50%.
For some buyers, antitrust retentions have increased from the low six figures to seven figures or more. And regulatory coverage in policies is now routinely limited to defense costs only.
Growing threats
D&O insurers are taking these steps for several reasons, including an increase in the severity of regulatory and antitrust claims, as well as heightened regulatory enforcement.
The Trump administration has prioritized aggressive enforcement against healthcare providers for perceived fraud, particularly under the False Claims Act (FCA). In the healthcare sector, the government is investigating organizations for overbilling of Medicare, Medicaid, TRICARE — the U.S. Department of Defense's health care program for active-duty and retired service members — and the Children’s Health Insurance Program.
Whistleblower incentives are a driving factor for insurers. Qui tam actions under the FCA empower whistleblowers to share in penalties, fueling litigation. The Biden administration previously utilized the FCA, and specifically qui tam actions to secure significant recoveries from businesses it alleged had engaged in fraud. The Trump administration is being even more aggressive in pursuing alleged violations under the FCA.
Meanwhile, litigation financing has contributed to an increase in the frequency and scale of lawsuits. Litigation financing groups are targeting large organizations, including healthcare institutions, and often pursue cases with antitrust/regulatory elements.
One example of emerging litigation includes suits alleging violations of antitrust laws. Plaintiffs assert that health systems are fixing wages for medical residents under mandated matching programs. These suits initially targeted colleges and universities, but plaintiffs are increasingly going after healthcare providers as well.
Plaintiffs are also increasingly seeking to eliminate specific exemptions for healthcare organizations under the Sherman Antitrust Act of 1890. Historically, the Sherman Act allowed for fixed residency salaries; eliminating the exemptions in the law could expose hospitals to more antitrust claims.
For any defendant, litigation is often a slow and expensive process. Premier law firms can bill up to $5,000 per hour for principals. Defending a complex antitrust claim can cost upwards of $20 million to $30 million; when settlements are included, potential exposure can exceed $100 million. FCA violations, meanwhile, can result in disgorgement and fines up to 90% of the event value, which may be uninsurable under most standard commercial D&O policies.
Mitigating your risk
Insurers may ultimately take additional steps to restrict regulatory and antitrust coverage, which could have dire implications for healthcare providers. Even a single claim can push an organization into financial distress — or even force its bankruptcy or closure.
Mitigating the potential impacts of insurers’ new stance on antitrust and regulatory coverage starts with an understanding of existing coverage. Healthcare organizations should engage their insurance brokers to audit current D&O coverage, focusing on antitrust and regulatory extensions, exclusions, limits, coinsurance, and retentions.
In addition to risk professionals being familiar with such policy features, leadership must also be informed and educated on the coverage organizations and individuals have in place. An annual review of D&O coverage is vital — directors and officers must understand indemnification provisions and potential coverage gaps in policies, including exclusions that may prevent coverage for litigation and regulatory penalties under the FCA and other relevant rules and legislation.
With an understanding of existing coverage in hand, organizations should work with their brokers to explore possible alternative coverage options. Affirmative coverage for antitrust and regulatory risk, for example, may be available via Lloyd’s of London or from offshore insurers. Healthcare organizations may also be able to self-insure via captives or risk retention groups.
In taking these steps, it’s essential to work with the right insurance broker. Some brokers may lack deep knowledge of healthcare-specific regulatory risks, which could lead to potentially dangerous gaps in coverage. To make sure you have effective D&O coverage that responds as intended when needed, it’s vital that you choose an insurance broker that understands both the healthcare industry and the insurance landscape.
Beyond insurance, organizations should collaborate with in-house and outside counsel, among others, to ensure compliance with applicable laws and regulations, particularly in the lead-up to mergers and acquisitions that may prompt antitrust-related allegations from regulators and others. While insurance can provide an effective backstop, continuous and proactive risk management is the best defense against potential antitrust and regulatory claims.
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