Pandemics – widespread contagious diseases – now occur with increasing frequency, and hospitals are in the vortex of that risk. The threat of pandemics is very real, and hospitals have arguably the most at stake.
There are many reasons why hospital risks managers, and the insurers who work with them, should worry about the next outbreak of a contagious disease.
First, despite the advances of modern medicine, the risk to humankind from a major pandemic outbreak is higher than at any point in recorded history. Contagions in the past have decimated whole continents. In the Middle Ages, the bubonic plague killed an estimated 75 million to 200 million people. A mere 100 years ago, the influenza pandemic of 1918-19 was the deadliest in modern history, infecting an estimated 500 million people worldwide – about one-third of the planet’s population at the time – and killing an estimated 40 million to 50 million people.
Second, the array of microscopic bugs that can cause this havoc is vast. Using modeling, scientists estimate there are approximately 1.3 million viruses in the world, according to the World Health Organization. Approximately 500,000 of these viruses are capable of transmitting themselves from their animal hosts to humans.
Third, not only are bugs causing familiar diseases like measles, mumps and the common cold, they also have the ability to mutate into new diseases.
What’s driving this increase in new viruses? One explanation is global commerce, fueled by international transportation, exposing people from all over the world in contact within just hours. Changes in land use and resource extraction are taking people into more remote places where undocumented strains of bugs live. We’re simply penetrating more areas with roads than we were a generation ago, thereby positioning humans closer and closer to new strains of potentially deadly viruses.
Africa, for example, has seen numerous outbreaks of Ebola since 1976. But these outbreaks were contained in small, mostly remote areas. However, in 2014, Ebola caused an international health crisis largely because modern transportation connected West African regions and disease quickly spread.
As if pandemics alone weren’t enough to worry about, hospital risk managers, and the insurers who work with them, must consider the fact that, in an outbreak of contagious disease, hospitals are significantly more vulnerable than other businesses in a number of ways:
- Hospital employees are among the most likely people of all to contract disease. Healthcare workers are 19 times more likely to get sick in a measles outbreak than anyone else in the general population, according to Metabiota. In the 2003 SARS outbreak in Toronto, 45% of those infected were healthcare professionals. Similarly, 23% of those infected during the 2003 SARS outbreak in Hong Kong were healthcare workers.
- Even if healthcare workers avoid contracting a disease during an outbreak, they are often quarantined. The typical quarantine is two weeks; for Ebola it’s three weeks. That’s weeks’ worth of lost labour, which significantly increases costs for hospitals.
- The news of an outbreak alone can severely affect hospitals’ business. When a patient who contracted Ebola in West Africa was treated at Texas Presbyterian medical centre in Dallas in 2014, the hospital’s emergency room visits dropped 49%, and its revenue dropped 25% in a one-month period, according to The Dallas Morning News. The hospital lost $20.3m in revenue from the incident, and this doesn’t include any additional expenses incurred form the incident.
- Hospitals also bear the direct costs of treating infectious patients. In 2014, an Ebola patient cost one U.S. hospital $1.8m for treatment.
- Infectious waste disposal during a crisis can be a significant and unpreventable expense. One pandemic patient can generate an average of ten 55-gallon drums of hazardous waste per day, costing as much as $100,000 per day for disposal, according to the U.S. Department of Health and Human Services.
- And there is the long-tail reputation effect. Immediately after an outbreak impacts a hospital, that facility will need to invest significant financial resources into restoring trust with the communities it serves, with its patients and with its staff.
In total, the potential losses for a large hospital can exceed $50m for a single epidemic. Hospitals need business interruption and extra expense insurance at limits that, up to this point, have not been available. They need coverage that’s tailored to the ways they operate and to the unique financial and business impact that a contagious disease outbreak will have on a hospital.
Today, this coverage exists. AXIS Healthcare Medical Catastrophe Business Interruption and Extra Expense insurance covers any transmittable disease, including ones that are not yet discovered or bugs that could mutate to cause a new disease and pandemic.
This insurance, with limits up to $50m, protects the hospital revenues through a business interruption policy, which also includes coverage for extra expenses*, as well as providing a range of other benefits:
- AXIS reviews and provides input into the hospital’s pandemic plan.
- Hospitals may receive credit for the quality of preparedness in place.
- A $1m sub-limit exists for the cost of disposal of hazardous wastes from treating pandemic patients.
- A further $100,000 sub-limit applies to help the hospital hire public relations professionals to coach them through the effective management of media inquiries and public relations during the treatment of pandemic patients.
- Having the pandemic plan and the coverage in place may have a positive effect on the price of a hospital’s bonds.
Pandemics are real – and a major risk for hospitals that are at the centre of any health crisis. AXIS’ first-of-its-kind business-interruption insurance coverage, designed for pandemics, helps hospitals manage that risk, and ensures a pandemic doesn’t shut its doors.
By Kimber Lantry, EVP, AXIS Insurance and Head of AXIS Healthcare
Kimber Lantry is Executive Vice President, AXIS Insurance, and Head of AXIS Healthcare, a division of AXIS Insurance that provides professional liability insurance and associated standard casualty coverages for physician groups, hospitals, allied healthcare facilities and individual physicians.
*Subject to terms and conditions of the policy.