Can we lower insurance rates if we cut med errors?


Insurance companies will lower pharmacists' premiums if they set up rigorous programs to reduce drug errors


Rx Legal Q&A

Can we lower insurance rates if we cut med errors?

By Ken Baker, R.Ph., J.D.

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Q: I heard that some insurance companies have lowered insurance premiums of pharmacies that have developed programs to reduce their med error rates. Is this true? How rigorous must these programs be to merit a drop in insurance rates? And what in the way of a discount can providers expect?

A: Insurance rates are based, at least partially, on the risk of an incident occurring and the amount of claims expected to be paid during the policy period. Pharmacy rates have historically been held in check by a fierce competition among insurance companies for premium dollars.

Until recently, the number and value of professional pharmacy liability claims have been low. Pharmacists were expected to follow the physician's prescription orders and were sued only for mechanical dispensing errors. The number of errors made by pharmacists was low; thus the number and amount of claims were low. Most commercial property and casualty insurance companies wanted to insure pharmacies because they had a good chance of making a profit.

Pharmacists still make relatively few mechanical dispensing errors. In a recent study by several Auburn University pharmacy professors, pharmacists were found to have dispensing accuracy rates averaging greater than 98%. In most cases, even the errors making up the remaining 2% were unlikely to result in an injury or a claim.

Percentage accuracy rates, however, are only a part of the story. In recent years, the number of prescriptions dispensed has increased dramatically, doubling within the past decade to more than three billion. The Auburn investigators pointed out that, based upon three billion prescriptions dispensed, they estimate that as many as 51.5 million errors are made by pharmacies annually. As the number of errors increases, the number of claims rises proportionately.

In addition, pharmacy is expanding its professional duties to include risk management of the patient's medication use. Courts have found in favor of a pharmacist duty to warn and a duty to monitor prescription use. These factors and others, including a general increase in litigation and claims costs, have caused insurance companies in recent years to take a second look at pharmacy.

The bad news is that following the incidents of Sept. 11, 2001, all insurance premiums are rising, including insurance premiums on policies covering pharmacies. The good news in this change of risk is that insurance companies will now begin to look at specific pharmacies and their efforts to control errors with more interest. A pharmacy that can demonstrate a lower propensity for errors is in a good position to negotiate lower premiums because the insurance companies will compete for their business.

It is not sufficient for you to say, "We don't make errors" or "We have developed programs to reduce our medical/medication error rates." The insurance company is interested in results, not programs or testimonials. You also asked, "How rigorous must these programs be to merit a drop in insurance rates?" The answer is the program must work, and you must have proof that it works. There should be a record of errors prevented and near-misses caught.

The amount of discount depends on the degree to which the insurance company is convinced that the risk is lower than that represented by its standard rates for this type of pharmacy. It also depends upon the completeness of your med error reduction system. The use of technology to perform bar-code scanning is a step in the right direction, but it is not a complete quality assurance program. Robotics has been shown to reduce the number of errors made during the filling process, but robotics does not represent a complete system of error reduction. Insurance rating is actuarially and statistically controlled. When insurance companies look for proof, they look for statistical proof.

The time is coming when each pharmacy will have to institute a system of quality control, including the use of technology. A system that reduces errors and contains proof of lower error rates will be able to command lower premiums from insurance companies. The best reason to institute a quality assurance system, however, is the pharmacy's obligation to the patient: "First, do no harm."

Ken Baker, R.Ph., J.D., is a VP and general counsel at Pharmacists Mutual Insurance Co.

Disclaimer: This article discusses general principles of law and risk management. It is not intended as legal advice but is designed to promote discussion. Pharmacists should consult their own attorney for specific advice. Pharmacists should be familiar with the policies and procedures of their employers and with the laws in their state and act accordingly.


Ken Baker. Can we lower insurance rates if we cut med errors?. Drug Topics Apr. 21, 2003;147:75.

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