What Is Channeling?

Channeling is a commercial insurance policy that insures employees and affiliated personnel under one policy, rather than requiring them to each have their own policy. It is a form of insurance that is associated with the healthcare industry.

Key Takeaways

  • Channeling is a type of commercial general liability that places employees and affiliated personnel under one insurance policy.
  • Channeling is most commonly associated with hospitals, doctors, and medical staff; all being placed under one policy.
  • The purpose of channeling in healthcare is to ensure that hospitals and medical workers are kept on the same side of a malpractice lawsuit, as opposed to being under separate policies, and therefore, shifting the blame.
  • The primary disadvantage of channeling is when a hospital and doctor disagree on how to close out a malpractice suit (settling versus going to court), which may negatively impact the doctor's reputation.
  • Alternatives to channeling include patients that must provide their own malpractice insurance as well as a no-fault system of compensation.
  • Administrative costs are also reduced by channeling, whereby managing one policy is more cost-efficient than managing hundreds of policies.

Understanding Channeling

Channeling is most commonly associated with hospitals and medical facilities, which insure their doctors and medical staff under a general liability policy. Physicians, nurses, and the medical staff working at a hospital stand the risk of one day being named in a lawsuit, such as a medical malpractice lawsuit. These lawsuits can be expensive to defend against, which is why medical professionals often purchase professional liability insurance to retain coverage.

When a doctor and the hospital are under separate policies, the claimant may name both the doctor and the hospital in the suit. This can create a situation in which the hospital seeks to push blame on the doctor in order to reduce its risk exposure, which can lead to an adversarial relationship once the claim is settled.

Companies may choose to purchase a master channeling policy in order to ensure that both the hospital and its staff have a common legal defense against the claim suit, which can reduce the risk of an adversarial relationship developing. It also reduces administrative costs, since there is now one policy instead of potentially hundreds of liability policies.

The downside to channeling is that, despite having a common legal defense, the hospital may wish to settle a claim while the doctor may not. For example, a doctor may insist that they provided adequate medical care and that a patient’s outcome was not something that could be avoided. The hospital, however, may decide that settling the claim makes more financial sense, even if the doctor’s reputation may be negatively impacted by deciding not to fight the claim in court. Because the hospital is more powerful relative to the doctor, it may ultimately have more say.

Alternatives to Channeling

In order to keep doctors and hospitals on the same side of a medical malpractice claim, there are several alternative methods to conventional channeling.

Under an alternative method of channeling, patients would be required to provide their own malpractice insurance. However, low-income people may not be able to afford such insurance. It would also provide little incentive to physicians, hospitals, and health plans to provide higher quality care.

Another alternative to channeling would be a no-fault system of compensation for medical injury. In contrast to negligence or a fault-based tort system, a pure no-fault system would compensate patients for any injury caused by medical care, regardless of whether it was caused by physician negligence or it was just an unavoidable risk inherent with their required care. The criterion would be medical causation rather than medical negligence.

Not all hospitals provide channeling as a form of insurance. In these situations, doctors often take out their own malpractice insurance, or other agreements are facilitated. Many studies have been conducted on what the best setup is for hospitals, doctors, and patients. Other types of agreements have been considered, such as binding alternative dispute resolutions, administrative compensation systems, and guidelines-based systems.

The goal of many of these studies is to reform the current insurance practices of the healthcare industry that don't often compensate patients properly or those that unfairly victimize doctors, leading to doctors practicing defensive medicine to avoid malpractice lawsuits.