Current Issues and Trends in Medical Malpractice

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1 Current Issues and Trends in Medical Malpractice Casualty Loss Reserve Seminar September 14, 2009 Chris Coleianne Aon Global Risk Consulting Columbia, Maryland

2 Current Issues and Trends in Medical Malpractice Medical Malpractice Hospital Professional/Physicians Liability Long Term Care Professional Liability Issues and Trends Trends: Data based trends in frequency and severity of indemnity and expense costs Issues: What is driving the trends? How are healthcare providers managing the med mal exposure? 1

3 Hospital Professional Liability Background Many hospitals participate in primary layers of insurance through captives, SIRs or deductibles. Insulation from perceived volatility of commercial market Lower expense load A way to attract employed physicians This participation has encouraged an understanding and focus in hospital risk management Investment in defense and cost containment strategies Patient Safety initiatives Tort Reform initiatives CFO interest in changes in reserve estimates 2

4 Aon/ASHRM 2008 HPL Benchmarking Study Underlying Data: 77,750 non-zero claims; approximately $9.3b in reported losses; over 1,000 facilities Most participants are self-insurers 9th annual study Actuarial analysis of Frequency, Severity, and Loss Cost trends countrywide and in specific states Claim Severity is limited to $2M per occurrence Claim Frequency is based on non-zero claim count Exposures are Bed Equivalents 3

5 Key Findings of 2008 Benchmarking The frequency of claims continues to be non-increasing overall. NFP frequency is flat to increasing. FP frequency is decreasing to flat. The severity of claims (at the $2M limit) is increasing at a 3% annual rate. NFP and FP cost differences have narrowed as FP results improve. Never Events are a significant portion of claims experience. 4

6 Never Events In 2002, the term Never Event was coined to describe a list of 28 hospital acquired conditions that are preventable and should never occur. While original interest in Never Events was in the patient safety arena, Centers for Medicare and Medicaid (CMS) interest in Never Events was more fiscally oriented. CMS non-reimbursement regulations went into effect on October 1, CMS will no longer reimburse for a list of 10 specific hospital acquired conditions. 5

7 Never Events and HPL Current tort system is a fault based system where fault is determined by comparing the facts of the case to a Standard of Care. CMS has just ruled that these Never Events are all preventable. So preventable in fact, that they should never happen and therefore will not be reimbursed! Never Events may lead to Strict Liability Plaintiff's bar now has an interesting angle Hospital may experience higher frequency and/or severity of lawsuits as a result of publicity and awareness of CMS non-reimbursement regs 6

8 Hospital Acquired Conditions Aon surveyed participants to see if historical losses alleging one of the 10 specific CMS regulation events were available for analysis. Based on the response from the survey, we were able to analyze hospital acquired infections hospital acquired injuries (fractures, dislocations, intracranial injury, crushing injury, burns and other) objects left in surgery pressure ulcers 7

9 Hospital Acquired Conditions 12.2 percent of total hospital professional liability costs are associated with these four hospital acquired conditions. Hospital Professional Liability Benchmark Hospital Acquired Conditions Losses as a Percentage of Total Database Losses Limited to $2 Million per Occurrence Pressure Ulcer Injury Object Left in Surgery Infection Other 3.8% 3.6% 2.3% 2.5% 87.8% 8

10 Frequency of Hospital Acquired Conditions One out of every six hospital professional liability claims is due to these four hospital acquired conditions. Hospital Professional Liability Benchmark Hospital Acquired Conditions Closed Claim Frequency Infection Injury Object Left in Surgery Pressure Ulcer 0.30% 0.25% 0.26% 0.20% 0.15% 0.10% 0.10% 0.08% 0.08% 0.05% 0.00% 2007 Closing Year 9

11 Severity of Hospital Acquired Conditions Pressure ulcer severity is similar to overall average severity while other conditions have below average severities. Hospital Professional Liability Benchmark Hospital Acquired Conditions Closed Claim Severity $200,000 $175,000 Infection Injury Object Left in Surgery Pressure Ulcer $150,000 $145,000 $125,000 $100,000 $107,000 $75,000 $50,000 $46,000 $48,000 $25,000 $ Closing Year 10

12 Never Events Summary of Conclusions Patient and plaintiff attorney attitudes toward hospital acquired conditions are likely to change as the result of the awareness. Plaintiff attorneys will not stop at the 10 CMS nonreimbursement categories. Impact to HPL likely to show up in frequency first. 11

13 Overall Results - Loss Costs Hospital Professional Liability Benchmark Aon Database Loss Cost per Bed $4,000 Overall Loss Cost Loss Cost Trend Line $3,000 $3,170 $3,140 $3,240 $2,960 $2,990 $3,050 $3,140 $3,230 $2,000 $1,000 $ Accident Year 12

14 Overall Results - Frequency Hospital Professional Liability Benchmark Aon Database Frequency per Bed Indemnity Claims Expense Claims 3.00% 2.88% 2.86% 2.50% 2.50% 2.35% 2.28% 2.26% 2.29% 2.29% 2.00% 1.80% 1.78% 1.50% 1.53% 1.51% 1.49% 1.48% 1.49% 1.49% 1.00% 0.50% 1.08% 1.08% 0.96% 0.84% 0.79% 0.78% 0.80% 0.80% 0.00% Accident Year 13

15 Overall Results - Severity Hospital Professional Liability Benchmark Aon Database Severity per Claim $160,000 $140,000 $130,000 $126,000 $131,000 $135,000 $137,000 $141,000 $120,000 $110,000 $110,000 $100,000 $80,000 $60,000 $40,000 $20,000 $ Accident Year 14

16 Closed Claim Results - Indemnity $240,000 Hospital Professional Liability Benchmark Analysis Closed Claim Analysis Average Paid Indemnity on Claims with Indemnity Payments Limited to $2M per Occurrence $200,000 $168,000 $177,000 $177,000 $188,000 $187,000 $192,000 $160,000 $120,000 $80,000 $40,000 $ Closing Year 15

17 Closed Claim Results - Expense Hospital Professional Liability Benchmark Analysis Closed Claim Analysis Average Paid Expense on Claims with Indemnity Payments $65,000 $57,000 $58,000 $63,000 $52,000 $42,000 $43,000 $39,000 $34,000 $26,000 $13,000 $ Closing Year 16

18 Closed Claim Results - Expense Hospital Professional Liability Benchmark Analysis Closed Claim Analysis Average Paid Expense on Expense Only Claims $18,000 $15,700 $16,400 $16,100 $15,000 $13,100 $12,000 $10,700 $9,000 $8,000 $6,000 $3,000 $ Closing Year 17

19 Results by Service Line - OB Hospital Professional Liability Benchmark OB Analysis Loss Cost per Birth Overall Loss Cost Loss Cost Trend Line $250 $200 $201 $199 $204 $189 $209 $191 $214 $221 $150 $100 $50 $ Accident Year 18

20 Results by Service Line - ED Hospital Professional Liability Benchmark ED Analysis Loss Cost per ED Visit Overall Loss Cost Loss Cost Trend Line $7.00 $6.00 $5.00 $6.10 $4.80 $5.80 $4.30 $5.00 $5.10 $5.20 $5.40 $4.00 $3.00 $2.00 $1.00 $ Accident Year 21

21 Results by Service Line - Surgery Hospital Professional Liability Benchmark Surgery Loss Cost per Surgery Overall Loss Cost Loss Cost Trend Line $35 $30 $25 $29 $30 $27 $26 $25 $25 $26 $27 $20 $15 $10 $5 $ Accident Year 24

22 HPL Future Right now, the environment seems relatively stable. Frequency has been decreasing, but seems flat lately. Will this trend turn? Severity is moderately increasing. Areas of interest Never Events Overall medical inflation Service line components Changes to liability laws Federal healthcare reform 27

23 Physician Professional Liability Industry Issues and Trends Commercial Premium relief continues in many jurisdictions More mutual companies and state funds declare dividends The state fund returns have raised political issues Many hospitals directly employing physicians (esp high risk specialties) and including them in their professional liability program A recruiting tool to bring in specialists A way of influencing the quality of care and risk management practices In light of recent commercial results, a perceived cost savings A whole new underwriting ballgame (insuring a portfolio of physicians as opposed to a hospital system) 28

24 Long Term Care Professional Liability Industry Issues A more varied landscape of participants from very large chains with 500+ facilities to the mom and pop operations. Sophisticated self insurance with over $1B reserves to never heard of professional liability insurance. Over the past 10 years, Long Term Care Liability trends have changed dramatically. On a countrywide basis, claim frequency and claim severity have stabilized. There is a very high level of regional variability. Loss costs for some states are multiples of countrywide. In certain venues, some facilities opt to procure minimal or even no insurance to avoid being a target. Strategies for controlling or reducing liability costs include: Implementing Arbitration agreements Investing in legal defense Investing in quality of care, family education, staffing ratios 29

25 Long Term Care Professional Liability Arbitration Arbitration has been increasingly cited by LTC providers as a strategy employed to reduce costs. It must be somewhat effective, as the trial lawyers are promoting legislation to ban pre-dispute arbitration agreements! We examined a subset of about 1,500 closed claims since /3 had some arbitration involvement. Arbitration does not seem to reduce the likelihood of indemnity. The size of claims was 30-40% smaller when arbitration was involved. 30

26 LTC Loss Costs Long Term Care Benchmark General and Professional Liability Loss Cost per Occupied Bed - Limited to $1M All States $2,000 $1,800 1,730 $1,600 $1,400 $1,200 1,540 1,460 1,440 1,320 1,130 1,280 1,270 1,210 $1,000 $800 $600 $400 $200 $ Accident Year 31

27 LTC Frequency of Claims (Accident Year) Long Term Care Benchmark General and Professional Liability Claim Frequency per Occupied Bed All States Indemnity Claims Expense Only Claims 1.40% 1.20% 1.09% 1.13% 1.19% 1.06% 1.04% 1.09% 1.09% 1.07% 1.00% 0.87% 0.33% 0.30% 0.29% 0.25% 0.25% 0.24% 0.24% 0.23% 0.80% 0.19% 0.60% 0.40% 0.68% 0.75% 0.83% 0.90% 0.81% 0.79% 0.84% 0.85% 0.84% 0.20% 0.00% Accident Year 32

28 LTC Severity of Claims (Accident Year) Long Term Care Benchmark General and Professional Liability Claim Severity - Limited to $1M All States $200,000 $180,000 $160, , ,100 $140,000 $120, , , , , , , ,000 $100,000 $80,000 $60,000 $40,000 $20,000 $ Accident Year 33