MEDICAL NECESSITY & BATCH CLAIMS: KEEPING UNDERWRITERS UP AT NIGHT?

1. MEDICAL NECESSITY & BATCH CLAIMS: KEEPING UNDERWRITERS UP AT NIGHT? Chicago, IL ~ March 24 & 25, 2011

2. MEDICAL NECESSITY & BATCH CLAIMS: KEEPING UNDERWRITERS UP AT NIGHT? Moderator: Kirsten E. Faria, Senior Vice President, Allied World Assurance Company, Ltd. Panelists: William B. Bower, JD, Chief Risk Executive and Executive Director, Claims & Litigation, Northwestern Memorial HealthCare Amy Evans, Esq., Executive Vice President, Western Litigation Paul McKeon, Senior Vice President, Transatlantic Reinsurance Company Kristin D. McMahon, Esq., Chief Claims Officer, IronHealth

3. A Perspective • Broad Batch Issues • Type of programs being purchased • Frequency & Severity of batch claims • Changing landscape • Four Categories: • Sterilization: (Hepatitis, Foreign Substance - ie Bleach, Hydraulic fluid). • Hiring/ Supervision (Rogue employees, Drug abuse, ’Angel of Death’, Infant shaking) • Sexual Abuse* • Medical Necessity (Angioplasty, Stents, Gyn surgeries, Cataract surgeries) • Is this a Big Issue … or simply something to underwrite? • Healthcare Reform • Changing incentives for payors and hospitals • What will be the public’s view of healthcare?

4. Healthcare Reform Concerns • Increasing Patient Volume…Decreasing primary care physicians • 30,000,000 more “insureds” by 2014 • Number of physicians retiring may outpace physicians coming out of residency in primary care • Will CMS maintain funding of residency programs? • Will care model switch to NP/midlevel provider model? Other…? • Electronic Health Record • Healthcare Reform incentivizes use of EHR • Most Practitioners don’t have it • Learning curve and communication breakdowns my increase exposure • Copy Forward?

5. Healthcare Reform Concerns (Cont’d) • No Meaningful Tort Reform • Downward Pressure on Reimbursement (both CMS and Third Party Payors) • Net Patient Revenue will decrease • Serious Adverse Events (“never events”) will be used beyond intended reimbursement purpose • Institutions will seek greater economic efficiencies

6. Why I Want Batch Coverage • Predictable Risk • Managed within the Retention • Requires greater sensitivity to exposures • Drives Quality and Process Improvement Discussions • Catastrophic Exposure • The reason we pay/cede premium • “Batch” events are, by nature, catastrophic and “unpredictable” • Cardiac Stents • Duke Hydraulic Fluid • Radiation Exposure • “angel of Death” • Software Failure • Sterilization Mishap

7. Why I Want Batch Coverage (cont’d) • Vertical AND Horizontal Protection • “Want” protection from the single/batched event – Vertical • Also “want” protection for the frequency spike - Horizontal • Expectations • Scope of Coverage • Attachment • Contract Certainty • PARTNERSHIP

8. Examples/Case Studies • Examples of Catastrophic Healthcare Related Events Which Bring the Issue of Batch Claims To the Forefront: • Unnecessary surgeries performed by cardiac surgeons; • Abuse of patients by a single employee or group of employees over several year period; • Angel of Death scenario in long term care or hospital setting;

9. Examples/Case Studies (Cont’d) • Improper calibration of medical devices leading to over radiation of 100s of patients; • Tuberculosis (TB) outbreak in neonatal unit of hospital due to newborn’s exposure to medical resident who tested positive for TB; • Shooting of patients in hospital emergency room by employee nurse armed with glock; • Improper sterilization of surgical equipment leading to spread of infectious disease, bacteria among surgical patients.

10. Case Study Abuse of Hospital Patients by Employee –Hepatitis C Exposure • In 2007, a U.S. based hospital system noted several cases of hospital acquired hepatitis. The hospital checked the usual transmission sources, including insulin vials that are used multiple times, but everything came back clean. The hospital began tracing the footsteps of the infected patients. All of their paths crossed at the hospital’s radiology unit where the patients undergo procedures such as tissue biopsies. Twenty three different employees were tested and one radiology technician came back positive for Hepatitis C.

11. Case Study (Cont’d) • In 2009, the radiology technician who tested positive for Hepatitis C admitted to authorities that, from 2005-2009 he would periodically inject himself with a syringe of fentanyl (a drug 50-100 more potential that morphine), refill the syringe with saline and then leave the syringes to be used on the patients. In the process, he exposed patients to hepatitis C. To date, there has been one death and dozens of injuries.

12. Case Study #2 Hospital Medical Malpractice Litigation Arising From The Fentanyl Siphoning • A state law wrongful death suit arising out of the radiology technician’s siphoning of the drugs was filed in 2009; the second negligence suit was filed in 2010 by patients claiming excessive pain and suffering due to the hospital’s failure to provide them with requisite pain relief; and a third class action suit was filed in early 2011 on behalf of all patients who contracted Hepatitis C.

13. Case Study – Insurance Implications • Whether these lawsuits present a horizontal/multiple limit/retention or vertical/single tower/retention exposure to the hospital and its professional liability insurers will depend, in large part, on the nature of the related medical incident or batch claim language contained in the hospital’s liability policy. • Distinguish between Related Medical Incidents generally involving a single patient and Batch Event Language addressing the multiple patient scenario. • The Policy language will determine which insurers (2009. 2010 or 2011) will pay out on these fentanyl patient abuse claims.

14. Case Study – Wordings Scenario I Scenario I: Policy contains Related Medical Incident language Medical Incident means the rendering or failure to render professional healthcare services. All medical incidents to any one person arising from “related medical incidents” shall be considered one Medical Incident. As used herein, “related medical incidents” means all medical incidents to any one person arising out of a single act, error, or omission, or arising out of acts, errors, or omissions that are logically or causally connected by any common fact, circumstance, situation, transaction, event advice, or decision, in the rendering or failure to render professional healthcare services. Each of the three towers could be implicated depending on when the claims are deemed made if the there is no language in the Policy which allows the insurers to relate claims involving different persons/patient.

15. Case Study – Wordings Scenario II Scenario II: Batch Event Endorsement Involving Multiple Patients For purposes of determining the applicable shared Limit of Liability for Medical Incidents....injury to one or more persons caused by a Batch Event shall be deemed to arise out of one Medical Incident. All injuries and damages resulting from a Batch Event shall be treated as arising out of one Medical Incident, regardless of the number of persons injured, the number of Claims made or suits brought, the number of Covered Persons involved, or the time period over which the Batch Event happened, provided the first act, error or omission which causes injury happened on or after the Retroactive Date.

16. Case Study – Wordings Scenario II (cont’d) Batch Event means a Medical Incident: a. which causes injury to one or more persons, which injuries are attributable to the same act, error, or omission or to related acts, errors, or omissions, in the rendering of or failure to render Professional Healthcare Services. B. For which a Claim is first made during the Policy Period and is notified in accordance with the Reporting and Claims Handling Condition of the Policy; it being understood that all subsequent Claims relating to a Batch Event shall be deemed to have been made at the time the first such Claim is made. Hospital/Insurers will likely batch claims to a single policy period – the period in which the first claim is made and reported.

17. Things to Consider • Prior to Binding: • Work closely with your claims department • Consider audits • Refine your application • Consider making the application a part of the policy • Refine your policy language • Triggering Coverage • Policy language • - Batch language • - Definition of a loss event • - Anti-stacking provisions • - Exclusions • Limits • Claims files • Class Action • Managing Aggregates

18. Looking forward • Managing the Care • Maintain your relationship with the insured • Work closely with the defense • Keep your friends close and your enemies closer – maintain direct contact • The Future of Batch • MRSA & C Diff • Antibiotic resistance • Equipment reuse • State and federal investigations • State Board investigations • Affects of Healthcare Reform on Claims • Frequency • Severity • Remains to be seen

19. Insurer Perspective • Concerns about batch • How to Underwrite for it: • Risk selection • Pricing for batch • Wordings selections • Timeline • Scope • Agreement • Reporting of a batch • HC Reform: • increased regulatory scrutiny • RAC audits • increased utilization review

20. Insurer Perspective • Increased on-boarding of physicians under hospital insurance programs and employment structures • Do we understand how physicians are compensated? • How does the peer review/credentialing process factor in? • Check and balance/auditing etc. • Elimination of impact of financial considerations in the practice of medicine and the peer review process

21. What are we doing about it? • Book analysis • Dialogue with brokers • Dialogue with clients • Appropriate attachment • AWARENESS • Tough decisions.

22. QUESTIONS?

23. MEDICAL NECESSITY & BATCH CLAIMS: KEEPING UNDERWRITERS UP AT NIGHT? Moderator: Kirsten E. Faria, Senior Vice President, Allied World Assurance Company, Ltd. Panelists: William B. Bower, JD, Chief Risk Executive and Executive Director, Claims & Litigation, Northwestern Memorial HealthCare Amy Evans, Esq., Executive Vice President, Western Litigation Paul McKeon, Senior Vice President, Transatlantic Reinsurance Company Kristin D. McMahon, Esq., Chief Claims Officer, IronHealth