Medical Professional Liability: Long Term Care Facilities

1. Medical Professional Liability:Long Term Care Facilities Jennifer Palo, FCAS, MAAA CAS - Loss Reserve Seminar September 18-19, 2000 Minneapolis MN

2. Discussion Points • Types of Long Term Care Facilities • Industry landscape - pre 1990’s • Industry landscape - 1990’s and later • Actuarial implications

3. Geriatrics: Of or relating to the aged or characteristics of the aging process. Geriatric care encompasses both medical and social structures. A primary objective of geriatric care is to maximize the independence of a resident for as long as possible given the constraints of the natural aging process. Given the aging baby boom population, the elder care and geriatric issues will become increasingly important in the years ahead. Geriatrics / Aging Process

4. Multi-disciplinary field which includes (among others): general medicine psychiatry nursing social services dentistry pharmacy physical therapy occupational therapy recreational therapy Geriatrics / Aging Process

5. Types of Long Term Care Facilities and Services • Skilled Nursing Facilities • Intermediate Care • Residential Care / Assisted Living Facilities • Independent Living Facilities • Outpatient Therapy • Home Health Services

6. Industry Landscape - Pre 1990’s • Limited grounds for lawsuit • Given a lawsuit, plaintiff had greater burden of proof in demonstrating causation • Damages were not substantial • Subacute care patients remained in hospital • Societal expectations greatly different from today • Medicare / Medicaid reimbursements based on actual costs sustained

7. Industry Landscape - Pre 1990’s • Falls were most common allegation with approximate costs of $20,000 per claim • Even some of the most costly allegations in late 1980’s had average costs less than $100,000 per claim

8. Industry Landscape - Pre 1990’s • Claims reported quickly for relatively known amounts • Low frequency / Low severity • Liability coverage affordable • Liability coverage widely available

9. Industry Landscape - 1990’s and later • Extreme change and consolidation in the health care delivery system • Growth of large for profit nursing home chains and increased profit pressure • Move to discharge hospital patients to nursing facilities sooner • Patient mix shifted towards patients requiring higher level of care

10. Industry Landscape - 1990’s and later • Nursing home industry is notorious for high staff turnover and low wages • Difficult to attract and retain staff • Inability to obtain full criminal background experience for prospective staff • Staff may not have training or numbers to accommodate subacute level of care

11. Industry Landscape - 1990’s and later • Societal changes • Aging baby boom population • More collective awareness of elder care issues • Higher expectations for nursing home industry • Greater propensity to litigate • Proactive and public role of plaintiff attorneys • Long Term Care industry faces bad public image

12. Industry Landscape - 1990’s and later • Expanded grounds for lawsuits • Changes in Medicare / Medicaid reimbursement system • Move towards a prospective pay system • Increased regulation - state and federal levels • Nursing Home Reform Act 1987 • Florida Statute 400.22 (Patients Bill of Rights) • Allows for recovery of attorney’s fees

13. Industry Landscape - 1990’s and later • Despite increasing costs, early indicators of deterioration were masked • Insurance market not highly concentrated • Some insurers include LTC with general CMP book • Unusual results explained in context of single account or loss or simply as a spike in results

14. Industry Landscape - 1990’s and later • Falls remain most common allegation with relatively stable frequency -- but costs have risen dramatically • Other allegations show substantial increases in both frequency and severity • Changes in tactics by plaintiff attorneys • Need to show that a violation of resident rights occurred • Plaintiff does not need to sustain an injury to have a legitimate case • Establish a pattern of institutional negligence • Increasing frequency and severity of punitive damage awards

15. Industry Landscape - 1990’s and later • Increasingly difficult to estimate the cost of individual claim • Some large accounts facing exhaustion of limits in older years • High frequency / High severity • Liability costs have risen dramatically • Impacts both direct market and reinsurance market

16. Industry Landscape - 1990’s and later • Liability coverage not widely available • Availability crisis has prompted data calls in some states • Some states are activating JUA facilities • Movement towards alternative risk transfer mechanisms, higher deductibles, or Self Insured Retentions

17. Industry Landscape - 1990’s and later • Some movement towards claims made coverage • The claim reporting lag is significantly shorter than for Hospital or Physician & Surgeon medical malpractice coverage • However, given the rapidly changing environment claims made allows for pricing coverage one year at a time • Claims made also removes limits stacking issues associated with providing continuous care over a number of years • Given the rapidly escalating claim trends, claims made allows a customer to purchase more adequate limits on a timely basis

18. What does this mean to an actuary? • Predicting ultimate loss levels for a book of Long Term Care business is challenging

19. Considerations • Current exposure distribution by state • Changes in underlying mix by state • Acquisitions / Divestitures • For profit vs. not for profit

20. Considerations • Changing level of reserve adequacy • ALAE vs. indemnity • Alert to changing legal climate • Changing loss drivers • Changing regulatory climate