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Concurrent Session: Medical Malpractice

Concurrent Session: Medical Malpractice. 2002 CAS Seminar on Reinsurance June 3 Peter Schultheiss, FCAS Zurich NA. A: April’s Powerball prize - nominal value B: The largest 2001 Medical Professional jury verdict C: The 1990 GDP of Guyana. Select the correct answer: 1 - A only 2 - B only

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Concurrent Session: Medical Malpractice

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  1. Concurrent Session:Medical Malpractice 2002 CAS Seminar on Reinsurance June 3 Peter Schultheiss, FCAS Zurich NA

  2. A: April’s Powerball prize - nominal value B: The largest 2001 Medical Professional jury verdict C: The 1990 GDP of Guyana Select the correct answer: 1 - A only 2 - B only 3 - C only 4 - A and B only 5 - A, B and C Actuarial Quiz - Part 2B$325 million represents which of the following:

  3. Trends in Medical Professional Liability • Long Term Care - Customers out of focus • Physicians and Surgeons: - Means vs. medians and defense expense - Credible class shifts • Hospital Professional: - Deep pockets - some examples - Severity, frequency, success rates and time to settlement - Increased limit factor considerations plus state/account variation • What the future holds?

  4. Long Term CareCustomers Out of Focus • On 1/28/2000 the CEO of IHS finished a project • The deal closed that day had nothing to do with IHS or its patients • The CEO purchased a $1 million dollar painting, carried as an asset on the company books • Within a week, the company filed for Chapter 11 protection Wall Street Journal - 5/24/02

  5. LTC - Customers Out of FocusPre through early 1990’s • Industry characterized by small to medium firms with few locations operating on local to regional basis • Non-profits predominate

  6. LTC - Customers Out of FocusEarly to mid 1990’s • Aging of population seen as business growth opportunity • Financially oriented management companies form large regional to national chains acquiring smaller firms • Highly leveraged acquisition and growth • Attractive operating margins from medicare/medicaid reimbursement • Loose enforcement of billing regulations and hospital care overlap

  7. LTC - Customers Out of FocusMid 1990’s - 2000 • Balanced budget acts - severe reduction in medicare/medicaid reimbursement • Unattractive margins reverse leverage impacts • Reduced cash flow • Cost cutting and high employment adversely impact labor pool quality • Patient’s rights - adverse development of tort climate • Aging of jury pool with the public personally affected • Try the facility - punitive damages

  8. LTC - Customers Out of FocusLoss Cost Trend = 24.5% Source: AON Risk Consultants - 2/28/02

  9. LTC - Customers Out of FocusTrend Components • Loss cost trend of 24.5% : 90% confidence of 7.3% • Loss cost trend of 21.5% based on 1996 - 2001 90% confidence of 3.3% • Frequency trend of 9.6% • Severity trend of 13.5%

  10. LTC - Customers Out of FocusStates in the Forefront • Leaders - Texas and Florida • Southeast including Alabama, Mississippi, Georgia and Arkansas • Other states are not far behind including California

  11. Physicians and SurgeonsCurrent Trends • Physicians limits cap awards - not viewed as deep pockets relative to institutions • Limits remain low with more than 55% purchasing $1 million of coverage • Long term trend is 6.4%, but 9.2% since 1995 • A survey of recent rate filings indicated 2% to 5% is being used • Median trends are outpacing mean trends • Changes are not equal by class: -watch the gatekeepers -some favorable trends in special situations

  12. Physicians and SurgeonsSeverity Trend Source: PIAA

  13. Physicians and SurgeonsMeans vs. Medians Source: PIAA

  14. Physicians and SurgeonsCredible Class Shifts

  15. Hospital ProfessionalCurrent Trends • Hospitals are viewed as having very deep pockets • Impacted by medicare/medicaid cutbacks and HMO’s with some similarities to long term care • Severity trend is +13.6% since 1993 and + 14.9% since 1995 based on Jury Verdict Data • Our data indicates total limits trend to be 4 to 5 points less • Frequency flat, however, plaintiff success rates are up 2% a year • Speed to trial initiatives have reduced large case settlement time by 12 months on average • Jury awards are roughly twice the final demand on average

  16. Hospital ProfessionalCurrent Trends - continued • Plaintiff lawyers receive 30% to 40% in contingent fees. Overall defense is 18.5% of indemnity and 9.5% of indemnity when the settlement is greater than $1 million • 11% of verdicts against hospitals are greater than $10 million • Large awards can occur anywhere - need to recognize frequency of large cases by territory • Lower average severity territories imply higher coefficients of variation than higher average severity territories • 25% of brain injury verdicts are greater than $12 million • 25% of childbirth verdicts are greater than $7.5 million • Mixed results of Patient Compensation Funds

  17. Hospital ProfessionalDeep Pockets

  18. Medical Professional LiabilityJury Verdict Data - Mean vs. Median Trends Source: Jury Verdict Research

  19. Medical Professional LiabilityJury Verdict Data - Time to Trial Source: Jury Verdict Research

  20. Hospital ProfessionalAccount Variation

  21. Hospital ProfessionalLimited Expected Values and CV’s

  22. Hospital ProfessionalPatient Compensation Funds • Indiana - Voluntary • Kansas - Mandatory • Louisiana - Voluntary • Nebraska - Voluntary • New Mexico - Voluntary • Pennsylvania - Mandatory • South Carolina - Voluntary • Wisconsin - Mandatory

  23. What the future holds?The Bad • Company failures will continue until pricing practices are corrected • Nebraska cap was struck down • California cap is bypassed in certain situations • LTC litigation spreading to other states • Precedent setting cases and jury outrage makes it hard to control costs • HMO’s are vulnerable

  24. What the future holds?The Good • Rate increases are accelerating in 2002 • Congress approved during 2000 - 2001 $5 billion in Medicare spending for nursing home patients • Some abatement seen in 2000 - 2001 large loss growth rate arena • The situation is now viewed as a crisis in a number of jurisdictions • Tort reform introduction implemented in Pennsylvania • Federal reform is under consideration

  25. Trends in Medical Professional Liability • Long Term Care - Customers out of focus • Physicians and Surgeons: - Means vs. medians and defense expense - Credible class shifts • Hospital Professional: - Deep pockets - some examples - Severity, frequency, success rates and time to settlement - Increased limit factor considerations plus state/account variation • What the future holds?

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