ANNUAL REPORT June 30, 2010

1. PIEDMONT LIABILITY TRUST ANNUAL REPORT June 30, 2010 • Executive Overview • Financial Report • Litigation Report • Clinical Services Report

2. Executive Overview The focus for the Trust this past year was once again on the economy, as it has continued to be for most of the world around us. We have continued to work with our new outside investment advisors to implement changes in our investment portfolio to best manage the current investment climate. As we move forward, we will be in a position to begin valuing the role of Mangham Associates work as investment advisors. However, it is important to note, that in the immediate term, annual investment returns are expected to be down, lowering the annual income the Trust anticipates. Despite the difficult investment climate, the Trust had a good year, We were pleased to present a budget for 2010/11 once again with no premium rate increases for Covered Persons. This was supported by favorable claims results once again.

3. Executive Overview continued The number of claims saw a marked increase toward the end of the fiscal year. This coupled with a significant increase in significant claims that needed resolution made for a heavier workload for our claims folks. It also means that we will need to closely monitor the direction of our claims results on actuarial projections over the next three to five years. The hard work of our physicians and defense team is central to the success of the Trust. The challenges before the Trust continue, particularly in the current economic climate and with claims numbers increasing, along with severity. We look forward to working through these challenges with you to continue the successful operation of the Trust. Respectfully submitted, Rebecca W. West Chief Executive Officer

4. Mission Statement Piedmont Liability Trust is committed to providing our physicians, the University of Virginia Health Services Foundation, and its affiliated entities, expert legal and risk management services while managing operations so as to maintain a sound financial structure to ensure we meet or exceed the funding required to pay medical professional liability costs pursuant to the Trust Memoranda of Coverage.

5. Governance The Trust is a 501(c)(3) tax exempt entity that supports the University of Virginia Health Services Foundation. The Trust is governed by a Trust Agreement with two Trustees (Dr. Raymond Morgan and Rebecca West), who take direction from a Board of Directors. Dr. Canterbury serves as the Chair of the Board and outside attorney, Carter Scott, serves as Vice Chair. Dr. Morgan continues to served as Treasurer and co-Trustee. Ms. West serves as the Trust’s Chief Executive Officer for the twenty-second year and as co-Trustee. Mr. Archambault, the Trust’s General Counsel, continues to serve as Secretary.

6. Board of Directors ELECTED DIRECTORS (3 YEAR TERMS): Randolph J. Canterbury, M.D., Chairman Manny D. Buzzell A. B. Chhabra, MD Robert L. Chevalier, M.D. Irving L. Kron, M.D. John W. Schmitt, M.D. R. Carter Scott, III, J.D., Vice Chairman Mark E. Shaffrey, M.D. Scott A. Syverud, M.D. G. Frederick Wooten, Jr., M.D. EX OFFICIO DIRECTORS: Eric J. Strucko, Interim HSF CEO John B. Hanks, M.D., President Clinical Staff Raymond F. Morgan, M.D., HSF President, Trustee, Treasurer Stanton P. Nolan, M.D., Past Chairman Jonathon D. Truwit, M.D., VP/Dean Rep., Past Chairman Rebecca W. West, J.D., Trustee, Trust CEO Munsey S. Wheby, M.D., Past Vice Chairman

7. Financial Report The financial report once again shows marked stability and excellent money management. For the fifth year, the financial statements were audited by Goodman & Company. PLT received a clean audit opinion once again.

8. Income Statement: Revenues Actual operating surplus of $200,945 vs. budgeted surplus of $862,980 Losses on investments were largely due to restructuring of investments in response to current investment climate Premium assessments were slightly above budget for the year Profit-sharing revenue from excess insurance carrier was a result of prior year adjustment of outstanding reserves

9. Income Statement: Expenses Actuarially determined ultimate claims losses for the year on a discounted basis were $4.64 million as budgeted Personal services were 1% more than was budgeted Operating expenses were on budget

10. Sources of Revenue Fiscal Year 2009/2010 $ in Thousands

11. Sources of Revenue 2009/10 Premium Revenue = 74.6% Investment Income = 23.1% Other = 2.3% 2008/09 Premium Revenue = 73.9% Investment Income = 25.7% Other = .4%

12. Gross Revenues $ in Millions Fiscal Year

13. Assessment Comparison $ in Millions # Clinicians -900 -800 -700 -600 -500 -400 -300 -200 -100 Policy Period Ending ...

14. Facility Assessment Comparison $ in Thousands # Facilities -60 -50 -40 -30 -20 -10 -0 Policy Year Ended ...

15. Coverage Provided Clinicians 2009/10 = 944 clinicians for $5.1 million 2008/09 = 910 clinicians for $4.9 million Facilities 2009/10 = 24 facilities for $23,320 2008/09 = 24 facilities for $23,320

16. Expenses by Type Fiscal Year 2009/10 $ in Thousands

17. Expenses by Type January 1989 through June 2010 $ in Millions

18. Expenses by Type 2009/10 Loss Reserves = 69.5% Personal Services = 16.8% Excess Insurance = 7.5% Other Operating Expenses = 4.6% Investment Mgt Fees = 1.6% 2008/09 Loss Reserves = 72% Personal Services = 16% Excess Insurance = 7% Other Operating Expenses = 5%

19. Balance Sheet Changes: Assets Total assets increased from $47.1 million to $54.4 million Cash & investments increased from $46.4 million to $53.6 million (including unrealized gains/losses) Plant, property & equipment decreased from $694 thousand to $651 thousand Other assets increased from $51 thousand to $192 thousand

20. Balance Sheet Changes: Liabilities Total liabilities increased from $47.1 million to $54.4 million Reserves for claim losses increased from $38.9 million to $40.9 million Surplus (unrestricted net assets) increased from -$1.8 million to $3.5 million (includes increase in unrealized gains/losses) Current liabilities increased from $55 thousand to $64 thousand

21. Allocated Reserves to Assets $ in Millions

22. Cash and Investments Year-end balances – excluding unrealized gains/losses $ in millions

23. Investment Summary $ in Millions Fiscal Year Ended ...

24. Investment Results Total yield on investments 2009/10 = 13.1% 2008/09 = -10% Interest & realized gains 2009/10 = 3.5% 2008/09 = 3.7%

25. Investment Results Fixed income investments 2009/10 = 16.3% 2008/09 = -6.7% Equities 2009/10 = 12.6% 2008/09 = -24.1% Cash 2009/10 = .5% 2008/09 = 2.6%

26. Investment Portfolio At June 30, 2010 $ in Millions

27. Investment Portfolio At June 30, 2009 $ in Millions

28. Investment Portfolio (At market value) 6/30/106/30/09 Cash 2,909,672 9,921,154 Fixed Income 40,949,57328,412,578 Equities 9,703,598 8,066,183 TOTAL53,562,84346,399,915 * VRDOs

29. Litigation Report Bill Archambault, the Trust’s General Counsel, is trial attorney for most litigation involving Trust covered persons. He also represents our clinicians in investigative and licensure actions initiated by Federal and State authorities. Beth Sanderford is the Litigation Manager. She oversees efforts of outside counsel assigned to Trust cases and works with Bill on cases he defends. Outside counsel approved to represent the Trust and its covered persons are: Charles Sipe and Don Morin in Charlottesville; and Steuart Thomas in Staunton.

30. Claims Frequency On June 30, 2010, there were 42 open claims with 24 in litigation. On June 30, 2009, there were 38 open claims; 24 were in litigation. In the final six months of 2009-10, we opened 15 new claims. This is double the rate of new claims seen over the past four years. This suggests that claims frequency may be trending upward and perhaps marking an end to a period of relatively low frequency.

31. In 1999, the malpractice cap was raised from $1 million to $1.5 million. It then increased annually until July 2008, when it reached its current level of $2 million. For the four-year period from July 2001 to June 2005, the Trust’s average indemnity payment was $ 278,000. In the four-year period ending June 30, 2010, the average indemnity payment was $503,000, an 80% increase. Claims Severity

32. Claims Resolution 18 cases were closed during 2009-10 16 cases were closed with no indemnity payment.

33. Trial Results The one case scheduled for trial during 2009-10 resulted in a defense verdict.

34. Indemnity Payments 2009/10 $1,200,000 to the Estate of a 4 year-old girl who died as a result of an electrolyte imbalance following kidney surgery. $725,000 to the Estate of a 15-year-old boy who died following lumbar puncture for suspected meningitis, allegedly seeded during eye surgery. $40,000 in compensation for a complex dental injury associated with the administration of general anesthesia.

35. Claims Expenses Claims expenses in 2009-10 totaled $730,622. [$160,000 paid in outside counsel fees]. In 2008-09, we paid $1,522,843 in claims expenses [$750,000 paid to outside counsel]. As a result of the extraordinary expenses in 2008-09, the Trust recommitted itself to in-house defense whenever appropriate.

36. Open Claims June 30, 2000-2010

37. Open Claims Status As of June 30, 2010 Total : 42

38. Indemnity Payment Comparison Fiscal Years 1999/00 to 2009/10

39. Expense & Indemnity Payments By Policy Year February 1989- June 2010 Expense: 10,007 Indemnity: 25,155

40. February 1989 - June 2010 Claims by Department Total: 508

41. Clinical Services Report Bruce Gehle continued in his third year in the new position of Legal Services Counsel. Judy Fortineux continues in her role as the Trust’s Risk Manager and reports to Bruce in this capacity. Bruce and Judy make every effort to be easily accessible and quickly responsive to Trust Covered Persons’ requests for advice and assistance. The Trust promotes collaborative efforts with the Medical Center whenever possible to advance ideas for risk reduction and quality measures as opportunities present and generate from the Trust’s commitment to ongoing review of national reports as well as specific UVA experience. The annual educational programs provided by the Trust for its Covered Persons remain a vital part of its risk management efforts.

42. Goals Provide real time access to risk management and legal advice for medical-legal issues that arise in health care. Conduct medical-legal educational programs on issues of current concern. Assess risk exposures through analysis of actual events and through review of current literature and make risk reduction recommendations; and as opportunities present, provide assistance for implementing and monitoring the effect of change.

43. Educational Programs The Trust conducted 10 regularly scheduled one-hour educational programs on 4 topics given by Bruce Gehle: “Liability Issues with the Advent of Physician Zagat Ratings, Telemedicine, Electronic Personal Health Records, and Medical Tourism” “The Price of Change: Health Care Reform and the Liability System” “Just Say No?  How and When to Impose Reasonable Restrictions” “The Physician as Witness; How to Navigate Your Role ” Sessions were generally held in Jordan Hall Auditorium, but for the convenience of clinicians, the Trust also provided sessions at: Augusta Medical Center, Northridge, and Fontaine.

44. Educational Credit 748 of 767 eligible clinicians attended a Trust sponsored lecture for educational credit 65 of 67 eligible new clinicians attended a Trust orientation for educational credit 11 persons (versus 85 last year and 5 the year before) terminated before year end and before they met their educational requirement. The total educational credit paid to Departments was: $508,254, with an additional $9,549 available but not paid for Covered Persons who did not attend a Trust educational session.

45. Educational Programs: Clinical Departments “2009 Changes to Consent Laws” for: Neurology Neurosurgery (Attendings and Residents) Neurosurgery (NPs and PAs,) Orthopedic Surgery, Palliative Care, Hospitalists Lecture on Medical Malpractice and Professional Liability Insurance to Residents in Dept. of Anesthesiology Presentation to Residents in Medicine regarding Professional Liability and post-residency legal issues

46. Other Education Programs • 3 presentations for UVA Bioethics Brown Bag Lunch Series on: • Legal Aspects of Innovative Surgeries/Procedures • Medical Malpractice • Physician Liability for Off Label Drug Use • Taught 4th Year DX/RX class Drs. Bernheim and Massaro • “Medical Malpractice Insurance” for the American Academy of Neurology Association national meeting in Seattle, Washington • T.C. Williams School of Law – Medical Malpractice and Graduate Medical Education; Liability Issues in Obstetrics and Gynecology • UVA School of Law – Tort Reform • UVA School of Law – Health Law Structure and Finance course 2nd semester

47. Clinician Legal Support 5 UVA clinician investigations/grievances 8 Department of Health Professions investigations (up from 3) 64 Subpoenas (down from 116 due to transfer to HSF of subpoenas related to Medical Center collection lawsuits) 20 Depositions/Trial Preparation

48. Consent Forms • MRI Gadolinium Contrast/Risk of NSF • Single Balloon Enteroscopy • Western State Hospital patients (on-going) • Outpatient non-Therapeutic Sterilization • Autopsy Consent-comprehensive review and reform of the autopsy consent form. • Identified problem in that those obtaining consent for autopsies have to rely on form and often have little knowledge about the process. • Revised form to better inform those consenting about what is involved with the autopsy • NovoSeven-a non-FDA approved medication for pediatric patients with hemophilia

49. Other Legal Issues Mondial USA- Agreement with Mondial to provide medical director and health care support for out-of-country aid program for US citizens. In light of lawsuit filed in California against a Mondial insurer, Trust personnel worked with ED staff to develop standardized documentation and risk management processes for future Mondial matters. MMSEA 111- New CMS Policy for Reporting Settlements and Payments Continue to work with CMS regarding regulations requiring detailed reporting requirements by the Trust when a payment is made on behalf of a Medicare patient Reached goal of meeting CMS’ testing requirements; set to implement starting in January 2011. Pediatrics-worked with clinicians and hospital to address patient grievance and complaints from national organization opposed to circumcision. Prepared responses to lawsuit threats and succeeded in obtaining prompt dismissal of related Board of Medicine complaint. Orthopedics - Reviewed and provided risk management advice to clinic for student athletes.

50. More Legal Issues • NICU: Reviewed and revised Raven proposal for NICU video-taping during delivery. • Radiology: • Reviewed and revised Radiology policy on indicental findings on MRIs • Reviewed and revised IRB protocol when radiologists are directly involved and when not directly involved in the study • Radiation Oncology: Reviewed and revised Valiance Radiation Oncology contract. • Telemedicine: Swinson Charitable Trust Agreement with University of Miami; credentialing and other issues. • Reviewed and Ob/Gyn and Family Practice obstetrics patient guidelines . • Provided Departments input on DHP Prescription Monitoring Program for narcotics. • Psychiatry: • Reviewed Internet Diabetes Monitoring Program and provided wording for disclaimers to be used • Provided Risk Management analysis of risks of training program at Jefferson Trail Child Psyciatric Center • Provided legal input and wording for reporting at risk drivers