Concurrent session medical malpractice
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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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Concurrent session medical malpractice

Concurrent Session:Medical Malpractice

2002 CAS Seminar on Reinsurance

June 3

Peter Schultheiss, FCAS

Zurich NA


Actuarial quiz part 2b 325 million represents which of the following

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:


Trends in medical professional liability

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?


Long term care customers out of focus

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 protectionWall Street Journal - 5/24/02


Ltc customers out of focus pre through early 1990 s

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


Ltc customers out of focus early to mid 1990 s

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


Ltc customers out of focus mid 1990 s 2000

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


Ltc customers out of focus loss cost trend 24 5

LTC - Customers Out of FocusLoss Cost Trend = 24.5%

Source: AON Risk Consultants - 2/28/02


Ltc customers out of focus trend components

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 - 200190% confidence of 3.3%

  • Frequency trend of 9.6%

  • Severity trend of 13.5%


Ltc customers out of focus states in the forefront

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


Physicians and surgeons current trends

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


Physicians and surgeons severity trend

Physicians and SurgeonsSeverity Trend

Source: PIAA


Physicians and surgeons means vs medians

Physicians and SurgeonsMeans vs. Medians

Source: PIAA


Physicians and surgeons credible class shifts

Physicians and SurgeonsCredible Class Shifts


Hospital professional current trends

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


Hospital professional current trends continued

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


Hospital professional deep pockets

Hospital ProfessionalDeep Pockets


Concurrent session medical malpractice

Medical Professional LiabilityJury Verdict Data - Mean vs. Median Trends

Source: Jury Verdict Research


Concurrent session medical malpractice

Medical Professional LiabilityJury Verdict Data - Time to Trial

Source: Jury Verdict Research


Hospital professional account variation

Hospital ProfessionalAccount Variation


Hospital professional limited expected values and cv s

Hospital ProfessionalLimited Expected Values and CV’s


Hospital professional patient compensation funds

Hospital ProfessionalPatient Compensation Funds

  • Indiana - Voluntary

  • Kansas - Mandatory

  • Louisiana - Voluntary

  • Nebraska - Voluntary

  • New Mexico - Voluntary

  • Pennsylvania - Mandatory

  • South Carolina - Voluntary

  • Wisconsin - Mandatory


What the future holds the bad

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


What the future holds the good

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


Concurrent session medical malpractice

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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