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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

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 protection Wall 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 - 2001 90% 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
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
slide18

Medical Professional LiabilityJury Verdict Data - Mean vs. Median Trends

Source: Jury Verdict Research

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
slide25

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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