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Topics • Impact of Managed Care on Medical Malpractice • Hospital Exposure Base • Policy Terms and Conditions Actuaries need to be aware of • Medical Malpractice Loss Development Patterns • Data Sources
Impact of Managed Care on Medical Malpractice • Affect of Gatekeeper roll for primary care physicians –shifted liability between classes • Family Practitioners and Internists now responsible for all direction of care. • RESULT – Huge increase in failure to diagnose claims • Nurses, CRNA, Nurse Practitioners – Responsible for direct care of patients pushed down to lower classes • RESULT – Physician, Surgeon and Allied Health professional class relativities are more compact now.
Impact of Managed Care on Medical Malpractice • Move to more outpatient treatment rather than inpatient hospital treatment • RESULT – Complete change in measurement of exposure to malpractice for hospitals
Exposure Base for Hospitals • What about Bed Equivalents? • Historically, hospital malpractice rated on a per bed basis. • Now with less patient time in a “bed”, underwriters have developed “bed equivalents” • So, for example, 1000 outpatient visits is the equivalent of what used to be the exposure from having 1 bed in the hospital.
Exposure Base for Hospitals Where do Bed Equivalents come from??? Don’t be fooled – They were made up! • By Brokers • By Underwriters
Hospital Exposures • Are primary Bed Equivalents a good exposure base for excess MedMal claims? • Current Bed equivalent calculations result in fairly flat exposures over time • Most excess MedMal claims come from “bad babies” • Other sources of major MedMal claims are failure to diagnose in the emergency room. • Current weightings in use do not differentiate much between a hospital that does many deliveries versus one that does not.
Impact of Tort Reform on Medical Malpractice • Survey of states with Tort Reform • California – Micra – effective in keeping phys/Surg rates down due to cap on pain and suffering awards. • Texas – virtually worthless. Most value came from no venue shopping. • Michigan – seems to be helping. Noticeable decrease in severity of claims in Oakland and Wayne counties. • Illinois – worthless. • Does MICRA really protect the high excess insurers?
Loss Development Patterns in Medical Malpractice • Differ by • Carrier • Reserve Adequacy (check Paid to Incurred ratios as compared to benchmark LDFs) • Settlement Philosophy • Defend to the End • Settle Quick to avoid large Verdicts • (check ALE ratio to Indemnity) • Jurisdiction – Different states have different laws which affect the reporting and payment of claims
Changes in LDFs –External Causes • Tort Reform – affect on reporting patterns especially for claims made forms • Example – 1995 Tort Reform in Illinois caused huge increase in reported claims just prior to effective date of legislation • Current – Nebraska, lawyers are holding back reporting of claims while waiting supreme court ruling on constitutionality of current damage cap • Market Cycle – Claims made form can change behavior with the ups and downs of market cycle • Risks or brokers dumping claims runs on carriers under expiring programs. Policy wording important!
Policy Terms and Conditions • Actuaries don’t get very involved in reviewing the policy terms and conditions • However, small changes in terms can have big effect on pricing model • Example – Definition of a claim has changed from being on a per person basis to being an occurrence in which all related events are considered one claim. This was done so the primary insurers would not be exposed to multiple policy years on an individual event. Obviously, this is the proper thing to do for a primary insurer.
The effect to the excess carrier, however • is that now the size of loss distribution has changed, making claims larger than before since the claims of multiple defendants involved with one incident are added together. Example would be 2 doctors and a hospital sued for a poor outcome from the delivery of a baby and all being covered by the same insurer. • Effect of Batching Claims Clause • Guaranteed Tail pricing in a soft market • Definition of what constitutes a reported claim under a claims made policy • ALE included as part of loss or pro rata
Aggregate Exposure • The true disaster in medical Malpractice – Aggregate Drop down • Possible pricing models – simulation vs Gamma distribution of aggregate losses • Rule of Thumb – Set aggregate on SIR at least 2 times expected loss
Available Sources of Data • ISO – Most MedMal companies do not report to ISO • Jury Verdict Research Data – West Law and others – Publishes annual review of jury verdicts for medical malpractice • NPDB – National Practitioner Database • Florida database- This site, which is maintained on the Internet by the Florida Department of Insurance, offers information on the claims paid by malpractice insurance companies for doctors, hospitals, and even lawyers in Florida for the last 20 years. • Conning Report • Medical Liability Monitor (Rate Survey)
Available Sources of Data • Best Week – Rate Filings available on line • Crittendon’s Medical Insurance News • Actuarial Consulting Firms – 1 time studies • Wellington Actuarial Services MedMal Fast Stats Loss Cost Trend Statistics on state basis Updated and published 3 times a year Contact: firstname.lastname@example.org