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Trends in Medical Malpractice

Trends in Medical Malpractice. Kevin M. Bingham – Deloitte . kbingham@deloitte.com Casualty Actuaries of New England (CANE) October 3, 2005 8:45 AM – 10:00 AM Sturbridge Host Hotel, Massachusetts. INTRODUCTION. Industry Results Rates Tort Reform The Future Conclusion.

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Trends in Medical Malpractice

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  1. Trends in Medical Malpractice Kevin M. Bingham – Deloitte. kbingham@deloitte.com Casualty Actuaries of New England (CANE) October 3, 2005 8:45 AM – 10:00 AM Sturbridge Host Hotel, Massachusetts

  2. INTRODUCTION • Industry Results • Rates • Tort Reform • The Future • Conclusion

  3. Industry Results

  4. Industry Results

  5. Industry Results • PIAA • Operating Ratio • 2003 102% • 2004 92% • AM Best • Operating Ratio • 2003 122% • 2004 96% • Prior Year Reserve Strengthening • St. Paul • Exit med mal in December 2002 • Initial $600 million B-T charge • 2003 • $350 million B-T charge • MLMIC Group • Almost $200 million of prior year • reserve development in 2003

  6. Rates

  7. Rates • “Maintenance” rate filings more common (i.e., rate increases that offset loss trend) • Market is softening • Crittenden Medical Malpractice Insurance Conference • Main theme… The soft market is here Public company earning calls and web-site material: Commit to holding the line on underwriting and to walking away from business if the price is not right. ?

  8. Rates • Competition for business increasing again through pricing and innovation • The Doctors Company introduces simplified medical malpractice policy • Risk Retention Groups (RRGs) targeting specific specialties (e.g., chiropractors, ER doctors, etc.) • Introduction of new discounts for first time doctors • Introduction of new discounts for long term customers • Incorporating patient satisfaction and physician profiles in U/W • Incorporating premium credits for risk management classes • Captive/RRG formations continue to reduce premium growth opportunities for mutual and publicly traded insurers

  9. Tort Reform

  10. Tort Reform - Caps • Economic damages • Lost wages • Medical expense • Funeral expense • Non-economic damages (a/k/a pain and suffering) • Loss of consortium • Loss of companionship • Disfigurement • Mental anguish Quantifiable from a ratemaking and reserving perspective. Highly subjective and difficult to quantify from a ratemaking and reserving perspective.

  11. Tort Reform - Caps • Trends in Proposed Caps • Hard cap (e.g., $250,000 MICRA cap) • Soft cap • Florida • Texas • “Cap busters” • Florida • Massachusetts • Emergency room vs non-emergency room • Practitioner vs non-practitioner • Per defendant caps • Per claimant caps • Piercing • Disfigurement • Death • Vegetative state • Unanimous verdict

  12. Tort Reform - Caps • Pricing and Reserving Considerations • Constitutionality • Policy limits • Number of claimants/defendants • Severity of injuries faced by company • ALAE • Phase-in effect • Issues: • Is the data captured? • If captured, is it accurate? • Are more co-defendants going bare? • Credibility for use in pricing/reserving? • Issues: • Chiropractor vs. OBGYN? • Credibility for use in pricing/reserving? • Impact of other law changes (e.g., limit on • attorney fees)

  13. Tort Reform - Caps • Value of Caps • Massachusetts • McCullough, Campbell & Lane - Damage Caps (www.mcandl.com/massachusetts.html) “In a medical malpractice case, the jury is instructed that if it finds the defendant liable, it is not to award the plaintiff more than $500,000 for pain and suffering, loss of companionship, embarrassment, and other items of general damages, unless it determines that there is: a substantial or permanent loss or impairment of a bodily function or substantial disfigurement, or other special circumstances in the case which warrant a finding that imposition of such a limitation would deprive the plaintiff of just compensation for the injuries sustained. Mass. Ann. Laws ch. 231, § 60H (Law. Co-op. Supp. 1997). Since this standard can often be met, the cap should not be relied on.” Makes actuarial assumptions easier (i.e., little impact)

  14. Tort Reform - Joint & Several Liability • The theory of Joint and Several Liability allows that each defendant in a legal action is responsible for the entire amount of damages that a plaintiff is seeking, regardless of their relative degree of responsibility for the damages involved. • Reform • “Severally” liable (i.e., proportional liability) • All damages (economic and non-economic) • Non-economic damages only • % at fault criteria (e.g., def < 51% at fault) • Defendant uncollectible - reapportion after 1 yr • Reduces the search for “deep pockets” (e.g., hospital 1% at fault pays 100% of a $10 million award) Defendant pays their fair share of damages

  15. Tort Reform - Joint & Several Liability • Pricing/Reserving considerations • Impact on filing of future claims when J&S abolished • Impact on plaintiff attorney strategies going forward • Spread “comparative fault” to maximize recovery • Consider impact of caps (spread versus telescope) • National Association of Mutual Insurance Companies (www.namic.org/reports/tortReform/JointAndSeveralLiability.asp) • Information on 37 states with J&S liability reform • Brief description of current law • Statutory link • Other provisions (e.g., may impact non-economic damages only, no impact if plaintiff not at fault, etc.) • American Tort Reform Association (www.atra.org) Requires Legal Expertise

  16. Tort Reform - Changes in the Statute of Limitations/Repose • Statute of Limitation • A statute of limitations is a law which places a time limit on pursuing a legal remedy in relation to wrongful conduct. After the expiration of the statutory period, unless a legal exception applies, the injured person loses the right to file a lawsuit seeking money damages or other relief. • Statute of Repose • A statute of repose is a law which defines when, in no event, can a claim ever be made after a pre-defined time limit from the date of the alleged malpractice.

  17. Tort Reform - Changes in the Statute of Limitations/Repose • Statute of Limitation Examples • Medical malpractice actions must be filed • within X (e.g., one, two, three, etc.) years of the date of the act or omission resulting in injury • X years from the date the injury was or reasonably should have been discovered • tolls the statute of limitations for individuals who are minors or who are mentally incapacitated • a wrongful death action must be brought within X years (e.g., two, three, etc.) after the decedent's death • etc. • Pricing/Reserving considerations • Impact on filing of future claims • Requires legal expertise www.mcandl.com/states.html Information by state

  18. Tort Reform - Reporting Speed-Up • Often times observed immediately before the passage of tort reform bills • Uncertainty regarding constitutionality • Uncertainty regarding “phase-in” • Precautionary measure by plaintiff attorneys • Pricing/Reserving considerations • Adjusting actuarial methods for “speed up” in reporting • Monitoring of results going forward (e.g., adjustment may be required if constitutional issues emerge) • Proper application of the cap based on the effective date

  19. Tort Reform - Reporting Speed-Up July 1, 2005 statistical summary of Florida’s medical malpractice closed claim database, a report titled July 1, 2005 Closed Claim Database Statistical Summary, Paragraph 627.912(6)(a), Florida Statutes can be obtained from the Florida Department of Financial Services web site: www.fldfs.com/companies/pdf/OIR_Report07012005CCD_FINAL.pdf Florida Closed Claim Database

  20. Tort Reform - Constitutionality • Issues With Constitutionality • Cap on non-economic damages • Texas – Passed Proposition 12, Nevada - ballot initiative passed • Oregon and Wyoming – Constitutional amendments defeated • Florida – TBD • Wisconsin – Overturned by Wisconsin State Supreme Court (ruled 4-3) in July 2005 “Judicial nullification” – Judges undo tort reform passed by legislature 1) Prospective impact = rate increases 2) Prior rates charged reflecting caps immediately inadequate = insurers “out of luck”

  21. Tort Reform - Constitutionality • Issues With Constitutionality • Statute of Limitations • Limits on Attorney Contingency Fees • Joint & Several Liability • Fair Share Act of 2002 declared unconstitutional by Pennsylvania Commonwealth Court (July 2005) • Voided the law that reformed the state's joint and several liability doctrine • Immediate impact on medical malpractice claims

  22. The Future

  23. The Future • Predictive modeling • Move from “one price fits all” to “right price” • Smash traditional underwriting belief system • All chiropractors are good risks • All OB/GYNs are bad risks • Use reason codes in delivery of premiums to incentivize physicians to change their behavior • Impact patient safety • Before the injury focus!

  24. The Future • Computerized Physician Order Entry (CPOE)/Electronic Medical Records • Benefits • Avoid handwriting errors • Improve documentation trail • Avert errors by warning doctors when they write a prescription for the wrong drug or the wrong dose (e.g., use of bar codes on prescriptions and patients id bands) • Alert doctors to do medical tests/follow up • Medicare announced in July 2005 that it would give doctors Vista software to computerize their medical practices • Free of charge • System used by Department of Veteran Affairs for two decades

  25. The Future • Patient Safety and Quality Improvement Act of 2005 (S.544) • Signed into law by President Bush on July 29, 2005 • Law encourage the voluntary reporting of medical errors, serious adverse events, and their underlying causes • Law provides legal protections to healthcare professionals who report information to patient safety organizations • Addresses IOM concern that the fear of lawsuits was hampering information sharing regarding medical errors • Promotes information sharing and better understanding of “near misses”

  26. The Future • Physician communication • “I’m Sorry” legislation • The Sorry Works Coalition (http://www.sorryworks.net/) • Laws in over 15 states • Delivery of “I’m Sorry” critical • Physician “communication boot camps” • “Believe it or not, the risk of being sued for medical malpractice has very little to do with how many mistakes a doctor makes… Patients file lawsuits because they’ve been harmed by shoddy medical care and something else happens to them… It’s how they were treated, on a personal level, by their doctor.” Malcom Gladwell, Blink

  27. Conclusion

  28. Conclusion • Continue with our traditional focus • Ratemaking • Pricing • Tort reform quantification • BUT focus on pre-injury opportunities as well • Predictive modeling, “right pricing” and incentives to physicians • Become involved in patient safety initiatives • Speak up about what actuaries can bring to the table We can help the CAS achieve our Centennial Goal Challenge? After the injury has occurred! Also referred to as “looking out the rear view mirror”

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