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  1. 1. Medical Professional Liability: Long Term Care Facilities Jennifer Palo, FCAS, MAAA CAS - Loss Reserve Seminar September 18-19, 2000 Minneapolis MN
  2. 2. Discussion Points <ul><li>Types of Long Term Care Facilities </li></ul><ul><li>Industry landscape - pre 1990’s </li></ul><ul><li>Industry landscape - 1990’s and later </li></ul><ul><li>Actuarial implications </li></ul>
  3. 3. Geriatrics / Aging Process <ul><li>Geriatrics: Of or relating to the aged or characteristics of the aging process. </li></ul><ul><li>Geriatric care encompasses both medical and social structures. </li></ul><ul><li>A primary objective of geriatric care is to maximize the independence of a resident for as long as possible given the constraints of the natural aging process. </li></ul><ul><li>Given the aging baby boom population, the elder care and geriatric issues will become increasingly important in the years ahead. </li></ul>
  4. 4. Geriatrics / Aging Process <ul><li>Multi-disciplinary field which includes (among others) : </li></ul><ul><ul><li>general medicine </li></ul></ul><ul><ul><li>psychiatry </li></ul></ul><ul><ul><li>nursing </li></ul></ul><ul><ul><li>social services </li></ul></ul><ul><ul><li>dentistry </li></ul></ul><ul><ul><li>pharmacy </li></ul></ul><ul><ul><li>physical therapy </li></ul></ul><ul><ul><li>occupational therapy </li></ul></ul><ul><ul><li>recreational therapy </li></ul></ul>
  5. 5. Types of Long Term Care Facilities and Services <ul><li>Skilled Nursing Facilities </li></ul><ul><li>Intermediate Care </li></ul><ul><li>Residential Care / Assisted Living Facilities </li></ul><ul><li>Independent Living Facilities </li></ul><ul><li>Outpatient Therapy </li></ul><ul><li>Home Health Services </li></ul>
  6. 6. Industry Landscape - Pre 1990’s <ul><li>Limited grounds for lawsuit </li></ul><ul><li>Given a lawsuit, plaintiff had greater burden of proof in demonstrating causation </li></ul><ul><li>Damages were not substantial </li></ul><ul><li>Subacute care patients remained in hospital </li></ul><ul><li>Societal expectations greatly different from today </li></ul><ul><li>Medicare / Medicaid reimbursements based on actual costs sustained </li></ul>
  7. 7. Industry Landscape - Pre 1990’s <ul><li>Falls were most common allegation with approximate costs of $20,000 per claim </li></ul><ul><li>Even some of the most costly allegations in late 1980’s had average costs less than $100,000 per claim </li></ul>
  8. 8. Industry Landscape - Pre 1990’s <ul><li>Claims reported quickly for relatively known amounts </li></ul><ul><li>Low frequency / Low severity </li></ul><ul><li>Liability coverage affordable </li></ul><ul><li>Liability coverage widely available </li></ul>
  9. 9. Industry Landscape - 1990’s and later <ul><li>Extreme change and consolidation in the health care delivery system </li></ul><ul><li>Growth of large for profit nursing home chains and increased profit pressure </li></ul><ul><li>Move to discharge hospital patients to nursing facilities sooner </li></ul><ul><li>Patient mix shifted towards patients requiring higher level of care </li></ul>
  10. 10. Industry Landscape - 1990’s and later <ul><li>Nursing home industry is notorious for high staff turnover and low wages </li></ul><ul><li>Difficult to attract and retain staff </li></ul><ul><li>Inability to obtain full criminal background experience for prospective staff </li></ul><ul><li>Staff may not have training or numbers to accommodate subacute level of care </li></ul>
  11. 11. Industry Landscape - 1990’s and later <ul><li>Societal changes </li></ul><ul><ul><li>Aging baby boom population </li></ul></ul><ul><ul><li>More collective awareness of elder care issues </li></ul></ul><ul><ul><li>Higher expectations for nursing home industry </li></ul></ul><ul><ul><li>Greater propensity to litigate </li></ul></ul><ul><ul><li>Proactive and public role of plaintiff attorneys </li></ul></ul><ul><li>Long Term Care industry faces bad public image </li></ul>
  12. 12. Industry Landscape - 1990’s and later <ul><li>Expanded grounds for lawsuits </li></ul><ul><li>Changes in Medicare / Medicaid reimbursement system </li></ul><ul><ul><li>Move towards a prospective pay system </li></ul></ul><ul><li>Increased regulation - state and federal levels </li></ul><ul><ul><li>Nursing Home Reform Act 1987 </li></ul></ul><ul><ul><li>Florida Statute 400.22 (Patients Bill of Rights) </li></ul></ul><ul><ul><ul><li>Allows for recovery of attorney’s fees </li></ul></ul></ul>
  13. 13. Industry Landscape - 1990’s and later <ul><li>Despite increasing costs, early indicators of deterioration were masked </li></ul><ul><ul><li>Insurance market not highly concentrated </li></ul></ul><ul><ul><li>Some insurers include LTC with general CMP book </li></ul></ul><ul><ul><li>Unusual results explained in context of single account or loss or simply as a spike in results </li></ul></ul>
  14. 14. Industry Landscape - 1990’s and later <ul><li>Falls remain most common allegation with relatively stable frequency -- but costs have risen dramatically </li></ul><ul><li>Other allegations show substantial increases in both frequency and severity </li></ul><ul><li>Changes in tactics by plaintiff attorneys </li></ul><ul><ul><li>Need to show that a violation of resident rights occurred </li></ul></ul><ul><ul><li>Plaintiff does not need to sustain an injury to have a legitimate case </li></ul></ul><ul><ul><li>Establish a pattern of institutional negligence </li></ul></ul><ul><ul><li>Increasing frequency and severity of punitive damage awards </li></ul></ul>
  15. 15. Industry Landscape - 1990’s and later <ul><li>Increasingly difficult to estimate the cost of individual claim </li></ul><ul><li>Some large accounts facing exhaustion of limits in older years </li></ul><ul><li>High frequency / High severity </li></ul><ul><li>Liability costs have risen dramatically </li></ul><ul><ul><li>Impacts both direct market and reinsurance market </li></ul></ul>
  16. 16. Industry Landscape - 1990’s and later <ul><li>Liability coverage not widely available </li></ul><ul><ul><li>Availability crisis has prompted data calls in some states </li></ul></ul><ul><ul><li>Some states are activating JUA facilities </li></ul></ul><ul><li>Movement towards alternative risk transfer mechanisms, higher deductibles, or Self Insured Retentions </li></ul>
  17. 17. Industry Landscape - 1990’s and later <ul><li>Some movement towards claims made coverage </li></ul><ul><ul><li>The claim reporting lag is significantly shorter than for Hospital or Physician & Surgeon medical malpractice coverage </li></ul></ul><ul><ul><li>However, given the rapidly changing environment claims made allows for pricing coverage one year at a time </li></ul></ul><ul><ul><li>Claims made also removes limits stacking issues associated with providing continuous care over a number of years </li></ul></ul><ul><ul><li>Given the rapidly escalating claim trends, claims made allows a customer to purchase more adequate limits on a timely basis </li></ul></ul>
  18. 18. What does this mean to an actuary? <ul><li>Predicting ultimate loss levels for a book of Long Term Care business is challenging </li></ul>
  19. 19. Considerations <ul><li>Current exposure distribution by state </li></ul><ul><li>Changes in underlying mix by state </li></ul><ul><li>Acquisitions / Divestitures </li></ul><ul><li>For profit vs. not for profit </li></ul>
  20. 20. Considerations <ul><li>Changing level of reserve adequacy </li></ul><ul><li>ALAE vs. indemnity </li></ul><ul><li>Alert to changing legal climate </li></ul><ul><li>Changing loss drivers </li></ul><ul><li>Changing regulatory climate </li></ul>