Emerging Issues in
Medical Malpractice
CAS Fall Meeting
November 16, 2004
Robert J. Walling, FCAS, MAAA
A Brief Recap
A Brief Recap – Industry Perspective


Severities Gone Wild
Unpredictable Costs
(Timing & Magnitude)



Entitlement Juries
Big Attorney Pay Days
Caps on Non-Economics
● Negative Outcomes,
Not Malpractice
● Market Exits Due to
Inadequate Rates
● Costs Impacting Access
●Caps on Atty Cont. Fees
Severities Gone Wild
140,000
Average Claim Severity
120,000
100,000
80,000
60,000
40,000
20,000
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Closure Year
Average Severity
Availability Problems







Frontier – Rehabilitation 8/01
Reliance – Liquidation 10/01
St. Paul – Exits Market 12/01
PHICO – Liquidation 2/02
MIIX – Voluntary Run-off 5/02
Reciprocal of America Group – Liquidation 6/03
Legion – Liquidation 7/03
Over 30% of the market is gone (some states > 70%)
Another 10-20% has been downgraded severely
enough to impact the availability of coverage
Market Concentrations are Increasing
Costs Impacting Access to Health Care
Year
Premium
2004
261,602
22.4%
2003
213,763
30.0%
2002
164,437
40.5%
2001
117,049
12.7%
2000
103,859
27.0%
1999
81,765
17.2%
1998
69,786
12.1%
1997
62,259
-7.3%
1996
67,141
+5.7%
Annual Average
Annual Change
18.5%
Broward County, FL General Surgeons (Medical Liability Monitor)
Widespread, but not Uniform
A Brief Recap – Trial Bar Perspective
Insurance Companies
 Excessive Profits
 Destructive Competition
 Poor Investment/Reserving
 Rate Gouging
 Must Need Better (More)
State Regulation
Healthcare Providers
● Repeat Offender Docs
● Defensive Medicine
● No Overall Medical
Outcome Improvement
●Must Need Better (More)
Oversight
“Destructive” Price Competition
“While an increase in litigation and higher damages
awards are often blamed for rising premiums,
insurance companies may be equally culpable due
to their pricing policies of the 1990s.”
- Robert Wood Johnson Foundation
Industry Reserve Development
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Original Held
Mature Evaluation
Cyclical Swings
160%
150%
140%
Net Operating Ratio
130%
120%
110%
100%
90%
80%
70%
60%
1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Year
Medical Malpractice
All Lines
Homeowners
Workers Compensation
Other Liability
Private Passenger AL
“Inescapable” Conclusion #1
100%
90%
The
current
system is
woefully
inefficient
Pennies per Dollar of Premium
80%
70%
60%
50%
40%
30%
20%
10%
0%
Medical Malpractice
Private Passenger Auto
Liability
Workers Compensation
Line of Business
Losses ( Claimants' Share)
Losses ( Attorneys' Share)
ALAE
ULAE
Commissions
Taxes, Licenses & Fees
Other Acquisition Expense
General Expenses
Providers Quandary
If the rules of the game
won’t change, maybe it’s
time for a new game.
Two ways to change the
rules of the game:
- Patient Expectation Mgt.
and Disclosure/Apology
- Alternative Markets
Patient Expectation Management





Online
Personalized & Confidential
Multimedia
Prior to Many Procedures
What to Expect
–
–
–


Before the Procedure
During the Procedure
After the Procedure
Risks & Benefits
Alternatives
Expectation Management Benefits



Preparing the Patient Increases Their Comfort
Increases the Accuracy of Patient Expectations
Allows for Greater Interaction
–
–


Patient Questions
Specific Areas of Concern (Health Risks/Concerns)
Documents What Patient Saw/How They
Responded
Increases Patient Satisfaction
I’m Sorry Laws





Many Physicians Want More Disclosure
Many Patients Feel Physicians is “Hiding
Something”
In most states, expressions of regret or empathy
are admissible as evidence
Lexington, KY VA Hospital
“I’m Sorry” laws, providers & staff can say
–
–
–
Enacted in CA, CO, FL, MA, OR, TN, TX, WA
“I’m sorry this happened to you”
“I’m sorry I did this”
without admissibility
I’m Sorry Laws

Insurers are:
–
–

Training providers on how to apologize (mandatory)
Coordinating with claims
Initial results are significant
–
–
–
–
–
Reduced severities
Reduced loss adjustment expense
Reduced attorney involvement
(CO: 2 lawsuits in 433 claims)
Improved patient satisfaction
In many cases, much improved efficiency
“Inescapable” Conclusion #2
Data for a conclusive answer is often unavailable.
Various States of Readiness



Got it (e.g. FL, ME)
Thought they had it (e.g. OR)
Just Getting Started (e.g. NC, VT, OH)
Florida Closed Claim Database








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

Injury Location (e.g. Hospital, Delivery Room)
Occurrence, Report, Suit, and Settlement Dates
Patient Date of Birth, Sex
Severity of Injury (e.g. Emotional, Death, Serious)
Insured County & County of Suit
Method & Stage of Settlement
Arbitration indicator
Insurer Type
Insured Specialty
(e.g. 80267- Pediatrics)
Insured Limits
Indemnity Paid (Medical, Wage & Other; future)
Loss Adjustment (Defense Costs vs. Other ALAE)
Non-Economic Loss
Occ_Year
20
20
20
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
02
01
00
99
98
97
96
95
94
93
92
91
90
89
88
87
86
85
84
83
82
81
80
79
78
77
76
75
74
73
72
71
Severity Trends
by Occurrence Year
Predicted Values
180,000
160,000
140,000
120,000
100,000
80,000
60,000
40,000
20,000
0
Non-Economic Damages by
Occurrence Year
0.50
Predicted Values
14%
0.45
12%
0.40
10%
0.35
0.30
8%
0.25
6%
0.20
0.15
4%
0.10
2%
0.05
0%
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
0.00
Occ_Year
Predicted
Values
Claim Severity
by Injury
Type Over Time
1,000,000
SEV_DESC (DEATH)
900,000
SEV_DESC (Emotional Only Fright, no physical damage)
800,000
SEV_DESC (Permanent: Major Paraplegia, blindness, loss of two
limbs, brain damage.)
700,000
SEV_DESC (Permanent: Minor Loss of fingers, loss or damage to
organs. Includes non-disabling
injuries.)
600,000
SEV_DESC (Permanent:
Significant - Deafness, loss of
limb, loss of eye, loss of one
kidney or lung.)
500,000
SEV_DESC (Temporary: Major Burns, surgical material left, drug
side effect, brain damage.
Recovery delayed.)
400,000
SEV_DESC (Temporary: Minor Infections, misset fracture, fall in
hospital. Recovery delayed.)
300,000
SEV_DESC (Temporary: Slight Lacerations, contusions, minor
scars, rash. No delay.)
200,000
100,000
Occ_Year
20
02
20
01
20
00
19
99
19
98
19
97
19
96
19
95
19
94
19
93
19
92
19
91
19
90
19
89
19
88
19
87
19
86
19
85
19
84
19
83
19
82
0
Predicted Values
Impact of Attorney Involvement
on Claim Severity
11000
300
9000
250
7000
200
ATTORNEY (3) Exposure
ATTORNEY (2) Exposure
5000
150
ATTORNEY (1) Exposure
ATTORNEY (2)
ATTORNEY (1)
3000
100
1000
50
-1000
0
0
1
3
4
5
6
7
8
9
10
11
12
13
H IGH IN J
14
15
16
17
18
19
20
21
22
23
25
Severities by Settlement Lag
Predicted Values
60,000
50,000
40,000
30,000
20,000
10,000
0
Settlement_Lag
45,000
Predicted
Values& Sex
Differences
by Age
55%
50%
40,000
45%
35,000
IP_Sex
(F)
40%
35%
30,000
30%
25,000
25%
20,000
20%
15%
15,000
10%
10,000
5%
5,000
0%
10
20
30
40
50
60
70
80
IP_Sex
(M)