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