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
Page 2
Industry Results
Page 3
Industry Results
Page 4
Industry Results
• PIAA
° Operating Ratio
• 2003
• 2004
102%
92%
• AM Best
Prior Year Reserve Strengthening
St. Paul
• Exit med mal in December 2002
° Operating Ratio
• 2003
• 2004
122%
96%
Initial $600 million B-T charge
• 2003
$350 million B-T charge
MLMIC Group
• Almost $200 million of prior year
reserve development in 2003
Page 5
Rates
Page 6
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.
Page 7
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
Page 8
Tort Reform
Page 9
Tort Reform - Caps
• Economic damages
° Lost wages
° Medical expense
° Funeral expense
Quantifiable from a ratemaking
and reserving perspective.
• Non-economic damages (a/k/a pain and suffering)
°
°
°
°
Loss of consortium
Loss of companionship
Disfigurement
Mental anguish
Highly subjective and difficult
to quantify from a ratemaking
and reserving perspective.
Page 10
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
Page 11
Tort Reform - Caps
• Pricing and Reserving Considerations
°
°
°
°
°
°
Constitutionality
Policy limits
Number of claimants/defendants
Severity of injuries faced by company
ALAE
Issues:
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?
• Chiropractor vs. OBGYN?
• Credibility for use in pricing/reserving?
• Impact of other law changes (e.g., limit on
attorney fees)
Page 12
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)
Page 13
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
Defendant pays their
fair share of damages
° Reduces the search for “deep pockets” (e.g., hospital 1% at fault
pays 100% of a $10 million award)
Page 14
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)
Requires
Legal
Expertise
• National Association of Mutual Insurance Companies
(www.namic.org/reports/tortReform/JointAndSeveralLiabi
lity.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)
Page 15
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.
Page 16
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
Page 17
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
Page 18
Tort Reform - Reporting Speed-Up
Chart 11
Reported Claims by Month
350
Florida
Closed
Claim
Database
Sept-03
300
Claim Count
250
200
150
100
50
Dec-04
Nov-04
Oct-04
Sept-04
Aug-04
July-04
June-04
May-04
Apr-04
Mar-04
Feb-04
Jan-04
Dec-03
Nov-03
Oct-03
Sept-03
Aug-03
July-03
June-03
May-03
Apr-03
Mar-03
Feb-03
Jan-03
Dec-02
Nov-02
Oct-02
Sept-02
-
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
Page 19
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”
Page 20
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
Page 21
The Future
Page 22
Page 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!
Page 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
Page 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”
Page 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
Page 27
Conclusion
Page 28
Conclusion
• Continue with our traditional focus
° Ratemaking
° Pricing
° Tort reform quantification
Challenge?
After the injury has occurred!
Also referred to as “looking out
the rear view mirror”
• 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
Page 29