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Medical Malpractice Update

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Prepared By: Carl X. Ashenbrenner, FCAS, MAAA. Milliman USA. Sarah Dore, CPCU. Independent Consultant. Kathy Pinkham. Healthcare First ... – PowerPoint PPT presentation

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Title: Medical Malpractice Update


1
Medical Malpractice Update Prepared
For CAS Annual Meeting 2003 New
Orleans Prepared By Carl X. Ashenbrenner,
FCAS, MAAA Milliman USA Sarah Dore,
CPCU Independent Consultant Kathy
Pinkham Healthcare First A Division of
Arthur J. Gallagher Co. Kansas
City November 10, 2003
2
Overview of Presentation
  • Profile of the National Medical Malpractice
    Market
  • Current State of the Medical Malpractice Market
  • What the future holds Solutions and Forecasts
  • Closing Thoughts Questions
  • Attachments

3
Topic 1Profile of the National Medical
Malpractice Market
4
Property/Casualty Direct Premiums Written by Line
- 2002(Amounts in 000s)
34.72
35.34
10.60
10.49
6.66
2.20
5
National Medical Malpractice Market
Growth in Direct Written Premium
Estimated per A.M. Best using net written premium
6
National Medical Malpractice Market in 2002
  • With withdrawal from the market of the largest
    writer, the expectation was that the market share
    of the specialty writers (the so called bed
    pan mutuals) would increase as this business was
    absorbed
  • As the next slide illustrates, the growth in
    market share was driven by the multi line
    commercial writers rather than the specialty
    writers

7
National Medical Malpractice Market
Commercial Carriers vs. Specialty Writers in 2001
and 2002
2001
2002
Multi-Line
Commercial
Multi-Line
Non-Publicly
Writers
Non-Publicly
Commercial
Traded
35
Traded
Writers
Specialty
Specialty
42
Writers
Writers
44
45
Publicly Traded
Publicly Traded
Specialty
Specialty
Writers
Writers
20
14
Based on Distribution of Top 20 Writers
8
Profitability of the National Medical Malpractice
Market
  • Underwriting Results
  • Investment Results
  • Overall Profitability

9
National Medical Malpractice Market Historical
Combined Ratio
10
National Medical Malpractice MarketInvestment
Gain Ratio
11
National Medical Malpractice MarketPre-Tax
Operating Margin
12
Myth or Reality?
  • There is a public perception that malpractice
    premiums are increasing to cover the losses that
    insurance carriers have suffered in the stock
    market
  • The reality is, that while investment returns are
    down, this is driven by a decline in interest
    rates, and not the stock market
  • The overwhelming majority of invested assets for
    the specialty carriers are in fixed income
    securities

13
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14
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15
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16
Insolvency Conclusion
  • Most companies that went insolvent were domiciled
    in crisis states
  • Most of these states have prior approval rate
    filing
  • Many of the larger companies that went insolvent
    expanded rapidly into new markets/territories/stat
    es before insolvency

17
Topic 2 Current State of the Medical
Malpractice Market
18
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19
National Medical Malpractice Market Top 20 Writers
20
National Medical Malpractice MarketTop 10 States
21
National Medical Malpractice Rankings of
Premium by State
Direct Written Premium
Top Ten
Second Ten
Third Ten
Fourth Ten
Remainder of States
22
The AMAs Crisis States
  • In June of 2002, the American Medical Association
    released the results of a survey of its members,
    intended to evaluate the impact of the
    Professional Liability market on Access to
    Healthcare
  • The survey focused on whether the Professional
    Liability market was causing physicians to
  • Leave their current state of practice
  • Retire early or
  • Abandon high risk services
  • Based on the survey results, the AMA classified
  • 12 states as in crisis
  • 30 states (plus D.C.) as showing problem signs
  • 8 states currently ok

23
The AMAs Crisis States
  • In March of 2003 the AMA updated its survey
    results
  • 18 states in crisis
  • 26 states (plus D.C.) showing problem signs
  • 6 states currently ok
  • In July of 2003 the AMA again updated its survey
    results
  • 19 states in crisis
  • 25 states (including D.C.) showing problem signs
  • 6 states not experiencing problems
  • Note In August of 2003, one of these six states
    (Indiana) indicated a 72.6 increase would be
    implemented in fees for its patients compensation
    fund

24
State of the Med Mal Industryas of July 2003
19 25 6
States in crisis
States showing problem signs
States showing no problem signs
Source American Medical Association
25
AMA States Identified as not Experiencing
Problems - Existence of Patients Compensation
Fund and/or Cap on Damages
26
Big NewsinSmall Town
MUST SELL TO PAY MALPRACTICE INSURANCE
27
Crisis is Real
  • Affordability Issue
  • Doctors closing practices
  • Doctors Dilemma
  • Insurers cannot make a profit and doctors cannot
    afford the coverage. Rate increases are not the
    answer. The industry has to find a new way to
    manage the risk.
  • Extreme Measures
  • RRGs, New Companies, Off-Shore Insurers

28
Medicare vs. Malpractice Rates
  • Two major problems in current market
  • Affordability
  • Availability
  • To address affordability, we compared Medicare
    reimbursement rates to medical malpractice rates
    for different states and specialties

29
Medicare Reimbursement Rates
  • Overview of Rating Process
  • Three cost factors for each procedure
  • Work
  • Expense
  • Malpractice
  • Relativities by state/territory for each of the
    three factors

30
Medicare vs. Malpractice Rates
31
Medicare vs. Malpractice Rates
32
Medicare vs. Malpractice Rates
33
Conclusions and Observations
  • Medicare reimbursement rates declined for higher
    risk specialties (Surgery and OB/GYN) while
    Medical Malpractice rates increased substantially
  • Reimbursements not keeping up with medical
    malpractice rates
  • Medicare reimbursements slow to changes

34
Conclusions and Observations.(Continued)
  • Higher severity specialties getting less
    reimbursement
  • Will need to see more patients
  • Use extenders more often
  • May lead to increased claims and severity

35
Topic 3What the Future Holds Solutions and
Forecasts
36
Historical Problems
  • 1970s - Multi-line companies withdrew from the
    market availability problem
  • Solution - Physician owned insurers were formed
  • 1980s Rates increased substantially after
    prolonged soft market (affordability)
  • Solution Form changed from Occurrence to
    Claims-Made coverage

37
Current Problems
  • Companies withdrawing availability
  • Substantial rate increases affordability
  • Capacity Constraints
  • Claim Severity increasing
  • Healthcare process physicians must see more
    patients or use extenders
  • Nursing shortage

38
Current Solutions
  • Physicians
  • Policy changes lower limits, deductibles
  • Captives forming
  • Physicians going bare
  • Hospitals providing coverage
  • Leaving states / changing practices

39
Current Solutions
  • Insurers
  • Re-Underwriting Book
  • Retrenching back to core business
  • States/Specialties/Territory Restrictions
  • New business moratoriums
  • Using broad-brushed underwriting approach

40
Prognosis and Proposals
  • Governmental
  • Alliance for Healthcare Reform
  • Administrative compensation system
  • Reasonable compensation for avoidable injuries
  • Reliable Medical Justice Act Immunity from
    lawsuits with early offer of compensation for
    injury
  • Allow no-fault on certain specialties OB,
    Trauma, Emergency

41
Prognosis and Proposals
  • Governmental (continued)
  • States establish an administrative board to
    evaluate compensation
  • Establish special Health Care Courts with binding
    rules on causation, compensation, standards of
    care and related issues.
  • Current AMA agenda for capping pain and suffering
    awards
  • State Compensation Funds

42
Prognosis and Proposals
  • Physician
  • Train physicians and other medical staff to treat
    patients better
  • Set patient expectations properly
  • Reinforce expectations frequently
  • Spend more quality time with patients accept
    reduction in patients seen per day, in order to
    reduce claims and insurance costs
  • Gather patient feedback, have it evaluated
    independently
  • Obtain real informed consent

43
Prognosis and Proposals
  • Insurer
  • Reduce the number of claims stop paying off
    illegitimate claims to make them go away
  • Ask physicians to retain some risk through
    deductibles
  • Work only with physicians who will follow best
    practices and who will insist that patients
    recognize their role in maintaining their own
    health and in keeping malpractice insurance costs
    manageable
  • Change form to recognize arbitration agreements

44
Prognosis and Proposals
  • Underwriting
  • Use more efficient ways of evaluating risk
  • Number of patients
  • Number of high-risk patients
  • Quality of care measurements
  • Adherence to standards of care, as set by
    specialty colleges
  • Identify types of procedures that generate claims
  • Evaluate error-management programs in hospitals
    and practices
  • Evaluate patient advocacy programs

45
Prognosis and Proposals
  • Underwriting
  • Develop more coverage options
  • Defense costs inside policy limits (46 of claims
    cost is litigation)
  • Examination of alternative dispute resolution and
    ombudsman mediator program
  • Tail limits as extension of last limits

46
Prognosis and Proposals
  • Actuary
  • More detailed review of losses to drill down to
    causation, rather than classifying and penalizing
    areas of practice
  • Recommend evaluative measures of these causes for
    the underwriter
  • Study the practices of low-risk doctors and
    develop rating factors based on those factors
  • Identify common factors among high-risk patients
    i.e., help physicians select patients who wont
    sue them

47
Prognosis and Proposals
  • Actuary (continued )
  • Create a measuring tool to evaluate the risk
    profile of physicians
  • Identify the risk characteristics of physicians
    who have been sued
  • Build a national database that provides a risk
    profile
  • Use the risk profile to load individual
    physicians rates
  • Encourage high-risk physicians to leave the
    patient care area of medicine
  • Establish price tags for behavior modification
    tools

48
Topic 4Closing Thoughts Questions
49
Thank You!
  • Carl X. Ashenbrenner, FCAS, MAAA
  • Milliman USA
  • carl.ashenbrenner_at_milliman.com
  • (262) 784-2250
  • Sarah Dore, CPCU
  • Independent Consultant
  • SKIDOOR_at_aol.com
  • (630) 357-9176
  • Kathy Pinkham
  • Healthcare First
  • A Division of Arthur J. Gallagher Co. Kansas
    City
  • kathy_pinkham_at_ajg.com
  • (816) 395-8501

50
ATTACHMENTS
51
Medicare Reimbursement Rates
52
Frequency By Specialty
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