Transcript Download Handout 2

Significant Risk and Uncertainty
in Medical Malpractice Loss Reserving
Bill Burns
Vice President & Actuary
CLRS
September 12, 2006
General loss reserving guidance provided in
several sources
ASOP 36

Statement of Principles (1988)

COPLFR (P&C Practice Notes)
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ASOP 36 uses terms such as:
Material Adverse Deviation

Changing Conditions

External Conditions

Significant Risks and Uncertainty
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Section 3.3.3 of ASOP 36 addresses the issues of
“Significant Risks and Uncertainty” as follows:
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“When the actuary reasonably believes that there are significant
risks and uncertainties that could result in material adverse
deviation the actuary should include an explanatory paragraph
in the SAO. The paragraph should contain…a description of the
major factors or particular conditions underlying risks and
uncertainties that the actuary believes could result in material
adverse deviation.”
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Statement of Principles says:
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Considerations — Understanding the trends and changes
affecting the data base is a prerequisite to the application
of actuarially sound reserving methods. A knowledge of
changes…is essential to the accurate interpretation and
evaluation of observed data…
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COPLFR Practice Note says:
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“The opining actuary is expected to use his/her
discretion as to which risk factors and issues merit
discussion in the opinion.”
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COPLFR provides a (partial) list of the types of risk factors
(and underlying exposures) for which comments may be
appropriate
Asbestos

Construction Defect

Recently Enacted Legislation

Tobacco

Med Mal Legislative Issues

Mold
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Question 1
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What significant risks and uncertainties – if any – exist in
medical malpractice that actuaries might consider
disclosing in their SAO’s?
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
Tort Reforms

Nursing Homes

Breast Implants
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Pedicle Screws

Others?
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Med Mal factors that have been “considered”:
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Delivery

Drugs
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Technology

Procedures
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The field of medicine is changing more rapidly than
almost any other:
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Family Doctor
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Specialists

Hospitals
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Delivery of medicine — then…
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…and now

Primary Care Physicians

Specialists

Hospitals

Outpatient Surgery
Physicians’ Offices

Ambulatory Surgi-Centers (ASC)
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70% of all surgery done in U.S.

14 million done in 2005

20% in doctors’ offices

80% in ASC’s
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Most ASC’s are accredited (JCAHO, AAAASF)

Most doctors’ offices are not regulated

Many doctors are not board certified in the procedures
they perform
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Facts about outpatient surgery
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Facts about outpatient surgery (cont’d)
Doctors are paid more for office surgery


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Medicare pays $600 more for a colonoscopy
Doctors’ offices are the most dangerous place to
undergo anesthesia

Outdated/Malfunctioning equipment

Doctors administering anesthesia and operating
Patients are 12x more likely to die or get injured in
offices than in hospitals (Archives of Surgery, 2003)
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Some facts about (legal) drugs
Thousands of pharmaceutical companies worldwide

“Market” > 4,000 drugs (and rising)
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~800,000 doctors in U.S.
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> 1.5Bn prescriptions written annually in U.S.
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Drugs (cont’d)
Come in all shapes, sizes, colors and dosages

Taken 1x, 2x, 6x daily

Taken in the morning, at night or as needed

Many have similar sounding names but have completely
different purposes

Is it any wonder medication errors are one of the leading
causes of med mal losses?
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Drugs (cont’d)
Hospitals are using new technologies to reduce
medication errors but what about those that happen
outside the hospital setting?
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“Medical Mixologist”
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Technologies and Procedures
Two-edged sword
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Extend and improve quality of life
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Introduce new errors (learning curve)
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Warning label: new medical technologies and procedures
may be hazardous to your health!
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Examples
Laparoscopic Cholecystectomy (“Lap Choly”)
Minimally invasive

Decreased visibility
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Unfamiliar with instruments
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More claims, higher awards until doctors were over the
learning curve (three years)
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Bariatric Surgery
Rapid increase in number of procedures

Number of surgery related mortalities and complications

What is the mortality rate?

Where are doctors in the learning curve?

What would an obesity pandemic mean?
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Other factors to think about:
Patient safety
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Electronic medical records
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Tele-radiology
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Use of robots
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Evidenced based medicine
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New specialties
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Question 2
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If we agree there are significant risks and uncertainties
in medical malpractice should actuaries try to quantify
their impact on loss reserves or is an explanatory
paragraph sufficient?
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Consider…

Underwriters are expected to constantly use more
efficient ways of evaluation and quantifying risk.

Should actuaries be content to say:
“My projections make no provision for the extraordinary future
emergence of new classes of losses or types of losses not
sufficiently represented in the Company’s historical database or
which are not yet quantifiable.”
Or to issue a qualified opinion?
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Conclusion
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The numbers do not reveal their secrets easily
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“Actuaries need to be curious, sometimes even more than
they need to be intelligent…What good is applying a
tried-and-true theory if you don’t understand the problem
or the underlying drivers involved, or if you’ve
misidentified a key risk?” (Sam Gutterman, Contingencies,
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July/August 06)
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