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Topics
• Impact of Managed Care on Medical Malpractice
• Hospital Exposure Base
• Policy Terms and Conditions Actuaries need to be
aware of
• Medical Malpractice Loss Development Patterns
• Data Sources
Impact of Managed Care on
Medical Malpractice
• Affect of Gatekeeper roll for primary care
physicians –shifted liability between classes
– Family Practitioners and Internists now responsible for
all direction of care.
• RESULT – Huge increase in failure to diagnose claims
– Nurses, CRNA, Nurse Practitioners – Responsible for
direct care of patients pushed down to lower classes
• RESULT – Physician, Surgeon and Allied Health professional
class relativities are more compact now.
Impact of Managed Care on
Medical Malpractice
• Move to more outpatient treatment rather
than inpatient hospital treatment
– RESULT – Complete change in measurement
of exposure to malpractice for hospitals
Exposure Base for Hospitals
• What about Bed Equivalents?
– Historically, hospital malpractice rated on a per
bed basis.
– Now with less patient time in a “bed”,
underwriters have developed “bed equivalents”
– So, for example, 1000 outpatient visits is the
equivalent of what used to be the exposure
from having 1 bed in the hospital.
Exposure Base for Hospitals
Where do Bed Equivalents come
from???
Don’t be fooled – They were made up!
• By Brokers
• By Underwriters
Hospital Exposures
• Are primary Bed Equivalents a good exposure
base for excess MedMal claims?
– Current Bed equivalent calculations result in fairly flat
exposures over time
– Most excess MedMal claims come from “bad babies”
– Other sources of major MedMal claims are failure to
diagnose in the emergency room.
– Current weightings in use do not differentiate much
between a hospital that does many deliveries versus one
that does not.
Hospital Exposures Relativities
Hospital
Exposures
371
43
158
63
121
1,255
186
1,660
77
-
Exposure Unit
A
B
Each
Each
Each
Each
Each
Each
Each
Acute Care Bed Count
Pysch Beds
Chemical Dependence Beds
Sanitarium Beds
Extended Care Beds
Bassinets
NICU Incubators
1.00
0.50
0.35
0.60
PER 100
PER 100
PER 100
PER 100
PER 100
PER 100
PER 100
In Patient Surgeries
Emergency Room Visits
Out Patient Surgeries
Out Patient Visits
Deliveries
Home Health Visits
Psych Days
0.50
0.30
0.40
0.05
0.10
0.03
0.01
C
1.00
0.50
D
E
1.00
0.50
0.35
1.00
0.68
0.31
0.07
0.07
1.67
0.29
0.40
0.03
0.13
1.67
0.29
0.40
0.05
0.13
0.14
0.14
0.13
3.83
0.07
0.86
0.26
0.18
0.43
F
1.00
1.00
G
1.00
1.00
1.00
0.60
0.07
0.05
2.00
3.00
Total Bed Equivalents
4.00
1,978
1M/3M Base Rate
$
2,500
1M/3M Base Premium
$ 4,946,168
$
2,500
$ 5,802,420
1.67
0.29
0.40
0.05
0.13
1,137
$
2,500
$ 2,843,070
2,500
$ 18,335,922
0.96
0.34
0.59
0.08
0.02
0.07
0.05
0.06
J
1.00
1.00
0.71
0.62
0.05
0.11
0.11
1.57
0.08
0.92
12.00
0.19
10.00
10.00
4.00
1.50
7,334
$
1.00
0.72
0.10
2.09
2,321
I
0.20
3.00
1.00
3.00
PER 100 Counseling/Therapy OPV
Each
Residents
307 Each
Employed Physicians
H
1,159
$
2,500
$ 2,896,820
1,077
$
2,500
$ 2,692,494
734
$
2,500
$ 1,835,500
1,189
$
2,500
$ 2,972,120
21,421
$
2,500
$ 53,553,000
4,865
$
2,500
$ 12,161,879
Impact of Tort Reform on
Medical Malpractice
• Survey of states with Tort Reform
– California – Micra – effective in keeping phys/Surg
rates down due to cap on pain and suffering awards.
– Texas – virtually worthless. Most value came from no
venue shopping.
– Michigan – seems to be helping. Noticeable decrease
in severity of claims in Oakland and Wayne counties.
– Illinois – worthless.
• Does MICRA really protect the high excess
insurers?
Medical Malpractice Jury
Verdicts greater than $10 Million
State
NY
TX
CA
IL
PA
FL
MI
OH
AL
MA
NC
dc
MO
NJ
WI
SC
CT
GA
KY
MD
MN
OR
WA
AZ
CO
ID
IN
KS
NV
OK
RI
VA
WV
# Verdicts Greater than
$
10,000,000
80
34
32
20
18
15
8
8
7
6
5
4
4
4
4
3
2
2
2
2
2
2
2
1
1
1
1
1
1
1
1
1
1
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Maximum
Verdict
116,000,000
312,765,777
214,450,000
56,000,000
118,000,000
20,000,000
35,800,000
17,050,000
65,000,000
26,500,000
35,000,000
24,297,777
25,330,000
35,000,000
24,700,000
18,285,000
27,000,000
45,000,000
23,530,746
26,000,000
65,000,000
17,774,000
16,200,000
12,000,000
14,545,900
23,038,540
10,000,000
23,600,000
17,000,000
10,100,000
11,037,964
25,000,000
10,000,000
Loss Development Patterns in
Medical Malpractice
• Differ by
– Carrier
• Reserve Adequacy (check Paid to Incurred ratios as compared
to benchmark LDFs)
• Settlement Philosophy
– Defend to the End
– Settle Quick to avoid large Verdicts
– (check ALE ratio to Indemnity)
– Jurisdiction – Different states have different laws which
affect the reporting and payment of claims
State
IN
CT
NY
IL
NJ
CO
KS
MA
ID
OK
PA
CA
OH
NC
MI
KY
MD
AZ
AL
WI
MN
FL
TX
DC
RI
MO
GA
OR
WV
WA
SC
NV
VA
Total
Average Lag between
Incident date and Trial Date
12.0
9.5
9.3
7.5
7.0
7.0
7.0
6.3
6.0
6.0
5.7
5.5
5.5
5.4
5.4
5.0
5.0
5.0
4.8
4.5
4.5
4.4
4.1
4.0
4.0
3.8
3.5
3.5
3.0
2.5
1.0
6.4
Changes in LDFs –
External Causes
• Tort Reform – affect on reporting patterns
especially for claims made forms
– Example – 1995 Tort Reform in Illinois caused huge
increase in reported claims just prior to effective date of
legislation
– Current – Nebraska, lawyers are holding back reporting
of claims while waiting supreme court ruling on
constitutionality of current damage cap
• Market Cycle – Claims made form can change
behavior with the ups and downs of market cycle
– Risks or brokers dumping claims runs on carriers under
expiring programs. Policy wording important!
Hospital Loss Development
Primary 1M limits xs SIR
Age
12
24
36
48
60
72
84
96
108
120
Report Year
13.604
4.163
1.683
1.377
1.204
1.113
1.063
1.036
1.020
1.012
Accident Year
156.148
10.734
4.585
2.378
1.711
1.502
1.359
1.261
1.190
1.140
4M xs 1M xs SIR
Report Year
77.438
5.766
1.954
1.557
1.317
1.186
1.110
1.040
1.024
1.015
Accident Year
418.000
22.310
9.188
4.415
2.678
2.618
2.138
1.819
1.601
1.447
5M xs 5M xs SIR
Report Year Accident Year
48.162
48.162
10.647
4.423
2.719
1.941
1.545
1.327
1.201
1.125
173.585
173.585
173.585
18.869
10.616
7.193
5.174
3.920
3.105
2.555
Policy Terms and Conditions
• Actuaries don’t get very involved in reviewing the
policy terms and conditions
• However, small changes in terms can have big
effect on pricing model
• Example – Definition of a claim has changed from
being on a per person basis to being an occurrence
in which all related events are considered one
claim. This was done so the primary insurers
would not be exposed to multiple policy years on
an individual event. Obviously, this is the proper
thing to do for a primary insurer.
• The effect to the excess carrier, however
• is that now the size of loss distribution has
changed, making claims larger than before since
the claims of multiple defendants involved with
one incident are added together. Example would
be 2 doctors and a hospital sued for a poor
outcome from the delivery of a baby and all being
covered by the same insurer.
• Effect of Batching Claims Clause
• Guaranteed Tail pricing in a soft market
• Definition of what constitutes a reported claim
under a claims made policy
• ALE included as part of loss or pro rata
Aggregate Exposure
• The true disaster in medical Malpractice –
Aggregate Drop down
• Possible pricing models – simulation vs
Gamma distribution of aggregate losses
• Rule of Thumb – Set aggregate on SIR at
least 2 times expected loss
Available Sources of Data
• ISO – Most MedMal companies do not report to
ISO
• Jury Verdict Research Data – West Law and others
– Publishes annual review of jury verdicts for
medical malpractice
• NPDB – National Practitioner Database
• Florida database- This site, which is maintained on the
Internet by the Florida Department of Insurance, offers
information on the claims paid by malpractice insurance
companies for doctors, hospitals, and even lawyers in
Florida for the last 20 years.
• Conning Report
Available Sources of Data
•
•
•
•
Best Week – Rate Filings available on line
Crittendon’s Medical Insurance News
Actuarial Consulting Firms – 1 time studies
Wellington Actuarial Services
MedMal Fast Stats
Loss Cost Trend Statistics on state basis
Updated and published 3 times a year
Contact: [email protected]