Medical Malpractice
After the Bubble ……
Medical Malpractice Crisis
Winding Down
• New Capacity for Primary Hospital business
– Rates flattening
– Terms and conditions eroding
• New Capacity for Excess Hospital business
– Rates Falling
• New Treaty Reinsurance Capacity
– Reinsurance terms weakening
How can Reinsurers still
maintain Profitability in this line
• New Capacity must do the appropriate due
diligence when entering new lines of business
• Medical Malpractice is a prime target for
adverse selection
– Practitioners typically shop for the cheapest
insurance regardless of company ratings.
– Primary insurers typically shop for the cheapest
reinsurance regardless of company ratings.
• Examples: New Physician Carrier has ended up with a
book of business made up predominantly of OB/GYNs
• Reinsurer has ended up as the carrier of choice for
Cook County Teaching hospitals
How can Reinsurers do the
appropriate Due Diligence?
• Difficulties:
– Lack of good publicly available data
• ISO does not have complete data because so many
companies that write MedMal do not belong to ISO
• Most company rates were based on copying St Paul
Rate Filings
– Huge Variety of Risks Involved:
• Physicians, Surgeons, Allied Professionals, Hospitals,
Managed Care, Healthcare D & O, Aviation
(helicopters), Auto (ambulances), GL Mold problems
– Highly Jurisdictional Line of Business.
• State differentials
• Differences within states
GAO Report on Factors
Contributing to Increased
MedMal Insurance Rates
• Conclusion of this Report:
– Encourage NAIC and State Regulators to
“identify and collect additional, mutually
beneficial data necessary for evaluating the
Medical Malpractice insurance market.”
National Practitioner Databank
Public Use File
• Free Download of data is available at:
– http://www.npdb-hipdb.com/publicdata.html
• Updated Quarterly
• Formatted as either ASCII file or SPSS file
– SPSS is a statistical package program similar to SAS
– Free demo download of SPSS available at;
• http://www.spss.com Just register for free and
download the software for one month
– Using SPSS, you can select the data you would like
and create an Excel spreadsheet
What data is Available
• Medical Malpractice payments made on
behalf of individual practitioner
– Physicians and Surgeons
– Dentists
– Nurses
– Various Allied health Professional
What data is Available
• Cause of Loss
– Obstetrics Related
– Anesthesia Related
– Failure to Diagnose
– Surgery
– Medication
– IV and Blood
– Treatment Related
Other Useful Data Fields
• Accident Year
• Year reported to Databank (payers are
required to report within 30 days of
payment)
• Fund Payments
• Age group of practitioner
Calendar Severity Trends
•Example – CT in Crisis
• Ability to compare
Calendar Year
Severity Trends by
– State
– Type of Practitioner
– Cause of Loss
•Trend = 8.5%
•Avg Sev = $550,000
•Michigan – Showing •California –
Problem Signs Currently Okay
•Trend since 1996 = 5% •Trend = 4.7%
•Avg Sev = $130,000 •Avg Sev = $175,000
CO – Currently OK (?)
•Trend = 9.8% •33% jump in 2002
What Happened in CO in 2002?
• If you do a little research, you will find:
– In 2001, Preston v. Dupont held that damages for
physical impairment and disfigurement are not
subject to the $250,000 damages cap.
1991 3.25
1992 5.43 # of Payments greater
1993 4.43 than $250,000 by CY
1994 4.83
1995 8.36
1996 6.38
1997 6.47
1998 10.93
1999 6.63
2000 6.93
2001 7.45
2002 10.66
2003 10.71
Calendar Year Frequency
Trends (Indemnity only)
• Big decrease in CY
frequency in 1996
– Due to tort reform which
enacted a cap on non-
economic damages in
MI
• Difficult to find data on
historical doctor counts
so use Population
CY Paid Indemnity Frequency
•CA CY Paid Count per 1M Residents
•0.06000
•0.05500
•0.05000
•0.04500
•0.04000
•0.03500
•0.03000
•Frequency per Population •Fitted
•Trend = -4.3% Unusual
Check AY Reporting Patterns
•Obvious Slow Down in Payments
Payout Lag
• Although databank only has CY
payments since 1990, payments are
being shown on all prior accident years
– So can compare length of payout pattern
and tail for different states
• New Jersey Extremely long
Trend by Cause of Loss
Comparative Size of Loss Distributions
Comparative Frequency By State
State MA CA CO
Projected # 264 1,404 165
Payments
Population 6,433,422 35,116,003 4,574,579
Freq per 1000 .4% .4% .36%
Doctor Count 28,851 88,553 9,999
Freq per doc .9% 1.6% 1.65%
Doctor per 1000 4.485 2.522 2.185
Resident
Rules for Reporting to NPDB
• Entities such as insurance companies must report
practitioners on whose behalf medical malpractice payments
are made.
• Medical Malpractice payments must be reported to NPDB
within 30 days of the date of the initial payment.
• Civil penalties can be assessed for non-reporting and for
unauthorized use of NPDB information.
• Entities failing to report medical malpractice payments can be
assessed up to $11,000 for each unreported payment.
Compliance Issues
• The GAO did a study of the reporting to NPDB in 2000.
• Agency officials believe that some insurers and self-insured
organizations such as HMOs and other health plans should
report to NPDB but do not.
• In 2000, the agency identified 41 insurers that reported
payments to NAIC but not to NPDB
– 17 of the 41 companies have adequately explained the
discrepancies
– Of the remaining 24, 18 companies recognized their
omissions and agreed to file the delinquent reports
• About 25% (331) of the 1,300 malpractice reports
received in the test month (Sept 1999), were not
submitted to NPDB within 30 days of the initial
payment, as required. On average, these reports
were about 85 days late.
• More than 30 percent of the Sept reports, noted
delays between the date the report was submitted
to NPDB and the date that the information was
incorporated into the data bank. The median
processing delay was about 13 days.
• Agency officials believe that some
insurers may be using a technicality in
NPDB’s reporting requirements to
avoid reporting some practitioners.
– Corporate shield. Only practitioners who
are named in a settlement need to be
reported upon. So corporate shield
occurs when individuals filing malpractice
claims remove the practitioner’s name
from the claim leaving only the hospital or
another corporate entity as the
responsible party.
Other Issues regarding the
Data
• Companies in receivership may not be
reporting to the NPDB
– Example: New Jersey shows a huge decrease in the
volume of reports. Most likely the affect of MIIX and
PHICO
• States with Patient Compensation Funds –Data
needs special handling to appropriately match
fund payments with underlying payments.
Conclusion
• Insurers and Reinsurers can get into deep
trouble by not doing the appropriate due
diligence before writing MedMal insurance.
– Examples: Florida XPL, Claims made step factors
for Excess Losses
• Reinsurers can use the NPDB data to get a
better idea of what might be happening with
medical malpractice losses
• The use of the NPDB data requires actuarial
analysis to appropriately recognize problems
inherent in the data source.