Medical Malpractice by jolinmilioncherie


									                                Trends in

Kevin M. Bingham – Deloitte.

Casualty Actuaries of New England (CANE)
October 3, 2005
8:45 AM – 10:00 AM
Sturbridge Host Hotel, Massachusetts
•   Industry Results
•   Rates
•   Tort Reform
•   The Future
•   Conclusion

                       Page 2
Industry Results

                   Page 3
Industry Results

                   Page 4
Industry Results
  ° Operating Ratio
     • 2003           102%
     • 2004           92%
• AM Best                    Prior Year Reserve Strengthening
                             St. Paul
  ° Operating Ratio          • Exit med mal in December 2002
     • 2003           122%     Initial $600 million B-T charge
     • 2004           96%    • 2003
                               $350 million B-T charge
                             MLMIC Group
                             • Almost $200 million of prior year
                              reserve development in 2003

                                                           Page 5

        Page 6
• “Maintenance” rate filings more common (i.e.,
  rate increases that offset loss trend)
• Market is softening
• Crittenden Medical Malpractice Insurance
    ° 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
• Competition for business increasing again through pricing
  and innovation
   ° The Doctors Company introduces simplified medical malpractice
   ° 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

                                                                     Page 8
Tort Reform

              Page 9
Tort Reform - Caps
• Economic damages
   ° Lost wages
   ° Medical expense           Quantifiable from a ratemaking
                               and reserving perspective.
   ° Funeral expense
• Non-economic damages (a/k/a pain and suffering)
   °   Loss of consortium
   °   Loss of companionship   Highly subjective and difficult
                               to quantify from a ratemaking
   °   Disfigurement           and reserving perspective.
   °   Mental anguish

                                                           Page 10
Tort Reform - Caps
• Trends in Proposed Caps
  ° Hard cap (e.g., $250,000 MICRA cap)

  ° Soft cap             • Emergency room vs non-emergency room
     • Florida           • Practitioner vs non-practitioner
     • Texas             • Per defendant caps
                         • Per claimant caps
  ° “Cap busters”        • Piercing
     • Florida
     • Massachusetts     • Disfigurement
                         • Death
                         • Vegetative state
                         • Unanimous verdict

                                                              Page 11
Tort Reform - Caps
• Pricing and Reserving Considerations
   °   Constitutionality                        • Is the data captured?
   °   Policy limits                            • If captured, is it accurate?
                                                • Are more co-defendants going bare?
   °   Number of claimants/defendants           • Credibility for use in pricing/reserving?
   °   Severity of injuries faced by company
   °   ALAE
   °   Phase-in effect                Issues:
                                     • 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
         “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
• 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
• Reform
   ° “Severally” liable (i.e., proportional liability)
       •   All damages (economic and non-economic)
       •   Non-economic damages only                          Defendant pays their
       •   % at fault criteria (e.g., def < 51% at fault)     fair share of damages
       •   Defendant uncollectible - reapportion after 1 yr
   ° 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
• Pricing/Reserving considerations
   ° Impact on filing of future claims when J&S abolished
   ° Impact on plaintiff attorney strategies going forward         Legal
       • Spread “comparative fault” to maximize recovery           Expertise
       • Consider impact of caps (spread versus telescope)
• National Association of Mutual Insurance Companies
   ° 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 (

                                                                      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
       • 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               
                                                      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
                                                                                                                                   Sept-03                                                                                                                                                      Florida
                    300                                                                                                                                                                                                                                                                         Closed
      Claim Count





















 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:

                                                                                                                                                                                                                                                                                                 Page 19
Tort Reform - Constitutionality
• Issues With Constitutionality
   ° Cap on non-economic damages
      • Texas – Passed Proposition 12, Nevada - ballot initiative
      • 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
   ° 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

                                                                         Page 26
The Future
• Physician communication
  ° “I’m Sorry” legislation
     • The Sorry Works Coalition (
     • 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

             Page 28
• Continue with our traditional focus
   ° Ratemaking                               Challenge?
                                    After the injury has occurred!
   ° Pricing                        Also referred to as “looking out
   ° Tort reform quantification          the rear view mirror”

• BUT focus on pre-injury opportunities as well
   ° Predictive modeling, “right pricing” and incentives to
   ° 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

To top