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					     Pennsylvania Insurance Department



                               Overview of the
                   Medical Care Availability and
                    Reduction of Error Fund


November 2, 2006        Mcare Commission Public Hearing   1
What is Mcare?
    The Medical Care Availability and
    Reduction of Error Fund (“Mcare”)
    was created by Act 13 of 2002 and
    is a deputate of the Pennsylvania
    Insurance Department
    Mcare is the successor to the
    Medical Professional Liability
    Catastrophe Loss Fund, better
    known as the “CAT Fund”
November 2, 2006   Mcare Commission Public Hearing   2
What is Mcare’s Mission?

    Mcare main purpose is to ensure
    reasonable compensation for persons
    injured due to medical negligence




November 2, 2006   Mcare Commission Public Hearing   3
How does Mcare Implement its
Mission?
    By administering various sources of
    funds to pay for judgments, awards or
    settlements in medical malpractice
    claims against participating health
    care providers and eligible entities,
    which exceed the primary limits of
    coverage


November 2, 2006   Mcare Commission Public Hearing   4
Who is required to participate in
Mcare?
    Participation is mandatory for
          physicians
          osteopathic physicians
          podiatrists
          nurse midwives
          hospitals
          nursing homes
          birth centers
          primary health centers
          Professional corporations*
              *Most professional corporations, associations or partnerships
                   owned entirely by health care providers may choose to insure their
                   basic (primary) layer of liability
                     – If they so choose, then their participation in Mcare is mandatory



November 2, 2006                     Mcare Commission Public Hearing                       5
Who is NOT Subject to Mandatory
Mcare Coverage Participation?
1. providers who practice less than 50% in PA
2. providers who practice exclusively as federal government
   employees
3. providers who practice exclusively as Commonwealth or City
   of Philadelphia employees
4. providers who are exclusively forensic pathologists
5. providers who are retired, but who provide care for his or
   herself and immediate family members
6. providers who practice exclusively as members of the PA or
   U.S. military forces
7. providers who practice exclusively under a volunteer license
8. providers who practice exclusively with coverage under the
   Federal Tort Claims Act



November 2, 2006       Mcare Commission Public Hearing        6
National Coverage Limits
 8 states require some level of
 mandatory coverage

 Only New Jersey and Wisconsin
 require the same level of mandatory
 coverage as Pennsylvania




 November 2, 2006   Mcare Commission Public Hearing   7
PA’s Mandatory Coverage Limits

    Since the Fund’s creation in 1976, the
    required coverage limits for health
    care providers has varied to meet
    changes in the law

    The primary rates increase or
    decrease in part to reflect the risk
    associated with the changes to the
    primary layer
November 2, 2006   Mcare Commission Public Hearing   8
What are the Coverage
Requirements?
    Providers must insurer their professional medical
    services within the Commonwealth by purchasing
    medical professional liability insurance as follows:

            Primary Layer from an insurance carrier
                licensed or approved by the PA
               Insurance Department or with an
                  approved self-insurance plan
                            and an
                    Excess Layer from Mcare
November 2, 2006       Mcare Commission Public Hearing     9
Market Rates

    Premium rates for primary
    malpractice insurance are increasing
    annually at lower percentages

    Since 2003, the Pennsylvania
    Insurance Department has licensed or
    approved 4 new insurance companies
    and 29 risk retention groups
November 2, 2006   Mcare Commission Public Hearing   10
What is the history of coverage
limits?
       From 1976 to 1982 coverage remained consistent
  History of Coverage Limits                           Coverage Limits (per Occurrence/per Annum)


                                   Mcare Layer                                         Basic (Primary) Layer

          Policy Effective
Year           Date                 All HCPs                         Non-Hospital                              Hospital




1976


1977


1978

            01/13/76 -
                               $1,000,000 / $3,000,000            $100,000 / $300,000                   $100,000 / $1,000,000
1979        12/31/82

1980


1981


1982




 November 2, 2006                              Mcare Commission Public Hearing                                                  11
Coverage in 1983
       Increase in primary layer

                                                  Coverage Limits (per Occurrence/per Annum)
  History of Coverage Limits

                                    Mcare Layer                               Basic (Primary) Layer
Year     Policy Effective Date        All HCPs                    Non-Hospital                        Hospital




1983    01/01/83 - 12/31/83      $1,000,000 / $3,000,000        $150,000 / $450,000            $150,000 / $1,000,000




November 2, 2006                       Mcare Commission Public Hearing                                           12
Coverage from 1984 to 1996
       Increase in primary layer
  History of Coverage Limits                      Coverage Limits (per Occurrence/per Annum)

                                   Mcare Layer                               Basic (Primary) Layer

Year   Policy Effective Date        All HCPs                   Non-Hospital                          Hospital
1984

1985

1986

1987

1988

1989

1990    01/01/84 - 12/31/96    $1,000,000 / $3,000,000     $200,000 / $600,000            $200,000 / $1,000,000
1991

1992

1993

1994

1995

1996


November 2, 2006                      Mcare Commission Public Hearing                                           13
Coverage from 1997 to present
       Fund layer decreases
       Primary layer increases
 History of Coverage Limits                         Coverage Limits (per Occurrence/per Annum)

                                     Mcare Layer                               Basic (Primary) Layer

         Policy Effective
Year          Date                    All HCPs                   Non-Hospital                          Hospital
1997
        01/01/97 - 12/31/98     $900,000 / $2,700,000         $300,000 / $900,000            $300,000 / $1,500,000
1998

1999
        01/01/99 - 12/31/00     $800,000 / $2,400,000       $400,000 / $1,200,000            $400,000 / $2,000,000
2000

2001
        01/01/01 - 12/31/02     $700,000 / $2,100,000       $500,000 / $1,500,000            $500,000 / $2,500,000
2002

2003

2004
        01/01/2003 to present   $500,000 / $1,500,000       $500,000 / $1,500,000            $500,000 / $2,500,000
2005

2006

November 2, 2006                          Mcare Commission Public Hearing                                         14
Primary Market Rates

    The following slide illustrates recent
    rates for a select group of carriers




November 2, 2006   Mcare Commission Public Hearing   15
Annual Percentage Changes in Select Medical
Malpractice Carriers’ Base Premium Rates
(Year Increases Are Effective)




                    2000        2001    2002        2003       2004       2005    2006      2007



JUA                 3.2%        16.4%   20.0%      48.0%       4.2%       0.6%    -1.9%     7.5%




PMSLIC              15.0%       10.0%   40.0%      54.0%       15.1%      10.8%   0.0%      0.0%



Medical
Protective      Not Available   15.0%   45.0%      15.7%       25.0%      15.0%   0.0%    Not Available




 November 2, 2006                       Mcare Commission Public Hearing                                   16
Mcare Layer Rates
    The Mcare rates increase or decrease
    to reflect the changes in coverage,
    claims payout and operational
    expenses
    Mcare rates were simply a
    percentage of providers’ primary
    premiums until 1996
    Since 1997, Mcare rates were a
    percentage of the JUA base rates
November 2, 2006   Mcare Commission Public Hearing   17
What is the History of Mcare rates?

    The following slide illustrates
    assessment rates from 2000 to 2007
          The rate went from 61% in 2000
            to 23% in 2007




November 2, 2006     Mcare Commission Public Hearing   18
Assessment Rate History
                           Mcare Annual Assessment Rates


   70%       61%    61%
   60%                      50%
                                                     46%
   50%
                                        43%
                                                                39%
   40%                                                                 29%
   30%
                                                                              23%

   20%

   10%
    0%
             2000   2001    2002        2003         2004       2005   2006   2007




November 2, 2006              Mcare Commission Public Hearing                        19
Medical Malpractice Crises…
    Periodic medical malpractice crises date
    back to the mid-1970’s
    In 2000, several national medical
    malpractice insurers withdrew from the
    market and thereby reduced the total
    medical malpractice insurance capacity in
    PA and the nation
    The 9/11 attack exacerbated the
    malpractice insurance crisis by increasing
    reinsurance costs
    Increased malpractice expenses created
    financial stress on providers
November 2, 2006   Mcare Commission Public Hearing   20
How did the Administration and the
Legislature React?
         Act 13 of 2002 was enacted in
         order to address the concerns
         of the health care provider
         community and private
         marketplace




November 2, 2006     Mcare Commission Public Hearing   21
Legislative Reforms and Rule Changes
by the PA Supreme Court
    Prohibited venue                              Certificate of Merit
    shopping                                            Certified medical expert
          Curtailed the number of                       must confirm that
          cases filed in                                malpractice has
          Philadelphia                                  occurred

    Established guidelines                        Encourage the use of
    for Motion of Remittitur                      Alternative Dispute
          Gives judges more power                 Resolution Methods
          to limit runaway jury
          awards for non-economic
          damages


November 2, 2006           Mcare Commission Public Hearing                    22
Some Other Key Provisions of Act
13 of 2003
    Reduced mandatory malpractice coverage
    limits from $1.2 million in 2002 to $1 million
    in 2006

    Reduced Mcare’s coverage layer from
    $1,200,000 by $200,000 in 2002 to
    $500,000 to $1,000,000 in 2003

    Continue to provide fair and reasonable
    compensation to injured claimants

    Provided for a gradual phase-out of Mcare
November 2, 2006   Mcare Commission Public Hearing   23
Access to quality health care was
an immediate concern
    Something was needed that would
    allow time for the Act 13 reforms to
    take effect




November 2, 2006   Mcare Commission Public Hearing   24
An interim measure was needed…

    The General Assembly passed Act 44
    of 2003 and Governor Rendell signed
    it into law thus establishing the
    Health Care Provider Retention
    Program
          Commonly referred to as the Mcare
          “Abatement Program”


November 2, 2006     Mcare Commission Public Hearing   25
How is the Abatement Program
Funded?
        Act 44 provides funding for the
        Abatement Program from a 25 cents
        per pack tax on cigarettes, providing
        $180 million annually

        $42 million annually has been
        dedicated from the Auto CAT Fund
                   Funding for Mcare from the Auto CAT
                   Fund is scheduled to sunset in 2013
November 2, 2006           Mcare Commission Public Hearing   26
What are the Goals of the
Abatement Program?

  Mcare’s Abatement Program is
  designed so Pennsylvanians will
  have continued availability of and
  access to quality health care




November 2, 2006   Mcare Commission Public Hearing   27
How is this goal achieved?
      Pennsylvania’s innovative Abatement Program defrays providers’
      malpractice insurance expenses until legislative and judicial
      reforms have time to take effect

      Through 2006, more than $830 million of public
      funds have been committed to help defray
      providers’ malpractice insurance expenses

      Encourages physicians to continue practicing in Pennsylvania

      The number of physicians paying Mcare assessments remained
      fairly constant over the past few years at more than 35,000




November 2, 2006          Mcare Commission Public Hearing            28
Abatement Program
*Note:   Through October 25, 2006, 33,660 unique providers submitted 2006 abatement applications, which
is many thousands more than the number of abatement applications in October in prior years. More than
36,500 unique providers are expected to apply for 2006 abatements because nursing homes became
eligible for 2006 abatements, and it appears that more than 700 nursing homes will apply for abatements.
Likewise, Podiatrists became eligible for abatements in 2005, which accounts for most of the 2005 increase.



                  Unique Providers Who Applied for Mcare Abatement
                                   2006 is Projected



         40,000


                                                       35,815      36,500   *
         35,000                     34,265

                      32,497



         30,000
                       2003          2004              2005          2006




  Provider is defined as either a physician (MD/DO), podiatrist,
  certified nurse midwife, nursing home, birth center, medical
  corporation or hospital
 November 2, 2006                       Mcare Commission Public Hearing                                 29
Providers Eligible for Abatement of
their Mcare Assessments
    Approximately 14% of all physicians
    participating in the Mcare program are
    eligible for 100% abatements of their
    Mcare assessments, as are midwives

    Physicians who are not eligible for 100%
    abatements are eligible for 50%
    abatements, as are Podiatrists (as of 2005)
    and Nursing Homes (as of 2006)

November 2, 2006   Mcare Commission Public Hearing   30
100% Abated Providers

    The following slide illustrates
          The total amount of Mcare savings
          realized to date (2003 – 2006) for those
          providers abated at 100%
                   The top line demonstrates the value to those
                   providers in the JUA’s highest rated territory
                   (Philadelphia)
                   The bottom line demonstrates those
                   providers in the JUA’s lowest rate territory
                   (Dauphin)

November 2, 2006              Mcare Commission Public Hearing   31
100% Abated Providers
                                 2003 to 2006 Aggregate Mcare Assessments Abated per Provider Type
                                            in the Highest and Lowest Rated JUA Territories
                                                                                                                                                                         $194,168
                                                                                                                                                   $177,966
                                                                                                        $154,608                    $154,784

                                                                               $82,011
                                         $68,174

$29,119                                                                                                                                            $95,486               $104,148
                                                                                                         $82,278                     $82,801
$15,699                                                                        $44,537
                                         $36,979
             s                                                                                                                            ns
      iv e                                e   ry                                   trs                       ics                     eo              Y   N                 er y
   dw                                 liv                                     ac                       ped                        urg            B/G                  osurg
 Mi                               /de                                       um                     tho                          lS             O
                                                                                                                                                                  eur
                            c   w                                    t ra                    O   r                         ra
                        Pra                                     in                                                    ne                                      N
                      m                                     ocs                                                    Ge
                 Fa                                     D
                                                   ER
                                                                                                         Highest Rated Territory
                                                                                                         Lowest Rated Territory




November 2, 2006                                                                         Mcare Commission Public Hearing                                                            32
50% Abated Providers
    Program began for 2003 and included
    only MDs and DOs not abated at 100%

    Podiatrists added effective 2005

    Nursing Homes added effective 2006




November 2, 2006   Mcare Commission Public Hearing   33
50% Abated
              2003 to 2006 Aggregate Mcare Assessments Abated per Provider Type
                          in the Highest and Low est Rated JUA Territories
       $50,000
       $40,000
       $30,000
       $20,000
       $10,000
          $-
                          ry    gy   gy     gy gy        i ne   ry   ...    i ce cal      ta l   ry   gy
                     u rge rolo col o tol o iol o edi c urge ajo r ract urgi Rec urge c olo
                    S       U On     ma es           M jor S o M ral P s t S l on i c S yne
                  No e d & ogy / Der e sth rnal        a      N    e     ri      Co l ast      G
            t
                t
             ris inM ato l            An nte o M ti ce Gen d iat                    P
        d ia dm em                         I        N    ac   y/    Po
      Po       A    H                            yn l Pr amil
                                               G ra
                                                    e       F
                                                G en
                                          mil y/
                                        Fa
                                                                              Highest Rated Territory
                                                                              Low est Rated Territory




November 2, 2006                            Mcare Commission Public Hearing                                34
Abatement Program Improvements

        e-Signature implemented mid-’06

      1.      Relieves providers of requirement to print,
              sign and return abatement applications

      2.      Increases efficiency of the eligibility process

      3.      Allows providers to confirm their eligibility
              status within 24 hours


November 2, 2006           Mcare Commission Public Hearing      35
What is occurring in the Mcare
Claims environment?

Mcare’s claim expenses decreased each
year since 2003, and Mcare’s assessment
rates decreased each year since 2001




November 2, 2006   Mcare Commission Public Hearing   36
Claims & Assessments
    Mcare’s claim payments have
    declined each year since 2003

    Mcare’s assessment rate has declined
    each year since 2001

    Total Mcare assessments paid by
    providers (net of abatements) have
    declined each year since 2001
November 2, 2006   Mcare Commission Public Hearing   37
History of Mcare Claim Payments

                           Mcare Annual Claims Payments
                                             $379
            $400                 $348
 Millions




                   $341
                          $322                           $320
            $350

            $300
                                                                   $233
            $250                                                          $210

            $200

            $150

            $100
                   2000   2001   2002        2003        2004      2005   2006




November 2, 2006                 Mcare Commission Public Hearing                 38
Count of Paid Cases and Claims

                    Mcare Claim and Case Counts by Year
        "Claims" are against individuals providers that result in Mcare payments
                  A "case" encompass all claims paid to one plaintiff

          699        692         674           701
800
                                                              620
700
600                                                                  471
                                                                                   424
500
400       544        547         534           543
                                                              476
300
                                                                     373
200                                                                                322
100
         2000       2001        2002           2003           2004   2005          2006

                                        Cases              Claims

 November 2, 2006                  Mcare Commission Public Hearing                        39
A   lternative   D R
                   ispute   esolution   Procedures
    Mediation was used in 114 cases between
    September 1, 2005, and August 31, 2006,
    a 46% increase when compared to 78 for
    the previous year
    Arbitration used in an additional 21 cases
    in 2006
    Trials with pre-determined award ranges
    (high/low) were used in 4 cases
    ADR techniques were used in a total of 139
    cases in the 2006 Mcare claim year
November 2, 2006               Mcare Commission Public Hearing   40
Mcare claims appear to be in line
with the recent Supreme Court
study




November 2, 2006   Mcare Commission Public Hearing   41
Trends in Case Filings for All
Pennsylvania Medical Malpractice
                                      Trend in Medical Liability Case Filings
                            Note: Act 13, The Mcare Act, and Act 127 (Venue Reform) became effective in mid-2002.
                                                                                                              41.5%
                                                                                                             decline
                                                                                                             in case
                                                           2,903                                              filings
                            2,632          2,659                                                              since
             3000                                                                                              2002


             2500
                                                                           1,712            1,816         1,698
             2000

             1500

             1000

              500

                   0
                        2000           2001            2002            2003            2004            2005



                            Source: Administrative Office of PA Courts, Medical
                                          Malpractice Statistics
                       http://www.courts.state.pa.us/Index/MedicalMalpractice/2005StatewideFilings.pdf

November 2, 2006                               Mcare Commission Public Hearing                                          42
Communication Efforts
    Governor Rendell’s desire for more
    communication between Mcare and the
    malpractice insurance community has
    resulted in more than 10 carriers meetings
    since 2002
    On average,125 insurance industry
    representatives were present at each
    meeting
    More than 30 individualized carrier
    meetings/educational seminars since 2002

November 2, 2006   Mcare Commission Public Hearing   43
So where are we today?
    Since April 2006, the Mcare Commission
    has met 6 times to study the future scope
    and obligations of the Fund as mandated
    by Act 88 of 2005
    PricewaterhouseCoopers has made
    several in-depth presentations in an effort
    to educate the Commission and the public
    Various proposals have been presented to
    the Commission for consideration

November 2, 2006   Mcare Commission Public Hearing   44
Where are we today?                                  cont’d



To consider….
  Whether or not or when to phase-out
  Mcare
  Whether or not or when to change the total
  mandatory coverage limits
  Whether or not taxpayer monies should
  continue to be used to fund assessment
  abatements
  How best to deal with the unfunded liability
November 2, 2006   Mcare Commission Public Hearing            45
Unfunded Liability
         Mcare’s unfunded liability is the amount of money Mcare
         is projected to pay for claims reported to date as well as
         claims that occurred but are unreported

         PricewaterhouseCoopers calculates the unfunded liability
         to be $2.33 billion as of December 31, 2005




                           Mcare's Unfunded Liabilities

                           $2.28   $2.24    $2.33       $2.40       $2.39    $2.33
       Billions




                  3.00



                  1. 5 0




                  0.00

                            2000    2001      2002        2003        2004    2005




November 2, 2006                           Mcare Commission Public Hearing           46
Abatement Program
Continues………
    Governor Ed Rendell signed Senate
    Bill 972 (Act 128 of 2006) on October 27,
    2006 that extends the Abatement
    Program for 2007




November 2, 2006   Mcare Commission Public Hearing   47
Commission Report

    The Commission is required to submit
    a report to the Governor and General
    Assembly by November 15, 2006




November 2, 2006   Mcare Commission Public Hearing   48
Thank you for attending the
Commission’s Public Hearing
today.




November 2, 2006   Mcare Commission Public Hearing   49

				
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