healthcare industry issues and trends and the impact on the medical malpractice sector
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By
Tom Wander, BBA '76, MBA '78
Chief Executive Officer
BETA Healthcare Group
April 24, 2009
HEALTHCARE COSTS CONTINUE UPWARD SPIRAL:
A RECESSION RESISTANT INDUSTRY
• $2.5 trillion in 2009 or $8,160 per resident up 5.5% over 2008 when the increase was 6.1%
• 17.6% of GDP, up 1% point: Largest one-year increase since tracking began in 1960
• While expected to slow over the next 3-5 years, percentage of GDP may increase as economy slows / shrinks
• By 2017, $4.3 trillion or 20% of GDP to $13,100 per resident
• Healthcare spending has risen 24% faster than GDP since 1970
• 16 million or 12.5% of the American workforce employed directly in healthcare, up from 1% 50 years ago.
• Healthcare costs are more than four times amount spent on national defense.
U.S SPENDS MORE PER CAPITA ON HEALTHCARE THAN ANY OTHER COUNTRY
AND HAS ONE OF THE FASTEST SPENDING GROWTH RATES
But the U.S. does not achieve better outcomes on many important health measures.
So
urc
e:
U.S
. B
ure
au
of
Lab
or
GDP% IS 50% TO 100% MORE THAN OTHER DEVELOPED COUNTRIES
So
urc
e:
U.S
. B
ure
au
of
Lab
or
IMPACT OF RECESSION
• 30% decline in elective procedures
• Continued cuts in Medicaid funding
• Can’t access credit markets to finance
construction, remodeling, equipment purchases
and working capital.
• Higher percentage of uninsured patients and
lower reimbursements
• 129 medical schools enrolled 76,000 medical students and
graduated 16,167 doctors in 2008, up 8.4% and 3.1% from
2003, respectively
• Females represented 48% of the enrolled students and 49% of
graduates in 2008. In 2003 females represented 44% of all
graduates
• Becoming a doctor:
4 years undergraduate
4 years of medical school
3 to 8 years internship and residency
Start earning at age 29 to 34 but with an average debt of
$140,000
BECOMING A PHYSICIAN: LONG AND EXPENSIVE
• Less likely to pursue family practice or primary care specialties
• Cost / Debt reduces diversity of physician work force
• Encourages moonlighting fatigue medical errors
• Shortage of MDs in rural or underserved areas, and surgeon shortage in Midwest and Northeast
• Compensation is not attractive compared to other opportunities
BECOMING A PHYSICIAN: LONG AND EXPENSIVE
Median Compensation For Physicians, 2005
Specialty < 2yrs > 3yrs
Anesthesiology $259,948 $321,686
Surgery: General $228,839 $282,504
Obstetrics / gynecology $203,270 $247,348
Psychiatry: General $173,922 $180,000
Internal Medicine: General $141,912 $166,420
Pediatrics: General $132,953 $161,331
Family practice (Without obstetrics) $137,119 $156,010
Source: Medical Group Management Association, Physician Compensation Report, 2005
END OF LIFE ISSUES:
MORAL AND ETHICAL CONSIDERATIONS
• 10% of people consume 63% of healthcare
services
• 21% of all healthcare costs for 1% of the population
• 30% of Medicare dollars are spent on 5% of
patients who die in a given year.
• 33% of these dollars are consumed in the patients’
last 30 days of life.
• Aging population
• Registered Nurse shortage ($40 to $48 per hour
in California for first year RNs)
• Overweight / obese people account for over 9%
(in 1988) of all the healthcare spending
OTHER FACTORS IMPACTING ACCESS,
QUALITY AND/OR COST
Obesity Trends* Among U.S. Adults
1985
(*BMI ≥30, or ~ 30 lbs. overweight for 5’ 4” person)
No Data <10% 10%–14% 15%–19% 20%–24% 25%–29% ≥30%
(*BMI ≥30, or ~ 30 lbs. overweight for 5’ 4” person)
No Data <10% 10%–14% 15%–19% 20%–24% 25%–29% ≥30%
Obesity Trends* Among U.S. Adults
1986
(*BMI ≥30, or ~ 30 lbs. overweight for 5’ 4” person)
No Data <10% 10%–14% 15%–19% 20%–24% 25%–29% ≥30%
Obesity Trends* Among U.S. Adults
1987
(*BMI ≥30, or ~ 30 lbs. overweight for 5’ 4” person)
No Data <10% 10%–14% 15%–19% 20%–24% 25%–29% ≥30%
Obesity Trends* Among U.S. Adults
1988
(*BMI ≥30, or ~ 30 lbs. overweight for 5’ 4” person)
No Data <10% 10%–14% 15%–19% 20%–24% 25%–29% ≥30%
Obesity Trends* Among U.S. Adults
1989
(*BMI ≥30, or ~ 30 lbs. overweight for 5’ 4” person)
No Data <10% 10%–14% 15%–19% 20%–24% 25%–29% ≥30%
Obesity Trends* Among U.S. Adults
1990
(*BMI ≥30, or ~ 30 lbs. overweight for 5’ 4” person)
No Data <10% 10%–14% 15%–19% 20%–24% 25%–29% ≥30%
Obesity Trends* Among U.S. Adults
1991
(*BMI ≥30, or ~ 30 lbs. overweight for 5’ 4” person)
No Data <10% 10%–14% 15%–19% 20%–24% 25%–29% ≥30%
Obesity Trends* Among U.S. Adults
1992
(*BMI ≥30, or ~ 30 lbs. overweight for 5’ 4” person)
No Data <10% 10%–14% 15%–19% 20%–24% 25%–29% ≥30%
Obesity Trends* Among U.S. Adults
1993
(*BMI ≥30, or ~ 30 lbs. overweight for 5’ 4” person)
No Data <10% 10%–14% 15%–19% 20%–24% 25%–29% ≥30%
Obesity Trends* Among U.S. Adults
1994
(*BMI ≥30, or ~ 30 lbs. overweight for 5’ 4” person)
No Data <10% 10%–14% 15%–19% 20%–24% 25%–29% ≥30%
Obesity Trends* Among U.S. Adults
1995
(*BMI ≥30, or ~ 30 lbs. overweight for 5’ 4” person)
No Data <10% 10%–14% 15%–19% 20%–24% 25%–29% ≥30%
Obesity Trends* Among U.S. Adults
1996
(*BMI ≥30, or ~ 30 lbs. overweight for 5’ 4” person)
No Data <10% 10%–14% 15%–19% 20%–24% 25%–29% ≥30%
Obesity Trends* Among U.S. Adults
1997
(*BMI ≥30, or ~ 30 lbs. overweight for 5’ 4” person)
No Data <10% 10%–14% 15%–19% 20%–24% 25%–29% ≥30%
Obesity Trends* Among U.S. Adults
1998
(*BMI ≥30, or ~ 30 lbs. overweight for 5’ 4” person)
No Data <10% 10%–14% 15%–19% 20%–24% 25%–29% ≥30%
Obesity Trends* Among U.S. Adults
1999
(*BMI ≥30, or ~ 30 lbs. overweight for 5’ 4” person)
No Data <10% 10%–14% 15%–19% 20%–24% 25%–29% ≥30%
Obesity Trends* Among U.S. Adults
2000
(*BMI ≥30, or ~ 30 lbs. overweight for 5’ 4” person)
No Data <10% 10%–14% 15%–19% 20%–24% 25%–29% ≥30%
Obesity Trends* Among U.S. Adults
2001
(*BMI ≥30, or ~ 30 lbs. overweight for 5’ 4” person)
No Data <10% 10%–14% 15%–19% 20%–24% 25%–29% ≥30%
Obesity Trends* Among U.S. Adults
2002
(*BMI ≥30, or ~ 30 lbs. overweight for 5’ 4” person)
No Data <10% 10%–14% 15%–19% 20%–24% 25%–29% ≥30%
Obesity Trends* Among U.S. Adults
2003
(*BMI ≥30, or ~ 30 lbs. overweight for 5’ 4” person)
Obesity Trends* Among U.S. Adults
2004
No Data <10% 10%–14% 15%–19% 20%–24% 25%–29% ≥30%
(*BMI ≥30, or ~ 30 lbs. overweight for 5’ 4” person)
No Data <10% 10%–14% 15%–19% 20%–24% 25%–29% ≥30%
Obesity Trends* Among U.S. Adults
2005
(*BMI ≥30, or ~ 30 lbs. overweight for 5’ 4” person)
No Data <10% 10%–14% 15%–19% 20%–24% 25%–29% ≥30%
Obesity Trends* Among U.S. Adults
2006
REVOLUTION OR REFORMATION
• Continued expansion of “never events” and lost revenues
• Expansion of electronic medical records: Efficiency and
patient safety benefits
• Error disclaimer and apologies: Impact on claims
debatable
• Reporting of quality data Link results with
reimbursements
• Surgical checklists
MED MAL SECTOR:FULLY RECOVERED
AND
PROFITABLE
98% OF MEDMAL COMPANIES RATED “SECURE”
Source: AM Best
36
$13.0 $13.1$14.0
$15.2
$16.3
$18.2
$19.9
$21.4
$22.5 $22.3
$0.0
$5.0
$10.0
$15.0
$20.0
$25.0
Billio
ns
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Calendar Year
ASSETS DROPPED DUE TO IMPAIRMENTS
Source: Towers Perrin
37
$2.5
$2.8
$3.4
$4.4$4.7
$5.1$5.3 $5.2
$5.0
$4.7
$0.0
$1.0
$2.0
$3.0
$4.0
$5.0
$6.0
Billions
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Calendar Year
PREMUIMS DOWN 11% FROM PEAK IN 2005
Dir
ect
Pre
miu
ms W
ritt
en
Source: Towers Perrin
38
$4.1$4.0
$3.7
$3.4
$3.7
$4.3
$4.9
$5.7
$6.7$6.8
$0.0
$1.0
$2.0
$3.0
$4.0
$5.0
$6.0
$7.0
Billions
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
SURPLUS HAS DOUBLED IN THE PAST SIX YEARS
Source: Towers Perrin
39
0.50
0.59
0.76
0.94 0.94 0.94
0.89
0.76
0.610.56
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
0.90
1.00
Rat
io o
f N
et P
rem
ium
Wri
tten
to
Su
rplu
s
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
MED MAL COMPANIES HAVE DELEVERAGED 40% SINCE 2004
Source: Towers Perrin
2004
2008
INVESTMENTS HAVE SHIFTED TO HIGHER QUALITY
41
91%
112%
98%
120%
111%
127% 126%
104% 104%
89% 93%
69%
82%
70% 71% 71%
61%
76%
54%
83%
0%
20%
40%
60%
80%
100%
120%
140%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Calendar Year
Net Loss & LAE Ratios
Calendar Year Coverage Year at 12/2008
CLAIM RESULTS HAVE BEEN OUTSTANDING
Source: Towers Perrin
42
6%
5%
3%
2%
0% 0%1%
2%
6%
5%
0%
2%
4%
6%
8%
10%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Calendar Year
DIVIDENDS HAVE RETURNED
Div
ide
nd
s a
s a
Pe
rce
nt
of
Pre
miu
ms
Source: Towers Perrin
43
119%
125%
136%
145%
122%
110%
99%
90%85%
77%
0%
20%
40%
60%
80%
100%
120%
140%
160%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Combined Ratio (Including Policyholder Dividends)
FOUR YEARS OF PROFITABLE UNDERWRITING RESULTS
Source: Towers Perrin
Data per AM Best’s Aggregates and Averages; 2008 and 2009 are estimated per AM Best’s Review Preview Article, February 2009
BROADER MED MAL RESULTS ARE SIMILAR
His
tori
cal M
PL
Co
mb
ine
d R
ati
os
45
32%31%
28%
18%
21%
18%16%
25%
22%
9%
0%
10%
20%
30%
40%
50%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Calendar Year
Inve
stm
en
t In
co
me
as
a
Pe
rce
nt
of
Pre
miu
ms
IMPAIRED ASSETS AND RELATED LOSSES TOOK A TOLL IN 2008
Source: Towers Perrin
46
-$427
-$277
-$91
$269
$218
$119
-$150
-$438
-$783
-$1,096
-$1,200
-$1,000
-$800
-$600
-$400
-$200
$0
$200
$400
(Millions)
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
RESERVE RELEASES HAVE DRIVEN RESULTSO
ne
Ye
ar
Lo
ss
Re
se
rve
De
ve
lop
me
nt
Source: Towers Perrin
47
21%
13%
4%
-9%
-7%
-3%
4%
10%
19%
28%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
Rati
o o
f R
eserv
e D
evelo
pm
en
t to
Net
Earn
ed
Pre
miu
m
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
RESERVE REDUNDANCIES: ANYMORE LEFT?
So
urc
e:
To
wers
Perr
in
CLAIMS FREQUENCY: DOWN SUBSTANTIALY
So
urc
e: M
illim
an
’s r
esu
lts o
f se
ve
n M
PL
sp
ecia
lty w
rite
rs (
Octo
be
r 2
00
8)
Professor Dan Anderson
Congratulations on 39 years of outstanding service! And, thanks for all you have done for all your students.
Educator
Researcher
Mentor
Friend
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