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Medical Professional Medical Professional Liability:Liability:Long Term Care FacilitiesLong Term Care Facilities

Jennifer Palo, FCAS, MAAAJennifer Palo, FCAS, MAAA

CAS - Loss Reserve SeminarCAS - Loss Reserve Seminar

September 18-19, 2000September 18-19, 2000

Minneapolis MNMinneapolis MN

Discussion PointsDiscussion Points

• Types of Long Term Care FacilitiesTypes of Long Term Care Facilities

• Industry landscape - pre 1990’sIndustry landscape - pre 1990’s

• Industry landscape - 1990’s and Industry landscape - 1990’s and laterlater

• Actuarial implicationsActuarial implications

Geriatrics / Aging ProcessGeriatrics / Aging Process

• Geriatrics: Of or relating to the aged or characteristics of Geriatrics: Of or relating to the aged or characteristics of the aging process.the aging process.

• Geriatric care encompasses both medical and social Geriatric care encompasses both medical and social structures.structures.

• A primary objective of geriatric care is to maximize the A primary objective of geriatric care is to maximize the independence of a resident for as long as possible given independence of a resident for as long as possible given the constraints of the natural aging process.the constraints of the natural aging process.

• Given the aging baby boom population, the elder care and Given the aging baby boom population, the elder care and geriatric issues will become increasingly important in the geriatric issues will become increasingly important in the years ahead.years ahead.

Geriatrics / Aging ProcessGeriatrics / Aging Process

• Multi-disciplinary field which includes Multi-disciplinary field which includes (among others)(among others)::– general medicinegeneral medicine

– psychiatrypsychiatry

– nursingnursing

– social servicessocial services

– dentistrydentistry

– pharmacypharmacy

– physical therapyphysical therapy

– occupational therapyoccupational therapy

– recreational therapyrecreational therapy

Types of Long Term Care Types of Long Term Care Facilities and ServicesFacilities and Services

• Skilled Nursing FacilitiesSkilled Nursing Facilities

• Intermediate CareIntermediate Care

• Residential Care / Assisted Living FacilitiesResidential Care / Assisted Living Facilities

• Independent Living FacilitiesIndependent Living Facilities

• Outpatient TherapyOutpatient Therapy

• Home Health ServicesHome Health Services

Industry Landscape - Pre Industry Landscape - Pre 1990’s1990’s

• Limited grounds for lawsuitLimited grounds for lawsuit

• Given a lawsuit, plaintiff had greater burden of proof Given a lawsuit, plaintiff had greater burden of proof in demonstrating causationin demonstrating causation

• Damages were not substantialDamages were not substantial

• Subacute care patients remained in hospitalSubacute care patients remained in hospital

• Societal expectations greatly different from todaySocietal expectations greatly different from today

• Medicare / Medicaid reimbursements based on actual Medicare / Medicaid reimbursements based on actual costs sustainedcosts sustained


• Falls were most common allegation Falls were most common allegation with approximate costs of $20,000 with approximate costs of $20,000 per claimper claim

• Even some of the most costly Even some of the most costly allegations in late 1980’s had allegations in late 1980’s had average costs less than $100,000 average costs less than $100,000 per claimper claim


• Claims reported quickly for Claims reported quickly for relatively known amountsrelatively known amounts

• Low frequency / Low severityLow frequency / Low severity

• Liability coverage affordableLiability coverage affordable

• Liability coverage widely availableLiability coverage widely available

Industry Landscape - 1990’s and Industry Landscape - 1990’s and laterlater

• Extreme change and consolidation in the Extreme change and consolidation in the health care delivery systemhealth care delivery system

• Growth of large for profit nursing home Growth of large for profit nursing home chains and increased profit pressurechains and increased profit pressure

• Move to discharge hospital patients to Move to discharge hospital patients to nursing facilities soonernursing facilities sooner

• Patient mix shifted towards patients Patient mix shifted towards patients requiring higher level of carerequiring higher level of care


• Nursing home industry is notorious for Nursing home industry is notorious for high staff turnover and low wageshigh staff turnover and low wages

• Difficult to attract and retain staffDifficult to attract and retain staff

• Inability to obtain full criminal background Inability to obtain full criminal background experience for prospective staffexperience for prospective staff

• Staff may not have training or numbers to Staff may not have training or numbers to accommodate subacute level of careaccommodate subacute level of care


• Societal changesSocietal changes– Aging baby boom populationAging baby boom population

– More collective awareness of elder care issues More collective awareness of elder care issues

– Higher expectations for nursing home industryHigher expectations for nursing home industry

– Greater propensity to litigateGreater propensity to litigate

– Proactive and public role of plaintiff attorneysProactive and public role of plaintiff attorneys

• Long Term Care industry faces bad public Long Term Care industry faces bad public imageimage


• Expanded grounds for lawsuits Expanded grounds for lawsuits • Changes in Medicare / Medicaid Changes in Medicare / Medicaid

reimbursement systemreimbursement system– Move towards a prospective pay systemMove towards a prospective pay system

• Increased regulation - state and federal levelsIncreased regulation - state and federal levels– Nursing Home Reform Act 1987Nursing Home Reform Act 1987– Florida Statute 400.22 (Patients Bill of Rights)Florida Statute 400.22 (Patients Bill of Rights)

• Allows for recovery of attorney’s feesAllows for recovery of attorney’s fees


• Despite increasing costs, early Despite increasing costs, early indicators of deterioration were indicators of deterioration were maskedmasked– Insurance market not highly concentratedInsurance market not highly concentrated

– Some insurers include LTC with general CMP Some insurers include LTC with general CMP bookbook

– Unusual results explained in context of single Unusual results explained in context of single account or loss or simply as a spike in resultsaccount or loss or simply as a spike in results


• Falls remain most common allegation with relatively Falls remain most common allegation with relatively stable frequency -- but costs have risen dramaticallystable frequency -- but costs have risen dramatically

• Other allegations show substantial increases in both Other allegations show substantial increases in both frequency and severityfrequency and severity

• Changes in tactics by plaintiff attorneysChanges in tactics by plaintiff attorneys– Need to show that a violation of resident rights occurredNeed to show that a violation of resident rights occurred

– Plaintiff does not need to sustain an injury to have a legitimate casePlaintiff does not need to sustain an injury to have a legitimate case

– Establish a pattern of institutional negligenceEstablish a pattern of institutional negligence

– Increasing frequency and severity of punitive damage awards Increasing frequency and severity of punitive damage awards


• Increasingly difficult to estimate the cost of Increasingly difficult to estimate the cost of individual claimindividual claim

• Some large accounts facing exhaustion of Some large accounts facing exhaustion of limits in older yearslimits in older years

• High frequency / High severityHigh frequency / High severity

• Liability costs have risen dramaticallyLiability costs have risen dramatically– Impacts both direct market and reinsurance marketImpacts both direct market and reinsurance market


• Liability coverage not widely availableLiability coverage not widely available– Availability crisis has prompted data calls Availability crisis has prompted data calls

in some statesin some states

– Some states are activating JUA facilitiesSome states are activating JUA facilities

• Movement towards alternative risk Movement towards alternative risk transfer mechanisms, higher transfer mechanisms, higher deductibles, or Self Insured Retentionsdeductibles, or Self Insured Retentions


• Some movement towards claims made coverageSome movement towards claims made coverage– The claim reporting lag is significantly shorter than for The claim reporting lag is significantly shorter than for

Hospital or Physician & Surgeon medical malpractice Hospital or Physician & Surgeon medical malpractice coveragecoverage

– However, given the rapidly changing environment claims However, given the rapidly changing environment claims made allows for pricing coverage one year at a timemade allows for pricing coverage one year at a time

– Claims made also removes limits stacking issues associated Claims made also removes limits stacking issues associated with providing continuous care over a number of yearswith providing continuous care over a number of years

– Given the rapidly escalating claim trends, claims made Given the rapidly escalating claim trends, claims made allows a customer to purchase more adequate limits on a allows a customer to purchase more adequate limits on a timely basistimely basis

What does this mean to an What does this mean to an actuary?actuary?

• Predicting ultimate loss levels for a Predicting ultimate loss levels for a book of Long Term Care business is book of Long Term Care business is challengingchallenging

Considerations Considerations

• Current exposure distribution by Current exposure distribution by statestate

• Changes in underlying mix by state Changes in underlying mix by state

• Acquisitions / DivestituresAcquisitions / Divestitures

• For profit vs. not for profitFor profit vs. not for profit

Considerations Considerations

• Changing level of reserve adequacyChanging level of reserve adequacy

• ALAE vs. indemnityALAE vs. indemnity

• Alert to changing legal climateAlert to changing legal climate

• Changing loss driversChanging loss drivers

• Changing regulatory climateChanging regulatory climate

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Documents

s claims

later nursing home industry

s falls

continuous care

later liability coverage

higher level of care

subacute level of care

s limited grounds