Short-Term Changes Short-Term Changes in Long Term Carein Long Term Care

PLUS Medical PL SymposiumMarch 12, 2003

LTC Administrator’s Day

Reimbursement Cuts

Regulators Visit

New Lawsuits

Premium Increase

What if this is “As Good As It Gets?”

Possible Reforms

• Federal Level - 13 Bills before 107th Congress

• State Level - 21 States have Tort Reform on Legislative Agenda

• People are Listening

Panel Members

Rob Jurgel, RPLU Product Line Manager - (LTC & Miscellaneous Facility)

Lexington / AIG Healthcare

Theresa Bourdon, FCAS, MAAA Managing Director and Actuary--Aon Risk Consultants

Scott A. Whipp Vice President - General Cologne Reinsurance

Jules B. Olsman, Esq.

Plaintiff Attorney--Olsman, Mueller & James, P.C.

Alice L. Epstein Director, Risk Control Consulting - CNA Health Pro

Agenda

• Underwriting: LTC Market & Provider Reactions

• Actuarial: LTC Claim Trends

• Reinsurance: LTC - The Money Pit - Lessons Learned

• Attorney Malpractice & Tort Reform

• Risk Management: Changes at CMS & Growing Importance of RM

• Q & A

LTC Litigation- Who Pays the Price?

•Residents

•Nursing Home Operators

•Insurance Companies

•Taxpayers

National Law Journal Top 100 Cases

Verdict

• $312.71 Million TX

• $82 Million TX

• $78.43 Million AK

• $50 Million TX

• $50 Million WV

Case

• Fuqua v. Horizon/CMS Healthcare Corp.

• Ernst v. Horizon/CMS Healthcare Corp.

• Sauer v. Advocat, Inc.

• Copeland v. Dallas Home for

Jewish Aged, Inc. • Retirement Corporation of

America

ISO - Nursing Home Liability A Discussion of the Current Insurance Crisis

• ISO Reporting Companies 1992-2000

• 400,000 Beds - 27% U.S. Total

• Primary Limits Only - $1M Limit

• Concentration in Northeast - » NY - 56%

» NJ - 40%

» FL - 16%

» TX - 11%

3-Year Average Loss Ratio (1998-2000)

1.84

10.72

3.834.71

1.832.07

8.06

4.14

2.383.973.83

3.153.57

0

2

4

6

8

10

12C

A

FL

GA IL NJ

NY

NC

OH

PA

TN

TX

U.S

. exc

l. F

L

Cou

ntr

y w

ide

Average Loss Ratio

LTC Provider Reactions

• Increase Self Insured Retentions

• Eliminate Excess

• Form Captive

• Go Bare

LTC Liability – The Financial Impact

Publicly Traded Company A

LTC Liability – The Financial Impact

Publicly Traded Company B

LTC Liability – Guilt by Association

Publicly Traded Company C

Theresa W. Bourdon, FCAS, MAAAManaging Director and Actuary

Aon Risk Services

LTC Liability – Financial Impact: Why Now?

• Companies coming off aggregate caps on retained losses

• Post bankruptcy emergence• Not just a Florida problem anymore• Large backlog of claims combined with double

digit frequency increases• Awareness hitting the Board level now• SEC scrutiny

LTC – Working Layers

• $0 - $250,000: Hard working layer• $250,000 - $1M:

– Working layer for high risk states– Moderate working layer for all other

• $1M - $2M: Some exposure in high risk states • $2M - $5M: Less than 1% of claims• Excess $10M: 1 claim in 26,000 (1994 AY)

LTC State Trends• Florida continues to be the leader in loss cost per

bed• Southern states dominate high cost states

– TX, MS, AL, AR• California taking a turn for the worse despite

MICRA• All Other states continue upward trend

LTC - General Trends

• Severity leveling off in the $250,000 - $300,000 range for high risk states– Large cost control focus for providers

• Frequency continuing to climb everywhere

• Frequency trend keeps loss costs increasing

LTC – Tort Reform Efforts

• Florida SB 1202 – eff. May 15, 2001– Increased frequency for pre 5/15/01 incidents – 2002 frequency at pre-reform levels and increasing– Severity unaffected due to lack of non-economic caps;

ineffective punitive caps

• Mississippi HB No.2 – eff. January 1, 2003– Increased frequency for pre 1/1/03 incidents – $500,000 non-economic damages cap (steps up in 2011)

• Expect little impact on working layers• Should provide relief on excess pricing

LTC – Tort Reform Impact

• California– MICRA not curbing trends for LTC– Severity continues to climb; average over

$250,000– Frequency still climbing

Scott A. WhippScott A. Whipp

Vice PresidentVice President

General Cologne General Cologne ReinsuranceReinsurance

Loss Scenario #1

Runaway Frequency –

“A Real Barn Burner”

The Risk…

• Submitted for 11/1/99-00 policy period• Prior carrier non-renewing (exiting LTC class)• Skilled nursing chain• 47 locations and 5000 beds in 16 states• Southeast, Southwest, Midwest• Primary Policy

– 1M/3M (aggregate per location)– Occurrence form– Facultative reinsurance $750,000 xs $250,000

Prior Loss Experience

None238,0001298/99

332,000(o)847,0002797/98

None153,0001396/97

505,000(c)996,0001595/96

None18,000894/95

None136,000593/94

xs $250,000Incurred#Year

Note: Excluding divested locations

Unexpected Adverse Loss Development

What might you expect the 99/00 year losses to be?• 1,000,000?• 2,000,000?• 5,000,000?

Answer:

$10,000,000 and still growing

What Happened???

$10,000,000$125,00080Actual

$1,500,000$50,00030Expected

Total

Incurred

Average Claim

Severity

Claim

Frequency

2.5 times higher than expectedSeverity

2.5 times higher than expectedFrequency

BAD States…

20%20%2,000,000Tennessee

17%60%6,000,000Texas

% Beds

% Loss

Loss

Large Losses…

Res.1,025,000Strangled by wheelchair strapTX

Paid695,000Decubitus Ulcer/MalnutritionTX

Res.370,000Multiple fractures – OsteopeniaLA

Res.1,065,000Decubitus UlcerTN

Res.435,000Fall – Head injuryTN

Large Losses… (continued)

Res.1,000,00095 yr. Old Woman DiedTX

Paid550,000Inappropriate Sexual ContactTX

Paid1,030,000*Malnutrition/DehydrationTX

Paid1,030,000*Decubitus UlcerTX

Res.1,025,000Decubitus UlcerTX

* These amounts do not include contributions from other primary or excess carriers. Total settlements were $1.5M and $2.0M.

Lessons Learned…

• Quality of Care Issues

• Claims Management Issues

• Policy Form/Structure Issues

Quality of Care Issues…

• Understaffing

• Not following procedures or physician orders

• Poor documentation/charting

• Slow reporting or action on changes in condition

Claims Management Issues

• Inflammatory Testimony from Current, Past Employees• Marginal Claim Investigation

– Standard of Care– Causation

• Hospitals and Attending Physicians not brought in as Co-defendants.

• High Profile Predatory Plaintiff Attorney involvement• High Profile Jurisdictions• Virtually no Defense Exerted

Policy Form Issues

• Per location aggregate

MPL 141,000,000PML 20,000,000

• Occurrence Form

Where do we stand now?

• Claim cost inflation (“trend”) continues at 18%+ per year

• New “problem states” emerging• Claims management (overall) still marginal at best• Large SIR programs- Claims management a problem• Carriers continue to withdraw from the LTC market• Scheduled reductions in Medicare Reimbursements• No clamor for tort reform

Long Term Care- “The Money Pit”

• Has the litigation crisis in Long Term Care reached it’s crescendo yet?

• Where will meaningful change come from?

• Are there any positive signs on the horizon?

Jules B. Olsman, Esq.Partner

Olsman, Mueller & James, P.C.

DEATHS DUE TO MEDICAL NEGLIGENCE

44,000 – 98,000 in Hospitals

100,000 Due to Medical Errors

THE COST: $17 - $29 Billion per year

COST OF MALPRACTICE LITIGATION

½ of 1% of Every National Healthcare Dollar

PRESSURE ULCERS

24% of Nursing Home Residents Suffer from Pressure Ulcers

$1.3 Billion per year Spent on Treatment of Pressure Ulcers

$27,000 per Patient (Median Cost in Acute Care Cases)

PRESSURE ULCERS

FALLS

1996: 340,000 Hospital Admissions for Hip Fractures

Avg. Hospital Stay Hip Fx: 2 Weeks Cause 87% of Fx in People 65+ Years Old Leading Cause of Injury Deaths in People 65+

Years Old 1991 Medicare Cost for Hip Fx: $2.9 Billion

RESTRAINT ISSUES

“Posey type gait belt being used for safety as restraint due to dementia. Resident attempts to stand & has pot’l. to fall. Order rec’d from Dr. ____.”

RESTRAINT ISSUES

“Gait belt-type Posey (velcro) to be used for resident safety for 72 hours, as restraint. Remove for 15 min. 3X/day.”

CURRENT INSURANCE CRISIS

September 11

Bear Market

Low Interest Rates

Political Opportunity

Alice L. Epstein

Director Risk Control Consulting

CNA Health Pro

OIG 2003 LTC Workplanas a Risk Management Plan

1. Accuracy of Online Survey, Certification & Reporting

System (OSCAR) data

2. Minimum Data Set (MDS) reporting compliance

3. Medicare/Medicaid billing

4. Repeat deficiencies & Trends in deficiencies

5. Ombudsman complaints

6. Quality of care sanctions compliance & investigations

7. Medical Director’s involvement

8. QA committees

9. Social work services

10. Staffing requirements

The Center for Medicare and Medicaid Services Nursing Home Quality Measures

Launched 11/02

Reporting of new quality measures for all Medicare and Medicaid certified nursing homes.

Resident assessment data which can be converted into quality measures indicating;

“...how well nursing homes are caring for their residents’ physical and clinical needs.” www.Medicare.gov

CMS Quality Measures

Data derived from the MDS reported to CMS. Based on risk adjusted data. Updated on CMS website every 3 months.

GIGO - data accuracy

Pertains to resident's: • physical conditions • clinical conditions • abilities • preferences • life care wishes

CMS Disclaimer (verbatim)

“The current quality measures have been chosen because they can be measured and don’t require nursing homes to prepare additional

reports.

They are valid and reliable.

However, they are not benchmarks, thresholds, guidelines, or standards of care.

They are based on care provided to the population of residents in a facility, not to any individual resident, and are not appropriate for

use in a litigation action.”

Quality Measures for Long Term Residents:defined by CMS as residents expected to stay for a long

period of time or permanently

% of Long Term Stay Residents With: Happy CareAvg.

StateAvg.

NationalAvg.

1. Loss of Ability in Basic Daily Tasks 21% 13% 15%

2. Pressure sores 15% 9% 8%

3. Pressure sores (w/additional level of RiskAdjustment

12% 9% 9%

4. Pain 11% 9% 11%

5. In Physical Restraints 15% 7% 10%

6. Infections 12% 12% N/A

Top 7 Ways to Improve Risk Posture

1. MDS Accuracy2. Medical Director and Physician Involvement3. CMS State Survey Analysis4. Policy & Procedure Manuals5. Medical Record Audits6. Family Outreach7. Staffing and Training

Short-Term Changes in Long-Term Care

Questions?

Conclusion: Change is needed to remedy the LTC Crisis:

• Funding must increase

• Quality of Care must improve

• Tort Reform must be part of the answer