Dramatically higher premium increases and risk retention requirements have reportedly added financial pressures to an industry segment that is already strained. Facilities are going bare, self-insuring or reducing limits of coverage. It is only through greater risk control measures, prudent underwriting and tort reform that hospital professional liability will recover, panelists told the recent PLUS Medical PL Symposium.
James Hinton, vice president, Risk & Insurance, HCA, Inc., noted that the physician malpractice crisis has had a tremendous impact on hospitals. “Hospitals are requested to lower or eliminate insurance requirements and more physicians are going bare in Texas and Florida,” he said. “Physicians are relocating, retiring early or curtailing their practice. Hospital recruiting costs are up, service cutbacks are being made in some situations and employment of physicians is trending up again.”
According to Hinton, the market has seen dramatically higher retentions, a formation of new captives and risk retention groups and insurance costs rising faster than hospital revenues. “For buyers, there is a tremendous amount of frustration,” he said. “There is little evidence of underwriter judgment and little differention of risks. In addition, there are too many data requests, which are often irrelevant and there is diminished value of long term relationships.”
Hinton noted that the crisis in the medical malpractice market is not an insurance problem. “They’re not at fault. It is the legal system and astronomical jury awards that need to be addressed.”
Going forward, the outlook for HPL underwriting should be positive, Hinton said. “Loss results will improve because of patient safety initiatives, a renewed focus on loss prevention and tort reform. Severity is impacting the market. That’s where tort reform can make a huge difference for hospitals.”
Using Ohio as a paradigm of what is happening in the med-mal market throughout the country, D. Brent Mulgrew, J.D., executive director, Ohio State Medical Association, noted that malpractice insurance rates in Cleveland are among the highest in the nation. “Physicians are frustrated,” he said. “They feel the system has been unresponsive and mismanaged. We all are potential patients. If we fail, the system will crash.”
According to Mulgrew, the impact has resulted in increased expenses. “Revenue remains flat to declining. There has also been a decreased access to patient care. Ninety-six percent of doctors are discontinuing some procedures, 15 percent are leaving for less litigious areas and 51 percent are quitting the practice altogether.”
Mulgrew noted that the passage of SB 281 may help. The bill, which limits non-economic damage awards in the vast majority of cases to $350,000, also requires attorney contingency fees to be reviewed by a probate court if the fees exceed the non-economic damage awards. “SB 281 removes joint and several liability. In most cases, a physician who is named in a suit will only be held liable for the portion of the claim for which the doctor may be responsible.”
Mulgrew said that SB 179 also provides a broader base of peer review protections and allows health care entities outside the traditional hospital setting to establish peer review committees. “The activities are protected from discovery during litigation.”
The impact of these bills, according to Mulgrew, will not mean a reduction in rates or trends. “There will be a selective underwriting of risks and specialties and a creation of new non-standard market options.”
Looking at the long-term care liability impact, Michael Walton, president, AMWINS HealthCare, noted that liability insurance availability and affordability issues are severe. “There is a continued aggressiveness of plaintiffs’ attorneys in soliciting cases and extraordinary jury awards.”
According to Walton, the “broad brush” underwriting approach being used is inappropriate. “Many suffer for the sins of a few,” he said, adding, “risk assessment tools and methodologies are inaccurate, faulty and subjective. Base rates are set according to geographical location, facility size, and percentage of more acute residents. Minimal or no consideration is given toward the level of quality care orthe type of ownership.”
Walton noted deficiencies in hospitals include failure to follow physicians’ orders, failure to treat, physical or verbal abuse, medication error, failure to monitor adequately and failure to diagnose. He said there are also concerns with the analysis and accuracy of Online Survey, Certification and Reporting (OSCAR) data. “Simple counts of survey deficiencies can be misleading unless the scope, severity and type of each deficiency is considered,” he said. “In a recent analysis of 16,698 OSCAR assessments, six percent of facilities report total census numbers not equal to the total number of residents calculated from other OSCAR items.”
Walton said that there are better ways to measure quality and risk. “OSCAR analysis can be improved by using geographical adjustment, severity adjustment, focus on litigation risks and other methods,” he said. “We need to utilize advanced methods of assessing, managing and defending the long-term care quality and associated risk and we need to eliminate the subjectivity in the data. We are making advancements with underwriters in this area.”
The panel was moderated by Sarah Lawhorne, deputy insurance commissioner of Pennsylvania.
Topics Underwriting Risk Management
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