Non-profit nursing homes and assisted living facilities in Texas will soon be admitted into the state’s Medical Liability Insurance Underwriting Association for the first time since 1982, with for-profit facilities possibly following suit.
The decision was rendered Feb. 1 by Texas Department of Insurance Commissioner Jose Montemayor, who determined that adequate coverage is not available through the admitted market.
The public hearing was called in response to a TDI staff petition questioning whether medical liability insurance is reasonably available to non-profit nursing homes. While the department recognized that the same holds true in the for-profit market, the commissioner is only allowed under statute to make liability insurance available through the state pool to non-profit homes.
Department records indicate that only three groups of licensed companies may be writing nursing home liability coverage in Texas, down from eight in 1996. Insurers blame the restricted market on increased litigation and a sharp increase in claims over the past several years, with more than twice as many nursing home liability insurance claims in 1998 as in 1996.
As a partial solution to the coverage shortage, TDI staff asked Montemayor to allow Texas’ 208 non-profit nursing homes to apply for medical liability insurance through the Texas Medical Liability Insurance Underwriting Association – commonly called the joint underwriting association – a state-created insurer of last resort.
Nursing homes and similar facilities were excluded from the JUA in 1982 when TDI determined adequate coverage was available through the admitted market. But multimillion dollar lawsuits against Texas facilities over the past few years, coupled with what many insurers and industry officials consider frivolous litigation, have driven costs up as much as 600 percent for many facilities.
Texas Health Care Association representative Tim Graves said at the hearing that a survey of roughly 25 percent of the nursing facility beds in Texas report seeing liability insurance increases over the last two years of nearly $1200 per bed, up from an average of $650 to $1800 a bed.
“And that’s just an average,” he told TDI officials. “Some are reporting more than $2200 a bed. [Allowing non-profit facilities to apply under the JUA] won’t assist the for-profits, which make up 80 percent of Texas nursing homes, but it’s definitely a step in the right direction.”
Commissioner Montemayor responded to Graves’ testimony by asking if he would be interested in making the JUA available to for-profit facilities through a commissioner’s request to the legislature, to which Graves responded with a resounding “yes.”
But Ray Thomas, president of Bunker Hill agency in Houston, representing Gulf Insurance Group at the hearing, disagreed, saying allowing even non-profit facilities to purchase through JUA would be a “Band-Aid solution.”
“The JUA does not change the underlying problems with nursing homes,” Thomas said, stressing that most nursing homes are providing good care, but are falling prey to a litigation-happy society. He called for tort reform that would establish reasonable caps on punitive and mental anguish damages. He also suggested privileged records should not be admitted into court. Thomas also pointed out that “the surplus lines market is working,” and to offer JUA would undermine the free market.
“I would tell you I have more competitors today than I have in the past,” he said. “The coverages are available, though maybe not in the admitted market. But the surplus lines market is doing what it’s supposed to. The surplus lines market is working.”
Still, many facilities are feeling the pinch, reducing staffing, foregoing liability insurance and even filing for bankruptcy.
The most recent company to file for bankruptcy protection, Mariner Post-Acute Network, is one of the largest nursing-home operators in not only Texas but the nation. Mariner attributed much of its financial problems to increased litigation and changes in Medicare reimbursement. It was the third company owning facilities in Texas to file bankruptcy this year.
Meanwhile, the state has collected $1.65 million in civil penalties from nursing homes and assisted living facilities in a State Attorney General campaign to crack down on elder abuse and neglect. The penalties were more than three times the amount collected the previous year.
But many argue that for every bad facility, there are dozens of good ones. Unfortunately, one rotten apple is spoiling the whole bunch. Particularly when it comes to liability insurance.
Brian Silva, a broker/underwriter for commercial lines with Burns & Wilcox in Arlington, said the situation is so bad that a lot of facilities are foregoing liability insurance because they can’t afford it.
He estimated costs have risen over the last year from between $150 and $200 per bed to anywhere from $500 to $1200 per bed. “The only thing that’s going to change this is tort reform,” Silva said. “Anyone these days can bring a suit and cost a company $10,000 whether it’s warranted or not. That’s going to have to stop.”
Insurers and reinsurers aren’t making a profit from increased rates, Silva said. In fact, many companies are losing money writing nursing homes and other facilities, even with very stringent underwriting standards. One such example is Bunker Hill in Houston. Ray Thomas, company president, said Bunker Hill’s rates have been steadily increasing to cover costs over the last five or six years. They really “exploded” in 1997 he said, because of some of the huge litigation awards.
“We’ve lost a ton of money, and we insure some of the best facilities in the state,” he said, adding that tort reform is the only way to pull back the reins on the situation. Other insurers, as well as care providers and lobbying groups, echo his sentiments, saying fewer frivolous lawsuits would ease the burden facing nursing homes and, ultimately, insurers.
But others, such as Rep. John Smithee, R-Amarillo, chair of the House Insurance Committee, say improving the situation is, in most cases, up to the nursing homes themselves. “Insurance costs have risen over the last few years because of problems in the industry, and a lot of the problems are from the delivery of substandard care,”
Smithee said. He blames much of the problem on large companies taking over small facilities and reducing staffing and sometimes even the quality of care. “A lot of it has had to do with decreasing the funding for care in order to make the numbers crunch,” he said. Smithee is quick to point out that much of his viewpoint comes from his work as an attorney, where he has taken on several cases against nursing homes. And as an attorney, he believes tort reform beyond the changes made in 1995 and 1997 would infringe upon patients’ rights.
Smithee said the legislature may eventually look at some changes that would help the situation, including allowing for-profit facilities to apply for coverage through the joint underwriting association.
While state law does not currently allow for such coverage, Smithee said it might be worth looking at. And while some nay-sayers might complain that such a move would be coddling big business, Smithee said the legislature cannot ignore that it is ultimately responsible for ensuring adequate availability of services for Texas residents.
Another step the legislature might take, according to Smithee, is reviewing Medicaid rates and reimbursement. “There has been talk of an increase in the next session,” he said. “I think any increases ought to be tied to increases in patient care though.”
That talk has stemmed largely from the lobbying efforts of groups like the Texas Health Care Association, which has fought diligently over the last several years for improved Medicaid rates.
Texas perenially ranks near the bottom of national Medicaid rates, falling between 43rd and 46th between 1995 and 1999. Coupled with Texas nursing homes and similar facilities paying eight times the national average for liability coverage, THCA officials are surprised many are able to even stay in business.
“The best facilities have pending litigation, and the worst facilities have pending litigation,” said Regina Franklin, director of public information for THCA. “It’s really the companies, the owners, that are feeling the crunch (not the patients).”
But the litigation and Medicaid issues are cutting into basic care, including staffing and training. Many are hopeful, however, that a White House proposal pumping $16 million into improving nursing home oversight will make a difference. Others, such as Sen. Charles Grassley, R-Iowa, and chair of the Senate Special Committee on Aging, has said more money won’t guarantee better quality because the government does a poor job ensuring state inspectors enforce federal laws.
Most of the money proposed would go to state agencies responsible for inspecting nursing homes. The money would be specifically earmarked for training the inspectors, inspecting the nursing homes during off hours, such as evenings and weekends, and providing more inspections of the facilities with the worst compliance records.
The proposal could very likely shut down some of the worst facilities, but would also improve others, which could eventually lead to decreasing litigation and fewer bankruptcies. That would be good news for Texas facilities, legislators and insurers, who have watched over the last four or five months companies owning an estimated 20 percent of the long-term beds in Texas file for Chapter 11 protection.
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