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Navigating the Malpractice Crisis: Insights from a Major Hospital System

This analysis provides a comprehensive overview of the physician malpractice crisis and its significant impact on hospital systems, particularly focusing on the HCA experience as of March 2003. It discusses factors such as rising managed care pricing, the aging baby boomer demographic, and the nursing shortage. Key issues include increased physician reluctance to accept emergency department calls and rising recruitment costs. Despite challenges, the outlook for hospital professional liability underwriting appears positive, driven by patient safety initiatives and a renewed focus on loss prevention.

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Navigating the Malpractice Crisis: Insights from a Major Hospital System

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  1. The Malpractice Crisis--A Large Hospital System Perspective James D. Hinton HCA Inc. March 11, 2003

  2. Hospital Prospects are Good • Managed care pricing is up 8 – 10% • Improved Medicare pricing • Aging baby boomers drive volume gains • Nursing shortage eases somewhat • Costs for new technology continues

  3. Impact of PhysicianMalpractice Crisis on Hospitals • Hospitals are requested to lower / eliminate insurance requirements • More physicians are bare in Texas and Florida • Physicians are more reluctant to take ED call • Some hospitals are paying physicians

  4. Impact of PhysicianMalpractice Crisis on Hospitals • Physicians are relocating / retiring early / curtailing practice • Hospital recruiting costs are up • Service cutbacks are being made in some situations • Employment of physicians trends up again

  5. HCA Loss Trends • Overall frequency of claim is down 3 – 4 % • Frequency of large claims is up • Results of 1998 – 1999 accident years was very poor • Early indications that 2000 – 2001 accident years are better

  6. Number of Large Claims Paid

  7. Impact of the Hard Market on Hospitals • Dramatically higher retentions • HCA: $2 million in 2000 $25 million in 2003 • Formation of new captives / risk retention groups • Heightened senior management attention • Insurance costs rising faster than hospital revenues • Renewed investment in loss prevention • Additional staff is added • New programs / initiatives are approved

  8. Buyer Frustrations • Little evidence of underwriter judgment • Too actuarial focused • Little differentiation of risks • Data requests • Too much • Often irrelevant • Diminished value of long term relationships

  9. Differentiating HPL Risks • Effectiveness of claims handling • Experience and staffing levels • Proven success at reserving adequately and timely • Adequacy of data • How does RM use the data? • Effectiveness of Loss Prevention activities • Appropriately addresses significant loss trends • Is function adequately staffed? • Are results measurable? • Corporate Commitment to: • Nurse training and retention • Patient safety initiatives

  10. Outlook for HPL Underwriting • Should be positive • Rates are adequate (or more than that) • Loss results will improve because • Patient safety initiative • Renewed loss prevention focus • Tort reform • Warning signs • Hospitals may keep high retentions

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