The New and Improved LTC Outlook • MODERATOR: Theresa Bourdon, FCAS, MAAA, Managing Director & Actuary, AON • Bryan A. Baird, President, K&B Underwriters, LLC • Raymond E. Watts, Jr., Esq., Partner, Wicker, Smith, O'Hara, McCoy & Ford, PA
Aon/AHCA 2006 LTC GL/PL Liability Study Data • 60 LTC providers participated • 15 FP, multi-facility, multi-state • 12 regional, multi-facility, in 2 – 5 states • 33 small independents in only 1 state • 290,000 licensed beds (255,000 occupied) • 20,000 non-zero claims (over 7 year period) • Loss development patterns for 77% of exposures • Study participants represent 15% of the industry, measured by beds.
Key Findings • Tort Reform is having a favorable impact on lowering both frequency and severity. • Operational improvements focusing on effective defense strategies and quality of care initiatives are helping to stabilize and/or decrease loss costs, with most measurable impact on severity. • Structural changes are evident as larger providers exit high cost states, leaving the market to smaller providers and limited liability corporations that typically have less capacity to indemnify claimants.
Tort Reform States*Loss Cost per Bed * FL, GA, LA, MS, OH, TX, WV Liability costs are dramatically dropping in states that have passed tort reform in the past several years; As a group, the average loss cost has dropped from $5,110 in 1998 to $1,240 in 2006.
Tort Reform States* Claims per 1,000 Beds * FL, GA, LA, MS, OH, TX, WV Both frequency and severity are down in states that have passed tort reform. The number of claims per 1,000 occupied beds for this group peaked at 18.7 in 2001 and has since dropped to 12.3 in 2006.
Tort Reform States*Severity per Claim * FL, GA, LA, MS, OH, TX, WV The average size of a claim has plummeted from $358,000 in 1998 to $101,000 in 2006.
All States Excluding Tort Reform States Loss Cost per Bed In aggregate, the loss costs in states without tort reform have increased substantially over levels in the late 1990s and early 2000s.
All States Excluding Tort Reform States Claims per 1,000 Beds Increases in frequency remain problematic in states without tort reform. Excluding the 7 tort reform states, frequency is increasing at an annual rate of 9%.
All States Excluding Tort Reform States Severity per Claim The 2006 average severity of the states excluding tort reform is 60% greater than the tort reform states ($160,000 versus $101,000).
Countrywide Loss Cost Per Bed Countrywide, GL/PL loss costs are stabilizing at approximately $1,610 per bed after peaking at $2,030 per bed in 1999.
Countrywide Claims Per 1,000 Beds Frequency of claims continues to climb. Countrywide, the number of claims incurred per 1,000 occupied beds has doubled from 5.6 in 1995 to 11.1 in 2006.
Countrywide Severity per Claim Countrywide trends are driven by reductions in the average severity from a high of $261,000 in 1998 to $146,000 in 2006.
Percentage of Claims Reported by Size of Loss (AY 1998 – 2004 Reported Claims)
Distribution of Compensation More than half of the total amount of claims costs paid for GL/PL claims in the LTC industry is going directly to attorneys.
Average ALAE (Defense Cost) Paid The average amount spent to defend a GL/PL claim has increased more than sevenfold in the past seven years from approximately $7,400 to $52,800.
Average Indemnity Paid The increase in defense cost spending appears to be contributing to stabilizing, and possibly lowering, average indemnity payments.
2006 GL/PL Loss Cost by State Numerous states continued to experience dramatically high or increasing GL/PL loss costs. Topping the list is Arkansas. The steepest jumps in the past five years have been incurred in Arizona and Tennessee.
Arkansas Loss Cost per Occupied Bed Estimates are based on approximately 19% of Arkansas providers measured by nursing home beds.
Mississippi Loss Cost per Occupied Bed Estimates are based on approximately 11% of Mississippi providers measured by nursing home beds.
Tennessee Loss Cost per Occupied Bed Estimates are based on approximately 22% of Tennessee providers measured by nursing home beds.
Arizona Loss Cost per Occupied Bed Estimates are based on approximately 20% of Arizona providers measured by nursing home beds.
Texas Loss Cost per Occupied Bed Estimates are based on approximately 9% of Texas providers measured by nursing home beds.
All Other States Combined Loss Cost per Occupied Bed Estimates are based on approximately 15% of all other states’ providers measured by nursing home beds.
Preview of 2008 Study • Similar participation to last study • Tort states show continued favorable experience versus non-tort states • Frequency stabilizing countrywide • Severity stabilizing countrywide • Increasing trends in several troubled spots
Selected Defense Strategies Effecting LTC Claim Trends Raymond Watts, Esquire Wicker, Smith, O’Hara, McCoy & Ford, P.A. Chicago, Illinois ~ March 11 & 12, 2008
New Developments • Changes in ownership and management of long term care companies. • Implementation of effective arbitration provisions in admission contracts. • Improvements in the quality of care and services delivered by LTC companies. • Understanding and getting the defense themes across to the jury.
Ownership/Management • Reduction in large multi-state providers. • Divestiture in litigation prone states. • Introduction of investment firms providing capital to troubled industry. • Real estate entities not involved in operations; contracted management. • Increase in limited liability companies. • Insurance unavailability.
Ownership/Management • All of the forgoing appear to have made long term care companies less attractive targets for lawsuits. • Tort reform in litigation prone states has impacted select states. • Understand the corporate structure and entities you are insuring.
Arbitration Pros: • Less Expensive • Quicker Resolution • Greater Predictability • Reduce/Eliminate Catastrophic Result • Confidential • Greater Input into Deciding Decision Makers
Arbitration Less Expensive: • Faster process costs less both in preparation time and actual length of proceeding. • Discovery is usually limited. • Expert witnesses can be reduced. • Few hearings and usually done by phone. • No appellate costs. • Limited demonstrative evidence requirements.
Arbitration Quicker Resolution: • A case can get to the actual proceeding generally in a matter of months versus years. • Closure for both sides on an expedited basis. • Payment of any award often done sooner and higher net to plaintiff. • Courts favor non-judicial arbitration (less burden of the system). • Generally no appeal so ends with the ruling.
Arbitration Greater Predictability: • Control over the selection of the arbitrator(s). • More predictable outcome as to any case value. • Hopefully an evidence based result. • Choice of law clauses. • Choice of venue clauses.
Arbitration Reduce/Eliminate Catastrophic Result: • Evidence based versus sympathy/bias influenced. • Punitive damages less likely if available at all. • Improves actuarial/insurance renewal issues
Arbitration Confidential: • No media coverage. • Privacy in airing “dirty laundry” for defendant. • No roadmap to other litigants. • Privacy in medical information for plaintiff. • Any award remains confidential.
Arbitration Greater input into deciding decision makers: • You pick the arbitrator(s) • You decide rules, procedures, formalities • Parties can select an arbitrator with an expertise in a certain area.
Arbitration Cons: • Unlikely “Defense Verdict” • Difficult to obtain a “bullet proof” agreement • Limited Discovery (Plaintiff vs. Defendant) • Limited Appellate Options
Arbitration Unlikely “Defense Verdict”: • One to three lawyers (the arbitrators) deciding how much, if anything another lawyer (plaintiff’s counsel) will earn. • Arbitrators underlying desire to make everyone happy.
Arbitration Difficult to obtain a “bullet proof” agreement: • An agreement that accomplishes your goals and stands up to judicial scrutiny may be difficult. • Unconscionability arguments; substantive and procedural. • Waiver arguments. • Defects in execution of the agreement. • Over-reaching terms and conditions. • Limitations on damages. • Multiple defendants, admissions • Voluntariness and opt-out provisions. • Consideration.
Arbitration Limited Discovery: • Lack of full range of discovery if discovery available at all. • Limited cross-examination of witnesses. • More difficult to try the case effectively. • Chance of not knowing full extent of case, for either side. • Potentially limited subpoena power. • Limited Appellate Options.
Quality Care Improvements • Care has generally improved in LTC. • Many states now require higher staff to patient ratios. • Facilities generally work hard for good survey results. • Rather than excluding surveys in the defense, consider embracing them and using them as a sword to prove good care.
Explain the Scope and Severity Scale A,B,C = Substantial Compliance D,E,G = Non compliance that is not sub standard quality of care
Sample Survey E Tag Recertification survey was completed 3/14/05 -3/17/05. Highest S/S was E, Class III deficiency, F253 and F332.
Sample Survey – G Tag F 314 S/S = G Quality of Care:”…the facility must ensure that a resident who enters the facility w/o pressure sores does not develop pressure sores unless….”
Guidance to Surveyors – Pressure Sores (1) A resident who enters the facility without pressure sores does not develop pressure sores unless the individual’s clinical condition demonstrates that they were unavoidable
Guidance to Surveyors “Unavoidable” means that the resident developed a pressure ulcer even though the facility had evaluated the resident’s clinical condition and pressure risk factors; defined and implemented interventions that are consistent with resident needs, goals, and recognized standards of practice…
Guidance to Surveyors – Risk Factors • Risk Factors • Impaired/decreased mobility • Co-morbid conditions – diabetes, renal, vascular • Drugs such as steroids that affect healing • Impaired blood flow • Resident refusal • Cognitive Impairment • Urinary and fecal incontinence • Malnutrition, hydration deficits
Resident Census Worksheet • Tracks Residents w/following issues: • Bowel/Bladder Status • Mobility • C. Mental Status • D. Skin Integrity