Medical Malpractice After the Bubble ……

Medical Malpractice Crisis Winding Down New Capacity for Primary Hospital business –Rates flattening –Terms and conditions eroding New Capacity for Excess Hospital business –Rates Falling New Treaty Reinsurance Capacity –Reinsurance terms weakening

How can Reinsurers still maintain Profitability in this line New Capacity must do the appropriate due diligence when entering new lines of business Medical Malpractice is a prime target for adverse selection –Practitioners typically shop for the cheapest insurance regardless of company ratings. –Primary insurers typically shop for the cheapest reinsurance regardless of company ratings. Examples: New Physician Carrier has ended up with a book of business made up predominantly of OB/GYNs Reinsurer has ended up as the carrier of choice for Cook County Teaching hospitals

How can Reinsurers do the appropriate Due Diligence? Difficulties: –Lack of good publicly available data ISO does not have complete data because so many companies that write MedMal do not belong to ISO Most company rates were based on copying St Paul Rate Filings –Huge Variety of Risks Involved: Physicians, Surgeons, Allied Professionals, Hospitals, Managed Care, Healthcare D & O, Aviation (helicopters), Auto (ambulances), GL Mold problems –Highly Jurisdictional Line of Business. State differentials Differences within states

GAO Report on Factors Contributing to Increased MedMal Insurance Rates Conclusion of this Report: –Encourage NAIC and State Regulators to “identify and collect additional, mutually beneficial data necessary for evaluating the Medical Malpractice insurance market.”

National Practitioner Databank Public Use File Free Download of data is available at: – Updated Quarterly Formatted as either ASCII file or SPSS file –SPSS is a statistical package program similar to SAS –Free demo download of SPSS available at; Just register for free and download the software for one monthhttp:// –Using SPSS, you can select the data you would like and create an Excel spreadsheet

What data is Available Medical Malpractice payments made on behalf of individual practitioner –Physicians and Surgeons –Dentists –Nurses –Various Allied health Professional

What data is Available Cause of Loss –Obstetrics Related –Anesthesia Related –Failure to Diagnose –Surgery –Medication –IV and Blood –Treatment Related

Other Useful Data Fields Accident Year Year reported to Databank (payers are required to report within 30 days of payment) Fund Payments Age group of practitioner

Calendar Severity Trends Ability to compare Calendar Year Severity Trends by –State –Type of Practitioner –Cause of Loss Trend = 8.5% Avg Sev = $550,000 Example – CT in Crisis

Michigan – Showing Problem Signs Trend since 1996 = 5% California – Currently Okay Trend = 4.7% Avg Sev = $130,000Avg Sev = $175,000

CO – Currently OK (?) Trend = 9.8% 33% jump in 2002

What Happened in CO in 2002? If you do a little research, you will find: –In 2001, Preston v. Dupont held that damages for physical impairment and disfigurement are not subject to the $250,000 damages cap # of Payments greater than $250,000 by CY

Calendar Year Frequency Trends (Indemnity only) Big decrease in CY frequency in 1996 –Due to tort reform which enacted a cap on non- economic damages in MI Difficult to find data on historical doctor counts so use Population

CY Paid Indemnity Frequency Trend = -4.3% Unusual CA CY Paid Count per 1M Residents ,991 1,992 1,993 1,994 1,995 1,996 1,997 1,998 1,999 2,000 2,001 2,002 2,003 Frequency per PopulationFitted

Check AY Reporting Patterns Obvious Slow Down in Payments

Payout Lag Although databank only has CY payments since 1990, payments are being shown on all prior accident years –So can compare length of payout pattern and tail for different states New Jersey Extremely long

Trend by Cause of Loss

Comparative Size of Loss Distributions

Comparative Frequency By State StateMACACO Projected # Payments 2641, Population6,433,42235,116,0034,574,579 Freq per %.36% Doctor Count28,85188,5539,999 Freq per doc.9%1.6%1.65% Doctor per 1000 Resident

Rules for Reporting to NPDB Entities such as insurance companies must report practitioners on whose behalf medical malpractice payments are made. Medical Malpractice payments must be reported to NPDB within 30 days of the date of the initial payment. Civil penalties can be assessed for non-reporting and for unauthorized use of NPDB information. Entities failing to report medical malpractice payments can be assessed up to $11,000 for each unreported payment.

Compliance Issues The GAO did a study of the reporting to NPDB in Agency officials believe that some insurers and self-insured organizations such as HMOs and other health plans should report to NPDB but do not. In 2000, the agency identified 41 insurers that reported payments to NAIC but not to NPDB –17 of the 41 companies have adequately explained the discrepancies –Of the remaining 24, 18 companies recognized their omissions and agreed to file the delinquent reports

About 25% (331) of the 1,300 malpractice reports received in the test month (Sept 1999), were not submitted to NPDB within 30 days of the initial payment, as required. On average, these reports were about 85 days late. More than 30 percent of the Sept reports, noted delays between the date the report was submitted to NPDB and the date that the information was incorporated into the data bank. The median processing delay was about 13 days.

Agency officials believe that some insurers may be using a technicality in NPDB’s reporting requirements to avoid reporting some practitioners. –Corporate shield. Only practitioners who are named in a settlement need to be reported upon. So corporate shield occurs when individuals filing malpractice claims remove the practitioner’s name from the claim leaving only the hospital or another corporate entity as the responsible party.

Other Issues regarding the Data Companies in receivership may not be reporting to the NPDB –Example: New Jersey shows a huge decrease in the volume of reports. Most likely the affect of MIIX and PHICO States with Patient Compensation Funds –Data needs special handling to appropriately match fund payments with underlying payments.

Conclusion Insurers and Reinsurers can get into deep trouble by not doing the appropriate due diligence before writing MedMal insurance. –Examples: Florida XPL, Claims made step factors for Excess Losses Reinsurers can use the NPDB data to get a better idea of what might be happening with medical malpractice losses The use of the NPDB data requires actuarial analysis to appropriately recognize problems inherent in the data source.