Claims and insurance premiums predicted to rise in 2010
Economy will lead more to file med-mal claims, insurance costs to climb
Medical malpractice claims will moderately increase in 2010, partly because claims increase when people are struggling through a tough economy and money is tight. Your med-mal premiums or self-insurance risks are going to increase also, maybe in double digits, reversing the more positive trends of recent years.
Those are the conclusions of a panel of med-mal insurance experts assembled by Healthcare Risk Management, who all agree that 2010 could be a challenging year for risk managers. Data from the annual study released by Aon Global Risk Consulting in Chicago support that conclusion, says Erik A. Johnson, FCAS, MAAA, assistant director and actuary with the group. Aon has conducted a hospital liability benchmark analysis annually for 10 years that reveals trends in medical malpractice claims and insurance costs, and he says this year's report shows a change from past years.
"What we've seen in the past 10 years is a general leveling off or even a decline in the cost of claims, especially in 2004 through 2006," Johnson reports. "It looked like the costs stemming from incidents in those years were at a real low point, but now we are starting to see the costs stemming from the incidents in 2007 and beyond are beginning to rise again. We think most of that is because of the frequency of claims."
The severity of claims has been a steady factor for many years, he says, with the average cost of claims rising at a predictable 4% per year. But frequency of claims has fluctuated significantly, and that has been a major driver in the overall med-mal outlook.
Frequency of claims dropped from 2000 to 2006, but then that trend reversed in 2007 and 2008.
"There has been a higher number of claims received in 2008 and 2009, and we see that going forward into 2010," Johnson says. "We do think the number of claims, after seven years of reduction, is starting to increase. It's the frequency of claims that have been a major cost driver, so we think that we are going to see an increase in costs."
The reason for the increase in claims is difficult to pin down, but Johnson says one factor is the economy.
"Medical malpractice claims are a source of money, and with money in short supply, they will be pursued with greater vigor by plaintiffs and their attorneys," he says. "There will be certain folks who will be more likely to pursue a claim than they would have under better economic conditions."
Johnson says public sympathy for health care providers is on the wane, which also contributes to a higher frequency of claims. The debate over health care reform tends to paint health care providers in an unflattering light, and that public perception can have a real effect on claims.
Jason Beans, CEO of Rising Medical Solutions, a medical cost-containment company in Chicago, says he expects to see premium increases in the range of 9% to 12% in 2010. The cause is only partly related to claims frequency and severity, he says. Insurance companies make a lot of their money on the "float" of funds, collecting interest on the money they hold at any time, he explains. With interest rates low, that means insurers aren't making as much money as they used to on the float, Beans says.
"We don't usually see dips in the rates until they're making more money on their investment income, and I don't expect that to happen any time soon," he says.
Beans points out, however, that there will be significant differences regionally. Some states that benefit from tort reform will see lower rates. The experience of any particular health care provider in 2010 will depend on its unique circumstances. Jeanne H. Pores Braun, executive vice president for hospitals and special programs with Physicians' Reciprocal Insurers in Roslyn, NY, says the outlook for medical malpractice in 2010 will be reflective of two major factors: the first being the actual experience of the hospital; and the second, the overall availability of insurance.
As a general trend, claims have been tracking toward increased severity that is, the overall value of a malpractice claim has been steadily increasing around the country, she says. The relatively low rate of claims in recent years, though it appears to be on the increase now, was the result of good risk management and patient safety initiatives, Braun says. That means the real focus for health care risk managers should not be in receiving the best rates, but in getting the best possible program, she adds.
"This means taking a more systemic approach rather than just focusing on claims. Risk managers should become more proactive by initiating cooperation with clinical departments that are known to have problems and working with them to improve operations, embrace risk management, and help to resolve these issues, such as breakdowns in communication in the emergency department," Braun says.
Braun also advises risk managers to push for more integration between risk management and the office of the chief financial officer.
"From our experience, the financial decisions to purchase insurance are driven by the finance department. Responsibility for tracking and preventing mishaps falls to the risk manager," she says. "If there is a lack of integration, it is important to help departments to focus on the same goal and nurture a closer relationship."
Improving your business skills should be a priority, Braun says. It is not uncommon for the risk manager to have a clinical background, and while this certainly is beneficial, it does not serve as a substitute for business knowledge, she says.
"The CFO should be able to turn to the risk manager for insight on insurance, and the risk manager has a duty to become educated about the issues," Braun says. "We also encourage more focus on the role of risk management in strategic planning. While administrators may be planning to add new clinical programs to generate more patients, they do not necessarily take into consideration some of the associated risk factors with that program."
For example, the board of a local community hospital may vote to add a unit that focuses strictly on pediatrics and specialized cardiac surgery. Some of the procedures may be considered very high risk. The risk manager is in an excellent position to offer some insight as to the liability exposure. Risk managers should make the case that business plans factor in the cost of risk.
"It is short-sighted to commit valuable resources to a clinical specialty and watch it drain the hospital's bottom line when the claims roll in," she says. "The reality is sad, but it must be taken seriously."
Braun points out that malpractice insurance companies also can be an agent for support. For example, insurance companies can be a partner in brainstorming educational topics related to staff and safety, requesting additional resources, recommending in-house surveys, and looking into policies and procedures that have worked in other hospitals.
"I encourage the risk management community to reach out to their underwriters," Braun says. "Insurance companies share the goals of their insureds reducing the number of claims and improving the quality of care. It is a good partnership that should be strengthened."
Sources
For more information on insurance forecasts for 2010, contact:
Jason Beans, CEO, Rising Medical Solutions, Chicago. Telephone: (312) 559-8445.
Erik A. Johnson, FCAS, MAAA, Assistant Director and Actuary, Aon Global Risk Consulting, Chicago. Telephone: (919) 786-6246. E-mail: [email protected].
Jeanne H. Pores Braun, Executive Vice President for Hospitals and Special Programs, Physicians' Reciprocal Insurers, Roslyn, NY. Telephone: (800) 632-6040.
Medical malpractice claims will moderately increase in 2010, partly because claims increase when people are struggling through a tough economy and money is tight. Your med-mal premiums or self-insurance risks are going to increase also, maybe in double digits, reversing the more positive trends of recent years.You have reached your article limit for the month. Subscribe now to access this article plus other member-only content.
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