The New and Improved LTC Outlook

The New and Improved LTC The New and Improved LTC OutlookOutlook

• 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 Aon/AHCA 2006 LTC GL/PL Liability Study DataLiability 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 FindingsKey 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*Tort Reform States*Loss Cost per BedLoss Cost per Bed

760

2,180

3,550

5,110 5,020

4,520

3,7303,460

2,1001,750

1,490

1,240

0

1,000

2,000

3,000

4,000

5,000

6,000

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

* 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* Tort Reform States* Claims per 1,000 BedsClaims per 1,000 Beds

5.6

8.9

12.4

14.315.5

18.1 18.717.5

16.314.4

13.412.3

0.0

5.0

10.0

15.0

20.0

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006


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*Tort Reform States*Severity per ClaimSeverity per Claim

13

4,0

00

24

5,0

00

28

7,0

00 35

8,0

00

32

4,0

00

24

9,0

00

19

9,0

00

19

7,0

00

12

9,0

00

12

2,0

00

11

1,0

00

10

1,0

00

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006


The average size of a claim has plummeted from $358,000 in 1998 to $101,000 in 2006.

All States Excluding Tort Reform All States Excluding Tort Reform States States

Loss Cost per BedLoss Cost per Bed

220280

450

1,0101,060 1,120 1,200

1,120

1,5601,490

1,5801,710

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

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 All States Excluding Tort Reform States Claims per 1,000 BedsStates Claims per 1,000 Beds

5.54.6 4.6

5.5

6.9 6.7 6.8

8.09.2 9.1

9.910.7

0.0

2.0

4.0

6.0

8.0

10.0

12.0

1995 1997 1999 2001 2003 2005

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 All States Excluding Tort Reform States Severity per ClaimStates Severity per Claim

39

,00

0 61

,00

0 96

,00

0

18

1,0

00

15

4,0

00

16

7,0

00

17

5,0

00

14

1,0

00

17

0,0

00

16

3,0

00

15

9,0

00

16

0,0

00

0

50,000

100,000

150,000

200,000

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

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 Countrywide Loss Cost Per BedBed

350

770

1,180

2,010 2,0301,930

1,7901,630 1,670

1,550 1,5501,610

0

250

500

750

1,000

1,250

1,500

1,750

2,000

2,250

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

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 Countrywide Claims Per 1,000 Beds1,000 Beds

5.6 5.76.5

7.7

9.09.4 9.6

10.1 10.5 10.310.7 11.1

0.0

2.0

4.0

6.0

8.0

10.0

12.0

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

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 Countrywide Severity per ClaimClaim

63

,00

0

13

5,0

00

18

2,0

00

26

1,0

00

22

6,0

00

20

5,0

00

18

6,0

00

16

2,0

00

15

9,0

00

15

1,0

00

14

5,0

00

14

6,0

00

0

50,000

100,000

150,000

200,000

250,000

300,000

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Countrywide trends are driven by reductions in the average severity from a high of $261,000 in 1998 to $146,000 in 2006.

0 - 50K50K - 100K

100K - 250K

250K - 350K

350K - 500K

500K - 1M 1M - 2M 2M - 5M

5M & Up

AL, AZ, AR, CA, MS, TN, TX, WI & WV 55.4% 8.6% 14.5% 6.4% 4.2% 6.2% 3.0% 1.4% 0.2%

FL 41.8% 12.7% 19.9% 8.8% 7.1% 7.1% 2.1% 0.5% 0.1%

Remaining States 69.0% 10.0% 13.2% 3.8% 2.0% 1.5% 0.4% 0.1% 0.0%

Total 58.4% 10.1% 15.2% 5.8% 3.9% 4.3% 1.6% 0.6% 0.1%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

Percentage of Claims Reported by Percentage of Claims Reported by Size of LossSize of Loss (AY 1998 – 2004 Reported (AY 1998 – 2004 Reported

Claims)Claims)

Distribution of Distribution of CompensationCompensation

47%

28%

25%

Patient and/or Family CompensationDefense Costs (Defense Attorneys & Investigation)Plaintiff Attorney Fees

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) Average ALAE (Defense Cost) PaidPaid

131 7483,782

7,376

13,616

18,946

25,719 24,444

28,947

34,675

52,754

-

10,000

20,000

30,000

40,000

50,000

60,000

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Year Claim Closed

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.

1,628 4,568

23,699

55,402

91,647

110,094

127,800 123,039

143,829140,747

132,117

-

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Year Claim Closed

Average Indemnity PaidAverage Indemnity Paid

The increase in defense cost spending appears to be contributing to stabilizing, and possibly lowering, average indemnity payments.

1996 GL/PL Loss Cost by 1996 GL/PL Loss Cost by StateState

50 90

220

280

290 54

0 750

770

860

910 1,01

0

2,01

0

2,18

0

-

500

1,000

1,500

2,000

2,500W

I

TN

Exc

l. 10

Sta

tes

Exc

l. 7

Tor

t

AR

CA AL

All

Sta

tes

WV AZ

MS TX

7 T

ort

2006 GL/PL Loss Cost by 2006 GL/PL Loss Cost by StateState

55

0

98

0

1,1

20

1,1

30

1,2

40

1,6

10

1,7

10

2,6

00

3,1

80

4,3

00

4,8

80

5,4

30

9,8

80

-

1,500

3,000

4,500

6,000

7,500

9,000W

I

AL

TX

Excl. 1

0 S

tate

s

7 T

ort

All

Sta

tes

Excl. 7

To

rt

WV

CA

AZ

TN

MS

AR

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 Arkansas Loss Cost per Occupied BedOccupied Bed

2901,270

8,990

6,240

9,11010,160

10,900

11,890

10,5309,710 9,880

0

2,000

4,000

6,000

8,000

10,000

12,000

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Estimates are based on approximately 19% of Arkansas providers measured by nursing home beds.

Mississippi Loss Cost per Mississippi Loss Cost per Occupied BedOccupied Bed

1,010

4,1403,500

7,150

13,810

10,010 10,180

8,460

5,200 5,580 5,430

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Estimates are based on approximately 11% of Mississippi providers measured by nursing home beds.

Tennessee Loss Cost per Tennessee Loss Cost per Occupied BedOccupied Bed

90350

2,200 2,0901,540 1,380

2,020

6,180

4,0304,350

4,880

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Estimates are based on approximately 22% of Tennessee providers measured by nursing home beds.

Arizona Loss Cost per Arizona Loss Cost per Occupied BedOccupied Bed

910

2,710

26010

700

1,2401,020

3,020

3,5803,990

4,300

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Estimates are based on approximately 20% of Arizona providers measured by nursing home beds.

Texas Loss Cost per Texas Loss Cost per Occupied BedOccupied Bed

2,010

3,550

4,660

5,740

4,150

3,400

6,080

2,650

1,260 1,140 1,120

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Estimates are based on approximately 9% of Texas providers measured by nursing home beds.

All Other States Combined All Other States Combined Loss Cost per Occupied Loss Cost per Occupied

BedBed

220 240

450

670590

710 710

840930

1,0301,130

0

200

400

600

800

1,000

1,200

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Estimates are based on approximately 15% of all other states’ providers measured by nursing home beds.

Preview of 2008 StudyPreview 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

2008 Medical Professional 2008 Medical Professional Liability SymposiumLiability Symposium

Chicago, Illinois ~ March 11 & 12, 2008

Selected Defense Strategies Selected Defense Strategies Effecting LTC Claim TrendsEffecting LTC Claim Trends

Raymond Watts, Esquire

Wicker, Smith, O’Hara, McCoy & Ford, P.A.

New DevelopmentsNew 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/ManagementOwnership/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/ManagementOwnership/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.

ArbitrationArbitration

Pros:• Less Expensive• Quicker Resolution• Greater Predictability• Reduce/Eliminate Catastrophic Result• Confidential • Greater Input into Deciding Decision

Makers


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.


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.


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.


Reduce/Eliminate Catastrophic Result:

• Evidence based versus sympathy/bias influenced.

• Punitive damages less likely if available at all.

• Improves actuarial/insurance renewal issues


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.


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.


Cons:

• Unlikely “Defense Verdict”

• Difficult to obtain a “bullet proof” agreement

• Limited Discovery (Plaintiff vs. Defendant)

• Limited Appellate Options


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.


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.


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 Quality Care ImprovementsImprovements

• 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 Explain the Scope and Severity ScaleSeverity Scale

A,B,C = Substantial Compliance

D,E,G = Non compliance that is not substandard quality of care

Sample Survey E TagSample 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 – Sample Survey – GG Tag Tag

F 314 S/S = GQuality 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 – Guidance to Surveyors – Pressure SoresPressure 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 SurveyorsGuidance 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 – Guidance to Surveyors – Risk FactorsRisk 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 WorksheetResident Census Worksheet

Tracks Residents w/following issues:

• Bowel/Bladder Status

B. Mobility

C. Mental Status

D. Skin Integrity

Facility StaffingFacility Staffing

A. Services Provided

B. Full Time Staff

C. Part Time Staff

D. Contract

Current Issues/IdeasCurrent Issues/Ideas

• Surveyors can give favorable testimony, or be effectively cross-examined, in deposition or trial.

• Complaint Investigations are often “unsubstantiated”.• Plaintiff/Decedent was often not a “sampled resident”.• Surveys often irrelevant if resident was not in facility at the time

of inspection.• Surveys are subjective findings!• Depending on state law, surveys may only be admissible in

punitive damage phase.• Effective motions in limine can still keep out bad surveys.• Integrate defense themes into the case to deal with negative

stereotypes, show good care to the resident, narrow the focus of the case, and put medicine in perspective.

2008 Medical Professional 2008 Medical Professional Liability SymposiumLiability Symposium

Chicago, Illinois ~ March 11 & 12, 2008

LTC - Improving Trends vs. LTC - Improving Trends vs. Market Conditions.Market Conditions.

Navigating in Rough Waters.

Bryan Baird, President/CEOK&B Underwriters, LLC

Truth in Lending Truth in Lending StatementStatement

• While K&B Underwriters represents most insurance companies writing LTC business, it was recently appointed as the exclusive senior living MGA/MGU for a national professional liability underwriting insurance company.

Are We Qualified?Are We Qualified?

• Program Underwriters with over 10 years experience in LTC;

• Underwritten 1,000’s of LTC submissions;• Compared on a state by state/county basis

K&B per bed “Loss Cost” with same from two different LTC national databases;

• Developed a K&B underwriting experience mod to support K&B risk selection strategies.

What You Will Learn What You Will Learn Today:Today:

• Softening market rates compared to rates developed with K&B data and 3rd party databases show: “Novice’s Need Not Apply”;

• Underwriting profit likely in only 7 states unless you have proven risk selection and pricing strategies;

• Will share our philosophy to risk selection and compare with a med mal actuarial case study performed in 2007.

Rate Development Rate Development MethodsMethods

• Qualitative Method - Traditional Actuarial Study performed by Aon comparing K&B data to Aon national database approximately 15% of all US LTC beds, developing average loss costs and K&B underwriting modification factor;

• Quantitative Method - compared the loss histories from 1148 discrete facilities in 46 states and DC to various clinical characteristics;

Qualitative MethodQualitative Method

• Aon LTC Benchmark Data: exposure data used as the basis for a countrywide state specific loss rate analysis;

• Loss rates adjusted to reflect $1M per claim limit;

• Loss rates adjusted to reflect small providers under 5,000 country wide beds;

• K&B 5-year loss and exposure data compared to Aon loss rates to develop K&B underwriting mod based on superior risk selection criteria relative to general market;

Quantitative Method Quantitative Method

• 4-Year loss histories from 1,148 individual facilities all types and sizes in 47 states and over 4,000 claims;

• Compared Loss Data to the following Metrics: Facility Size and ownership Resident acuity Staffing Care indicators Survey results

Aon Average Rate vs. Market Rate

0%

100%

200%

300%

400%

500%

600%

700%

States

Pe

rcen

t o

f M

ark

et

Ra

te

Combined Average Rate vs. Market Rate

0%

50%

100%

150%

200%

250%

300%

350%

400%

States

Perc

en

t o

f M

ark

et

Ra

te

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

Rate

s

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49States

Market Rates

Can You Make Money?Can You Make Money?

• Given Loss Cost relative to market rates, it appears you need to know the following:

Venue Loss Costs Definition of a “good risk”

Aon Select Criteria Rate vs. Market Rate

0%

50%

100%

150%

200%

250%

300%

350%

States

Perc

en

t o

f M

ark

et

Ra

te

Combined Select Criteria Rate vs. Market Rate

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

200%

States

Perc

en

t o

f M

ark

et

Ra

te

Market Definition of a “Good Market Definition of a “Good Risk”:Risk”:

• “These days it seems like the definition of a “good risk” has expanded to the point where a “good risk” means anything you take the saran wrap off of and it doesn’t cause you to pass out!”

Alan Zuccari, Hamilton Insurance Agency, Inc.

K&B “Good Risk” Philosophy K&B “Good Risk” Philosophy “Culture of Life” Case Study“Culture of Life” Case Study

• In 2004 K&B formulated a hypothesis that there is a correlation between a physician’s adherence to what might be deemed a “Culture of Life” framework - respecting human life from conception to natural death - and improved quality of care and patient safety.

““Culture of Life” Case Culture of Life” Case StudyStudy

• In 2007 K&B conducted a survey endorsed or supported by the following physician associations: Association of American Physicians and

Surgeons; Association of Pro-Life Physicians; The American Association of Pro-Life

Obstetricians and Gynecologists Catholic Medical Association; Christian Medical and Dental Association


• Over 500 Physicians;

• 49 States;• Over 100

Specialties and sub specialties;

• 10 Years of Loss experience

% of Physicians by # of Claims in 10 Years% of Physicians by # of Claims in 10 Years

0102030405060708090

100

4Claimsor Less

3Claimsor Less

2Claimsor Less

1Claimsor Less

0Claims

Physicians

““Culture of Life” Survey Culture of Life” Survey Says:Says:

• After accounting for self reporting errors, industry IBNR, trending factors, and adjusting to 100% credibility the result was a “Culture of Life” Experience Mod of .61;

• Or, “Culture of Life” Physicians have loss ratios 39% better than their peers;


• Why was there a difference? • Several possible reasons, but K&B believes

it main reason has to do with upholding the dignity and sacredness of human life;

• If a physician believes in the value of each human life, perhaps they can better establish trust with their patient?

• K&B doesn’t think this class will necessarily have less accidents, but we believe they will have a better outcome;

Select Criteria to Define a “Good Select Criteria to Define a “Good Risk”:Risk”:

• Management respects dignity of the person as evidenced in treatment of staff and residents;

• Facility sets realistic expectations and has open and ongoing dialogue with the family members;

• Policies and Procedures consistently followed and implemented according to promises;


• Appropriate resident acuity relative to demographic mix;

• Overall survey reviews indicate facility is managed above average - scope and severity not always indicators;

• Care process & outcome indicators indicate management cares for dignity of human life;


• Family and Resident Satisfaction Surveys;• Care Driven vs. Profit Driven;• Small vs. Larger & For vs. Not-for-profit;• Marketing Materials adequately represent

services;• Prior Loss History;• Financial Stability;


• Adequate staff to resident ratio relative to resident acuity;

• Lower Staff Turnover;• Lower percentages of contract staffing;• Experienced staff at the DON/Administrator

level;• Employee Satisfaction surveys;• Work Comp injuries;


• Resident Assessments—completed regularly by appropriate party;

• Procedures for handling a change in conditions, family& physician notification;

• Medication controls and error rates;• Entry and exit security measures;• Incident reporting and physician reporting;• Arbitration Agreements;

The New and Improved LTC Outlook

Documents

Transcript of The New and Improved LTC Outlook