Long-term Care Liability Impact and Concerns of the Current Marketplace Michael R. Walton AMWINS HealthCare American Wholesale Insurance Group March 11, 2003

Impact of Current Marketplace on Long-term Care Providers Huge premium increases and risk retention requirements have added financial pressures to an industry segment that is already strained financially. Facilities are “going bare”, self insuring and/or reducing limits of coverage. Higher premiums and claims costs take money from operations, including quality improvement and risk management activities.

Liability Insurance Availability and Affordability Issues are Severe – Insurance Company Concerns Historic Underwriting Results Reported Loss and Litigation Trends Aggressiveness of plaintiffs’ attorneys in soliciting cases Frequent negative press coverage of LTC Extraordinary Jury Awards Political and Public Scrutiny of Eldercare Availability of Government and Proprietary “Quality” Performance Data/Web Sites/Rankings Claims Defense Capabilities

Company Concerns - Reported LTC Liability Trends Trends 1995 – 2001 (FHCA Study) Increased Frequency of Claims (Litigation) FL 233% > (28/1k beds)- Other 25% (6.7/1k beds) Increased Severity of Claims FL 210% - Other 140% FL $455,000.Avg.- Other $156,000. Avg. Multi-million Dollar Jury Awards Numerous and Unpredictable Loss Cost / Bed in 2000 FL $12,700.- Other States $1,050.

Company Concerns- Mega-Verdicts in 2001 Verdict $ Million $82 Million $78.43 Million $50 Million Case Fuqua v. Horizon/CMS Healthcare Corp. Ernst v. Horizon/CMS Healthcare Corp. Sauer v. Advocat, Inc. Copeland v. Dallas Home for Jewish Aged, Inc.

Insurance Industry Reaction Data is Data “Broad Brush” Application Require Risk Retention / Deductibles Move from Occurrence to Claims Made Only Insure “The Best” Nursing Facilities Ultra-conservative Underwriting Practices

Examining LTC Liability Insurance Underwriting Procedures Past “Soft Market” Underwriting Completed Application 5 Years Loss Data Competitive Premium/Coverage Information Written & Onsite Risk Surveys (Maybe)

Current “Hard Market” Underwriting Completed Application and Supplemental Application including: Staff Education and Training Requirements and Procedures Administrative and DON Tenure Written Elopement, Fall, Skin Care, Medication and Abuse Policies and prevention procedures Current CMS 671 (Facility Staffing). Current CMS 672 (Resident Census). Most recent CMS Statement of Deficiencies (with Plan of Correction Marketing materials & brochures Current financial statements Copy of Quality Indicator Profile for recent period

Additional Underwriting Risk Evaluation Tools Medicare’s “Nursing Home Compare” Proprietary Web Sites/Quality Rankings OSCAR (Online Survey, Certification and Reporting) Data CMS’s Quality Indicator’s (QI’s) and Quality Measures (QM’s) Staffing Ratio’s Objective: Risk Evaluation / Selection

Long-term Care Liability Crisis LTC Provider Perspective / Concerns Many suffer for the sins of few. – The “broad brush” underwriting approach is inappropriate. Diverse industry with relatively common treatment from underwriters. Venue, Ownership & Corporate Structure, Medical Services, Philosophy, Quality, etc. Widely published LTC trend reports are concerning. Risk assessment tools and methodologies are inaccurate, faulty and subjective.

The “broad brush” underwriting approach is inappropriate. Set base rates according to geographical location, facility size, and percentage of more acute residents – minimal or no consideration toward level of quality care or type of ownership. Common sense suggests that facilities rendering high quality care have lower risk than those rendering poor care – reluctance to commit to estimates of proportional risk. We are in a “seller’s market”. $$

Widely published LTC liability trend reports are concerning. Consider the 2001 FHCA Study Approx. 20% of nursing home beds in U.S. (336,000) of which 33,000 were in FL This study segregated FL, TX & CA from “all other” States Consider the 2002 AHCA Study Approx. 25% nursing home beds in U.S. (440,000) This study segregated GA, WV, TX, FL, CA, AR, MS and AL from “all other” States

Widely published LTC liability trend reports are concerning. Comparing the Studies: 2001 vs. 2002: “All Other” States Loss Cost $1,050.$620. Excludes: (ex. FL)(AL,AR,CA,FL,GA,MS,TX,WV) $ 750. (excluding FL & TX) $ 730. (excluding FL, TX & CA) Avg. Claim$160,000.< $100,000. Frequency6.7 / 1000Approx. Same Note: Consider the projected 25% claims trend

Widely published LTC liability trend reports are concerning. What segment of the nursing home industry dominated the data used in the studies? The segregated States: AL – 78% For-profit 63% Multi-facility Ownership AR – 79% For-profit 60% Multi-facility Ownership CA – 75% For-profit 63% Multi-facility Ownership FL – 76% For-profit 70% Multi-facility Ownership GA – 75% For-profit 74% Multi-facility Ownership MS – 73% For-profit 61% Multi-facility Ownership TX – 81% For-profit 72% Multi-facility Ownership National Average: 65% For-profit55% Multi-facility Ownership

Data Source Considerations LTCQ, Inc., an AMWINS Strategic Partner, compared public data on the following groups: 1035 facilities owned by religious organizations 4770 facilities owned by other non-profit entities (public and private) facilities owned by for-profit entities (individuals, partnerships, or corporations)

Consider quality performance by type of ownership - Deficiencies

Deficiencies (litigation risk) - measured by ownership type: Failure to follow physicians’ orders. Failure to treat. Physical or verbal abuse. Medication error. Failure to monitor adequately. Improper care. Resident rights violation. Failure to diagnose. Unsafe environment. Inadequate management of incontinence. Inadequate prevention or treatment of pressure ulcers. Fall hazards. Nutrition-related deficiencies

Consider quality performance by type of ownership - Complaints

Complaints (litigation risk) - measured by ownership type: Resident abuse. Resident rights violations. Unacceptable or dangerous environment. Poor care.

Risk/Quality assessment tools and methodologies are inaccurate, faulty and subjective. CMS’s “Nursing Home Compare” OSCAR (Online Survey, Certification and Reporting) Data- Inspection results can vary with inspection teams and are subjective evaluations of regulatory compliance. CMS’s Quality Indicator’s (QI’s) and Quality Measures (QM’s) – CMS’s QI’s & QM’s do not provide definitive measures of quality of care or adequately monitor resident status. Prevalence vs.. Incident based data. Staffing Ratio’s - Often based on arbitrary criteria.

About the Nursing Home: including the number of beds and type of ownership. About the Residents of the Nursing Home: including the percent of residents with pressure sores, urinary incontinence, physical restraints, unplanned weight gain or loss, restricted joint motion, behavior symptoms and who are very dependent in eating and Bedfast. About the Nursing Home Inspection Results: including summary results from the last state nursing home inspection. About Nursing Home Staff: including the number of registered nurses, licensed practical or vocational nurses, and nursing assistants in each nursing home. ”The significant limitations can cause misinterpretation of data and unwarranted scrutiny of institutional quality and capability”. Medicare’s “Nursing Home Compare”

Concerns with OSCAR (Online Survey, Certification and Reporting) Data Data Accuracy Size Bias Geographic Bias Ownership Bias Payer Bias Case Mix Bias

Pitfalls of OSCAR Analysis Simple counts of survey deficiencies can be misleading unless the scope, severity, and type of each deficiency is considered. Percentages of residents with particular conditions, e.g., pressure ulcers, don’t distinguish between problems inherited from the hospital and those that occurred for the first time at the nursing home as well as clinically unavoidable outcomes. Surveyors’ methods, severity, and consistency vary from CMS to CMS region, State to State and within regions of a State. Survey bias seem to be associated with certain types of residents.

Concerns with OSCAR data: Accuracy In a recent analysis of 16,698 OSCAR assessments: 6% of facilities report total census numbers not equal the total number of residents calculated from other OSCAR items. One item inquires how many residents with pressure ulcers at survey also had pressure ulcers at admission. 7% of facilities reported a greater number of residents than logically possible. 10% of facilities had unlikely ADL dependency relationships (where eating > dressing)

OSCAR Bias Example: Geographic

Concerns with CMS’s Quality Indicators (QIs) and Quality Measures (QMs) as quality/risk assessment tools. CMS has a quality monitoring system that utilizes MDS derived QIs & QMs. CMS generates a QI report that profiles the proportion of residents in the facility with a particular undesirable condition. It identifies 24 functional outcomes to summarize facility performance. In November 2002 CMS introduced publicly-available QM’s There are 32 QI’s & QM’s. Only 6 of these measures are Incidence based. The rest are prevalence measures.

Prevalence and Incidence Measurements Prevalence: How you look at one point in time. The status of your residents according to one data point (MDS assessment). Incidence: How you look at one point in time compared to previous point in time. The status of your residents according to two data points (MDS assessment).

DomainQuality Indicator Accidents Incidence of new fractures Prevalence of falls Behavior/Emotional Patterns Prevalence of problem behavioral symptoms toward others Prevalence of symptoms of depression Prevalence of depression with no antidepressant therapy Clinical Management Use of nine or more medications Cognitive Patterns Incidence of cognitive impairment Elimination Incontinence Prevalence of bladder or bowel incontinence Prevalence of occasional or frequent bladder or bowel incontinence without a toileting plan Prevalence of indwelling catheter Prevalence of fecal impaction Infection Control Prevalence of urinary tract infection Nutrition/Eating Prevalence of weight loss Prevalence of tube feeding Prevalence of dehydration Physical Functioning Prevalence of bedfast residents Incidence of decline in late-loss ADLs Incidence of decline in ROM Psychotropic Drug Use Prevalence of antipsychotic use in the absence of psychotic and related conditions Prevalence of any antianxiety or hypnotic use Prevalence of hypnotic use more than 2 time in the last week Quality of Life Prevalence of daily physical restraints Prevalence of little or no activity Skin Care Prevalence of stage 1-4 pressure ulcers

The new CMS Quality Measures Note: FAP – Facility Admission Practice * Incidence Measure There Are Six “Chronic” Care QM’s (Pilot Names Are in Parenthesis) 1. Residents with Pain (Inadequate pain management) 2. Residents who need more help doing daily activities (Late-loss ADL Worsening)* 3. Residents with Infections (Infections) 4. Residents with Pressure Sores (Pressure Ulcers) (FAP) 5. Residents with Pressure Sores (Pressure Ulcers) (No FAP) 6. Residents with Physical Restraints (Physical Restraints Used Daily) There Are Four “Post-acute” Care QM’s 1. Residents with delirium (Failure to Improve & Manage Delirium) (FAP) 2. Residents with delirium (Failure to Improve & Manage Delirium) (No FAP) 3. Residents with pain (Inadequate Pain Management) 4. Residents who improved in walking (Improvement in Walking)* (With FAP)

How good is the Data? MDS Data Quality Reliability and validity studies Reliability in the workforce Lack of training Facility staff turnover Usability of the MDS Surveyor training MDS data integrity

MDSs with no issues MDSs with 1 or more issues 34% 66% Source: LTCQ’s Q-Metrics Data Integrity Audit Data from

Consideration The combination of standardization, electronic transmission, and compulsory submission makes the MDS the most advanced electronic medical record in all of American health care. Data accuracy, interpretation and application is critical to its value.

Are there better ways to measure quality and risk? Yes: OSCAR analysis can be improved by using geographical adjustment, severity- adjustment, focus on litigation risks, and other methods. Yes: MDS data quality can be improved with staff training, use of auditing tools and feedback to facilities. Yes: Quality can be measured with valid, incidence-based risk-adjusted tools. Yes: The risk of many adverse events can be modeled if good data are available on risk factors.

Recap of Insurance Industry Concerns Historic Underwriting Results Reported Loss and Litigation Trends Activity of Plaintiffs’ Bar Constant Publicity of Negative Eldercare Issues Extraordinary Jury Awards Political and Public Scrutiny of Eldercare Availability of Government and Proprietary “Quality” Performance Data/Web Sites/Rankings Claims Defense Capabilities

Are there Solutions? Opportunities? Absolutely! Utilize advanced methods of assessing, managing, and defending long-term care quality and associated risk. Long-term Care Providers / Clinicians Insurance Providers Defense Council Risk Managers Insurance Brokers and Consultants Consumers