Perspectives on the Med Mal crisis Perspectives on the Med Mal crisis From buyers within AHA Tony Spohn Vice President AHA Financial Solutions For PLUS—March 11,2003

Medical Liability Insurance: Looming Crisis? Professional liability premiums are increasing sharply for physicians… Medical Liability Insurance Rate Increases Highest States as Reported by Selected Insurers, * *Chart reflects rate increases for internal medicine, general surgery, and Ob/Gyn physicians. 81% 67% 58% 57% 40% 29% 39% 56% 32% PennsylvaniaWest VirginiaIndianaMontanaTexas Highest reported Lowest reported

Medical Liability Insurance: Looming Crisis? Distribution of Premium Change for a Sample of Hospitals * …and hospitals… Percent Change in Premiums 2001 n=110 11% 14% 44% 4% 16% 41% 54% 32% 12% 33% 16% 3%5% 11% 2000 n= n=66 Decrease or No Change1% - 9%10% - 49%50% - 99%100% and over Percentage of Hospitals *Results from an AHA/ASHRM Survey of Hospital Experience with Professional Liability Insurance. Not all respondents provided data for all years. 1 Survey distributed to members of ASHRM, including approximately 1,250 hospital-based risk managers, 132 responded

Medical Liability Insurance: Looming Crisis? Percentage of Hospitals Reporting Actions Taken to Reduce Cost of Professional Liability Coverage 2002* …forcing hospitals to assume more risk… *Results from AHA/ASHRM Survey of Hospital Experience with Professional Liability Insurance (n=132) Percentage of Hospitals 1% 9% 12% 13% 14% 17% 31% 35% 0%5%10%15%20%25%30%35%40% Opted not to Purchase Coverage Created a Captive No Action Assumed a Deductible Other Self-Insurance Options Reduced Level of Coverage Changed Carriers Increased Deductible

Medical Liability Insurance: Looming Crisis? Percentage of Hospitals Reporting Impacts of Current Professional Liability Market on Health Care Delivery 2002* … and affecting access to care for physician and hospital services. *Results from AHA/ASHRM Survey of Hospital Experience with Professional Liability Insurance (n=132) 6% 20% 25% 27% 38% 0%5%10%15%20%25%30%35%40% Complete Closure/ Discontinuation of Services More Difficult to Attract Physicians to Community Curtailment of Services Physicians Relocating Out of Area or Retiring More Difficult to Obtain Physician Coverage Percentage of Hospitals

Medical Liability Insurance: Looming Crisis? Number of Physician Medical Liability Payment Reports 1 (in thousands) While the number of medical liability reports has remained stable… 1 Reports refer to all medical liability payment reports submitted to the National Practioner Databank

Medical Liability Insurance: Looming Crisis? Median Compensatory Jury Awards (in thousands) …the size of jury awards has escalated… $700 $1,000 $503 $475 $734 $500 $

Medical Liability Insurance: Looming Crisis? …contributing to rapid growth in the size of claims paid by insurers. Median Indemnity Paid, Combined Specialties (in thousands) $158 $125 $116 $101 $100

Medical Liability Insurance: Looming Crisis? Average Return on Invested Assets, Property and Casualty Insurers E As insurer expenses have risen, a declining return on invested assets has driven non-premium revenues down. 4.3% - Low 11.5% - High 0% 2% 4% 6% 8% 10% 12% 14% E

Medical Liability Insurance: Looming Crisis? Median Professional Liability Premium Rates by Specialty 2000 Medical liability expenses vary across specialties… $3,525 $3,829 $5,213 $6,125 $6,138 $6,144 $6,202 $6,520 $6,934 $8,004 $8,751 $9,903 $10,793 $17,812 $19,860 $21,446 $28,328 $33,101 05,00010,00015,00020,00025,00030,00035,000 Neurology Pathology Pediatrics Family Practice Gastroenterology Internal Medicine Radiology Hematology/Oncology Ophthalmology Anesthesiology Cardiology Urology Otorhinolaryngology Orthopedic Surgery General Surgery Ob/Gyn Cardiovascular Surgery Neurosurgery

Medical Liability Insurance: Looming Crisis? Ob/Gyns as a Percentage of Physicians, Claims, and Pay-outs % 14% 5% 0%5%10%15%20%25% Ob/Gyn Pay-outs as a Percentage of Total Pay-outs Ob/Gyn Claims as a Percentage of All Claims Ob/Gyns as a Percentage of Physicians …due to differences in risk and claims experience.

Medical Liability Insurance: Looming Crisis? Highest and Lowest Premium Rates Reported by Insurers in Specific Markets, Ob/Gyn July 2001 $11,580 $12,288 $13,874 $115,429 $160,746 $202,949 Dade/ Broward Counties FL Dallas Houston Galveston, TX NYC Nassau Suffolk Counties, NY IndianaNebraskaSouth Dakota HighestLowest Premiums also vary widely across cities and states.

Medical Liability Insurance: Looming Crisis? Limits on Damages for Pain and Suffering Map values represent caps for non-economic damages except for the following states in which they refer to total caps: Indiana, Louisiana, Nebraska, New Mexico, South Dakota, and Virginia None Under $250,000 $250,000 - $499,999 $500,000 - $999,999 RI None DE None DC None $1,000,000 and over Limits on damages for pain and suffering Some states have capped awards for pain and suffering…

Medical Liability Insurance: Looming Crisis? Reform of Collateral Source Rule 2001 None Mandatory Discretionary Case Law Support RI Mandatory DE Discretionary DC None …and taken measures to prevent plaintiffs from collecting from multiple sources.

Medical Liability Insurance: Looming Crisis? Attempts at tort reform have been made at the federal level, as well. Limits on Non- economic Damages Statute of Limitations Mandatory Alternative Dispute Resolution Limits on Attorney Contingency Fees Penalties for Frivolous Suits Joint and Several Liability Reform Date Introduced Collateral Source Payment Offsets Bill September 28, 2000 H.R “Common Sense Medical Malpractice Reform Act of 2000” April 26, 2001 H.R “Common Sense Medical Malpractice Reform Act of 2001” June 7, 2001 H.R “Medical Malpractice Rx Act” August 3, 2001 S “Common Sense Medical Malpractice Reform Act of 2001” February,03H.R. 5 “Help Efficient, Accessible, Low Cost, Timely Health Care (HEALTH) Act ” $250,000 $500,000 $250,000 3 yrs after injury 2 yrs after discovery 5 yrs after injury 3 yrs after injury

Medical Liability Insurance: Looming Crisis? Median Physician Medical Liability Pay-out 2000 $125,000 $55,000 $90,000 $100,000 $192,755 $197,500 $250, ,000100,000150,000200,000250,000 All California Utah Indiana Pennsylvania DC Illinois Lowest Highest MICRA reforms in California have helped to control increases in payments…

Medical Liability Insurance: Looming Crisis? Medical Liability Premiums, CA vs US (in billions) …and premiums.