Short-Term Changes in Long Term Care Short-Term Changes in Long Term Care PLUS Medical PL Symposium March 12, 2003

LTC Administrator’s Day Reimbursement Cuts Regulators Visit New Lawsuits Premium Increase What if this is “As Good As It Gets?”

Possible Reforms Federal Level - 13 Bills before 107th Congress State Level - 21 States have Tort Reform on Legislative Agenda People are Listening

Panel Members Rob Jurgel, RPLU Product Line Manager - (LTC & Miscellaneous Facility) Lexington / AIG Healthcare Theresa Bourdon, FCAS, MAAA Managing Director and Actuary--Aon Risk Consultants Scott A. Whipp Vice President - General Cologne Reinsurance Jules B. Olsman, Esq. Plaintiff Attorney--Olsman, Mueller & James, P.C. Alice L. Epstein Director, Risk Control Consulting - CNA Health Pro

Agenda Underwriting: LTC Market & Provider Reactions Actuarial: LTC Claim Trends Reinsurance: LTC - The Money Pit - Lessons Learned Attorney Malpractice & Tort Reform Risk Management: Changes at CMS & Growing Importance of RM Q & A

LTC Litigation- Who Pays the Price? Residents Nursing Home Operators Insurance Companies Taxpayers

National Law Journal Top 100 Cases Verdict $ MillionTX $82 MillionTX $78.43 Million AK $50 MillionTX $50 Million WV 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. Retirement Corporation of America

ISO - Nursing Home Liability A Discussion of the Current Insurance Crisis ISO Reporting Companies ,000 Beds - 27% U.S. Total Primary Limits Only - $1M Limit Concentration in Northeast - »NY - 56% »NJ - 40% »FL - 16% »TX - 11%

3-Year Average Loss Ratio ( )

LTC Provider Reactions Increase Self Insured Retentions Eliminate Excess Form Captive Go Bare

LTC Liability – The Financial Impact Publicly Traded Company A

LTC Liability – The Financial Impact Publicly Traded Company B

LTC Liability – Guilt by Association Publicly Traded Company C

Theresa W. Bourdon, FCAS, MAAA Managing Director and Actuary Aon Risk Services

LTC Liability – Financial Impact: Why Now? Companies coming off aggregate caps on retained losses Post bankruptcy emergence Not just a Florida problem anymore Large backlog of claims combined with double digit frequency increases Awareness hitting the Board level now SEC scrutiny

LTC – Working Layers $0 - $250,000: Hard working layer $250,000 - $1M: –Working layer for high risk states –Moderate working layer for all other $1M - $2M: Some exposure in high risk states $2M - $5M: Less than 1% of claims Excess $10M: 1 claim in 26,000 (1994 AY)

LTC State Trends Florida continues to be the leader in loss cost per bed Southern states dominate high cost states –TX, MS, AL, AR California taking a turn for the worse despite MICRA All Other states continue upward trend

LTC - General Trends Severity leveling off in the $250,000 - $300,000 range for high risk states –Large cost control focus for providers Frequency continuing to climb everywhere Frequency trend keeps loss costs increasing

LTC – Tort Reform Efforts Florida SB 1202 – eff. May 15, 2001 –Increased frequency for pre 5/15/01 incidents –2002 frequency at pre-reform levels and increasing –Severity unaffected due to lack of non-economic caps; ineffective punitive caps Mississippi HB No.2 – eff. January 1, 2003 –Increased frequency for pre 1/1/03 incidents –$500,000 non-economic damages cap ( steps up in 2011 ) Expect little impact on working layers Should provide relief on excess pricing

LTC – Tort Reform Impact California –MICRA not curbing trends for LTC –Severity continues to climb; average over $250,000 –Frequency still climbing

Scott A. Whipp Vice President General Cologne Reinsurance

Loss Scenario #1 Runaway Frequency – “A Real Barn Burner”

The Risk… Submitted for 11/1/99-00 policy period Prior carrier non-renewing (exiting LTC class) Skilled nursing chain 47 locations and 5000 beds in 16 states Southeast, Southwest, Midwest Primary Policy –1M/3M (aggregate per location) –Occurrence form –Facultative reinsurance $750,000 xs $250,000

Prior Loss Experience None238, /99 332,000(o)847, /98 None153, /97 505,000(c)996, /96 None18,000894/95 None136,000593/94 xs $250,000Incurred#Year Note: Excluding divested locations

Unexpected Adverse Loss Development What might you expect the 99/00 year losses to be? 1,000,000? 2,000,000? 5,000,000? Answer: $10,000,000 and still growing

What Happened??? $10,000,000$125,00080Actual $1,500,000$50,00030Expected Total Incurred Average Claim Severity Claim Frequency 2.5 times higher than expectedSeverity 2.5 times higher than expectedFrequency

BAD States… 20% 2,000,000Tennessee 17%60%6,000,000Texas % Beds % Loss Loss

Large Losses… Res.1,025,000Strangled by wheelchair strapTX Paid695,000Decubitus Ulcer/MalnutritionTX Res.370,000Multiple fractures – OsteopeniaLA Res.1,065,000Decubitus UlcerTN Res.435,000Fall – Head injuryTN

Large Losses… (continued) Res.1,000,00095 yr. Old Woman DiedTX Paid550,000Inappropriate Sexual ContactTX Paid1,030,000 * Malnutrition/DehydrationTX Paid1,030,000 * Decubitus UlcerTX Res.1,025,000Decubitus UlcerTX * These amounts do not include contributions from other primary or excess carriers. Total settlements were $1.5M and $2.0M.

Lessons Learned… Quality of Care Issues Claims Management Issues Policy Form/Structure Issues

Quality of Care Issues… Understaffing Not following procedures or physician orders Poor documentation/charting Slow reporting or action on changes in condition

Claims Management Issues Inflammatory Testimony from Current, Past Employees Marginal Claim Investigation –Standard of Care –Causation Hospitals and Attending Physicians not brought in as Co- defendants. High Profile Predatory Plaintiff Attorney involvement High Profile Jurisdictions Virtually no Defense Exerted

Policy Form Issues Per location aggregate MPL141,000,000 PML 20,000,000 Occurrence Form

Where do we stand now? Claim cost inflation (“trend”) continues at 18%+ per year New “problem states” emerging Claims management (overall) still marginal at best Large SIR programs- Claims management a problem Carriers continue to withdraw from the LTC market Scheduled reductions in Medicare Reimbursements No clamor for tort reform

Long Term Care- “The Money Pit” Has the litigation crisis in Long Term Care reached it’s crescendo yet? Where will meaningful change come from? Are there any positive signs on the horizon?

Jules B. Olsman, Esq. Partner Olsman, Mueller & James, P.C.

DEATHS DUE TO MEDICAL NEGLIGENCE  44,000 – 98,000 in Hospitals  100,000 Due to Medical Errors  THE COST: $17 - $29 Billion per year

COST OF MALPRACTICE LITIGATION  ½ of 1% of Every National Healthcare Dollar

PRESSURE ULCERS  24% of Nursing Home Residents Suffer from Pressure Ulcers  $1.3 Billion per year Spent on Treatment of Pressure Ulcers  $27,000 per Patient (Median Cost in Acute Care Cases)

PRESSURE ULCERS

FALLS  1996: 340,000 Hospital Admissions for Hip Fractures  Avg. Hospital Stay Hip Fx: 2 Weeks  Cause 87% of Fx in People 65+ Years Old  Leading Cause of Injury Deaths in People 65+ Years Old  1991 Medicare Cost for Hip Fx: $2.9 Billion

RESTRAINT ISSUES “Posey type gait belt being used for safety as restraint due to dementia. Resident attempts to stand & has pot’l. to fall. Order rec’d from Dr. ____.”

RESTRAINT ISSUES “Gait belt-type Posey (velcro) to be used for resident safety for 72 hours, as restraint. Remove for 15 min. 3X/day.”

CURRENT INSURANCE CRISIS  September 11  Bear Market  Low Interest Rates  Political Opportunity

Alice L. Epstein Director Risk Control Consulting CNA Health Pro

OIG 2003 LTC Workplan as a Risk Management Plan 1. Accuracy of Online Survey, Certification & Reporting System (OSCAR) data 2. Minimum Data Set (MDS) reporting compliance 3. Medicare/Medicaid billing 4. Repeat deficiencies & Trends in deficiencies 5. Ombudsman complaints 6. Quality of care sanctions compliance & investigations 7. Medical Director’s involvement 8. QA committees 9. Social work services 10. Staffing requirements

The Center for Medicare and Medicaid Services Nursing Home Quality Measures Launched 11/02 Reporting of new quality measures for all Medicare and Medicaid certified nursing homes. Resident assessment data which can be converted into quality measures indicating; “...how well nursing homes are caring for their residents’ physical and clinical needs.”

CMS Quality Measures Data derived from the MDS reported to CMS. Based on risk adjusted data. Updated on CMS website every 3 months. GIGO - data accuracy Pertains to resident's: physical conditions clinical conditions abilities preferences life care wishes

CMS Disclaimer (verbatim) “The current quality measures have been chosen because they can be measured and don’t require nursing homes to prepare additional reports. They are valid and reliable. However, they are not benchmarks, thresholds, guidelines, or standards of care. They are based on care provided to the population of residents in a facility, not to any individual resident, and are not appropriate for use in a litigation action.”

Quality Measures for Long Term Residents: defined by CMS as residents expected to stay for a long period of time or permanently

Top 7 Ways to Improve Risk Posture 1. MDS Accuracy 2. Medical Director and Physician Involvement 3. CMS State Survey Analysis 4. Policy & Procedure Manuals 5. Medical Record Audits 6. Family Outreach 7. Staffing and Training

Short-Term Changes in Long-Term Care Questions?

Conclusion: Change is needed to remedy the LTC Crisis: Funding must increase Quality of Care must improve Tort Reform must be part of the answer