1. Evaluation of Medical Malpractice Tort Reform Casualty Actuarial Society Colorado Springs, CO May 17, 2004 Presented by: Richard S. Biondi, FCAS

2. MillimanPage 2 Main Data Sources National Practitioner Data Base National Practitioner Data Base – Physicians Only – All Paid Claims – Countrywide Florida Department of Insurance Data Base Florida Department of Insurance Data Base – Only Commercially Insured Claims – Physicians & Hospitals – More Detail per Claim – Florida Only Texas Department of Insurance Data Base Texas Department of Insurance Data Base – Commercial, Bodily Injury Liability Claims – Indemnity Payments Over $10,000 – Physicians & Hospitals – Texas Only

3. MillimanPage 3 Other Data Sources Physicians Insurance Association of America Physicians Insurance Association of America – Countrywide Only Annual Statements Annual Statements – All Insurers Consolidated Rate Filings Rate Filings US Government (e.g. census) Data US Government (e.g. census) Data

4. MillimanPage 4 Paid Losses Reported to the NPDB

5. MillimanPage 5 Severity of Claims Reported to the NPDB

6. MillimanPage 6 NPDB Cost per Capita

7. MillimanPage 7 Frequency of Malpractice Cases Reported to the NPDB

8. MillimanPage 8 NPDB Loss Data for Largest States and Nationwide

9. MillimanPage 9 New York – Effect of Cap on Non-Economic Damage Cap on Non- Economic Damage Award Physicians Only (Loss & ALAE) Limits $1.3 million primary +$1 million excess Hospital Only (Loss & ALAE) Unlimited Coverage Combined Hospital and Physician $250,00024%23%24% $500,00016%16%16% $750,00011%13%12% $1,000,0008%10%9%

10. MillimanPage 10 Pennsylvania – Effect of Cap on Non-Economic Damage Physicians Only Cap on Non- Economic Damage Award Primary (Loss & ALAE) $500,000/ occurrence Excess (Mcare) (Loss Only) $500,000 xs $500,000 Total Covered Limits (Loss & ALAE) $250,00011%42%18%

11. MillimanPage 11 Florida – Effect of Cap on Non-Economic Damage Cap on Non- Economic Damage Award Physicians Only (Loss & ALAE) Limits following current distribution Hospital Only (Loss & ALAE) Unlimited Coverage Combined Hospital and Physician $250,00017%29%20% $500,0009%22%12% $750,0005%17%8% $1,000,0003%14%6% In Sept. 2003, Florida passed non-economic cap of $500K-$1million for physicians and $750K-$1.5 million for hospitals. Florida estimated a savings of 5.3%.

12. MillimanPage 12 $250,000 Cap on Non-Economic Damages Example of Simulation Model Hospital Settlement $1,435,275 Physician Settlement $106,872 Total Settlement $1,542,147 Total Verdict Amount $2,000,165 Stage A Economic Damages: 25% $500,041 Non-Economic Damages 75% $1,500,124 Non-Economic Damages 75%-Capped at $250,000 $250,000 Economic Damages $155,013 Pre-Reform Non-Economic Damages $465,038 Post Reform Non-Economic Damages $250,000 Stage BStage CStage DStage E Post Verdict Reduction (31%) Post Verdict Reduction (31%) Post Verdict Reduction (0%) Pre-Reform Non-Economic – Post Reform Non-Economic 465,038 – 250,000 Loss Savings = _________________________________________________ = ____________________ = 34.7% Total Pre-Reform Loss 155,013 + 465,038

13. MillimanPage 13 Hospital Settlement $1,435,275 Stage A Physician Settlement $106,872 Total Settlement $1,542,147 Stage B $250,000 Cap on Non-Economic Damages Example of Simulation Model

14. MillimanPage 14 Total Settlement $1,542,147 Stage BStage C Total Verdict Amount $2,000,165 $250,000 Cap on Non-Economic Damages Example of Simulation Model

15. MillimanPage 15 Economic Damages: 25% $500,041 Stage D Non-Economic Damages 75% $1,500,124 Total Verdict Amount $2,000,165 Non-Economic Damages 75%-Capped at $250,000 $250,000 Post Verdict Reduction (31%) Post Verdict Reduction (31%) Post Verdict Reduction (0%) Stage C $250,000 Cap on Non-Economic Damages Example of Simulation Model

16. MillimanPage 16 Economic Damages: 25% $500,041 Non-Economic Damages 75% $1,500,124 Non-Economic Damages 75%-Capped at $250,000 $250,000 Post Verdict Reduction (31%) Post Verdict Reduction (31%) Post Verdict Reduction (0%) Stage D Economic Damages $155,013 Pre-Reform Non-Economic Damages $465,038 Post Reform Non-Economic Damages $250,000 Stage E $250,000 Cap on Non-Economic Damages Example of Simulation Model

17. MillimanPage 17 New York – Physician Loss Distribution

18. MillimanPage 18 New York – Hospital Loss Distribution

19. MillimanPage 19 Percentage Split in Indemnity Cases (all years combined) Florida DOI - Hospitals Economic - Wage 3% Economic - Other 1% Economic - Medical 19% Non-Economic 77% Texas DOI - Total Non-Economic 59% Other 11% Economic 30%

20. MillimanPage 20 Distribution of Non-Economic Damage Percentage By Case Size Range

21. MillimanPage 21 Distribution of Post Verdict Appeal Factors Sustained Percentage* Frequency 15%8% 25%8% 36%8% 45%8% 55%8% 65%8% 75%8% 85%8% 95%8% 100%14% 105%7% 115%7% Total100% Average Sustained 69% *Sustained percentage is the ratio of verdict amount after appeal / verdict amount before appeal.