1. Emerging Issues in Medical Malpractice CAS Fall Meeting November 16, 2004 Robert J. Walling, FCAS, MAAA

2. A Brief Recap

3. A Brief Recap – Industry Perspective Severities Gone Wild ● Negative Outcomes, Unpredictable Costs Not Malpractice (Timing & Magnitude) ● Market Exits Due to Entitlement Juries Inadequate Rates Big Attorney Pay Days ● Costs Impacting Access Caps on Non-Economics ● Caps on Atty Cont. Fees

4. Severities Gone Wild

5. Availability Problems Frontier – Rehabilitation 8/01 Reliance – Liquidation 10/01 St. Paul – Exits Market 12/01 PHICO – Liquidation 2/02 MIIX – Voluntary Run-off 5/02 Reciprocal of America Group – Liquidation 6/03 Legion – Liquidation 7/03 Over 30% of the market is gone (some states > 70%) Another 10-20% has been downgraded severely enough to impact the availability of coverage

6. Market Concentrations are Increasing

7. Costs Impacting Access to Health Care YearPremiumAnnual Change 2004261,60222.4% 2003213,76330.0% 2002164,43740.5% 2001117,04912.7% 2000103,85927.0% 199981,76517.2% 199869,78612.1% 199762,259-7.3% 199667,141+5.7% Annual Average18.5% Broward County, FL General Surgeons (Medical Liability Monitor)

8. Widespread, but not Uniform

9. A Brief Recap – Trial Bar Perspective Insurance CompaniesHealthcare Providers Excessive Profits ● Repeat Offender Docs Destructive Competition ● Defensive Medicine Poor Investment/Reserving ● No Overall Medical Rate Gouging Outcome Improvement Must Need Better (More) ● Must Need Better (More) State Regulation Oversight

10. “Destructive” Price Competition “While an increase in litigation and higher damages awards are often blamed for rising premiums, insurance companies may be equally culpable due to their pricing policies of the 1990s.” - Robert Wood Johnson Foundation

11. Industry Reserve Development

12. Cyclical Swings

13. “Inescapable” Conclusion #1 The current system is woefully inefficient

14. Providers Quandary If the rules of the game won’t change, maybe it’s time for a new game. Two ways to change the rules of the game: - Patient Expectation Mgt. and Disclosure/Apology - Alternative Markets

15. Patient Expectation Management Online Personalized & Confidential Multimedia Prior to Many Procedures What to Expect – Before the Procedure – During the Procedure – After the Procedure Risks & Benefits Alternatives

16. Expectation Management Benefits Preparing the Patient Increases Their Comfort Increases the Accuracy of Patient Expectations Allows for Greater Interaction – Patient Questions – Specific Areas of Concern (Health Risks/Concerns) Documents What Patient Saw/How They Responded Increases Patient Satisfaction

17. I’m Sorry Laws Many Physicians Want More Disclosure Many Patients Feel Physicians is “Hiding Something” In most states, expressions of regret or empathy are admissible as evidence Lexington, KY VA Hospital “I’m Sorry” laws, providers & staff can say – Enacted in CA, CO, FL, MA, OR, TN, TX, WA – “I’m sorry this happened to you” – “I’m sorry I did this” without admissibility

18. I’m Sorry Laws Insurers are: – Training providers on how to apologize (mandatory) – Coordinating with claims Initial results are significant – Reduced severities – Reduced loss adjustment expense – Reduced attorney involvement (CO: 2 lawsuits in 433 claims) – Improved patient satisfaction – In many cases, much improved efficiency

19. “Inescapable” Conclusion #2 Data for a conclusive answer is often unavailable.

20. Various States of Readiness Got it (e.g. FL, ME) Thought they had it (e.g. OR) Just Getting Started (e.g. NC, VT, OH)

21. Florida Closed Claim Database Injury Location (e.g. Hospital, Delivery Room) Occurrence, Report, Suit, and Settlement Dates Patient Date of Birth, Sex Severity of Injury (e.g. Emotional, Death, Serious) Insured County & County of Suit Method & Stage of Settlement Arbitration indicator Insurer Type Insured Specialty (e.g. 80267- Pediatrics) Insured Limits Indemnity Paid (Medical, Wage & Other; future) Loss Adjustment (Defense Costs vs. Other ALAE) Non-Economic Loss

22. Severity Trends by Occurrence Year

23. Non-Economic Damages by Occurrence Year

24. Claim Severity by Injury Type Over Time

25. Impact of Attorney Involvement on Claim Severity

26. Severities by Settlement Lag

27. Differences by Age & Sex