Long Term Care Facility Long Term Care Facility LiabilityLiability

Theresa W. Bourdon, FCAS, Theresa W. Bourdon, FCAS, MAAAMAAA

Jeffrey SmithJeffrey Smith

Past Vs. PresentPast Vs. Present

Pre - 1990Pre - 1990• Allegations: limitedAllegations: limited

– Personal injuryPersonal injury– Wrongful deathWrongful death

• Damages: minimalDamages: minimal– Below cost to litigateBelow cost to litigate– Low value attached to elderly lifeLow value attached to elderly life– Causation of injury difficult to identifyCausation of injury difficult to identify

Past Vs. PresentPast Vs. Present

Post- 1990Post- 1990• Allegations: expandedAllegations: expanded

– Intentional fraudIntentional fraud– Breach of contract/deceptive trade practicesBreach of contract/deceptive trade practices– Negligent hiringNegligent hiring

• Damages: staggeringDamages: staggering– Litigation costs reimbursed in some statesLitigation costs reimbursed in some states– Punitive damagesPunitive damages– Patient rights emphasisPatient rights emphasis

Change CatalystsChange Catalysts

Change to Medicare/Medicaid Change to Medicare/Medicaid ReimbursementReimbursement

Patient advocatesPatient advocates Increased state and federal Increased state and federal

regulationregulation Plaintiff lawyers new theories of Plaintiff lawyers new theories of

liabilityliability Bad public imageBad public image

Reimbursement ChangesReimbursement Changes

Reduced Medicare Reduced Medicare ReimbursementsReimbursements

Effective July 1998Effective July 1998 Pre 7/98 - Actual cost Pre 7/98 - Actual cost

reimbursementreimbursement 7/98 - Transition to prospective 7/98 - Transition to prospective

pay systempay system

Prospective Pay SystemProspective Pay System

Per diem reimbursementPer diem reimbursement 44 categories of patients44 categories of patients Drastic underpayment forDrastic underpayment for

• respiratory therapyrespiratory therapy• wound carewound care• prescription drugsprescription drugs• artificial limbsartificial limbs

Medicare & Medicaid in Medicare & Medicaid in LTCLTC

2,000,0002,000,000 Certified beds in U.S.Certified beds in U.S. 53,00053,000 Medicare only reim.Medicare only reim. 1,031,0001,031,000 Medicaid only reim.Medicaid only reim. 880,000880,000 BothBoth 1,964,0001,964,000 Some form of Gov’t Some form of Gov’t

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Government RegulationGovernment Regulation

Nursing Home Reform ActNursing Home Reform Act False Claims ActFalse Claims Act State lawsState laws Federal reimbursement surveysFederal reimbursement surveys General Accounting Office reportGeneral Accounting Office report

Nursing Home Reform ActNursing Home Reform Act

19871987 U.S. CongressU.S. Congress Response to allegations of neglect & abuseResponse to allegations of neglect & abuse Applies to Medicare & Medicaid participantsApplies to Medicare & Medicaid participants Establishes minimum quality of care Establishes minimum quality of care

requirementsrequirements Violations apply at state and federal levelViolations apply at state and federal level

False Claims ActFalse Claims Act

Individuals with knowledge of Individuals with knowledge of anyone taking federal money anyone taking federal money under false pretenses can bring under false pretenses can bring suit on behalf of the governmentsuit on behalf of the government

Plaintiff recovery up to 24-30% of Plaintiff recovery up to 24-30% of gov’t recoverygov’t recovery

Civil cases charging inadequate Civil cases charging inadequate carecare

State LawsState Laws

Elder lawsElder laws Protect against physical & emotional abuse & Protect against physical & emotional abuse &

neglectneglect Criminal penaltiesCriminal penalties

• ImprisonmentImprisonment• FinesFines

RecoveriesRecoveries• Pain & sufferingPain & suffering• Punitive damagesPunitive damages• Cost of investigation & attorney’s feesCost of investigation & attorney’s fees

FloridaFlorida

Patients Bill of Rights - Statute 400.022Patients Bill of Rights - Statute 400.022 Guarantees the patients rights to be Guarantees the patients rights to be

• informedinformed• provided adequate careprovided adequate care• treated with dignitytreated with dignity

Violation remedies Violation remedies • actual damagesactual damages• punitive damagespunitive damages• attorney’s feesattorney’s fees

CaliforniaCalifornia

Elder Abuse and Dependent Adult Elder Abuse and Dependent Adult Civil Protection ActCivil Protection Act

Reimbursement SurveysReimbursement Surveys

HCFA cracking down on LTC HCFA cracking down on LTC industryindustry

March 1999 Internet siteMarch 1999 Internet site• 170,000 facilities170,000 facilities• Results of surveys required for Results of surveys required for

reimbursement programreimbursement program• 1 in 4 nursing homes tagged with a 1 in 4 nursing homes tagged with a

deficiencydeficiency

Surveys Change Plaintiffs Surveys Change Plaintiffs StrategiesStrategies

Causation of injury tough to proveCausation of injury tough to prove Earnings potential non-existentEarnings potential non-existent Surveys used to allege negligence Surveys used to allege negligence

per seper se Evidence of institutional negligenceEvidence of institutional negligence Support for punitive damagesSupport for punitive damages Plaintiff lawyers now interestedPlaintiff lawyers now interested

Image ProblemsImage Problems

Medicare cuts: denying admissionsMedicare cuts: denying admissions Fraud & abuse allegationsFraud & abuse allegations

• Medicare & Medicaid inappropriate Medicare & Medicaid inappropriate billingsbillings

• Civil & criminalCivil & criminal Violation of patient rights allegationsViolation of patient rights allegations

• Multi-million dollar judgementsMulti-million dollar judgements• Focus on inappropriate careFocus on inappropriate care

Med Mal vs. LTC LiabilityMed Mal vs. LTC Liability

Med Mal LTC LiabilityBreach of standard ofcare

Violation of residentrights

Standard specificallydefined by state stature

Standard general:“adequate andappropriate”

Must have an injury Awards without injury

Limited recoveries (e.g.pain & suffering)

Multi-faceted violations

Critical Information for Critical Information for Actuarial ProjectionsActuarial Projections

Exposure by stateExposure by state Historical changes to exposureHistorical changes to exposure Data on sold and acquired Data on sold and acquired

operationsoperations Reserving changesReserving changes Closed claim developmentClosed claim development ALAE changesALAE changes

Exposure by StateExposure by State

Know about problem areas: Know about problem areas: Florida, TexasFlorida, Texas• Severity higherSeverity higher• Frequency higherFrequency higher• Loss development differentLoss development different• ALAE higherALAE higher

Monitor loss cost trendsMonitor loss cost trends

Historical Exposure Historical Exposure ChangesChanges

Active selling/acquiring in problem Active selling/acquiring in problem areasareas

Need historical data to evaluateNeed historical data to evaluate• losseslosses• exposuresexposures

Impact substantialImpact substantial Sold operations tend to have bad Sold operations tend to have bad

experienceexperience

Reserving ChangesReserving Changes

Case reserves dramatically increasingCase reserves dramatically increasing• Reserve strengthening?Reserve strengthening?• Loss trend?Loss trend?

AnalysisAnalysis• Client loss development vs. industryClient loss development vs. industry• Current loss development vs. historicalCurrent loss development vs. historical• Closed claim developmentClosed claim development• Loss cost trends (freq., severity, Loss cost trends (freq., severity,

combined)combined)

Closed Claim Closed Claim DevelopmentDevelopment

Size of loss by age closedSize of loss by age closed• To measure trend independent of To measure trend independent of

reserve changesreserve changes• To estimate severity independent of To estimate severity independent of

reserve changesreserve changes Rate of closure (closed to ultimate) Rate of closure (closed to ultimate)

by ageby age• To determine if claims are closing fasterTo determine if claims are closing faster

ALAEALAE

Monitor average ALAE per claimMonitor average ALAE per claim 50% recovery rate from LTC 50% recovery rate from LTC

litigationlitigation New strategies for settling claimsNew strategies for settling claims Recognition of cost savings from Recognition of cost savings from

early settlementearly settlement Should impact average ALAE (and Should impact average ALAE (and

indemnity) in the futureindemnity) in the future