medical professional liability
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Medical Professional Liability. Melissa L. Greiner PHICO Group, Inc. September 19, 2000. Medical Professional Liability. Changing patient expectations Financial condition of hospitals Ancillary coverages Directors and Officers Liability Employment Practices Liability. - PowerPoint PPT PresentationTRANSCRIPT
Medical Professional Medical Professional LiabilityLiability
Melissa L. GreinerMelissa L. Greiner
PHICO Group, Inc.PHICO Group, Inc.September 19, 2000September 19, 2000
Medical Professional Medical Professional LiabilityLiability
Changing patient expectationsChanging patient expectations Financial condition of hospitalsFinancial condition of hospitals Ancillary coveragesAncillary coverages
– Directors and Officers LiabilityDirectors and Officers Liability– Employment Practices LiabilityEmployment Practices Liability
Changing Patient Changing Patient ExpectationsExpectations
Trends in liability are the result of:Trends in liability are the result of: Improvements in medicine and Improvements in medicine and
technologytechnology AdvertisementAdvertisement Effect of mediaEffect of media Lottery mentalityLottery mentality
Financial Condition of Financial Condition of HospitalsHospitals
Competition for patient businessCompetition for patient business Shift of surgical procedures to Shift of surgical procedures to
outpatient facilitiesoutpatient facilities Mergers, acquisitions, divorcesMergers, acquisitions, divorces
Financial Condition of Financial Condition of Hospitals (cont)Hospitals (cont)
Increased costs of malpractice Increased costs of malpractice coveragecoverage
Balanced Budget Act of 1997Balanced Budget Act of 1997 Pressure from other 3rd party Pressure from other 3rd party
payerspayers All of the above are resulting in:All of the above are resulting in:
DECREASED INCOMEDECREASED INCOME
Impact on Hospital Impact on Hospital InsuranceInsurance
Medical malpractice coverage Medical malpractice coverage impacts more obviousimpacts more obvious
Souring financials may lead to Souring financials may lead to more losses for more losses for ancillaryancillary coverages, even in non-profit coverages, even in non-profit sectorsector– Directors and Officers LiabilityDirectors and Officers Liability– Employment Practices LiabilityEmployment Practices Liability
Directors and OfficersDirectors and Officers
Covers claims for Covers claims for wrongful actswrongful acts committed by corporate directors, committed by corporate directors, officers, agents (physicians) for their officers, agents (physicians) for their corporate decisionscorporate decisions
i.e., for alleged breach of obligations to i.e., for alleged breach of obligations to the organization or for their actions the organization or for their actions and decisions on behalf of the and decisions on behalf of the organizationorganization
Directors & Officers DutiesDirectors & Officers Duties
Duty of Diligence - managing Duty of Diligence - managing assetsassets
Duty of Loyalty - no personal gain Duty of Loyalty - no personal gain or conflict of interest with or conflict of interest with organizationorganization
Duty of Obedience - in accordance Duty of Obedience - in accordance with statutes and terms of charterwith statutes and terms of charter
Directors & Officers Directors & Officers CoverageCoverage
No two insurance companies use No two insurance companies use exact same exact same ratingrating formula formula– Potential variation in estimated Potential variation in estimated
premium between two organizations premium between two organizations with same ownership, class of business with same ownership, class of business and sizeand size
As many as 80 variations of the D&O As many as 80 variations of the D&O formform exist in today’s marketplace exist in today’s marketplace
ExposureExposure base varies as wellbase varies as well
Directors & Officers Directors & Officers CoverageCoverage
Exposure bases:Exposure bases:– Assets, RevenuesAssets, Revenues– Number of Ds and OsNumber of Ds and Os– Number of EmployeesNumber of Employees
““Pure” Claims-MadePure” Claims-Made Defense costs within limits of Defense costs within limits of
liabilityliability
D&O Coverage EvolutionD&O Coverage Evolution
Specifically for non-profit D&O, Specifically for non-profit D&O, previously did not have:previously did not have:– Entity coverageEntity coverage– Employment Practices coverEmployment Practices cover– Duty to Defend provisionDuty to Defend provision
Recent study reports two-thirds of Recent study reports two-thirds of D&O insureds purchase EPLI D&O insureds purchase EPLI endorsement *endorsement *
* Source: Tillinghast-Towers Perrin
Directors & OfficersDirectors & Officers
Claimants may include:Claimants may include:– Shareholders *Shareholders *– Employees *Employees *– CompetitorsCompetitors– CustomersCustomers– GovernmentGovernment
Employment Practices Employment Practices LiabilityLiability
Claimants may include:Claimants may include:– Full-time and part-time employeesFull-time and part-time employees– Leased and temporary workersLeased and temporary workers– Former employeesFormer employees– Applicant for employmentApplicant for employment
Healthcare D&O / EPLIHealthcare D&O / EPLI
How are coverages unique to the How are coverages unique to the health care industry?health care industry?
How do claimants differ in the How do claimants differ in the health care industry?health care industry?
How are allegations different in the How are allegations different in the health care industry?health care industry?
Healthcare D&O / EPLIHealthcare D&O / EPLI
Higher ratio of non-profit entitiesHigher ratio of non-profit entities D&O often written with staff D&O often written with staff
privileges protectionprivileges protection Coverages generally written on a Coverages generally written on a
smaller scalesmaller scale– Lower Limits of LiabilityLower Limits of Liability– Lower exposure countsLower exposure counts
D&O Industry NeedsD&O Industry Needs
0 20 40 60 80
$ Millions
Utilities
Durable Goods Mftg
Nondurable Goods Mftg
Health Care
High Technology
Median Limits
Source: Tillinghast-Towers Perrin
D&O Industry NeedsD&O Industry Needs
0 100 200 300 400
$ Thousands
Utilities
Durable Goods Mftg
Nondurable Goods Mftg
Health Care
High Technology
Median Premium
Source: Tillinghast-Towers Perrin
Healthcare D&O / EPLIHealthcare D&O / EPLI
Wide exposure variance within Wide exposure variance within healthcare continuumhealthcare continuum– Large hospitals with significant exposure Large hospitals with significant exposure
and financial historyand financial history– First-time purchasers in the form of First-time purchasers in the form of
newly formed practices, offices, clinicsnewly formed practices, offices, clinics Newer entrants to the D&O market Newer entrants to the D&O market
present more underwriting present more underwriting challengeschallenges
Healthcare D&O / EPLIHealthcare D&O / EPLI
Common Claimants:Common Claimants:– Employees / Health Care ProvidersEmployees / Health Care Providers– GovernmentGovernment– CompetitorsCompetitors– Customers (patients)Customers (patients)– Shareholders (if publicly traded Shareholders (if publicly traded
provider)provider)
Healthcare D&O / EPLIHealthcare D&O / EPLI
Common Claim Allegations:Common Claim Allegations:– Employment IssuesEmployment Issues– AntitrustAntitrust– Fraud and AbuseFraud and Abuse– Breach of contractBreach of contract– Libel, slander, defamationLibel, slander, defamation
Employment IssuesEmployment Issues
Largest source of claims in health Largest source of claims in health care D&Ocare D&O
Various ways to offer EPLI Various ways to offer EPLI coveragecoverage– implicitly covered in D&Oimplicitly covered in D&O– endorsed onto D&O policy as sublimitendorsed onto D&O policy as sublimit– offered as separate coverage with offered as separate coverage with
separate limitsseparate limits
Employment IssuesEmployment Issues
Mergers and acquisitions of Mergers and acquisitions of hospitals, health plans and/or hospitals, health plans and/or managed care could result in managed care could result in terminations or reassignmentterminations or reassignment
As revenues shrink, facilities (and As revenues shrink, facilities (and employees) are downsizedemployees) are downsized
Credentialing physicians to Credentialing physicians to determine privilegesdetermine privileges
Employment Practices Employment Practices LiabilityLiability
Common Claim Allegations:Common Claim Allegations:– Wrongful termination or demotionWrongful termination or demotion– Harassment, coercion, discriminationHarassment, coercion, discrimination– Negligent evaluation or reassignmentNegligent evaluation or reassignment– Wrongful refusal to employ qualified Wrongful refusal to employ qualified
applicantapplicant– Negligent hiring practicesNegligent hiring practices
AntitrustAntitrust
Within the context of attempting to Within the context of attempting to control or monopolize:control or monopolize:
Hospital denies medical staff Hospital denies medical staff appointmentappointment
Competing hospitals decide to merge Competing hospitals decide to merge or share services / assetsor share services / assets
Non-affiliated providers commit Non-affiliated providers commit collusion to affect reimbursement feescollusion to affect reimbursement fees
Fraud & AbuseFraud & Abuse
False claims and billingsFalse claims and billings Over-utilization of claims for Over-utilization of claims for
medically unnecessary servicesmedically unnecessary services Illegal remuneration in return for Illegal remuneration in return for
referral of businessreferral of business Fraud by institutions - submission Fraud by institutions - submission
of false cost reportsof false cost reports
Industry Loss RatiosIndustry Loss Ratios
0%10%20%30%40%50%60%70%80%
Dir
ect
Loss
& L
AE
Rati
o
1995 1996 1997 1998 1999
Year
Schedule P - Other Liability Claims-Made
PHICOIndustry
Reserving ConsiderationsReserving Considerations
Health care organizations are at Health care organizations are at greatest risk of being suedgreatest risk of being sued
Length of tail in private sector Length of tail in private sector unknown due to wide variability in unknown due to wide variability in risk exposurerisk exposure
Low frequency, high severityLow frequency, high severity
Reserving ConsiderationsReserving Considerations
Severity in private, non profit Severity in private, non profit sector is a BIG UNKNOWNsector is a BIG UNKNOWN– Rules out frequency/severity Rules out frequency/severity
projection techniquesprojection techniques Traditional link-ratio methods Traditional link-ratio methods
appropriate for insurers with historyappropriate for insurers with history Change in exposure base or risk Change in exposure base or risk
type presents challengestype presents challenges
Reserving ConsiderationsReserving Considerations
Projection methods (i.e. BF) may be Projection methods (i.e. BF) may be more suitablemore suitable
Actuary must know and understand:Actuary must know and understand:– CoveragesCoverages– ExposuresExposures– Uniqueness of own product, relative to Uniqueness of own product, relative to
the industrythe industry No cookbook formula!No cookbook formula!