Long-term care providers face liability challenges
A new actuarial analysis of general and professional liability (GL/PL) claim costs for long-term care facilities offers good news and bad news. The good news first: frequency of claims is neither increasing nor decreasing. The bad news: the severity of claims is increasing steadily.
The actuarial and analytics practice of Aon Global Risk Consulting found that long-term care loss rates and long-term care claims severity are increasing by 4 percent each annually.
For 2013, Aon predicts a GL/PL loss rate of $1,540 per bed and a claims severity of $175,000 per claim.
“Over time, severity’s been growing and frequency actually has been lower than it was eight years ago and it’s flattened out,” said Christian Coleianne, associate director and actuary at Aon. “What we’re seeing now is kind of the inflationary growth of severity, or the increase in claim sizes has finally caught up with and overtaken (the) decreases in frequency to the point now where our costs for liability are at a higher level than they were eight years ago. That’s kind of a turning point, I think.”
Aon analysts based their analysis on GL/PL losses and allocated loss adjustment expenses reported by 37 long-term care providers for a total aggregation of about 19,500 individual non-zero claims. The providers, representing eight of the 10 largest in the U.S., include regional multi-facilities, independents and national multi-facilities operating a total of approximately 280,000 beds, which is about 16 percent of the long-term beds in the country, Aon’s report noted.
The turning point means long-term care providers will be redirecting their focus from reducing frequency to managing liability costs, Coleianne said. Long-term care providers, with reductions in reimbursements from the government, are facing revenue challenges, he noted, which means managers of long-term care facilities will be looking for ways to manage expenses.
“They’re going to have, I think, challenges going forward on the revenue side,” Coleianne said. “I think looking at that, the managers of these facilities are going to look at it and say ‘We’re challenged on the revenue side. What can we do to help with our expenses?’ Because you want to maintain that profit the best you can. So I think it’s going to raise the profile of liability issues for providers who are challenged on the revenue side to say ‘What are ways we can reduce our liability? Do we need to increase our investment in these patient safety initiatives? Are their defense strategies that we haven’t considered yet that need to be addressed? Is there more we can do in respect to medical malpractice reform?’”
While countrywide long-term care facilities face revenue challenges that will lead to a rethinking of how to manage liability, specific states are in a world of hurt, Coleianne said, facing both revenue reductions and a poor liability outlook.
Aon’s analysts project that 2013 loss rates for states such as Kentucky, West Virginia and Tennessee will far exceed the predicted national loss rate of $1,540 per bed at $5,350, $4,610 and $3,530 per bed respectively.
The analysis found that in addition to reduced reimbursement reasons for more difficulties in specific states rest largely on states’ tort laws. Kentucky, for instance, doesn’t limit tort damages. In its report, Aon’s analysts suggest that long-term care providers in Kentucky settle claims for higher amounts rather than face the possibility of an even costlier judgment in a trial.
A way to hold down the costs of claims appears to be pre-dispute arbitration agreements. Aon’s analysts found that of 1,449 closed claims settled under valid arbitration agreements, 21 percent were less costly than other claims.
As the report noted, pre-dispute arbitration agreements continue to be controversial and they face challenges within states and nationally.
