PLUS SW Chapter 4-19-2012 - Piersol Presentationcashealthcare.wdfiles.com/local--files/health-care-reform... · 2012. 9. 17. · Title: Microsoft PowerPoint - PLUS SW Chapter 4-19-2012

The PPACASystemic and Traditional Risk

to the Professional Liability Industryto the Professional Liability Industry

PLUS Southwest ChapterPLUS Southwest ChapterDenver, ColoradoApril 19, 2012

Kim E. Piersol, FCAS, MAAAConsulting Actuaryg y

Huggins Actuarial Services, Inc.


t th P f i l Li bilit I d tto the Professional Liability Industry

Actuarial Assignment:g1. Review the Obamacare statute and regulations

2. Determine dependencies, interrelationships and determine risk factors within the documents, especially how they apply to the professionalespecially how they apply to the professional liability insurance industry

3 Flow chart the results of our study3. Flow‐chart the results of our study

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to the Professional Liability Industryto the Professional Liability Industry

PLUS Southwest ChapterPLUS Southwest ChapterDenver, ColoradoApril 19, 2012

Kim E. Piersol, FCAS, MAAAConsulting Actuaryg y

Higgins Actuarial Services, Inc.

“Obamacare Watcher”• The Patient Protection and Affordable Care Act(“PPACA”) and its companion “Health Care and( PPACA ) and its companion Health Care andEducation Reconciliation Act of 2010,” as signedinto law, contained 425,116 words, or 961pages of statute.p g f

• Whereas, through October of 2011, the number ofwords published so far in the Obamacareregulation documents surpassed 2 000 000regulation documents surpassed 2,000,000words; comparable to 4,521 pages in statuteprint layout. (Bills are roughly 3‐5 times morepages due to the print layout)p g p y )

• And this is only a fraction of regulations which areyet to come.

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“Obamacare Watcher”

SOSOTHEREFORE:

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DISCLAIMER• Whereas the Patient Protection and AffordableCare Act (“PPACA”) and its regulations are overlyCare Act ( PPACA ) and its regulations are overlycomplex and lengthy; and

• Whereas the time allocated for this presentation islimited;limited;

• It is therefore understood that this presentation ismerely a simplified, cursory overview of the impactthe PPACA may possibly have on professionalli bilit i

y p y p fliability insurance;

• Additionally, I do NOT in any way, shape or formpurport to imply I am an expert on all aspects ofPPACA In reality I suspect No One can be givenPPACA. In reality, I suspect No One can be, givenits volume and complexity; and the fact it has yetto be completely put into Federal Regulations

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Systemic RiskSystemic RiskRisk to an entire system or sector

– Conceived as a risk involving financial institutions, butother systems, such as the electric grid, can also suffersystemic risk

– Wang (2010). Under this definition, the underwriting cyclein property and casualty insurance is an example ofsystemic risk.

– Hiemestra focuses more on financial institutions and theirrole in the financial crisis, defines systemic risk as “theprobability that a large number of firms, especiallyfi i l fi ld f il d i i ti i d”financial firms, could fail during a given time period”.(ERMII May 2010 Systemic Risk Workshop)

– Risk that spills over into and has a significant effect thegeneral economygeneral economy

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Systemic Risk and the Insurance IndustrySystemic Risk and the Insurance Industry

• The insurance industry is not a generator ofe su a ce dust y s ot a ge e ato osystemic risk:– No one insurance company that is large enough tocause a crisis

– Insurance has relatively low barriers to entry andother products can substitute for insuranceother products can substitute for insurance

– Insurance companies are not extremelyinterconnected to other parts of the economy

– Insurance companies do not show significantconcentrationRelative modest leverage compared to banks– Relative modest leverage compared to banks

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Systemic Risk and the Insurance IndustrySystemic Risk and the Insurance Industry

• Insurers are vulnerable as recipients ofInsurers are vulnerable as recipients ofsystemic risk– In asset portfolios– In asset portfolios– For life insurers, some of their products, can (anddid) suffer significant declines in a financial crisisdid) suffer significant declines in a financial crisis

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• Systemic Risky– The insurance industry is not a generator ofsystemic risk

– Insurers are vulnerable as recipients of systemic risk

–PPACA is a generator of systemic riskPPACA is a generator of systemic risk

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General Systemic Risks• Impact on All Professional Insurance• Impact on All Professional Insurance

– Investments and Rate of Return • Prolonged?• Bounce Back or Danger?

–Hyper Inflation ?–Deflation?–Deflation?

• Economic Crisis– Market Cycles– Release of Reserves

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The Patient Protection and Affordable CareA t (“PPACA” k ”Ob ”)Act (“PPACA” a.k.a.”Obamacare”)

Four Goals1 A b i h l h i1. Assure everyone can obtain health insurance at

group rates2. Subsidize coverage to make it affordable for

l f li i dpeople of limited means3. Reduce health care spending by enhancing the

quality and cost‐effectiveness of health careiservices

4. Improve population and individual health

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• Systemic Risk and the PPACAy– The failure to achieve goals #3 and #4 is likelyto lead to financial ruin of the U.S.

P i h l h i d h• Private health insurance costs erode cashwages

• Spending on Medicare and Medicaid crowdsp gout almost everything else in the federalbudget

3. Reduce health care spending by enhancing the quality and3. Reduce health care spending by enhancing the quality andcost‐effectiveness of health care services

4. Improve population and individual health

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Modeling Systemic RiskModeling Systemic Risk

• The following two emerging systemic risk issuese o o g t o e e g g syste c s ssues– Risk of severe inflation/hyperinflation– Risk of severe deflation/depression

• Using these inputs NAAC (North AmericanActuarial Council) funded a severei fl i /d fl i h jinflation/deflation research project

• The actual model is available on‐line at theCasualty Actuarial Society websiteCasualty Actuarial Society website:

http://www.casact.org/research/NAACCRG/

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Modeling Systemic RiskModeling Systemic Risk

• Examines the effect of inflation or deflation onExamines the effect of inflation or deflation onthe property‐liability and life insurance industries

• Proposes risk mitigation strategies for insurers toProposes risk mitigation strategies for insurers tocope with either deflation or high inflation rates

• Describes a publicly available model that can be• Describes a publicly available model that can beused to develop inflation/deflation projectionsunder a regime switching format that can readilyunder a regime switching format that can readilybe adjusted to reflect current financialuncertainty.y

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The ModelThe Model

C ith l• Comes with a manual• Manual describes the model• Mean reverting process

dqt = k(θ − qt)dt + σdBt

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• Systemic Risk and the PPACA –yProfessional Liability Industry– Reforms private health insuranceReforms private health insurance– Increases insurance coverage for pre‐existingconditions

– Expands access to insurance• Too few medical providers• More insureds in system

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• The PPACA does little and may actuallyy yexacerbate the other sources ofsystemic risk to the medical malpracticei dindustry– Looming crisis in primary care– The shortage of nurses– Lack of access to revolving credit for lawffirms

– Increased frequency of large claims

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Specific Systemic Risks: MedicalL i i i i i Th Atl ti• Looming crisis in primary care ‐The Atlantic

“The Doctor Is Out: Young Talent Is Turning Away From Primary Care”From Primary Care http://www.theatlantic.com/health/archive/2012/03/the‐doctor‐is‐out‐you...

– Estimated shortfall of doctors ‐ 30,000 in the next ,couple of years.

– Where are all the new doctors? • Specialty groups and hospitals

– Better hours– More pay during first years of employment

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Looming crisis in primary care ‐The Atlanticg p y(March, 2012)

PPACA ill dd 30 50 illi t th ll f “i d”• PPACA will add 30‐50 million to the rolls of “insured”• Supplying insurance to protect the health of more people is a societal goodpeople is a societal good.

• Question is: “Who will see all the “new” patients?Estimates place the shortfall of primary care doctors at– Estimates place the shortfall of primary care doctors at 30,000 in the next couple of years

– Medical schools flush with applicants– Residency slots are filling at higher rates than ever before– New medical schools have been chartered and class sizes hhave expanded

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SO WHERE ARE ALL THE NEW DOCTORS???• SO WHERE ARE ALL THE NEW DOCTORS???– Hospital medicine is the fastest growing specialty in American medical historyin American medical history

• Number of doctors practicing as hospitalists hasincreased 172% from 2003 to 2010

• There are now more than 30,000 doctors nationwideclassified as “hospitalists”

– Drift from individual physician practice to hospitalor group practice. Looming uncertainty over

t ti l ff t f PPACApotential effects of PPACA25


• The flight from Primary Care Massachusetts example• The flight from Primary Care: Massachusetts example– 2006 – State passed a health care law mandating that everyone obtain health insurance (“Romneycare”)everyone obtain health insurance ( Romneycare )

• Dramatic rise in “closed” office practices. More than half of the family practice and internal medicine offices in the state

l d t ti tare closed to new patients.• Length of time it took to get a new appointment increased dramatically. Average wait for a new patient to be seen by an internist is 48 days!!!

• Turns out insurance does not guarantee access after all

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F th d t j t fi i hi id• For the young doctors just finishing residency, practicing as a “hospitalist” has many attractions:– Financial: Starting at $200k vs $150k as an office‐based– Financial: Starting at $200k vs. $150k as an office‐based internist – Huge debt burden that medical students accrue

– Lifestyle:• 7‐on/7‐off• Residency graduates choose to stay in an environment to which they’re well‐adapted – no “on call” or after hours responsibilitiesy p p

– Documentation and Regulatory burdens:• IT mandatesC li d• Compliance mandates

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• PPACA implications on hospitalsp p– Individual practice physicians switching to

hospitals/group practice due to thet i l th PPACAuncertainly over the PPACA

– More employed physicians needed to servicethe added number of people requestingthe added number of people requestinghealthcare

– Encourages integration of services in terms ofbreimbursement

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• Implications of decrease in the business written byinsurers whose primary focus is the coverage ofi di id l ll h i i ti

p y gindividual or small group physician practices.Possible actions:1. Expanded dividend programs

i l l2. Cuts in rate levels3. Offering additional coverage at no cost such as

cyber liability4 S ki h i i i hi h l b i4. Seeking out physicians in higher rate classes being

avoided by the hospitals because of large claimpotential

5. Seeking medical students and first year physicians5. Seeking medical students and first year physicians6. Emphasizing consent to settle provisions7. Expanding into new territories8 P t ith h lth t8. Partner with health systems

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Specific Systemic Risks: Medical• “Nursing shortage through 2020” American• Nursing shortage through 2020 – American Nurses Association in Nursing World– Median age of nurses: 46Median age of nurses: 46 – 50% of workforce nearing retirement age– Increasing elderly population in US to require more nurses

– Overwork injury, fatigue, errors N b i Ph i i A i t t / N– Nurses becoming Physicians Assistants / Nurse Practitioners

• Better pay• More autonomy

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“Nursing shortage through 2020” – American Nurses Association in Nursing World

PPACA ill dd 30 50 illi t th ll f “i d”• PPACA will add 30‐50 million to the rolls of “insured”

N i h t l d t ti k i di l– Nursing shortage can lead to an uptick in medical malpractice claims (traditional risk).

– Nursing shortage legislation and strategies – the ANA g g g globbies both houses of congress as well as federal agencies

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Specific Systemic Risks: MedicalI d f f l l i– Increased frequency of large claims• In 2011 ‐ 7 states had largest ever medical malpractice awards in cases ranging frommalpractice awards in cases ranging from inadequate staffing at nursing homes to medical negligence in hospitals

~ Ian Thompson, Hiscox SVP

• Losses > $ 5 Million – 0 25% of all losses in 2000– 0.25% of all losses in 2000– 0.7% of all losses in 2011– 1.0% of all losses in 2014 (predicted)(p )

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Increased frequency of large claimsIncreased frequency of large claims

Whil h it l h i d lit d– While hospitals have improved quality and improved safety measures, the “bigger losses are getting bigger”getting bigger.

• Inadequate staffing at nursing homes• Medical negligence in hospitalsg g p

– With insurers charging premiums for catastrophic events based on a 1‐in‐200 or 300‐year loss, “it’s time that the health care insurance sector took a careful look at its catastrophic exposures”

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Increased frequency of large claimsIncreased frequency of large claims

O thi di l f i l li bilit– One thing some medical professional liability companies are doing is suggesting doctors apologize when something goes wrongapologize when something goes wrong

• Can save the doctor/patient relationship• Reduce medical malpractice claimsp• The “right thing” emotionally – and financially

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Specific Systemic Risks: MedicalT h l– Technology• Lower risk – airway management, CAT scans• Robotics surgeon sued for death• Robotics – surgeon sued for death

– Increased use of Physicians Assistants / Nurse– Increased use of Physicians Assistants / Nurse Practitioners• Insufficient data to determine impactInsufficient data to determine impact

– Uninsured now insured

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Specific Systemic Risks: MedicalLack of access to revolving credit for law firms– Lack of access to revolving credit for law firms• Fewer lawsuits at beginning of crisis• Frequency declined in 2010Frequency declined in 0 0• Statute of Limitations creating uptick in claims• "While many hospitals have grown accustomed to declining professional liability costs the underlying claim frequency andprofessional liability costs, the underlying claim frequency and severity cost drivers have entered a period of growth. Whether commercially insured or self‐insured, hospitals and physicians should prepare for increases to their professional liability costs in the coming years.“ ~Aon 2010 Hospital Professional Liability and Physician Liability Benchmark Analysis

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• PPACA’s Two Small Liability‐Related Provisions

– Section 10607 – authorized malpracticedemonstrations by states

– Section 10608 extended federal malpracticeprotection to free clinics nonmedicalpersonnelpersonnel.

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– Section 10607 – authorized malpracticedemonstrations by statesdemonstrations by states

The Secretary is authorized to award demonstrationThe Secretary is authorized to award demonstrationgrants to States for the development, implementation,and evaluation of alternatives to current tort litigationf l i di t i j i ll dl d bfor resolving disputes over injuries allegedly caused byhealth care providers or health care organizations.

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– Section 10608 extended federal malpracticeprotection to free clinics nonmedical personnelprotection to free clinics nonmedical personnel.

Section 224(o)(1) of the Public Health Service Act (42Section 224(o)(1) of the Public Health Service Act (42U.S.C. 233(o)(1)) is amended by inserting after ‘‘to anindividual’’ the following: ‘‘, or an officer, governingb d b l t t f f li iboard member, employee, or contractor of a free clinicshall in providing services for the free clinic,’’.

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• PPACA – Section 6801 “Sense of the Senate”

– “health care reform presents and opportunity toaddress issues related to medical malpracticeaddress issues related to medical malpracticeand medical liability insurance”

– encourages states “to develop and testlt ti t th i il liti ti talternatives to the civil litigation system as away of improving patient safety

– Congress should consider establishing a Stated l l

g gdemonstration program to evaluate alternativesto the existing civil litigation system with respectto the resolution of medical malpractice claims

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• PPACA – Section 6801 “Sense of the Senate”“– Encourages states “to develop and test

alternatives to the civil litigation system asa way of:• improving patient safety• reducing medical errors• encouraging the efficient resolution of disputes• encouraging the efficient resolution of disputes• increasing the availability of prompt and fairresolution of disputes

• improving access to liability insurance• improving access to liability insurance• preserving an individual’s right to seek redressin court

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• PPACA’s indirect effect on professionalli bili di i l i k fliability traditional risk factors –Accountable Care Organization (“ACO”)

Section 3022 directs the Secretary to establish– Section 3022 – directs the Secretary to establishshared savings program no later than January 1,2012:

• Financial incentives for groups of providers to work in• Financial incentives for groups of providers to work inan ACO where they manage and coordinate care forMedicare FFS beneficiaries.

• ACOs that achieve costs and meet certain qualityACOs that achieve costs and meet certain qualityperformance standards are eligible for shared savingspayments and other incentives that CMS may establish.

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• Elements of the ACO– At least one hospital– A minimum of 50 physicians (Primary & Specialists)

P i h i i t t ith l ACO• Primary care physicians can contract with only one ACO• Other providers may or may not be exclusive to one ACO

– Serve at least 5,000 Medicare patients, p– Create, monitor and report plan on quality and costmeasuresACO approved by CMS– ACO approved by CMS

– Providers participate in shared savings program forthree years

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• Possible organization of providers– ACO professionals (i.e. physicians and hospitals)in group practice arrangementNetworks of individual practices of ACO– Networks of individual practices of ACOprofessionals

– Partnerships or joint ventures arrangementsb t h it l d ACO f i lbetween hospitals and ACO professionals

– Hospitals employing ACO professionalsOther Medicare providers and suppliers as– Other Medicare providers and suppliers asdetermined by the U.S. Department of Healthand Human Services (“HHS”) Secretary

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• Impact of ACOsp– Benefits physicians…especially primary carephysicians

– Patients assigned to ACO based upon primarycare physicianMost savings achieved at the expense of– Most savings achieved at the expense ofhospitals

– 50% of primary care physicians must meet50% of primary care physicians must meetHITECH EHR “meaningful use” requirements

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• ACO shared savings programM di id i ACO it tl d– Medicare pays providers in ACO as it currently does

– CMS develops a benchmark for each ACO– Cost savings and quality performance benchmark

E i f di if ACO i l d• Estimate of expenditures if ACO not implemented• Sets goals for quality measures…65 measures in 5 areas• Considers patient characteristics and other factors• Updated each performance year within three year performance period• Updated each performance year within three year performance period

– ACO measured against cost savings and quality performancebenchmark

• If meets benchmark qualifies for shared savings• If fails to meet benchmark held accountable for losses• Extent of savings or losses dependent upon risk model selected (one‐sided

risk model or two‐sided risk model)

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• The PPACA will favor physicians operating inACOan ACO

– Significant impact on the medical malpracticemarket – this is largely because hospitals aremarket this is largely because hospitals aremore aggressively trying to absorbindependent solo or smaller doctor’s practicesand their patient base with an eye or creatingp y gbigger ACOs

– The bigger the ACO, the more money there isto be made – however there is a perceivedto be made however, there is a perceivedgreater chance for errors and medicalmalpractice lawsuits

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• Medical Malpractice Insurance is drivenpby changes in how health care isdelivered

• Some speculate that the PPACA and themovement if the individual practitionert th ACO l d t lid tito the ACO may lead to consolidation aslarger insurers may seek to acquiresmaller medical malpractice insurerssmaller medical malpractice insurers

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• Interesting new PL product forg pHealthcare Organizations madenecessary by complex structure of laws,l l ti d d trules, regulations and mandates

imposed by the Government:

“Physician Billing Errors & Omissions Insurance”

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• Physician Billing Errors & Omissions Insurance– Healthcare providers must comply with the following:

• Regulations governing the billing of medical services fromMedicare Medicaid and other federal state or localMedicare, Medicaid and other federal, state or localGovernment benefit plans

• Rules governing claims for the billing of medical servicesfrom private payer benefit plansp p y p

• The privacy rules and regulations of HIPAA – Heath InsurancePortability and Accountability Act

• Emergency Medical Treatment and Labor Act; EMTALA• Emergency Medical Treatment and Labor Act; EMTALA• The “Stark” laws – prohibiting self‐referral of Medicarepatients

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• Physician Billing Errors & Omissions Insurance– Non‐compliance with regulatory mandates andrules is very expensive:

• Attorney and auditor fees (defend or appeal)Attorney and auditor fees (defend or appeal)• Actual restitution of fees, profits, charges or benefitpayments

• Civil fines and penalties imposed by the Government• Civil fines and penalties imposed by the Government• Suspension, limitation of medical staff membershipor clinical staff privileges

• Even permanent exclusion from the Government orprivate payer program

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• Many people believe that the costs ofy p pdefensive medicine are substantial andthat malpractice reform should bed l d i di t l t h l t ildeployed immediately to help curtailhealth care spending.P liti–Politics

–Policy

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• Medical Malpractice Reform – Politicsp– PPACA offered little to erstwhile malpracticereformers:

• Sidestepped tradeoffs between affordability andhealth care quality

• Avoided offending powerful corporate or trial lawyerAvoided offending powerful corporate or trial lawyerlobbyists

• Left liability to the vagaries of courts and statelegislatureslegislatures

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• Medical Malpractice Reform – Policyp yIs Medical Malpractice necessary to thesuccess of health care reform as a matterof public policy rather than as a politicalstrategy?

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• The PPACA implementation period offersp pan opportunity to combine conventionalor unconventional liability reforms withth h t b di th tother approaches to bending the cost

curve down and the safety‐quality curveupup.

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• Potential liability and safety reformsy y1. Early disclosure with compensation2. The safe harbor approach3. Making more even‐handed changes to tort rules or processes4. Administration compensation5 I i f i d f5. Improving future compensation and care for permanent

severe injuries6. More enterprise responsibility in health care

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• Potential liability and safety reformsy y

1 E l di l ith ti1. Early disclosure with compensation– Disclose adverse events promptly to patients

ff bl h– Offering reasonable compensation where mistakes have occurred

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2 Th f h b h2. The safe harbor approach– Rewards adherence to evidence‐based guidelines by making it a presumptiveguidelines by making it a presumptive defense to a claim that care was negligent because some different or additional service did not occur.

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3 Making more even‐handed changes3. Making more even handed changesto tort rules or processes

– Flat caps could be replaced with actuariallyi l lidi l f i d ff iequivalent sliding scales for pain and suffering

• Improve predictability• Avoid outlandish verdictsAvoid outlandish verdicts• Improve consistency and proportionality of payouts

to injured patients

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• Potential liability and safety reforms

4. Administrative compensation in lieu ofptort, i.e. “health courts” similar toworkers’ compensation or vaccinecompensation fundscompensation funds

– Pay for more injuries– Faster– Cheaper– More consistently

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5 Improving future compensation and5. Improving future compensation andcare for permanent severe injuries

– Would address the other reason besidesll f d ff hallowances for pain and suffering that raiseliability awards above the limits of physicians’liability coverage and make them fearful ofbankruptcybankruptcy

– More efficient coordination and managementof ongoing care across payers

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6 M t i ibilit i6. More enterprise responsibility inhealthcare – would make health caremore like non‐health sectors of themore like non‐health sectors of theeconomy

– Health care reform offers ways to expand– Health care reform offers ways to expandsuch approaches, notability throughaccountable care organizations (ACOs)

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Documents

PLUS SW Chapter 4-19-2012 - Piersol Presentationcashealthcare.wdfiles.com/local--files/health-care-reform... · 2012. 9. 17. · Title: Microsoft PowerPoint - PLUS SW Chapter 4-19-2012