Evaluation of Medical Malpractice Tort ReformEvaluation of Medical Malpractice Tort ReformCasualty Actuarial SocietyCasualty Actuarial Society

Colorado Springs, COColorado Springs, COMay 17, 2004May 17, 2004

Presented by:Presented by:Richard S. Biondi, FCASRichard S. Biondi, FCAS

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Main Data SourcesMain Data Sources

National Practitioner Data BaseNational Practitioner Data Base– Physicians OnlyPhysicians Only– All Paid ClaimsAll Paid Claims– CountrywideCountrywide

Florida Department of Insurance Data BaseFlorida Department of Insurance Data Base– Only Commercially Insured ClaimsOnly Commercially Insured Claims

– Physicians & HospitalsPhysicians & Hospitals– More Detail per ClaimMore Detail per Claim– Florida OnlyFlorida Only

Texas Department of Insurance Data BaseTexas Department of Insurance Data Base

– Commercial, Bodily Injury Liability ClaimsCommercial, Bodily Injury Liability Claims

– Indemnity Payments Over $10,000Indemnity Payments Over $10,000

– Physicians & HospitalsPhysicians & Hospitals

– Texas OnlyTexas Only

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Other Data SourcesOther Data Sources

Physicians Insurance Association Physicians Insurance Association of Americaof America– Countrywide OnlyCountrywide Only

Annual StatementsAnnual Statements– All Insurers ConsolidatedAll Insurers Consolidated

Rate FilingsRate Filings

US Government (e.g. census) DataUS Government (e.g. census) Data

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Paid Losses Reported to Paid Losses Reported to the NPDBthe NPDB

0

1,000

2,000

3,000

4,000

5,000

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

Year Claim Closed

To

tal

Pai

d L

oss

(x

$1 m

illi

on

) -

US

N

PD

B

0

100

200

300

400

500

To

tal

Pai

d L

oss

(x

$1 m

illi

on

) -

Flo

rid

a N

PD

B

NPDB - US Total (left Axis) NPDB - Florida (right axis)

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Severity of Claims Severity of Claims Reported to the NPDBReported to the NPDB

0

100,000

200,000

300,000

400,000

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

Year Claim Closed

Pai

d L

oss

($)

per

Cla

im

NPDB - US Severity NPDB - Florida Severity

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0.00

5.00

10.00

15.00

20.00

25.00

Year Claim Closed

Cos

t ($)

per

Pop

ulat

ion

NPDB - US Cost per Person NPDB - Florida Cost per Person

NPDB Cost per CapitaNPDB Cost per Capita

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Frequency of Malpractice Frequency of Malpractice Cases Reported to the NPDBCases Reported to the NPDB

0.0

1.5

3.0

4.5

6.0

7.5

9.0

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

Year Claim Closed

Cla

ims

pe

r 1

00

,00

0 P

op

ula

tio

n

NPDB - US Frequency NPDB - Florida

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NPDB Loss Data for Largest NPDB Loss Data for Largest States and NationwideStates and Nationwide

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

Californ

ia

Florid

a

Illinois

Mas

sach

uset

ts

Mich

igan

New Jers

ey

New York

Ohio

Penns

ylvan

ia

Texas

All Oth

ers

US Tot

al

1994 - 2003 2003 Only

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New York – Effect of Cap New York – Effect of Cap on Non-Economic Damageon Non-Economic Damage

Cap on Non-Cap on Non-Economic Economic

Damage AwardDamage Award

Physicians OnlyPhysicians Only

(Loss & ALAE)(Loss & ALAE)

LimitsLimits$1.3 million primary $1.3 million primary +$1 million excess+$1 million excess

Hospital OnlyHospital Only

(Loss & ALAE)(Loss & ALAE)

Unlimited Unlimited CoverageCoverage

Combined Combined Hospital and Hospital and

PhysicianPhysician

$250,000$250,000 24%24% 23%23% 24%24%

$500,000$500,000 16%16% 16%16% 16%16%

$750,000$750,000 11%11% 13%13% 12%12%

$1,000,000$1,000,000 8%8% 10%10% 9%9%

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Pennsylvania – Effect of Cap Pennsylvania – Effect of Cap on Non-Economic Damageon Non-Economic Damage

Physicians OnlyPhysicians Only

Cap on Non-Cap on Non-Economic Economic

Damage AwardDamage Award

PrimaryPrimary

(Loss & ALAE)(Loss & ALAE)

$500,000/$500,000/occurrenceoccurrence

ExcessExcess(Mcare)(Mcare)

(Loss Only)(Loss Only)$500,000 xs $500,000 xs

$500,000$500,000

Total Covered Total Covered LimitsLimits

(Loss & ALAE)(Loss & ALAE)

$250,000$250,000 11%11% 42%42% 18%18%

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Florida – Effect of Cap Florida – Effect of Cap on Non-Economic Damageon Non-Economic Damage

Cap on Non-Cap on Non-Economic Economic

Damage AwardDamage Award

Physicians OnlyPhysicians Only

(Loss & ALAE)(Loss & ALAE)

LimitsLimitsfollowing current following current

distributiondistribution

Hospital OnlyHospital Only

(Loss & ALAE)(Loss & ALAE)

Unlimited Unlimited CoverageCoverage

Combined Combined Hospital and Hospital and

PhysicianPhysician

$250,000$250,000 17%17% 29%29% 20%20%

$500,000$500,000 9%9% 22%22% 12%12%

$750,000$750,000 5%5% 17%17% 8%8%

$1,000,000$1,000,000 3%3% 14%14% 6%6%

In Sept. 2003, Florida passed non-economic cap of $500K-$1million for physicians In Sept. 2003, Florida passed non-economic cap of $500K-$1million for physicians and $750K-$1.5 million for hospitals. Florida estimated a savings of 5.3%.and $750K-$1.5 million for hospitals. Florida estimated a savings of 5.3%.

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$250,000 Cap on Non-Economic Damages$250,000 Cap on Non-Economic DamagesExample of Simulation ModelExample of Simulation Model

Hospital Settlement

$1,435,275

Physician Settlement

$106,872

Total Settlement

$1,542,147

Total Verdict Amount

$2,000,165

Stage A

Economic Damages:25%

$500,041

Non-Economic Damages75%

$1,500,124

Non-Economic Damages

75%-Capped at $250,000

$250,000

Economic Damages

$155,013

Pre-ReformNon-Economic Damages

$465,038

Post Reform

Non-Economic Damages

$250,000

Stage B Stage C Stage D Stage E

Post Verdict

Reduction (31%)

Post Verdict

Reduction (31%)

Post Verdict

Reduction (0%)

Pre-Reform Non-Economic – Post Reform Non-Economic 465,038 – 250,000Loss Savings = _________________________________________________ = ____________________ = 34.7%

Total Pre-Reform Loss 155,013 + 465,038

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Hospital Settlement

$1,435,275

Stage A

Physician Settlement

$106,872

Total Settlement

$1,542,147

Stage B

$250,000 Cap on Non-Economic Damages$250,000 Cap on Non-Economic DamagesExample of Simulation ModelExample of Simulation Model

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Total Settlement

$1,542,147

Stage B Stage C

Total Verdict Amount

$2,000,165

$250,000 Cap on Non-Economic Damages$250,000 Cap on Non-Economic DamagesExample of Simulation ModelExample of Simulation Model

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Economic Damages:25%

$500,041

Stage D

Non-Economic Damages75%

$1,500,124

Total Verdict Amount

$2,000,165

Non-Economic Damages

75%-Capped at $250,000

$250,000

Post Verdict

Reduction (31%)

Post Verdict

Reduction (31%)

Post Verdict

Reduction (0%)

Stage C

$250,000 Cap on Non-Economic Damages$250,000 Cap on Non-Economic DamagesExample of Simulation ModelExample of Simulation Model

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Economic Damages:25%

$500,041

Non-Economic Damages75%

$1,500,124

Non-Economic Damages

75%-Capped at $250,000

$250,000

Post Verdict

Reduction (31%)

Post Verdict

Reduction (31%)

Post Verdict

Reduction (0%)

Stage D

Economic Damages

$155,013

Pre-ReformNon-Economic Damages

$465,038

Post Reform

Non-Economic Damages

$250,000

Stage E

$250,000 Cap on Non-Economic Damages$250,000 Cap on Non-Economic DamagesExample of Simulation ModelExample of Simulation Model

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New York – Physician Loss New York – Physician Loss DistributionDistribution

0.0%

4.0%

8.0%

12.0%

16.0%

20.0%

8.1

10

.4

13

.4

17

.2

22

.0

28

.3

36

.3

46

.6

59

.9

76

.9

98

.7

12

6.8

16

2.8

20

9.0

26

8.3

34

4.6

44

2.4

56

8.1

72

9.4

93

6.6

1,20

2.6

Trended Claim Severity(x $1,000 - log scale)

Actual Fit

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New York – Hospital Loss New York – Hospital Loss DistributionDistribution

0.0%

3.0%

6.0%

9.0%

12.0%

15.0%

8.1

10.4

13.4

17.2

22.0

28.3

36.3

46.6

59.9

76.9

98.7

126.8

162.8

209.0

268.3

344.6

442.4

568.1

729.4

936.6

1,2

02.6

Trended Claim Severity(x $1,000 - log scale)

Actual Fit

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Percentage Split in Indemnity CasesPercentage Split in Indemnity Cases(all years combined)(all years combined)

Florida DOI - Hospitals

Economic - Wage3%

Economic - Other1%

Economic - Medical19%

Non-Economic77%

Texas DOI - Total

Non-Economic59%

Other11%

Economic30%

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Distribution of Non-Economic Damage PercentageDistribution of Non-Economic Damage PercentageBy Case Size RangeBy Case Size Range

Case Size Range ($) Mid-Point 0 500,000 2,000,000 5,000,000 Non-Econ % (for simulation) 500,000 2,000,000 5,000,000 Unlimited Exactly 0% 0% 12.5% 17.1% 24.7% 37.5% 0% - 10% 5% 2.3% 2.8% 4.1% 8.2%

10% - 20% 15% 2.5% 3.3% 4.1% 7.3% 20% - 30% 25% 2.9% 3.7% 4.2% 6.3% 30% - 40% 35% 3.2% 4.1% 4.3% 5.4% 40% - 50% 45% 3.6% 4.5% 4.3% 4.5% 50% - 60% 55% 3.9% 4.9% 4.4% 3.5% 60% - 70% 65% 4.2% 5.3% 4.5% 2.6% 70% - 80% 75% 4.5% 5.7% 4.6% 1.6% 80% - 90% 85% 4.9% 6.2% 4.6% 0.7% 90% - 100% 95% 5.2% 6.6% 4.7% 0.3%

Exactly 100% 100% 50.2% 35.8% 31.5% 22.1% Total 100% 100% 100% 100% Overall Average Non-Economic % 72% 63% 54% 35%

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Distribution of Post Verdict Distribution of Post Verdict Appeal FactorsAppeal Factors

Sustained Percentage*Sustained Percentage* FrequencyFrequency

15%15% 8%8%

25%25% 8%8%

36%36% 8%8%

45%45% 8%8%

55%55% 8%8%

65%65% 8%8%

75%75% 8%8%

85%85% 8%8%

95%95% 8%8%

100%100% 14%14%

105%105% 7%7%

115%115% 7%7%

TotalTotal 100%100%

Average SustainedAverage Sustained 69%69%

*Sustained percentage is the ratio of verdict amount after appeal / verdict amount before appeal.*Sustained percentage is the ratio of verdict amount after appeal / verdict amount before appeal.