Medical Malpractice Claims Still Rising
Medical malpractice claims increased by nearly 8 percent in severity in 2012, driven by large claims costing $2 million or more, according to new research by insurer Beazley.
The findings, which form part of Aon Risk Solution’s 2013 Hospital and Physician Professional Liability Benchmark Analysis report, uncover an upward trend that started in 2006.
The average severity for closed claims with indemnity has climbed from just above $300,000 to almost $500,000 in the space of six years.
More worryingly, however, the research revealed that the gap in the average severity for closed claims with indemnity narrowed between all U.S. states and those states where tort reform has been passed — from $100,000 in 2009 to $50,000 last year.
Steve Chang, head of Beazley’s health care claims team, told Risk & Insurance® that the report’s data supported his own findings over the last two years.
“We have similarly felt a very acute uptick in the most severe claims,” he said.<
"The most interesting part of the report was in the non-tort reform states. We have been feeling some pressure [in terms of claims] in some states that have historically been considered benign, and the report really confirmed our experiences."
Plaintiff’s attorneys “have become very savvy at circumventing the caps in place in tort reform states for non-economic damages in order to ensure their clients receive greater economic damage compensation.”
– Steve Chang, head of Beazley’s health care claims team
Chang said there has been a “spillover effect” with the migration of big verdicts awarded in favor of the plaintiff in traditionally high severity states to lower risk jurisdictions, adding that there was no longer a big geographical split as there had been before.
“We are getting a lot of these anomalies where a large verdict will push up the settlement values of subsequent cases and therefore courts are being forced to try cases they wouldn’t normally have considered five years ago, which is creating a vicious cycle,” he said.
Beazley, which maintains a claims database covering 38 percent of U.S. hospital beds, reported that plaintiffs’ attorneys were now pushing for inflated economic damages in the form of large life care plans in states where non-economic damages are capped.
“The knock-on effect is that plaintiffs’ lawyers in tort reform states have been reading about these verdicts in non-tort reform states and many are inclined to try and emulate these results,” said Chang.
“They have become very savvy at circumventing the caps in place in tort reform states for non-economic damages in order to ensure their clients receive greater economic damage compensation.”
An example of this significant shift in plaintiff attorneys’ strategy can be found in Maryland, which despite being a tort-reform state, experienced an increase in average closed claims severity from $423,000 in 2006 to $750,000 in 2012, according to the report.
These findings are backed up by Beazley’s own claims handling experience, said Chang.
The research found that plaintiffs have also switched their focus to high severity cases, driven by catastrophic injuries and the potential for large awards rather than pursuing high volumes of relatively low value cases.
Furthermore, Beazley’s research found that 43 percent of claims above $5 million related to obstetric procedures, with the rate of increase outpacing that of non-obstetric claims.
The Physician Insurers Association of America’s national database of medical professional liability claims reflects a steady increase in severity of claims for higher risk procedures such as obstetrics, and general and orthopedic surgery.
“We have known for some time that our losses are driven primarily by obstetrics claims, but what surprised me most was the significant increase in the value of closed claims between 2005 and 2012,” said Chang.
Divya Parikh, director of research and risk management at the Physician Insurers Association of America’s (PIAA), concurred with the report’s findings.
She said the PIAA’s national database of medical professional liability claims likewise reflected a steady increase in severity of claims for higher risk procedures such as obstetrics, and general and orthopedic surgery.
“While there has been a leveling off in the frequency of claims overall, it seems intuitive that there would be more interest in claims with bigger payouts attached,” she said.
“Obstetrics and gynecological surgery tend to report the highest number of paid claims on our database and in general they also account for the highest average individual payouts in most cases.”
Chang added that U.S. health care reform could accentuate this trend of increased claims in the long-term as more people begin to gain access to better medical services and coverage.
Making the Grade
Taking the time to match a tough job with a worker who can actually do it reduces the potential for costly workplace injuries, employers are now finding.
That concept is leading more employers to study their essential job functions and test the ability of job candidates, particularly when a job requires a new hire to perform functions known to cause injuries.
Increased nationwide hiring, the rising cost of treating workplace injuries and a less physically fit job applicant pool are driving more employers to employ the practice known as post-offer employment testing.
Post-offer employment testing, or POET, involves simulating the lifting, pushing, pulling and other physical activities that make up a job’s essential functions. Employers are increasingly making employment offers conditional upon a job applicant’s physical ability to perform those activities.
And in another recent trend, employers are expanding the strategy to help determine when to return an established employee to their duties following a workplace injury or a non-occupational disability leave.
“Pre-work screens are not a good strategy if your injuries are coming three years into employment.”
–Drew Bossen, founder, Atlas Ergonomics
At Cooper Standard, the Novi, Mich.-based automobile parts manufacturer, for example, workers desiring a strenuous job first participate in “simulated work.” That helps determine whether they are physically capable of performing the real job, said Patricia Hostine, the company’s global manager of workers’ compensation.
A job requiring continual force to press rubber hose into a mold that forms radiator hoses is desirable because it is one of the better paying tasks the auto parts manufacturer offers, Hostine added.
But it’s also one of the company’s most physically demanding roles.
“It’s very hard work,” Hostine said. “That is where a lot of our injuries are found.”
After performing the simulated work, more applicants decide against taking the job than the company disqualifies. That’s because the testing showed them they couldn’t do the job anyway.
Cooper Standard also requires a functional evaluation, conducted by physical therapists, for any worker who has been away from work either because of a workplace injury or a non-occupational disability.
That requires employees who normally form radiator hoses to show that they are once again physically capable of performing the work after returning from an absence.
Employers that have benefited from conducting POET evaluations for newly hired employees are increasingly adopting a similar worker evaluation as part of their return-to-work programs, several experts said.
“Historically, these [physical evaluations] have been used at the point of offer, at the point of employment,” said Drew Bossen, a physical therapist and founder of Atlas Ergonomics. “But in the last 12 months, we have clients formulating methodologies to use them for return to work as well.”
Data from an initial POET exam can also provide a measured baseline of an employee’s abilities that can be reviewed post injury to help determine when the worker has regained their ability to return to their original job, or whether they should take up other duties.
Using data that way can reduce return-to-work durations by providing support for a doctor’s determination to release their patient.
Most employers using a POET system, however, still use it only to test newly hired workers.
Evaluating whether potential new hires have the physical ability to perform certain tasks can substantially reduce a company’s injury rate because newer workers typically account for a greater number of injuries than their more-experienced counterparts, POET advocates said.
Data compiled by the National Council on Compensation Insurance Inc. showed that workers on the job less than a year in 2007 accounted for nearly 34 percent of injuries although they made up only 23 percent of the labor force.
“Pre-work screens are not a good strategy if your injuries are coming three years into employment,” Bossen said.
Now, as the U.S. Labor Department reports increased hiring across the country, vendors that provide physical ability testing programs said they are seeing increased demand, which had dropped off during the recession.
“We have seen a big uptick in companies interested in doing this across all industries,” including transportation, mining and health care, said Connie Vaughn-Miller, vice president of business development for BTE Technologies.
The testing may be more beneficial for the most strenuous types of work.
Hostine at Cooper Standard said, for example, that she does not see a cost/benefit advantage for testing workers engaged in light production jobs.
Most employers adopting a POET strategy do so for certain positions and many start with a pilot program, experts said. It’s best to decide which job categories to include in a pilot program by reviewing the company’s claims history to pinpoint where injury frequency and severity are problems. Or, they recommend starting with the company’s most physically demanding jobs, then add others if the pilot results warrant doing so.
“We can’t be a better place to work if we’re hiring people that are not able to perform the job. That’s bad for the company and the associate.”
–Libby Christman, vice president of risk management, Ahold USA.
Making Work Safer
“One of our company promises is to be a better place to work,” said Libby Christman, vice president of risk management at Ahold USA.
“We can’t be a better place to work if we’re hiring people that are not able to perform the job. That’s bad for the company and the associate.”
Ahold is a retailer with about 120,000 employees operating stores under the names of Stop & Shop, Giant Food Stores, Martin’s Food Markets, and Peapod, an online grocery ordering unit.
Late last year, Ahold launched a pilot program for Peapod delivery drivers and for certain strenuous jobs in two warehouses, Christman said. The warehouse jobs require pushing, pulling, bending and lifting.
Since September, Christman has found that about 25 percent of job applicants could not pass its physical demands test. Screening for an employee capable of doing the job, though, not only reduces injuries, but improves productivity.
“We know that obtaining an accurate assessment of an applicant’s physical abilities can help us place him or her in a suitable job, potentially eliminate injuries and ensure efficiency and performance on the job,” Christman said.
Stepped-up hiring is not the only factor driving employer demand for POET services, observers said.
Employers — continually pushing for more sophisticated safety measures in the face of an aging, more obese, and less physically fit U.S. workforce — are also driving the demand, BTE Technologies’ Vaughn-Miller said.
The Discrimination Question
Employers cannot discriminate when hiring, but they can legally ask a worker to demonstrate that they can meet the physical demands of a job’s essential functions, experts said.
That requires careful analysis, however, to clearly understand a job’s essential functions, so the designed test measures just those functions and does not go beyond evaluating a worker’s ability to perform those specific tasks.
Employers have run afoul of the Equal Employment Opportunity Commission when implementing POET programs that evaluated for abilities beyond those required by the job.
If employees must lift 75 pounds only once a year, and can use a mechanical lift assist to help them when they do so, then testing to see whether a worker can lift 75 pounds is not a fair test, advised Colleen M. Britz, managing director and ergonomics practice leader for Marsh Risk Consulting.
Employers may also face discrimination complaints if they do not require a POET evaluation of everyone seeking a specific job, experts warned.
The tests themselves, however, vary substantially, depending on the vendor or employer providing them.
Some resemble gym equipment with electronic systems for measuring a worker’s strength and agility. Those results can then be compared to computerized measurements of a task. Other tests may be as simple as requiring a worker to lift bags of sand.
“I do consider it a best practice to have a well-designed post-offer employment test that truly is measuring an employee’s capacity to meet physical demands,” Britz said. “It’s a matter, from my perspective, of whether some of the methodologies are truly testing that.”
The wide variation in testing methodology has hampered the collection of data on POET’s impact on overall employee injury rates across industries or multiple employers, experts said.
But individual employers have experienced success, Britz said.
“I don’t know of any company that has stopped doing POET after starting — because they are seeing a positive return on investment,” she added.
A physical abilities test helped Prince William County in Virginia mitigate a double loss driven by candidates seeking to become firefighters.
The county was losing tens of thousands of dollars on hiring and training costs each time a job candidate washed out of a 26-week training course simply because they could not perform the physical challenges firefighters face in the line of duty, said Tim Keen, assistant chief for the county’s Department of Fire and Rescue.
Because firefighting is a tough job, a lack of physical capability also contributed to recruit training injuries.
“Not only is it a hard job, but when you add all the gear they wear, their air packs, as well as the functional movements that it takes to accomplish certain tasks, it puts strains on the body,” Keen said.
Those strains became costly workers’ compensation claims when recruits could not return to an existing job as would occur after an established firefighter suffered an injury, added Lori Gray, the county’s risk management division chief. That forced the county to continue paying workers’ compensation benefits to recruits who did not have a job to return to.
So in 2003, the risk management and fire department helped the county establish its own facility where applicants wanting to become firefighters must first participate in a standardized Candidate Physical Ability Test.
The International Association of Fire Fighters and the International Association of Fire Chiefs developed the CPAT test the county licenses.
The test used by fire departments across the country requires candidates to climb stairs while wearing weight vests, drag hoses and simulated bodies, simulate forcing their way into a building, and conduct other physical feats within a certain time period.
“There are a variety of firefighting tasks they must go through in this course,” Keen said. The course tests their aerobic capabilities, their flexibility, core strength, and upper and lower body fitness.
The test’s standardization ensures it is true to the firefighter’s actual work role and that is legal and fair to all candidates, he added.
“Regardless of age or gender the course is the same for everybody,” he said.
“The test is appropriate so you are not losing people due to injuries, especially early in their careers, Keen said. “It’s the right thing to do, making sure they are physically capable of doing the job.”
The screenings have resulted in fewer recruits lost due to a lack of physical ability.
“We have also seen a huge reduction in the number of injuries that were occurring because recruits are coming in more physically fit to do the job,” Keen said.
POET advocates said the screening results have other applications as well.
In some cases, post-offer physical test results provide employers with a defense in permanent disability cases, Britz said.
In states allowing employers to apportion responsibility for permanent disability claims, for example, the baseline results from the initial post-offer exam can limit an employer’s liability by showing that a worker lost only a certain portion of their functional ability during their employment tenure.
Britz added that she expects to see more large, sophisticated employers counter rising claims severity driven by factors such as aging and obesity by integrating their ergonomics, wellness intervention and physical ability testing programs.
For example, an employee returning from a leave might undergo a fitness for duty exam to evaluate their ability to perform the job without injuring themselves.
Simultaneously, the employee could be referred to the employer’s wellness program to address health-related issues such as high body mass index or to learn exercises that would strengthen certain body parts, such as their shoulders, if frequently used in their daily work routines.
“That is the evolution of post-offer employment testing into fitness-for-duty programs,” she said.
“Not so they lose the job, but to recognize that this person needs to work on shoulder strength. So we create an opportunity to increase shoulder strength. I think that is going to be the wave of the future.”
3 + 3: Theory of Risk
Anthony Valsamakis doesn’t just practice risk management, he wrote a book about it. And he doesn’t just consult with quants, he is one.
“Risk management has been in my blood for so long that I have to stop myself, otherwise I could go into a two-hour monologue,” said Valsamakis, whose career in the discipline goes back almost 35 years, to his first job with the Standard General Insurance Company.
In 1990, the London-based chairman of the Eikos Group received a doctorate in Business Economics. In 1992, “The Theory & Principles of Risk Management” was published, with Valsamakis the principal author, and is now in its 4th edition.
Valsamakis worked first with a carrier, then as a commodities broker, before taking up an academic post. The company he started in 1999, the Eikos Group, has a risk consulting arm, with clients in most industrial sectors, including the food, mining, forestry, industrial paper and packaging and banking industries. The group also includes a transportation risk brokerage and a Bermuda-based carrier.
“I think the idea of having a secure data base that everyone can access and can update at any moment is by far the best innovation that I can see happening in the information game.”
– Anthony Valsamakis, Chairman, Risk Financing Strategy, Eikos Group
For as long as he can remember, Valsamakis sought ways to get better information on the risks he underwrites, brokers or consults on.
“Over many years we’ve tried hard to increase the quality and timeliness of the information that enables us to do just that,” Valsamakis said.
Finally, it looks like Valsamakis has found a risk management information systems platform that enables him to do just that.
For the past year and a half, Valsamakis has been using a system developed by Riskonnect.
“What’s useful for me is that the platform basically resides within the client’s systems,” he said.
The information he needs to prioritize, depends on which client he is working with.
“By definition, depending on where I am working and what I am doing, risk management priorities are very different,” Valsamakis said.
The Riskonnect platform provides the necessary flexibility.
A mine, for example, could be in a location in Africa or South America with a high degree of political risk. A key risk for a furniture maker might be around trade secrets, the possibility that a disgruntled employee would leak a pricing catalogue to competitors. For a packaging manufacturer, their material supply chain is of the utmost importance, and so on.
For each client, Valsamakis can use Riskonnect platform and work with the client to compile the information that is most relevant to that client and its industry and enter that into a secure system.
“All of these are template facts that you can easily put into the Riskonnect system,” Valsamakis said.
The Riskonnect platform is housed within the client’s information technology system, and it is transparent enough, to give Valsamakis and his client access to the same sets of data.
“I think the idea of having a secure data base that everyone can access and can update at any moment is by far the best innovation that I can see happening in the information game,” he said.
Whose System Is It?
Valsamakis has been around long enough to know a few things about data and risk transfer. He’s seen a number of risk information management systems put out by brokers, for example, that he thinks are set up more for the broker’s business model than for the sharing of information.
Generally speaking, information about an insured’s risks come from the broker and the insured. The Riskonnect system works, according to Valsamakis, because it is designed to be adapted to the client, not the broker.
“I have seen efforts by brokers, for example, over the years to produce a type of risk information platform that becomes theirs,” Valsamakis said.
“It’s been a perennial problem in the industry, where depending on which broker you end up with, you’ll end up with system A, B or C,” he said.
The Underwriter Needs to Know
Using Riskonnect, Valsamakis encourages clients to be as transparent as possible, in order to give the most complete information to underwriters.
“For me the question is, ‘What is the volatility around the asset and can there be an impact on the balance sheet of our clients?’” he said.
“We need to describe this exposure in various contexts so that the underwriters know what they are covering,” he said.
It’s basic human psychology. If an underwriter doesn’t feel they are getting enough information about a particular risk, they will take a negative view of that risk.
The more accurate the information Valsamakis has about a client’s exposures, the better the pricing he gets from underwriters.
“If you were an underwriter putting your capital and risk and I gave you little information, you would actually be less inclined to look at the risk in favorable terms. There will be a natural inclination to downgrade it,” he said.
Where Valsamakis sees enormous value is in the Riskonnect system ability to tag which can be revisited at a later stage.
“It’s amazing how clients forget, in the passage of time, that there are profiles that have changed for better or worse.”
A Long-Term Investment
The Eikos Group invested significantly in the Riskonnect product and are taking it to a number of clients. The transparency of the system and the advantage it gives the Eikos Group and its clients with underwriters is in itself a business advantage over the competition.
“We made a decision as a small company, relatively speaking, to invest a lot of money in Riskonnect and be very proactive about it,” Valsamakis said.
“When I talk to executives I say we invested in it because it’s going to save our clients money. Better information will lead to a lower cost of risk,” he said.
“If I’m talking to someone at a high level, that’s fairly easily understood.”
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Riskonnect. The editorial staff of Risk & Insurance had no role in its preparation.