All Stakeholders in Medical Malpractice Liability under Pressure

Aon and the American Society for Health Care Risk Management (ASHRM) recently released the 2019 Aon/ASHRM Hospital and Physician Professional Liability Benchmark Analysis that examined countrywide hospital professional liability (HPL), physician professional liability (PPL), and general liability (GL) claims data from 127 healthcare systems representing 33 percent of the US hospital industry.

The study's data was derived from 105,000 "non-zero" HPL and PPL claims, totaling $20.7 billion in losses and representing 10 years of information, from 2009 through 2018.

Frequency and Severity

Findings from the study showed that, while HPL claims frequency has stabilized in recent years (currently a flat annual trend for HPL claims), HPL claim severity (inclusive of defense costs) is growing at a rate of 2 percent annually.

With an average total cost of over $450,000, the most common claims arise out of labor and delivery (L&D) related issues, which are also the most severe claims. L&D claims continue to be considerably more severe than claims arising from other allegations.

Data also showed that while the relative medical professional liability exposure impact from employed physician assistants (PAs) and nurse practitioners (NPs) is small, PAs and NPs are involved in higher-severity cases, entailing diagnosis-related or communication failures.

Of note, there is a tendency for hospital facilities with a higher number of satisfied patients to also have lower professional liability claim frequency, according to Aon.

Loss Rates

For both HPL and PPL, the study projects loss rates are increasing 2 percent annually.

Countrywide projections for 2020 professional liability events showed that hospitals will experience an annual loss rate of $2,960 per occupied bed equivalent and $5,260 per class 1 employed physician. The projections assume a $2 million per occurrence limit.

Geographically, the highest projected loss rates are in Florida and Cook County, Illinois, where South Florida's 2020 loss rate is projected at $10,690; North Florida at $5,310; and Cook County at $4,920. Indiana, a tort reform state, has the lowest projected loss rate.

A Hardening Market

Findings showed the most common self-insured retention for survey respondents was $5 million with median total professional liability insurance limits purchased of $60 million.

Frequency and the average cost of professional liability claims greater than $5 million are increasing in conjunction with a hardening market where commercial insurers are experiencing combined loss ratios of greater than 100 percent.

In the study's executive summary, Aon wrote, "While self-insured layers continue [to] see modest annual trends, the frequency and average severity of losses greater than $5 million [continue] to increase. After an increasing number of large medical malpractice verdicts following years of premium decreases, all stakeholders in malpractice liability are under pressure. These pressures include premium rate increases, self-insured retention increases, and [insurer] capacity reductions."

The study recommended health systems follow a best practice of conducting a "deep-dive" comprehensive insurance policy review every 3 to 5 years. Policy reviews may also be precipitated by experiences with claims handling, changing market conditions, purchasing other types of insurance, and recent legal decisions.

Furthermore, with the hardening medical malpractice market, Aon advised that healthcare systems should get creative with their existing captive insurance company or explore the possibility of forming a captive.