There has been a steady increase in healthcare claim severity with severity of claims from teaching and children’s hospitals remaining much higher than the national average. These key findings are a part of the ninth annual Zurich Healthcare Risk Insights (HRI) benchmark study of hospital professional liability claims.
The study examines claims trends across healthcare venues and hospital ownership, providing a holistic view of risk in an evolving healthcare landscape.
“At a time when the industry is experiencing dramatic change and uncertainty, it is essential for providers to accurately understand risk trends and their impact on patient safety and overall quality care,” said Glen E. Curley, head of Zurich North America’s Healthcare Professional Liability. “The study provides distinctive insights into trends that can help healthcare providers analyze various aspects of risk and develop enterprise strategies to enhance outcomes, in the continuum of care.”
The study indicates there may be a link between the high severity of claims from children hospitals and interest rates. There was a noticeable spike in the severity of claims from children’s hospitals starting in 2007 and the study noted that during the same time period there also was a clear decrease in the general interest rate environment. Research suggests that the low interest rate environment may have increased the present value of life care plans often found as part of claims arising from children’s hospitals, potentially explaining the jump.
The study also found that overall claim frequency continues to be quite stable from previous years and will most likely continue. However, ongoing research suggests that claim frequency varies by location within states. These regional differences may be attributed to a variety of factors such as differences in venue, jury make-up, the size of the hospital, loss control protocols that have been implemented, the range of services provided, and patient population and demographics.
Average claim severity
Average claim severity increased steadily since 2006, with periods of leveling off in both 2008 and 2010. The implied long-term average annual trend was approximately six percent from 2006 to 2011. The study also identified Illinois, New York and Pennsylvania as having claim severity higher than the national average. Pennsylvania, for example, had a double digit implied annual trend of 11 percent since 2003. However further investigation showed that the trend in Pennsylvania was driven by a large jump between 2006 and 2007 rather than a steady rise to current levels as seen in the national average. Pennsylvania’s claim severity was basically flat 2006 and prior and 2007 and forward.
Although the differences between for-profit and nonprofit/government continue to fluctuate, the data found that for-profit hospitals have lower average severity.
Medium and Large Claims – Moving at a Similar Pace
The percentage of claims above $1 million and percentage of claims above $5 million have both increased over time but at relatively the same pace. Non-economic factors may be driving these results.
A Look at “Small” Indemnity Claims
When looking at claims with indemnity between $25,000 and $150,000, the study found that across varied facility types the average indemnity settlement is very close. However, high severity facilities such as teaching and children’s hospitals tend to spend noticeably less on expenses to settle claims of this size, especially in more recent years. The more sophisticated claims management programs often found in these facilities may have a correlation with the decrease in claim expenses.
Trends in Closed-no-pay (CNP) claims
There has been a noticeable increase in the percentage of claims that close with no payment (CNP). According to the findings however, they have remained steady since 2007.
Other interesting findings from the study include:
- Claim severity from facilities in urban areas continues to be higher than those in rural and suburban locations.
- The percentage of claims above $1 million increased 44 percent from 2003 to 2011 for acute care hospitals, but much faster over the same time period for teaching hospitals at 62 percent.
The Zurich Healthcare Risk Insights (HRI) benchmark study includes state maps of loss cost, and frequency, claim severity by facility type and community type, expenses relative to indemnity and data composition metrics. Interested parties can accessed the study at http://www.zurichna.com/internet/zna/sitecollectiondocuments/en/products/healthcare/healthcare_risk_insights_benchmark_study_of_hospital_professional_liability_claims.pdf
Results are based on extensive data collected from healthcare facilities seeking quotes for professional liability insurance from Zurich over the past year and are comprised of more than $22.8 billion in losses from all 50 states and Washington DC.
Factoring in development on open claims yields an additional $2.1 billion for a total of $24.9 billion in estimated ultimate losses. To limit much of the subjective component of claim evaluations, the 2011 year was used as the cutoff point. Though a large portion of the submissions we receive from one year to the next are from the same facilities, it is not always the case.