An actuarial report by Aon Risk Consultants released on March 17, 2003, found that direct and associated costs for general and professional liability insurance for nursing facilities nationwide have increased significantly and that these costs have absorbed 21% of any increases in the average Medicaid reimbursement rate from 1995 to 2002. The study demonstrated that over this eight-year period the costs per occupied bed of general and professional liability losses—settling and defending claims—are increasing at an annual rate of 24% per year (see graph below) and that the costs represent a $4.8 billion diversion of funds out of patient care. The study showed that Florida and Texas maintain the highest costs for liability losses and that nursing facilities nationwide face liability losses that exceed the rate of inflation in other areas of tort liability, such as malpractice. In addition, the study concluded that the annual commercial general and professional liability insurance premiums for nursing facilities increased 143% in 2002 ($130,086) and 130% in 2001. The Aon report was released on the heels of the publication of a national study in the March/April 2003 issue of Health Affairs conducted by the Harvard School of Public Health. The study found that the recently growing number of lawsuits against nursing facilities is an alarming trend and that the costs of nursing home litigation are substantial in the aggregate and per claim. Researchers concluded that this trend raises concerns about the effect of these costs on the quality of resident care. Surveying attorneys nationwide involved in 4,677 claims, the study found that residents' children are the prime motivation for claims (60%) and that the average payment rate (85%) was nearly three times greater than the average rate observed in medical malpractice litigation. Additionally, the U.S. Department of Health and Human Services released a report on March 3, 2003, Addressing the New Health Care Crisis: Reforming the Medical Litigation System to Improve the Quality of Health Care, which calls for reform of the medical litigation system to improve access and quality of health care.

The above studies will stimulate the liability insurance debate set to begin in the U.S. Senate following the U.S. House of Representatives' passage of the Help Efficient, Accessible, Low-Cost, Timely Healthcare Act of 2003 (H.R.5) by a vote of 229 to 196 on March 13, 2003 (see story on page 1). Although the Act—and its companion bill in the Senate, S.607, introduced by Senator John Ensign (R-NV)—is commonly known as the Malpractice Liability Act, it has an impact on a broad range of health care entities including physicians, hospitals, nursing facilities, insurers, pharmacy companies, and medical device companies. GNYHA will continue to monitor and notify members of developments regarding this issue.

General/Professional Liability Loss Cost per Occupied Nursing Facility Bed, United States, 1995-2002

Source: Aon Risk Consultants, March 2003.