New Study: State Tort Reforms, Arbitration, Focus on Care Quality Improvement Boosts Stability of Long Term Care Sector

For the first time in Aon Risk Consultant Inc.'s ongoing nine year actuarial study of general liability and professional liability (GL/PL) claims against America's long term care providers, the countrywide frequency of claims and their severity are stable. The American Health Care Association (AHCA) stated that a combination of effective state tort reform laws, a trend towards settlements based on arbitration, and increased facility-based quality improvement efforts are indisputably working on behalf of elderly Medicaid beneficiaries and the taxpayers who finance the nation's Medicaid program. Aon's The Long Term Care 2008 General Liability and Professional Liability Actuarial Analysis is supported by AHCA.

"The facts and statistics in the new Aon analysis are powerful and profound, and excellent news for U.S. seniors and taxpayers," stated Bruce Yarwood, President and CEO of AHCA. "The long term care profession is enormously pleased that state tort reform laws and other initiatives designed to help ensure the nation's Medicaid resources are working as intended - to protect our most vulnerable seniors."

The Aon 2008 analysis states the following:

"Across the United States, the climate of long term care liability is constantly changing. In the mid to late 1990's, soaring liability costs prompted providers to devise a number of strategic initiatives. Early efforts focused on tort reform legislation, withdrawal from expensive markets, , and operational improvements. These efforts have continued and expanded to include an increased focus on quality of care, and alternative dispute resolution strategies, including arbitration.

After years of quickly rising costs, these initiatives have resulted in stability in most areas as evidenced by the following key findings from this year's study:

* For the first time in Aon's nine years of reporting on long term care liability costs, countrywide frequency and severity are stable; * Tort reform driven reductions in liability costs have been lasting. Several years past the last major tort reform actions, frequency and severity are stable at their post reform levels;
* Despite stability in the national trends, turbulence remains in higher cost jurisdictions like Arkansas, Tennessee, and California, where the loss costs per occupied bed are multiples of the countrywide average; * Arbitration appears to reduce the time to settlement, with lower defense costs and smaller indemnity payments; * Survey respondents who had received an AHCA Quality Award had 34% lower liability costs per bed; * Defense costs continue to increase as indemnity amounts stabilize.

Other key findings are as follows:

Liability Costs Plummet in States with Tort Reform Laws

Liability costs have dropped significantly in states that have passed tort reform in the past several years. As a group, the average loss cost of Florida, Georgia, Louisiana, Mississippi, Ohio, Texas, and West Virginia dropped from $7,190 in 1998 to an estimated loss cost of $1,230 in 2005. The loss cost for these states has increased slightly through 2007 to $1,270.

Arbitration

Providers are increasingly seeking alternatives to tort litigation, and arbitration reduces the time to settlement by more than two months on average; the average indemnity amount for claims subject to arbitration is 31% lower than for claims that are not subject to arbitration; and the average expense amount for claims subject to arbitration is 20% lower than for claims that are not subject to arbitration.

Yarwood concluded, "We are encouraged by the correlation between those facilities that have earned AHCA's quality award and lower per bed liability costs. While there remain several areas of concern, the positive overall trend lines are unmistakable."