Liability costs on the rise for long term care facilities, finds AHCA and Aon
Washington, D.C. – Liability costs for long term care providers are expected to increase by 5 percent and claims frequency also is expected to rise, according to an analysis released today by the American Health Care Association (AHCA) and Aon Global Risk Consulting, the risk consulting business of Aon plc (NYSE:AON). The report also indicated that plaintiff firms have focused attention on states with more vulnerable legal climates.
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“Across the country, long term care and post-acute care centers provide care for 1.1 million frail and elderly and employ more than 1.5 million people. Rising liability costs drive up the cost of doing business and not only threaten access to care but could ultimately cost jobs,” said Mark Parkinson, President & CEO of AHCA.
The 2013 Long Term Care General Liability and Professional Liability Actuarial Analysis provides estimates of loss rates, or the cost of liability to the beds that care providers operate. The projected national 2014 loss rate, which is a combination of claim severity and frequency, is $1,940 per occupied bed. This means that an operator with 100 beds can expect $194,000 in liability expenses in 2014.
“Conservative jurisdictions with long standing tort limits are less economically attractive to attorneys. The firms have focused their attention on venues with no tort limits, less mature tort laws or more liberal judiciaries. We are seeing this in Kentucky, Tennessee and West Virginia, where claim frequency rates are growing,” said Christian Coleianne, associate director and actuary from Aon Global Risk Consulting, who produced the report.
Kentucky’s loss rate, the highest of the profiled states in the study, has been increasing since 2008 and is projected to reach $8,090 in 2014. Kentucky’s state constitution prohibits limits on tort recoveries and there are no statutes concerning qualification of expert witnesses, certificates of merit, pre-trial alternative dispute resolution or limits on attorney’s fees. These factors have resulted in at least one provider leaving the state. West Virginia, the state with the second highest loss rate among the report’s profiled states, has a reputation for high verdicts and a challenging appellate system.
Texas reports the second lowest loss rate in the study, $300 per occupied bed. The state experienced dramatic loss rate reductions following constitutionally protected tort reform in 2003. These reductions in loss rates have been sustained in the years following the legislation.
The study also examined claims resolved through arbitration agreements and discovered that the agreements often lead to resolution in a similar timeframe, but with a lower cost. The average cost of a claim under an arbitration agreement is $155,000, while a non-arbitrated outcome averages $184,000, making arbitrated outcomes 16 percent less costly.
“We will continue to look for solutions, such as arbitration agreements, that can help address issues related to liability costs and tort reform,” said Parkinson. “While long term care providers can’t ignore the rising cost of litigation, our profession will remain focused on improving the lives of the millions of Americans who depend on long term and post-acute care.”
Approximately 15,800 individual non-zero claims from long term care facilities were aggregated. The 34 providers represented in the national study operate approximately 220,000 long term care beds, consisting of skilled nursing facility beds and a number of independent living, assisted living, home health care and rehabilitation beds. They represent approximately 16 percent of these beds in the United States, and eight of the 10 largest operators in the country.
Note to editors: An abstract of the report and graphics illustrating results from the 2013 Aon Long Term Care General Liability and Professional Liability Actuarial Analysis are available upon request. To access the report, visit www.ahca.org.
The American Health Care Association and National Center for Assisted Living (AHCA/NCAL) represent more than 12,000 non-profit and proprietary skilled nursing centers, assisted living communities, sub-acute centers and homes for individuals with intellectual and developmental disabilities. By delivering solutions for quality care, AHCA/NCAL aims to improve the lives of the millions of frail, elderly and individuals with disabilities who receive long term or post-acute care in our member facilities each day. For more information, please visit www.ahca.org or www.ncal.org.