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Litigation and Increasing Liability Insurance Devastate Long-Term Care

by William Kanapaux

Geriatric Times July/August 2003 Vol. IV Issue 4

Nursing home litigation is one of the fastest growing areas of health care litigation in the country, pushing national companies and commercial insurance carriers out of the states with the most activity. Now, concerns are being raised about the impact this litigation is having on the ability of nursing homes to survive and on the quality of care they deliver, as resources are increasingly being diverted to pay legal claims.

A study published in the March/April issue of Health Affairs stated, "The attorneys we surveyed were personally involved in litigating nearly 4,700 claims in the preceding 12 months, and their firms handled approximately 8,300 claims. More than four-fifths of these claims would recover damages at an average of $406,000 per claim."

That level of litigation translated to $2.3 billion in compensation payments to plaintiffs nationwide in 2001, the report said. Claims in Florida alone were $1.1 billion. Texas accounted for another $654 million.

"In states with a high volume of litigation, the diversion of substantial resources now required to defend and pay nursing home lawsuits is likely to have an independent, negative impact on quality," the Health Affairs study said.

Aon Risk Consultants Inc., which conducted an actuarial analysis this year for the American Health Care Association (AHCA) on the cost of general liability and professional liability (GL/PL) claims to the U.S. long-term care industry, found that average liability costs have tripled since 1996, from $850 to $2,880 per bed.

The analysis, published in March, noted, "Countrywide increases are the result of an explosion in litigation that started in a handful of states and is spreading to a multitude of regions throughout the country." Six high-cost states were identified: Florida, Texas, Mississippi, California, Arkansas and Alabama.

The Health Affairs study found that attorneys in Arkansas, Georgia, Louisiana and Oklahoma had seen increases in claims volume in 2001 and average recovery amounts that were "considerably higher" than those of Florida and Texas, suggesting that nearby states were emerging as strongholds for litigation.

"Liability insurance premiums and payments may create a 'death spiral' if their fiscal impact on defendant facilities feeds further quality problems and increases the probability of future lawsuits," the report said.

The rise in premiums for nursing homes and other long-term care facilities are of an order of magnitude higher than increases seen in all other groups of health care other than high-risk specialties such as neurosurgery, Nathan Childs, AHCA's director of legislative affairs, told Geriatric Times.

The Insurance Services Organization, which looks at average loss-costs per dollar of premium, found that, for most doctors, insurance carriers lose about 23 cents on the dollar. But for every dollar of premium they take in for nursing homes, they lose $3.

The Aon analysis found:

According to the 2003 market update of nursing facilities published by the Centers for Medicare & Medicaid Services (CMS), analysts predict that these high premium levels will continue for at least another two years. The continued increase, combined with cuts to Medicare and Medicaid reimbursements, will force some firms into bankruptcy.

In the Sunbelt states with the highest rates of litigation, commercial carriers are dropping out of the market because they cannot calculate the risk. In Texas, the number of state-licensed insurance carriers that provide liability insurance dropped from eight in 1996 to two in 2002, the CMS reported. Florida now has no state-licensed carriers that provide long-term care liability insurance.

Childs explained that long-term care is a highly regulated industry. Across the country, nearly 1.5 million seniors aged 75 and older live in a nursing home, with about 75% of patient care funded through Medicaid. Florida has 69,000 nursing home residents; Texas has 87,000.

The Omnibus Reconciliation Act of 1987 was the last time the U.S. Congress set down a strict regulatory framework for nursing homes, and state legislators turned to other methods of addressing ongoing quality issues, Childs said.

Some states, such as Florida and Texas, established patients' rights statutes for people in long-term care. These laws opened up new causes of action for people in nursing homes, allowing them to sue a facility for a breach in the patient's rights. Such lawsuits exist outside of the medical-negligence framework and do not require that a patient prove that the care received was below standard of care.

At one point in Florida, every nursing home had five lawsuits against it. The American Health Care Association wanted to know whether the homes with the most suits against them also had the worst quality. "They couldn't find any correlation," Childs told GT.

"The only question that really needs to be answered by the jury is: Did something bad happen to the person?" Childs said. "And if something bad happened, then [the nursing homes] owe them money."

It can even happen in states that have tort reform laws, such as California, which passed the Medical Injury Compensation Reform Act (MICRA) in 1975 to protect the health care system against an explosion of medical malpractice suits.

Under MICRA, lawsuits against hospitals and doctors are capped at $250,000 for non-economic damages. But since 1999, long-term care facilities have been sued under the state's patients' rights law, Childs said. Attorneys are saying their lawsuits do not fall under medical negligence because they are not suing for a mistake that was made but for a problem resulting from elder neglect.

In both Florida and California, the elder neglect laws allowed add-on attorney's fees, which have made them especially enticing, he said. Florida changed its law in 2001, but the damage had already been done, and the pace of litigation continues.

Although Florida lacks commercial carriers for liability insurance to nursing homes, by law it requires that every nursing facility have at least a $100,000 of general liability coverage and $500,000 of professional liability coverage. Facilities must find an unlicensed insurer who is willing to sell them a $500,000 insurance policy for $550,000 or more, Childs said. "So basically you're paying less than dollar-for-dollar coverage to get a piece of paper so you can keep your license."

A similar insurance-requirement policy will go into effect in Texas in about a year. Currently, half the facilities there have no GL/PL insurance.

"Florida is still probably the worst in the nation in terms of liability insurance availability and also in the number and severity of lawsuits filed," said Ed Towey, spokesperson for the Florida Health Care Association.

A number of multi-facility operators have left the state, Towey told GT. At one point, about 80% of Florida's nursing homes were for-profit. Now, no more than 20% to 30% of beds are owned by publicly traded companies. Beverly Enterprises, for instance, had 60 facilities across the state at its peak. Now they have none.

"Once those nursing homes close, they don't reopen under new ownership," Towey said. "They're gone." In a state with an increasing number of elderly and a decreasing number of nursing home beds, the trend has huge implications for the future.

The flood of litigation is having an effect on health care staff as well. Nursing home medical directors are finding that insurance companies are unwilling to cover them if they work in a nursing home. Consequently, nursing homes are having a difficult time getting medical directors to stay.

Physicians who treat their patients within nursing homes are also becoming scarce as insurance companies tell them not to practice in that setting. The result is more patient care being delivered by physician assistants and advanced registered nurse practitioners, Towey said. As the litigation continues, even low-level staff are being named in lawsuits.