“There's a number of headwinds that are still facing the MPL segment,” AM Best Director Sharon Marks said during “AM Best's Briefing - State of the U.S. Medical Professional Liability Sector 2022.” The briefing provided an opportunity to discuss the May 4 Best's Market Segment Report, Difficult Environment for U.S. Medical Professional Liability. AM Best maintains a negative outlook for the segment for the upcoming year.
“The industry's facing these while still dealing with the lingering impacts of the pandemic,” Marks said.
Marks was joined in the briefing by AM Best Associate Director David Blades, MPL Association President and Chief Executive Officer Brian Atchinson, ProAssurance Corp. President and CEO Edward Rand Jr., and WTW Consulting Actuary Jim Hurley.
In the report, AM Best says the segment's profitability improved due to the favorable performance of the capital markets. Underwriting losses continued, but moderated in 2021. AM Best believes the overall MPL industry's 2021 calendar year booked net loss and loss adjustment expense reserves will ultimately prove to be redundant.
Rand said it's not all “doom and gloom,” and Blades agreed, saying companies are aware of the nuances of the issues.
“They are very well prepared and capable of homing in and taking care of what needs to be done to get those improvements and see things in a more positive way,” Blades said. “That is something we will be focused on discussing with our rated MPL companies.”
The headwinds mentioned in the report include the worsening claims severity spurred on by social inflation and the erosion of tort reform.
On the issue of tort reform, the report references recent legislative changes to California's long-standing Medical Injury Compensation Reform Act, which have prompted insurers and reinsurers to prepare for possible increases in claim costs and explore additional reinsurance options. The changes include an adjustment of the cap on noneconomic damages, nondeath cases and wrongful death cases, up to as much as $1 million over the next several years.
Panelists discussed an expected spike in the number of COVID-19-related claims, delayed litigation and the impact on open claims, cybersecurity and telemedicine.
When the pandemic started in March 2020, the MPL industry was prepared to face a deluge of claims that never materialized, according to the report. Analysts expect the number of claims may grow as individual states reach their statute of limitations.
Atchinson said when claims start piling up, they will be costly, especially as they remain open longer, something addressed by both Blades and Marks.
“If we are looking at an extended inflationary period, I think there are questions about whether or not the segment's pricing and reserving can keep pace,” Marks said. “The reserve piece would be particularly concerning for MPL companies that have seen their claim inventories rise as a result of the court backlogs. That greater inventory of claims, and the longer they are open, puts them at a higher risk of being impacted by inflation—both economic and social.”
Blades pointed out that the longer a case is open, the more an insurance company pays for a claim—even if the court rules in their favor. He used accusations of negligence as an example.
“If we get back to that and no negligence is found, you still have to deal with this: How long these cases are staying open, and the impact that has on expenses,” Blades said. “That's something that we continue to look at when we're looking at loss details for the companies for our rated insurers.”
Cases are open longer because courts were closed during the pandemic. As courts reopen, some issues that began to emerge before 2020 are reemerging, Hurley said. This includes increasing claims severity.
“There clearly have been several attention-getting verdicts,” Hurley said, adding there is less attention being paid to medicine and negligence and more to compensating injured parties, which impacts settlement.
Continuously open claims can cause inflationary problems for MPL companies, both economic and social, Marks said.
The U.S. Centers for Medicare and Medicaid Services reported an approximate 63% increase in telehealth in 2021, according to the report. The global telemedicine market is expected to grow from $83 billion in 2021 to approximately $319 billion in 2025.
Expectations that telehealth would result in greater risks for malpractice and more liability claims, owing to the nature of remote or virtual consultations, have so far not materialized or been supported by meaningful data.
Atchinson said thus far, there has been no consistent approaches from federal and state authorities on telemedicine. He said the federal government has done nothing about licensure, and state governments can't take action.
“If you're a physician in Texas treating a patient you don't realize is in Cook County, Illinois, there's a good chance that company hasn't reserved for the potential losses that a Cook County jury could find with respect to that care,” Atchinson said. “As it stands now, you still have to be licensed in the state where the patient is located, and that's not always clear. Those who deliver care are doing a tremendous amount of work to try to best serve the patients' interest. In those instances when the care ultimately doesn't satisfy the hopes and expectations of the patient and their family, and there are subsequent disagreements, it's important to have some clarity about the parameters of what were reasonable expectations.”
Rand worries about the breakdown of the relationship between the health care provider and the patient, particularly with many people seeking help at an urgent care facility rather than a personal doctor.
He said the industry also will have to beware the basis of the claims, whether they have to do with the actual care or the platform, citing freezing or the quality of the audio during a telehealth visit.
Cyberattacks on electronic health records and other systems pose a risk to patient privacy because hackers can access protected health information, as well as sensitive information such as financial information and personal identifiable information, according to the report.
HealthITSecurity's analysis of data from the Health and Human Services Office of Civil Rights indicated that 30 data breaches were reported in March 2022, impacting 1.5 million people, according to the report. Additionally, HIPAA Journal reported that ransomware attacks in Florida, New York, Arizona, and Louisiana have resulted in the exposure and potential theft of the PHI of more than 49,000, the report said.
Blades said cyberattacks are happening across the board, not just in MPL.
“It's going to be very important for companies to stay ahead of evolving data protection standards,” Blades said. “They're going to need to stay on top of that to make sure that they're doing everything that's required from a regulatory standpoint. We engage our companies when we have definite concerns over the exposures that are present for MPL companies relative to cyberrisks and cybersecurity.”
“They need someone who has urgency to their systems being down,” Rand said. “A hospital system can't afford to not have their system online for a minute or an hour, so they are a good ripe target for those ransomware actors.”
In its report, AM Best says market conditions are firming somewhat, with the expectations that rate increases that began in 2019 will gain momentum.
“However, parts of the physician MPL market remain quite competitive,” according to the report. “AM Best believes operating and underwriting results are likely to remain pressured through the end of 2022, despite much needed rate actions improving top-line premium revenue.”
According to the report, that view “is rooted in the challenges wrought by worsening claims severity, depressed demand, and the significant available capacity in the physician segment, which, along with persistent inflation and rising interest rates, are likely to limit any improvement in underwriting results, in the somewhat hardening market. The MPL segment could therefore be facing another year of operating losses despite improvement in top-line results. The growth in nuclear verdicts and erosion of tort reform in states across the country also bear watching.”