healthcare industry issues and trends and the impact on the medical malpractice sector

By

Tom Wander, BBA '76, MBA '78

Chief Executive Officer

BETA Healthcare Group

April 24, 2009

HEALTHCARE COSTS CONTINUE UPWARD SPIRAL:

A RECESSION RESISTANT INDUSTRY

• $2.5 trillion in 2009 or $8,160 per resident up 5.5% over 2008 when the increase was 6.1%

• 17.6% of GDP, up 1% point: Largest one-year increase since tracking began in 1960

• While expected to slow over the next 3-5 years, percentage of GDP may increase as economy slows / shrinks

• By 2017, $4.3 trillion or 20% of GDP to $13,100 per resident

• Healthcare spending has risen 24% faster than GDP since 1970

• 16 million or 12.5% of the American workforce employed directly in healthcare, up from 1% 50 years ago.

• Healthcare costs are more than four times amount spent on national defense.

U.S SPENDS MORE PER CAPITA ON HEALTHCARE THAN ANY OTHER COUNTRY

AND HAS ONE OF THE FASTEST SPENDING GROWTH RATES

But the U.S. does not achieve better outcomes on many important health measures.

So

urc

e:

U.S

. B

ure

au

of

Lab

or

GDP% IS 50% TO 100% MORE THAN OTHER DEVELOPED COUNTRIES

So

urc

e:

U.S

. B

ure

au

of

Lab

or

IMPACT OF RECESSION

• 30% decline in elective procedures

• Continued cuts in Medicaid funding

• Can’t access credit markets to finance

construction, remodeling, equipment purchases

and working capital.

• Higher percentage of uninsured patients and

lower reimbursements

• 129 medical schools enrolled 76,000 medical students and

graduated 16,167 doctors in 2008, up 8.4% and 3.1% from

2003, respectively

• Females represented 48% of the enrolled students and 49% of

graduates in 2008. In 2003 females represented 44% of all

graduates

• Becoming a doctor:

4 years undergraduate

4 years of medical school

3 to 8 years internship and residency

Start earning at age 29 to 34 but with an average debt of

$140,000

BECOMING A PHYSICIAN: LONG AND EXPENSIVE

• Less likely to pursue family practice or primary care specialties

• Cost / Debt reduces diversity of physician work force

• Encourages moonlighting fatigue medical errors

• Shortage of MDs in rural or underserved areas, and surgeon shortage in Midwest and Northeast

• Compensation is not attractive compared to other opportunities

BECOMING A PHYSICIAN: LONG AND EXPENSIVE

Median Compensation For Physicians, 2005

Specialty < 2yrs > 3yrs

Anesthesiology $259,948 $321,686

Surgery: General $228,839 $282,504

Obstetrics / gynecology $203,270 $247,348

Psychiatry: General $173,922 $180,000

Internal Medicine: General $141,912 $166,420

Pediatrics: General $132,953 $161,331

Family practice (Without obstetrics) $137,119 $156,010

Source: Medical Group Management Association, Physician Compensation Report, 2005

END OF LIFE ISSUES:

MORAL AND ETHICAL CONSIDERATIONS

• 10% of people consume 63% of healthcare

services

• 21% of all healthcare costs for 1% of the population

• 30% of Medicare dollars are spent on 5% of

patients who die in a given year.

• 33% of these dollars are consumed in the patients’

last 30 days of life.

• Aging population

• Registered Nurse shortage ($40 to $48 per hour

in California for first year RNs)

• Overweight / obese people account for over 9%

(in 1988) of all the healthcare spending

OTHER FACTORS IMPACTING ACCESS,

QUALITY AND/OR COST

Obesity Trends* Among U.S. Adults

1985

(*BMI ≥30, or ~ 30 lbs. overweight for 5’ 4” person)

No Data <10% 10%–14% 15%–19% 20%–24% 25%–29% ≥30%


No Data <10% 10%–14% 15%–19% 20%–24% 25%–29% ≥30%


1986


No Data <10% 10%–14% 15%–19% 20%–24% 25%–29% ≥30%


1987


No Data <10% 10%–14% 15%–19% 20%–24% 25%–29% ≥30%


1988


No Data <10% 10%–14% 15%–19% 20%–24% 25%–29% ≥30%


1989


No Data <10% 10%–14% 15%–19% 20%–24% 25%–29% ≥30%


1990


No Data <10% 10%–14% 15%–19% 20%–24% 25%–29% ≥30%


1991


No Data <10% 10%–14% 15%–19% 20%–24% 25%–29% ≥30%


1992


No Data <10% 10%–14% 15%–19% 20%–24% 25%–29% ≥30%


1993


No Data <10% 10%–14% 15%–19% 20%–24% 25%–29% ≥30%


1994


No Data <10% 10%–14% 15%–19% 20%–24% 25%–29% ≥30%


1995


No Data <10% 10%–14% 15%–19% 20%–24% 25%–29% ≥30%


1996


No Data <10% 10%–14% 15%–19% 20%–24% 25%–29% ≥30%


1997


No Data <10% 10%–14% 15%–19% 20%–24% 25%–29% ≥30%


1998


No Data <10% 10%–14% 15%–19% 20%–24% 25%–29% ≥30%


1999


No Data <10% 10%–14% 15%–19% 20%–24% 25%–29% ≥30%


2000


No Data <10% 10%–14% 15%–19% 20%–24% 25%–29% ≥30%


2001


No Data <10% 10%–14% 15%–19% 20%–24% 25%–29% ≥30%


2002


No Data <10% 10%–14% 15%–19% 20%–24% 25%–29% ≥30%


2003



2004

No Data <10% 10%–14% 15%–19% 20%–24% 25%–29% ≥30%


No Data <10% 10%–14% 15%–19% 20%–24% 25%–29% ≥30%


2005


No Data <10% 10%–14% 15%–19% 20%–24% 25%–29% ≥30%


2006

REVOLUTION OR REFORMATION

• Continued expansion of “never events” and lost revenues

• Expansion of electronic medical records: Efficiency and

patient safety benefits

• Error disclaimer and apologies: Impact on claims

debatable

• Reporting of quality data Link results with

reimbursements

• Surgical checklists

MED MAL SECTOR:FULLY RECOVERED

AND

PROFITABLE

98% OF MEDMAL COMPANIES RATED “SECURE”

Source: AM Best

36

$13.0 $13.1$14.0

$15.2

$16.3

$18.2

$19.9

$21.4

$22.5 $22.3

$0.0

$5.0

$10.0

$15.0

$20.0

$25.0

Billio

ns

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Calendar Year

ASSETS DROPPED DUE TO IMPAIRMENTS

Source: Towers Perrin

37

$2.5

$2.8

$3.4

$4.4$4.7

$5.1$5.3 $5.2

$5.0

$4.7

$0.0

$1.0

$2.0

$3.0

$4.0

$5.0

$6.0

Billions

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Calendar Year

PREMUIMS DOWN 11% FROM PEAK IN 2005

Dir

ect

Pre

miu

ms W

ritt

en


38

$4.1$4.0

$3.7

$3.4

$3.7

$4.3

$4.9

$5.7

$6.7$6.8

$0.0

$1.0

$2.0

$3.0

$4.0

$5.0

$6.0

$7.0

Billions

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

SURPLUS HAS DOUBLED IN THE PAST SIX YEARS


39

0.50

0.59

0.76

0.94 0.94 0.94

0.89

0.76

0.610.56

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

1.00

Rat

io o

f N

et P

rem

ium

Wri

tten

to

Su

rplu

s

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

MED MAL COMPANIES HAVE DELEVERAGED 40% SINCE 2004


2004

2008

INVESTMENTS HAVE SHIFTED TO HIGHER QUALITY

41

91%

112%

98%

120%

111%

127% 126%

104% 104%

89% 93%

69%

82%

70% 71% 71%

61%

76%

54%

83%

0%

20%

40%

60%

80%

100%

120%

140%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Calendar Year

Net Loss & LAE Ratios

Calendar Year Coverage Year at 12/2008

CLAIM RESULTS HAVE BEEN OUTSTANDING


42

6%

5%

3%

2%

0% 0%1%

2%

6%

5%

0%

2%

4%

6%

8%

10%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Calendar Year

DIVIDENDS HAVE RETURNED

Div

ide

nd

s a

s a

Pe

rce

nt

of

Pre

miu

ms


43

119%

125%

136%

145%

122%

110%

99%

90%85%

77%

0%

20%

40%

60%

80%

100%

120%

140%

160%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Combined Ratio (Including Policyholder Dividends)

FOUR YEARS OF PROFITABLE UNDERWRITING RESULTS


Data per AM Best’s Aggregates and Averages; 2008 and 2009 are estimated per AM Best’s Review Preview Article, February 2009

BROADER MED MAL RESULTS ARE SIMILAR

His

tori

cal M

PL

Co

mb

ine

d R

ati

os

45

32%31%

28%

18%

21%

18%16%

25%

22%

9%

0%

10%

20%

30%

40%

50%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Calendar Year

Inve

stm

en

t In

co

me

as

a

Pe

rce

nt

of

Pre

miu

ms

IMPAIRED ASSETS AND RELATED LOSSES TOOK A TOLL IN 2008


46

-$427

-$277

-$91

$269

$218

$119

-$150

-$438

-$783

-$1,096

-$1,200

-$1,000

-$800

-$600

-$400

-$200

$0

$200

$400

(Millions)

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

RESERVE RELEASES HAVE DRIVEN RESULTSO

ne

Ye

ar

Lo

ss

Re

se

rve

De

ve

lop

me

nt


47

21%

13%

4%

-9%

-7%

-3%

4%

10%

19%

28%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

Rati

o o

f R

eserv

e D

evelo

pm

en

t to

Net

Earn

ed

Pre

miu

m

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

RESERVE REDUNDANCIES: ANYMORE LEFT?

So

urc

e:

To

wers

Perr

in

CLAIMS FREQUENCY: DOWN SUBSTANTIALY

So

urc

e: M

illim

an

’s r

esu

lts o

f se

ve

n M

PL

sp

ecia

lty w

rite

rs (

Octo

be

r 2

00

8)

Professor Dan Anderson

Congratulations on 39 years of outstanding service! And, thanks for all you have done for all your students.

Educator

Researcher

Mentor

Friend

healthcare industry issues and trends and the impact on the medical malpractice sector

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