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Prepared Witness Testimony The House Committee on Energy and Commerce
The Medical Liability Insurance Crisis: A Review of the Situation in Pennsylvania
Subcommittee on Oversight and Investigations
Mr. Alan G. Rosenbloom
Chairman Greenwood and members of the subcommittee, thank you for the opportunity to testify today.My name is Alan Rosenbloom and I serve as President and Chief Executive Officer of the Pennsylvania Health Care Association and its sister organization, the Center for Assisted Living Management.The association represents 325 long term care and senior service providers across the Commonwealth of Pennsylvania.Our members include publicly traded companies, closely held companies, non-profit facilities and county facilities, and their services run the gamut from integrated retirement communities and multi-level care campuses, to freestanding nursing homes and assisted living/personal care homes to ancillary care and home care enterprises. We especially appreciate the opportunity to discuss the effects of the medical liability insurance crisis on nursing homes and other long term care providers in Pennsylvania.For too long, state and federal officials have not seen long term care providers as part of the health care delivery system.The challenges facing long term care providers, however, mirror and, in some areas are more acute than, than those facing physicians and hospitals.Given that Pennsylvania is the second-oldest state in the nation, as defined by the percentage of our population age 65 or older, and given that the fastest-growing age group in the Commonwealth is the 85+ cohort, it is both necessary and appropriate that our federal and state officials appreciate that key legislative and policy changes must consider long term care providers if they hope to craft a workable health care system for today's seniors and tomorrow's aging Baby Boom. Put simply, liability insurance for long term care providers in Pennsylvania increasingly is unavailable and unaffordable, and now poses a major threat to access to care.In 1999, seven carriers offered professional liability insurance to long term care providers in the state.By 2001, the number had shrunk to four, which dropped to three in 2002.For all practical purposes, two or fewer carriers now appear willing to write new long term care business here. Not surprisingly, insurance and related costs have skyrocketed.In this context, it should be understood that nursing homes in Pennsylvania must maintain primary insurance coverage and participate in the CAT Fund/MCare Fund[1] as a condition of licensure, while personal care homes/assisted living residences and other long term care providers are not required by licensure to do so.As a result, I will address the situation confronting nursing homes separately, unless otherwise noted.The subcommittee should appreciate, however, that the basic trends identified affect the entire continuum of long term care and senior services. In 2001, rates for primary
coverage increased by as much as 87%.In each year since, primary premiums have increased by as
much as 500% for both nursing homes and assisted living residences.In addition, the CAT Fund surcharges and MCare Fund assessments imposed
on nursing homes have skyrocketed as well.In 2002, for example, CAT Fund surcharges for nursing homes increased by
as much as 121% for nursing homes throughout Pennsylvania.MCare surcharges for 2003 increased at least 43% for most nursing homes.I offer a few specific examples to illustrate these trends:
Ironically, loss experience among long term care providers in Pennsylvania does not justify such precipitous increases in insurance costs.In 2000, for example, the average non-zero claim against nursing homes was $61,000, well below the national average of $246,000 and the $500,000 threshold for CAT Fund attachment.Indeed, from its inception in 1976 until July 2001, the CAT Fund paid only $2,670,000 in nursing facility claims, yet collected $41,449,325 in surcharges from nursing homes.Nursing homes paid surcharges of more than 15 times the amount that the CAT Fund paid on their behalf. Clearly, factors other than Pennsylvania-specific loss experience are causing precipitous increases in professional liability insurance costs.Nursing home loss experience in other states, general market conditions affecting the insurance industry and generalized concern that the "out-of-control" malpractice environment for physicians and hospitals in Pennsylvania are the true drivers of our costs.This reality underscores the need for reform that encompasses the entire health care delivery system, including long term care providers, as well as the need for both federal and state reforms, if we are to stabilize the insurance marketplace. While we applaud the various tort reform initiatives adopted by the Pennsylvania General Assembly in the past 18 months, we reluctantly must conclude that those initiatives have not been sufficient.While we are heartened by the Rendell Administration's urgent focus on the malpractice crisis, we are dismayed that its approach to date ignores the long term care component of the Commonwealth's health care delivery system.We do appreciate, however, that H.R. 5, which Congressman Greenwood introduced last week, extends to the entire health care delivery system, whether health care services are provided in hospitals, physicians offices, long term care settings or home-and-community-based care settings. Absent prompt and meaningful reform, it is certain that frail, vulnerable seniors in Pennsylvania will face access to care difficulties.In fact, we already have begun to see such difficulties manifest.In late December of 2002, Temple University Health System announced the closure of the Temple Continuing Care Center located in North Philadelphia.In addition to this 538-bed facility, Temple closed two other nursing homes in 2002, the 180-bed Elmira Jeffries Nursing Home and the 148-bed Northwood Nursing and Convalescent Center.According to press reports, liability insurance costs were cited as a significant contributing factor in all three closures. As a result of these closures, some of Philadelphia's most frail and vulnerable citizens were relocated from facility to facility, with some of the Temple Continuing Care Center's 450 residents transferred as far away as Hazleton, Pennsylvania.The added stress of such a long move undoubtedly exacerbated the "transfer trauma" nursing homes residents typically suffer during any relocation process.Given the demographics of the North Philadelphia area in which the Temple Continuing Care Center was located, it seems unlikely that many family members of residents will have easy access to cars and it is certain that travel from North Philadelphia to Hazleton without a car is difficult at best and impossible at worst.Consequently, closures of this kind may well cut residents off from family and friends forever. A more prevalent and insidious threat to quality care underscores just how crucial it is that we address the malpractice liability crisis systemically.Due to growing liability costs, fewer physicians are available or willing to serve as medical directors or attending physicians in nursing homes.Physicians who do undertake these roles, moreover, face increasing difficulties in finding specialists for referrals of nursing home residents. Unless we take action to stem the rising liability tide, closures and relocations will become all too routine for the more than 135,000 frail, elderly Pennsylvanians who rely on nursing homes and personal care homes to support their housing, social and health care needs.Unless we take action, our seniors increasingly will not have access to the primary care physicians and specialists they need.Unless we take action, the roughly 700 nursing facilities and 1800 personal care homes in Pennsylvania will face serious financial difficulties, threatening the $2.2 billion they pay in salaries to 165,000 employees and the $30 million they pay in local property taxes each year. Unless we take action, taxpayers will bear the brunt of escalating liability costs.In the Commonwealth, the Medical Assistance (Medicaid) program pays for roughly 70% of nursing home days.Since liability costs are apportioned to the Medical Assistance program and since the state and federal governments fund Medicaid jointly, the taxpayers ultimately will bear the burden of these costs. It is noteworthy that the Commonwealth already has acknowledged this problem, at least with respect to county nursing homes.Our state and county governments have capitalized a captive insurance company to offer more affordable liability insurance to the Commonwealth's 40 or so county-owned nursing homes.While somewhat beyond the scope of today's hearing, this fact both reflects the severity of the problem and counsels in favor of affording similar relief to non-governmental long term care providers. It also is noteworthy that, in states that have not pursued liability reforms encompassing the entire health care delivery system, the result has been catastrophic not only with respect to claims and access, but also with respect to Medicaid costs.In at least one such state, fully 30% of every Medicaid dollar paid to nursing homes and assisted living residences funds insurance, lawyers, settlements or awards rather than patient care and services. Frankly, the professional liability situation for long term care providers in Pennsylvania is bleak.We are on a course that will deprive frail and vulnerable seniors access to quality care and services, prevent providers from devoting optimal resources to patient care and compel government to devote a growing percentage of scarce Medicaid dollars to liability rather than patients.We must alter that course quickly and effectively for the good of the Commonwealth and the nation. *
* * * * * * * Thank you for the opportunity to appear to day.I am happy to entertain questions. [1] As the Subcommittee presumably is aware, from 1976 until 2002, Pennsylvania maintained a Catastrophe Loss Fund, or CAT Fund, which afforded an initial layer of excess coverage to physicians, hospitals, nursing homes and a few other provider types.The CAT Fund was administered by the state but funded by surcharges on providers.In 2002, Pennsylvania replaced the CAT Fund with the Mcare Fund, as part of a broader plan to eliminate this intermediate government-administered insurance layer altogether.During the transition, however, the MCare Fund continues to assess providers in a manner substantially similar to the CAT Fund.
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