Professional Liability Costs for Hospitals Continue to Rise

Hospitals and physicians should prepare for increasing liability costs, according to the 2010 Hospital Professional Liability and Physician Liability Benchmark Analysis created by Aon Risk Solutions, the global risk management business of Aon Corporation, in conjunction with the American Society for Healthcare Risk Management.

In its 11th year, the study confirms an emerging change in the liability environment: The frequency of claims against hospitals has entered a growth phase. Combined with continued claim severity growth, this uptick is expected to drive liability costs up at a rate higher than general inflation.

U.S.-based hospitals are expected to face more than 44,000 claims arising from incidents and medical errors occurring in 2009, according to the report, with anticipated costs exceeding $8.6 billion. Claims resulting from incidents in two key hospital risk areas, the obstetrics unit and the emergency department, make up more than a quarter of that expected expense.

Loss rates, which measure the total cost of medical malpractice claims per hospital bed, are expected to grow 5 percent annually. In 2011, hospitals are expected to experience a rate of $3,280, reflecting a $150 increase from 2010's expected rate of $3,130 and a $300 rise from 2009's rate of $2,980.

From 2000 to 2006, tort reforms, patient safety initiatives and sympathetic public attitudes were influential in the reduction of medical malpractice costs. Today, there is less momentum associated with establishing new tort reforms and existing tort reforms face serious legal challenges in several states.

"The uncertainties of healthcare reform and difficult economic times represent significant sources of risk for many hospital systems," says Erik Johnson, healthcare practice leader for Aon Risk Solutions' Actuarial and Analytics Practice and author of the analysis. "While many hospitals have grown accustomed to declining professional liability costs, the underlying claim frequency and severity cost drivers have entered a period of growth. Whether commercially insured or self-insured, hospitals and physicians should prepare for increases to their professional liability costs in the coming years."

Dominic Colaizzo, managing director of Aon Risk Solutions' Health Care Practice adds, "This challenging environment increases the pressure on healthcare providers to seek the most appropriate and cost-effective risk financing programs and to monitor and manage the overall cost of risk per exposure."

Additional key findings:

- Claim severity (indemnity and claim-related expenses) continues to increase at a consistent rate of 4 percent annually.

- Hospital professional liability claim frequency is growing at a rate of 1 percent annually.

- For accidents occurring in 2010, hospitals should expect to incur $204 per birth for liability costs associated with obstetrics claims and $6.30 per visit for emergency department claims.

- Hospitals are employing more physicians and as a result, the healthcare industry may experience a shift in claims costs from physician professional liability to hospital professional liability. From 2005 to 2009, the average number of employed physicians per hospital bed increased 12 percent annually.

The Hospital Professional Liability and Physician Liability Benchmark Analysis has examined trends in frequency, severity and overall loss rates related to hospital and physician professional liability for the past 11 years. The 2010 analysis includes 119 hospital systems and more than 1,800 facilities, representing 23 percent of the total U.S. hospital industry segment. Findings are subject to the conditions and limitations stated in the report.

Aon Risk Solutions' Hospital Professional Liability Benchmark Calculator: Risk managers interested in calculating their facility's loss rate may log on to www.aon.com/hplreport. The online rater calculates 2011 prospective hospital professional liability losses based on exposures inputted into the calculator.