Leslie Kaderavek
Vice President, TPA Services
The health care industry plays a crucial role in providing medical services and ensuring the well-being of individuals across the country. However, health care delivery comes with its own set of challenges, including the risk of medical malpractice. With the rise of nuclear verdicts and social inflation in the insurance industry it is important for health care organizations to understand how they can manage the risks of litigation.
The implications of nuclear verdicts and social inflation on the health care industry are far-reaching and it is important for health care providers to take steps to proactively mitigate this risk.
The monetary impact of nuclear verdicts and social inflation on health care
Nuclear verdicts, generally defined as jury awards exceeding $10 million, have become increasingly common and substantial in recent years and have significant implications for the health care industry.
Social inflation further compounds this issue, where societal attitudes and changes in the legal environment contribute to large claim sizes.
These two factors can pose serious risks to the financial stability of health care institutions. When health care providers are subject to large jury awards, it can impact their ability to deliver quality care and invest in necessary resources.
The financial impact resulting from these verdicts can also affect the development of new medical technologies, hinder the recruitment and retention of skilled health care professionals, and limit the availability of essential services. Furthermore, as nuclear verdicts become more prevalent, medical malpractice claims escalate and insurance companies are forced to pay larger sums, leading to higher premiums for health care providers.
Significant trends, insights, and statistics
Statistics show that, over the years, health care providers, legal professionals, and insurers have faced increased challenges. Let's investigate these trends to understand their implications.
Rising costs: According to the American Medical Association, the average medical malpractice payout increased by 50% between 2009 and 2019.
Frequency of large verdicts: A study by the U.S. Chamber Institute for Legal Reform found that the number of verdicts exceeding $20 million in medical malpractice cases has more than tripled in the past decade.
Litigation funding growth: Litigation funding, where third-party investors finance lawsuits in exchange for a portion of the settlement, has grown into a $39 billion industry as of 2019.
Advertising: Plaintiff attorneys have spent over $6.8 billion on approximately 77 million legal advertisements since 2017.
Impact on insurance premiums: Despite nine consecutive years of underwriting losses in the medical professional liability industry, the rising rate trend between 2022 and 2023 has slightly decreased, according to the Annual Rate Survey. The average overall rate change for 2023 was around 1.6%, slightly over half of the 3% reported in 2022.
What would tort reform mean for the health care sector?
Many approaches have been proposed to address the issues of nuclear verdicts and social inflation. Key reforms include:
Caps on damages: Implementing caps on non-economic damages, such as pain and suffering, can help limit the size of jury awards.
Regulation of litigation funding: Increased transparency and regulation of litigation funding can prevent frivolous lawsuits.
Pretrial screening panels: Establishing panels to review the merits of medical malpractice claims before they proceed to trial can reduce the burden on the legal system.
Alternative dispute resolution: Encouraging mediation and arbitration can help resolve disputes more efficiently and cost-effectively.
You have some essential facts; what's next?
Now that you have read about the impact of nuclear verdicts and social inflation on health care and insurance costs, you may be thinking: “How can I protect my organization from these verdicts?”
To understand some of the solutions and strategies you can implement within your organization to manage these risks, we look to our annual Business Insurance Trends report, which identifies nuclear verdicts and social inflation as a top concern. Solutions and strategies to address this top concern in health care include:
Effective communication and collaboration: Maintain open communication and collaboration with insurers and brokers to optimize insurance coverage and develop strategies for resolution. Early intervention tactics, such as mediation and settlement negotiations, can help resolve claims quickly and prevent costly legal battles.
Thorough record-keeping: Maintain comprehensive documentation of business activities, transactions, and communications. This serves as valuable evidence in the event of litigation and helps defend against claims.
Vigilant monitoring and response: Stay vigilant and monitor for potential litigation threats, such as increased regulatory scrutiny or competitor actions. Being proactive in identifying and addressing potential risks can help health care organizations mitigate the impact of nuclear verdicts and social inflation.
Collaborate with insurance providers: Collaborate with insurance providers such as Marsh McLennan Agency to create customized risk management solutions and gain valuable insights into industry trends. By combining these strategies, health care organizations can effectively enhance patient and provider safety while mitigating the risk of malpractice claims and nuclear verdicts.
Partner with a broker that specializes in both risk management and the health care industry
This is where Marsh McLennan Agency can help make a difference. Our risk management and health care specialists have proprietary solutions and resources to help manage the risk of litigation and excessive jury verdicts, including:
- Comprehensive compliance programs
- Communication and collaboration with carriers
- Early intervention tactics and resolution of incidents
- Regular process reviews to identify areas of improvement
- Risk and claims management
- Risk management information system
- Third-party administrators
- Vigilant monitoring and response to potential risks
Contact a Marsh McLennan Agency health care specialist today and be connected to a vast network of risk management professionals. We are here to partner with you to help keep your organization’s future financially secure.
