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Facing the Liability Insurance Nightmare

October 1, 2000
by Douglas J. Edwards
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By Douglas j. Edwards   Imagine receiving your car in-
surance bill only to discover that
your rate is 600 to 700% higher
than the last time your premium
was renewed. Is this a bad
dream? you might ask yourself. For nursing home operators in Ohio and other states with high resident populations, the nightmare is all too real.
"Some of our smaller operators that have never been sued at all were facing 600% rate increases and pinching pennies," says Robert Baker, executive director of the Ohio Academy of Nursing Homes, which represents independently owned and operated facilities.
Baker says lawyers' aggressive solicitation for new cases is behind the massive rate increases: "[I]f a personal injury attorney is able to keep his/her case intact in front of a jury, the average award against a nursing home in the state of Ohio is approximately $275,000." Ohio ranks third (California and Texas are first and second, respectively) among states in terms of its nursing facility beds per 1,000 elderly, according to the 1999 American Health Care Association Facts and Trends: The Nursing Facility Sourcebook.
Baker also believes that personal injury attorneys energized by battles with the tobacco industry are now targeting the long-term care field. This is resulting in a landslide of suits against homes and their insurance companies in states with high nursing home populations, particularly in Florida, where Tampa-based plaintiffs' attorney James Wilkes has filed hundreds of such suits. Says Baker, "If you go down to Florida and you sit in a hotel room, you can't watch television for more than 30 minutes without seeing a personal injury attorney saying, 'If your Aunt Abby has fallen down or if you think that your family member has been wronged, give us a call and we'll fight for you.'" Similar commercials are now airing in Ohio.
As a result of this litigious climate, an Ohio facility with no previous losses (e.g., no wrongful death suits) and no major state regulation violations that paid about $50 to $100 per bed for general and professional liability insurance a year ago can now expect to pay $260 to $350 per bed, according to Peter Bern, an insurance agent with Cleveland-based G.F. Hoch, Co., which focuses on the long-term care field. The rates are even higher for facilities that have been sued or have performed poorly in state surveys; these facilities are now facing premiums of $1,000 to $2,500 per bed.
"This liability crisis is perhaps the straw that could break many of our independent operators' backs," explains Baker. "The rate increases can eradicate  

all the profit involved in the operation of a nursing facility."
While nursing homes suffer in Ohio, so do the insurance companies. Bern says that many firms have left the business because their ratings and financial stability have suffered as a result of insuring nursing homes: "A lot of insurance companies have lost a lot of money by being in the [nursing home insurance] business."
To help its facilities deal with rising insurance rates, the Academy part-nered with Cincinnati-based insurance firm Neace Lukens and drafted The Alliance Program, which offers facilities premium rates locked at prices that will not change until November 1, 2002. Work on The Alliance Program actually began two years ago, but when rates began to skyrocket in November of 1999, Neace Lukens fully implemented the project.
"When this program was presented to our members, it was accepted with open arms," says Baker, and considering the rates The Alliance Program offers, it's no surprise. According to Neace Lukens President Joe Lukens, a 100-bed nursing home with average risk factors that paid $10,000 for insurance 6 months ago now pays about $20,000 through The Alliance Program. Outside the program the same facility faces premium rates of about $80,000.
Lukens says his firm's strict review process allows the company to offer such low rates to facilities. Before the firm insures a facility, Neace Lukens' risk management division-composed of RNs, licensed nursing home operators and risk management experts-spends a day and a half inspecting the nursing home and verifying that it meets the program's standards. Factors that Neace Lukens takes into account when deciding whether to insure the home and determining the rate to charge the facility include:

'the facility's state survey results
'whether the facility has risk management policies and procedures in effect
'the facility's skin care, wound and fall management policies
'the facility's elopement rate
'the facility's record on abuse, neglect, weight loss and dehydration
'the facility's loss experience in the past

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