Liability Costs Continue to Rise for Long Term Care Industry

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The cost of liability continues to increase for the long term care profession, according to the 2017 Long Term Care General Liability and Professional Liability Actuarial Analysis by Aon Risk Consulting and the American Health Care Association (AHCA).

The overall loss rate is expected to increase by 6 percent, with claim frequency driving the increase at an expected 2 percent growth rate and claim severity driving growth by 4 percent.

“Consistent with past year’s reports, we are seeing some pretty strong increases year-over-year in the loss rates,” said Christian Coleianne, associate director and actuary from Aon Global Risk Consulting.

“Our 2017 finding is that loss rates are increasing at a 6 percent clip, which is pretty strong growth year-over-year,” Coleianne said.

The findings translate to a 2018 forecasted loss rate per bed of some $2,450, he said. “That means if our operator has a 100-bed facility then we believe they should accrue about $245,000 for liability costs in the coming year, which is pretty big number.”

Also, consistent with prior years’ studies is amount varies significantly by state/jurisdiction.

“The top cost states are West Virginia, Florida and Kentucky and they have much higher per bed loss rate than some other states,” Coleianne said.

In West Virginia, the study found the loss rate stood at $8,380, which translates to $838,000 in liability costs projected in 2018 for a 100-bed facility. That compares to the lowest cost state, Massachusetts, which has a loss rate of just $520, which translates to $52,000 on an annual basis for a 100-bed facility.

One data set that is new to the report this year is a comparison of a facility’s CMS rating and its loss rates, he said.

The Centers for Medicare & Medicaid Services, or CMS, offers a five-star rating system for long term care facilities. The best facilities rate at a five star, he said.

We tried to segment our experience historically by that CMS rating and then took a look at the loss rates, frequency and severity for each group,” he explained. “As the five star rating decreased (toward a one star), we expected to see higher loss rates and the lowest loss rates would be for the five star facilities. But what we found was that one star quality rated facilities did indeed have a higher loss rate but there wasn’t much of a difference for facilities rated two through five stars.”

Coleianne said that one driver of one star quality facilities having higher loss rate was frequency of claims. “They had more claims,” he said. However, the severity was similar for all facilities no matter their rating.

Coleianne added that the data is not clear to point to a one star quality rating facility leading to higher claim frequency, but it’s possible that one star rated organizations are more often targeted by plaintiff attorneys.

Approximately 19,300 individual non-zero claims from long term care facilities were aggregated.

The 28 providers represented in the national study operate approximately 200,011 long term care beds, consisting of skilled nursing facility beds and a number of independent living, assisted living, home health care and rehabilitation beds. They represent approximately 16 percent of the beds in the United States.


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