Liability claims level off, but costs still up

A recent analysis by the Aon Corp. of hospital and physician professional liability information shows the number of medical liability claims starting to level off, but settlement costs are still rising.

According to the 2004 Hospital Professional Liability and Physician Liability Benchmark Analysis, claims costs are increasing at about 8%, the lowest level in the study's five-year history.

The benchmark study factors in the frequency of claims and the severity of settlements when compiling the trend report. After reviewing data from the past 10 years, Aon found 2004 claims to be increasing 0.5% and the severity of claims increasing 7.5%.

Hospitals are "getting the same number of claims, but of the claims they are getting, the settlements are higher," said Greg Larcher, assistant director and actuary for Aon.

The benchmark study database includes 152,000 hospital bed equivalents and 10,000 physician equivalents. The 2004 analysis looked at more than 40,000 hospital liability claims and close to 5,000 physician liability claims.

According to Aon, the last three benchmark studies showed a steady increase of 10%. So while the projected 8% trend is an overall decrease, it is still cause for concern.

"The average size of loss is growing, and that contributes to the loss growth more than the number of claims," Larcher said. "It's good news and it's bad news. The good news is that [the average size of loss is] not growing as fast as it was in the past, but the bad news is it's still growing about 8%, which is above inflation."

While the slowing down in rate increases is positive, American Medical Association President John C. Nelson, MD, MPH, said the Aon study and other recent reports show that rates are still increasing and that they are increasing at record-high levels.

The data underscore the need for a change in a broken liability system, he said.

Caps on noneconomic damage awards -- a key component to the tort reform that is the AMA's No. 1 legislative priority -- will help stabilize the rates, Dr. Nelson said. But he said other changes are also needed so that the legal climate is fair to doctors, patients and attorneys.

"We've got to fix the system," Dr. Nelson said.