Mounting LTC Liability Costs Sending Some States’ Providers into Crisis Mode

Liability costs for long-term care providers are expected to increase by 5%, with an estimated national loss rate at $2,030 per occupied bed in 2015, a new study shows. But some will feel the heat more than others. 

The analysis, released Thursday by the American Health Care Association (AHCA) and Aon Global Risk Consulting, provides estimates of loss rates, or the amount per occupied bed required to defend, settle or litigate claims in a given year.

It includes nearly 14,000 claims from long-term care facilities, and more than 34 providers, representing 17% of the beds in the U.S., and six of the 10 largest operators in the country.


Together, these providers operate roughly 230,000 long-term care beds, consisting of skilled nursing facility beds, and a number of independent living, assisted living, home health care and rehabilitation beds. 

While the 5% increase in liability costs for these long-term care providers is significant, it isn’t much different from what the industry has experienced in years past. In fact, last year there was also a 5% increase year over year. However, what’s driving the increase does seem to be changing, says Chris Coleianne, associate director and actuary of Aon and co-author of the analysis.

“It’s not a big change from years past as far as the rate of increase year over year,” Coleianne says. “If anything, what’s changed is that the [claim] frequency increases have been stronger than in the past. If we’re looking at the drivers, frequency seems to be accelerating relative to prior years.”


Claim frequency is the number of claims per 100 occupied beds, while indemnity claim frequency is the number of claims that resolve with a payment to the claimant per 100 occupied beds. Claim severity is the average size of claims, with claims limited to $1 million per occurrence.

“Overall, we can say that frequency is the main driver, but not by much. Frequency is increasing by 3% annually, but severity is also an increasing trend at 2%,” Coleianne says.

States ‘In Crisis’

These liability costs are felt most in Kentucky, where projected loss rates sit at a staggering $9,220 per occupied bed, more than four times the national estimated average.

In other words, for a provider in Kentucky with 100 occupied beds, this implies an annual liability cost of $922,000.

“I think where folks are feeling pain there are efforts to try to change things legislatively,” Coleianne says. “[But] it’s a much longer road to any kind of legislative solution in Kentucky.” 

There, the state constitution prohibits limits on non-economic damages and there are no statutes concerning qualification of expert witnesses, certificates of merit, pre-trial alternative dispute resolution or limits on attorney’s fees. Kentucky has the highest average claim severity among the 17 states in the survey.

In addition, West Virginia has the second-highest loss rate at $6,950 per occupied bed — or a $695,000 annual liability for communities with 100 beds. 

Although West Virginia has a limit on non-economic damages of $250,000 per claimant, it has not been clear whether this limit applies to long-term care providers, the study suggests. In a 2011 trial involving a long-term care provider, a jury awarded $91.5 million, of which $80 million were non-economic damages. 

But the state legislature extended the protections of the cap to long-term care providers in 2013, and this appears to be reducing claims frequency.

“There are states where the liability environment is really in crisis,” Coleianne says. “I expect that if things don’t change, there may be continued challenges for the industry to operate in those jurisdictions.”

Aside from legislative initiatives, long-term care providers can try to decrease their liability costs through improving and maintaining the quality of care they offer, he says.

“The best way to avoid a liability or allegation is to prevent the injuries in the first place. The industry’s been focused on that,” he says. 

Not Everything’s Big In Texas 

On the other hand, Texas is the lowest-cost state at $320 per occupied bed. 

The Lone Star state has experienced dramatic loss rate reductions following constitutionally enacted tort reform in 2003.

It has a $250,000 limit on non-economic damages per claimant and rules concerning expert witnesses. Attorney’s fees are not limited and there are requirements to provide special wording in arbitration agreements in order for the agreements to be valid.

“Texas is a favorable place to operate with respect to liability,” Coleianne says. 

Overall, however, the cost of liability continues to impact long-term care providers, with frequency claims and claim severity increasing. 

“The need for long term and post-acute care is growing, and increasing liability costs impede our ability to serve those we care for and their families,” said Mark Parkinson, AHCA president and CEO, in a written statement. “This report underscores the importance of delivering solutions so we can continue to provide the highest quality care and improve lives.”

Access the report here

Written by Emily Study

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