Lawsuits and resulting costs remain an anchor

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James M. Berklan, McKnight's Editor
James M. Berklan, McKnight's Editor
In case you had not checked lately, you're liable to be paying more than ever just to run your basic eldercare business.

In fact, you're probably liable for a lot more than you realize. At least that's the message from the latest figures the long-term care profession has dug up on operators' legal costs.

As if sobering news weren't in deep enough supply, it reminds us again why getting sued usually lingers in the back of so many providers' minds.

Liability loss and severity rates have grown consistently — 4% annually — over the last three years, according to the latest research. The liability costs relative to an occupied long-term care bed will be just a tad under $1,500. That's about a 50% rise since 2005. Extrapolate that over your basic 100-bed facility, and you're talking some serious drag on the bottom line.

But even more daunting is the average claim severity, which is projected to be $168,000 per incident this year. That's up from $109,000 in 2005 — more than a 50% rise.

If you had thought “no news” had meant “good news” on the liability front, well, you were wrong — and you were not alone.
There was some good news, however: Claim frequency has been stable since 2008, according to Aon Global Risk Consulting, which conducted the study on behalf of the American Health Care Association. That means that some things are helping hold back the usual tidal wave of plaintiff lawsuits.

Liability climates rely heavily on state laws and the judiciary, and many provider advocates believe Texas has done it right. The Lonestar State has the lowest projected per-bed loss rate this year ($320 — or about one-fifth of the overall average). This stems from its 2003 constitutional reforms that put limits on awards.

Kentucky, on the other hand, has the highest projected loss rate this year ($5,120 per bed). Tort limits are prohibited by the state's constitution, which has led at least one major provider to recently stop doing business there.

If you can't compel tort reform in your state, clearly arbitration is a route you want to consider. Arbitrated outcomes are about 21% less costly, which might seem a bit abstract until you realize it amounts to around a $40,000 difference per agreement. Most administrators I know would be liable to put smiles on one or more employee faces with that kind of money.