What's Going Right With

The Long-Term care Industry?

By Sanford D. Elsass

In the face of a major assault by the trial bar over the last few years, nursing home liability insurance has become unavailable or unaffordable in many states. Owner/operators are caught between a rock and a hard place. They can't obtain or afford liability protection, but they can't function without it for long.

At the same time, operating costs are skyrocketing and reimbursements are taking a nosedive. This combination drains resources away from nursing home operators' commitment to care.

In fact, today states are spending more on Medicaid than education, and it will get worse before it gets better. We're approaching a major milestone in 2006 when 75 million baby boomers begin to come into the long-term care space as they reach 60 years of age. The next few years could see a feeding frenzy for trial lawyers.

Under the circumstances, asking "what's right with the long-term care industry?" might seem like an oxymoron. However, long-term care is an amazing growth business. The good news is entrepreneurs and investors see escalating demand as an opportunity. They begin to invest. The flow of capital generates competition. This is leading to consumer demands for higher standards of care.

Driven by the profit motive, today's increasingly sophisticated owner/operators are finding ways to cut costs, improve service and make money.

Owners, operators and investors are finding ways to drive down costs as public budgets to support long-term care are cut back. Reducing the cost of insurance by turning back the tidal wave of claims is a significant way to reduce overall costs.

Better care means fewer lawsuits. Most important, it means a better quality of life for nursing home residents.

Traditional insurers in many states caved in to the trial bar. They restricted writing nursing home liability insurance, withdrew entirely from the line, or jacked up prices to an unaffordable level.

Nursing home owners in a number of litigation-prone states responded by taking control of their destiny. They combined to create their own insurance companies in the form of captives or risk retention groups.

RRGs licensed in one state are authorized under the federal Risk Retention Act as amended in 1986 to operate in other states. In just the last few years, RRGs have been organized to write liability insurance for long-term care facilities in all 50 states--and the movement is growing rapidly.

These groups are capitalized by the operators, who as shareholders in the RRG have a strong incentive to achieve a low loss ratio. The result is they adopt professional risk management practices often guided by an external contractor with medical, administrative and loss control experience.

Committing to rigorous risk management standards is a condition of joining most RRGs. The result is that operator-owned insurance mechanisms, captives and RRGs consistently achieve substantially lower loss ratios than traditional carriers.

Risk management is more than just loss control. Nursing home operators are finding that close adherence to risk management guidelines in long-term care facilities greatly improves the lives of patients and residents.

Third-party administrators provide RRG members with hands-on risk management services that give operators tools to improve the lives of their residents. Registered nurses work directly with nursing homes and assisted living facilities to help members comply with the most current health and safety procedures. They conduct surveys to identify areas for improvement and make on-site visits to encourage and monitor best practices.

Risk management professionals bring the growing body of gerontology research to their long-term care facility clients. Billions are being invested to deal with elder care and end-of-life issues. Skin care, wound care, prosthetics and the ravages of bedsores are just a few of the areas where researchers are seeking ways to help.

Some RRGs are partnering with vendors who provide clinical and financial software that measures procedures and outcomes with a resulting reduction in incidents that give rise to claims.

Another important component of the success model for long-term care facilities that form captives or RRGs is professional claims handling. Aggressive defense of fraudulent or frivolous claims is essential to prevent a facility from becoming an easy target. Prompt payment/settlement of fair claims is equally important to any facility's reputation. Therefore, selecting the right third-party claims administrator is a critical decision for any captive or RRG.

As in any successful insurance company, underwriting based on selective standards is required for captives and RRGs. In underwriting, as in claims and risk management, the choice of a professional underwriting organization is one of the most important decisions facing any board of directors. Equally important are the underwriting guidelines that the board creates for the TPA to follow.

As sophisticated investors and professional long-term care facility operators seize the opportunity created by the demographic curve, they are taking the industry to a new level of professionalism that's winning the respect of the medical and social service establishments. At the same time, liability insurance costs in 2005 are declining by as much as 20 percent.

Long-term care is no longer a "Mom and Pop" business. The new business model calls for ownership of multiple facilities to gain efficiencies of scale that allow more resources to be devoted to quality care.

Over the coming decades, baby boomers will live longer, healthier lives. Nursing home owner/operators will continue to improve care, cut costs and achieve a fair return on their investment. The only losers will be the trial lawyers. That's what's right with the long-term care industry.

Sanford D. Elsass is president and CEO of the Uni-Ter Group in Atlanta, Ga., a service subsidiary of the U.S. Re Group. He may be reached at selsass@usre.com.

Caption for picture:

Better risk management at long-term care facilities means fewer lawsuits and a better quality of life for nursing home residents.

"Reducing the cost of insurance by turning back the tidal wave of claims is a significant way to reduce overall long-term care costs."

Sanford D. Elsass

Special Reports /

What's Going Right With The Long-Term Care Industry?

Related Stories

Recommended For You