Continued rate competition, hospital and medical group consolidation, uncertainty over healthcare reform, expansion of products to cover all types of California hospitals and medical groups, increasing cost of large claims, stable claims frequency, more reserve redundancies and member dividends, and rapidly changing attitudes over the importance of patient safety and risk management…that summarizes 2011 at BETA Healthcare Group.

Still, in the midst of considerable rate softness, sector transformation and broad-based uncertainty, BETA again had an exceptional year on many fronts. Total revenues were $86.4 million, down 6% from our record high in 2010, primarily because of a decrease in realized gains on investments. Net income from operations totaled $33.4 million, with $11 million allocated to the BETA Risk Management Authority (BETARMA) member dividends, $10 million to future dividends and $12.4 million to the fund balance. Total assets grew 2% to $495.5 million, with cash and investments representing 85% of the total. Fund balance ended the year at $202.9 million of which $40 million is designated for future member dividends, which BETARMA expects to return to members over the next several years, keeping contributions close to current levels.

The outstanding financial results were driven in large part by another substantial claims reserve release totaling $41.7 million, $37.7 million for BETARMA and $4.0 million for Health Providers Insurance Reciprocal, RRG (HealthPro). Because of this reduction in prior year claims reserves, the BETA Council declared a second special dividend of $5 million to be returned to renewing members in August 2012. The dividend formula, based on premiums paid and claims experience, will be the same as was used in 2011. The final installment of the 2011 special dividend, equaling 25%, will also be returned in August 2012. BETARMA has provided member dividends totaling almost $77 million since its first dividend in 1992 and has paid dividends for 20 consecutive contract periods, a feat unsurpassed by any healthcare professional liability (HPL) company in the United States. In 2011 alone, members received dividends totaling almost $20 million.

BETA’s investment portfolio increased by $11.4 million to $419.7 million at year-end, $404.7 million (96.4%) of which are in fixed income securities. This increase was less than in prior years because of the large member dividends paid in 2011. For 2011, BETA had a realized return on its cash and investments of 4.73%, and had unrealized gains on investments totaling $15.2 million at December 31, 2011. The investment portfolio remains highly diversified and is managed by five investment managers, each of which has discretionary authority over investment sales and purchases, subject to strict investment policies. Yield to maturity was 2.08% at year-end and the portfolio had a duration of 3.8 years. Sixty percent of the portfolio was invested in U.S. Treasury and Agency bonds, 18% in corporate bonds, 17% in asset-backed securities, 2% in equities (all in HealthPro), and 3% in cash and cash equivalents.

During 2011, BETA’s two risk management initiatives took center stage and delivered incredible performances: Quest for Zero: Excellence in OB and Quest for Zero: Excellence in ED.

In its third year, the OB initiative really got traction with 14 members successfully completing the Tier 1 criteria and earning 5% renewal credits and nine of the 14 completing one or two of the Tier 2 criteria, which earned them an additional 2% or 4% renewal credits.

The ED initiative, launched in April 2011, has 47 hospitals and medical groups participating with seven of them completing the first year requirement by the end of 2011.

Working together, BETA and its members and insureds are making a positive impact on patients’ lives and reducing risk financing costs.

These initiatives are important components of BETA’s continual efforts to enhance patient safety but are only a part of what we are doing on the leading edge of risk management. Other major activities include monthly obstetrical webinars, on-site risk assessments, highly attended symposiums and co-sponsoring six members in the Institute for Healthcare Improvement’s Perinatal Improvement Community, where BETA members make up one of the largest groups from any “system” in the country. Six BETA sites are also piloting Emmi Solutions, an interactive on-line program using audio, text and images to help patients and their families make sense of vital evidence-based medical information and drive positive results clinically and financially.

Another significant accomplishment was the expansion of products offered through HealthPro. In addition to covering over 50 California medical groups, HealthPro now provides coverage to for-profit hospitals so that BETA Healthcare Group is now able to provide HPL coverage to all types of hospitals (for-profit, nonprofit, county, city and district). HealthPro also is offering an innovative pre-paid tail product for its emergency medical and hospitalist groups. As the recognized leader in California, HealthPro now covers 39 emergency medical groups bringing the total emergency groups in BETA to 53.

For the year, BETARMA opened 999 claims, closed 986, and had 1,045 open claims at year-end. Eighty-four percent of the 879 HPL claims were closed with no indemnity payments, which is a 2% increase from 2010. These claims cost BETARMA $7.5 million in defense expenses, an average of $10,146 per claim, 7% less than in 2010. Of the 141 HPL claims closed with an indemnity payment, the average total cost was $241,523, consisting of $202,475 in indemnity expense and $39,048 in defense costs, which is a 4% decrease over 2010 average indemnity payments. Overall, defense expenses represented 31% of all claim costs.

Although large HPL claims ($1 million and higher) represented only 1% of the number of closed claims, they represented 46% of total incurred HPL claims costs. The six largest claims closed in 2011 averaged $3.1 million in incurred costs, with indemnity payments representing 95% of the total.

Total incurred costs for the 54 directors and officers’ liability closed claims were $7,801,701, for an average of $144,476 per claim. Defense expenses represented 69% of total incurred costs. There were 60 auto claims closed at an average cost of $4,611.

During 2011, HealthPro closed 127 claims at a cost of $2,759,603, 22% of which was indemnity payments. Ninety-one percent of all HealthPro claims closed without indemnity, but had average defense expenses of $21,068, down from $25,440 in 2010.

A. M. Best reconfirmed BETA’s rating for the fifteenth year in a row at “A−” (Excellent) with a “stable” outlook stating, “The rating reflects BETA Healthcare Group’s excellent risk-adjusted capitalization, favorable operating profitability and conservative loss reserve philosophy. The rating also recognizes its highly specialized market focus as a leading provider of non-assessable group risk-sharing coverage for healthcare professional liability, general liability, directors and officers liability, employment practices liability, and automobile liability and physical damage” and adding “The outlook reflects management’s commitment to adequate reserves and rates in addition to the benefits derived from the group’s strong market position in California.”

In 2011, BETA saw the departure of three long-time members of its governance structure: Sam Downing, Ed Maring and Don Larkin. Together, these three individuals provided 60 years of experience and expertise to BETA and its members. Mr. Downing served as Chairman for 18 of his 19 years on the BETA Council. Mr. Maring, who served for 22 years, was Vice Chairman for 11 years and Treasurer-Auditor for 8 years. Mr. Larkin served on the BETA Council for 19 years. All three men were also board members of BETAlliance Insurance Services, the attorney-infact for Health Providers Insurance Reciprocal. Their individual and combined leadership, support and commitment were exemplary and will be missed greatly by their peers and the BETA staff.

We would also like to welcome two new members of the BETA Council:

Lionel “Chad” Chadwick, Ph.D, Chief Executive Officer, Hi-Desert Medical Center
in Joshua tree

Lawrence L. Foust, J.D., LL.M., MBA, Senior Vice President and General Counsel, Children’s Hospital of Los Angeles

Other newcomers to BETA Healthcare Group include the following fifteen BETARMA members and HealthPro insureds:

Allied Emergency Physicians
AltaMed Health Services Corporation
Burbank Emergency Medical Group, Inc.
Emergency and Primary Care Medical Associates, P.C.
Emergency Physicians Medical Associates of Long Beach
Loma Linda University Medical Center-Murrieta
Last Frontier Healthcare District
Marin Healthcare District Community Clinics
Mayers Memorial Healthcare District
Orion Medical Group
Pacific ER Associates
Premier Health Partners, Inc.
Prima Medical Group
San Francisco Emergency Medical Associates - St. Luke’s Campus
Santa Clarita Emergency Medical Group

On behalf of the members of the BETA Council, the BAIS Board of Directors and the BETA staff, thank you for your continued participation. It is your program and we will continue to work hard to earn your ongoing support and trust.

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