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Welcome From Our Chair & CEO
BETA HEALTHCARE GROUP (BHG) has always endeavored to be thorough, concise and candid with all members and medical groups be it coverage issues, claims management strategies, rating methodologies or risk management recommendations. BHG was transparent before “transparency” became a corporate buzzword. Whether it is our open governance, broadly accessed website or public membership lists, BHG understands clearly that we exist because of and for you, our members and medical groups, and we respect the relationship and your rights and needs for timely access to information and answers. This has never been more important than now when our State, nation and world are faced with the most difficult financial crisis in our lifetimes. The tumultuous effects of the financial market meltdown have left no one unscathed. While BHG remains solidly solvent and had excellent operating results in 2008, our investment portfolio fell victim to the flight to safer securities and the thrashing of its financial sector investments. Fortunately, this negative impact was offset entirely by improved current year claims results, continued high member and medical group retention, lower claims frequency, and an actuarially appropriate release of redundant claims reserves from prior years. Net contributions/premiums were down slightly to $76.2 million from $78.6 million in 2007, reflecting lower rates. Investment income declined to $5.2 million from $14.9 million because of accounting standards that require the recognition of unrealized losses related to “impaired” assets which totaled $10.3 million, or about 3% of the value of BHG’s cash and investments at the end of 2008. BHG’s investment portfolio closed 2008 with a duration of 3.57 years, a yield to maturity of 4.89%, and annual return of 1.84% (4.73% if the impact of the impairments is excluded). BHG continues to hold over 96% of its $328 million fixed income portfolio in investments rated “A” or better with 83% rated “AA ” or better. Any investments rated below “A” (which can only occur in BETA Healthcare Group Risk Management Authority [BETA] if a security is downgraded, as its investment policy precludes the purchase of investments rated less than “A”) are reported to the BETA Council at each quarterly meeting. Because of the claims reserve release totaling $35.5 million, the amount of incurred losses and loss adjustment expenses declined to $33.7 million from $72 million in 2007. This great news was the major driver in increasing net income from operations to $37.4 million which, after a $5 million member dividend declared by the BETA Council and an additional $10 million allocation for future dividends, raised the Fund Balance to $121.9 million. The dividend declared this year will be returned to current BETA members beginning on July 1, 2009 through lower monthly contribution payments. The 2008 dividend marks the 17th consecutive year that BETA has returned excess contributions to members. There was little change in the composition of members and medical groups during 2008. All BETA members renewed at July 1, 2008, and no new members joined during the year, whereas Health Providers Insurance Reciprocal, a Risk Retention Group (HealthPro), added three new medical groups. While growth was modest, the overall quality of covered risks continued to improve in both BETA and HealthPro. For the year, BETA opened 873 claims, closed 865, and had 946 open claims at year end. Eighty-five percent of the 748 healthcare professional liability (HPL) claims were closed with no indemnity payments, up from 83% in 2007. These claims cost the pool $5.7 million in defense expenses, an average of $9,069 per claim, 14% less than in 2007. Of the 116 HPL claims closed with an indemnity payment, the average total cost was $252,421, consisting of $207,681 in indemnity payments and $44,740 in defense expenses, which is an 18% decrease over 2007 average indemnity payments. Overall, defense expenses represented 35% of all claim costs. Although large HPL claims ($1 million and higher) represented only 1% of the total closed claims, they represented almost 60% of total incurred HPL claims costs. The seven large claims closed in 2008 averaged $2.6 million in incurred costs, with indemnity costs representing 93% of the total. Total incurred costs for the 50 directors and officers liability closed claims were $3,902,056, for an average of $78,041 per claim. Defense costs represented 76% of total incurred costs which is in line with the 78% experienced in 2007. There were 67 automobile claims closed at an average cost of $3,095. During 2008, HealthPro had 148 claims close at a cost of $5,265,144, 49% of which was indemnity expense. Ninety-one percent of all HealthPro claims closed without indemnity but had average defense expenses of $19,320, a substantial increase over 2007. BHG continued its excellent trial record during 2008 receiving defense verdicts in eight of the nine cases that went to trial. The ninth case resulted in a hung jury and was later settled. In the 59 trials over the past seven years, BHG has received defense verdicts in 86%. For the twelfth year in a row, A. M. Best reconfirmed BHG’s rating at “A-” (Excellent) with a “stable” outlook stating “[t]he rating reflects BETA Healthcare Group’s sound 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.” A. M. Best also stated that “[t]he 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. The company’s rating outlook takes into account its tax-exempt status and very high member retention from its high-quality claims and risk management services, stable rates, and member dividends.” BETA’s reinsurance program has continued its exceptional performance. Losses up to $3 million per claim for HPL and directors and officers’ liability and $250,000 for automobile liability are retained by BETA, with limits up to $30 million reinsured above the pool’s retention. Accessing reinsurance treaty protection from its 13 highly rated international reinsurers, BETA is able to offer a variety of reasonably priced options for higher limits. Since we restructured our reinsurance program effective July 1, 2004, the incurred and paid loss ratios are 16%. These profitable results for our reinsurers should help us maintain attractive reinsurance pricing, favorable terms and quality reinsurers. BHG continued to enhance its risk management programs with the introduction of Phase 3 of the Obstetrical Risk Management Initiative which will provide a 5% rate credit to BETA members that are able to document compliance with the following three criteria by May 1, 2009:
To assist in this important endeavor, BHG was a leading partner in the Perinatal Safety Initiative for California in which 1,200 obstetrical clinicians from BETA members enrolled in online courses offered by Advanced Practice Strategies which focused on:
BHG funded 50% of the cost of the courses and obtained a 38% group discount for its members. In a similar approach during 2009, HealthPro will introduce a voluntary pilot program for emergency medicine groups. In this program, a 5% premium credit will be provided for successful compliance with ten elements from the “Top 10 Scorecard” which includes patient safety efforts such as handoff communications, critical value reporting, patient callback programs, supervision of allied health professionals and peer review. Internally, BHG is well on its way to becoming a paperless company with the implementation of ImageRight software in all three offices and in most of the departments in 2008, an effort which will be completed by mid-2009. While there was a cost to getting there and some resistance early on, a paperless BHG is more efficient, cost effective and prepared to recover quickly should disaster ever strike any of our three offices. 2009 may be a difficult year for all of us as we are asked to do more while we learn to cope with less. Please know that BHG, including the BETA Council, the BETAlliance Board of Directors and all the staff, will do everything in our power to keep our costs and your rates as low as possible, enhance our services and continue to be your risk management partners. Thank you for your support and commitment! |
