Welcome from the Chairman and CEO
With the medical professional liability sector locked in a seemingly endless soft market, BETA Healthcare Group (BETA) still managed to produce outstanding results in 2016. Member retention remained close to 100%, while new business was less than planned. BETA grew its earned premiums slightly to $81.5 million; however, because investment income decreased by $1.5 million and ceded premiums (premiums paid to reinsurers) increased $1.5 million, total revenues decreased $2.6 million to $75.6 million.
There was positive actuarial news resulting in claims reserve reductions of $15.2 million that produced net income from operations of $14 million. Based on this strong performance, the BETA Council approved a dividend of $13 million, $6.5 million for the renewal dividend and $6.5 million for the special dividend. Both dividends will be distributed using the same methodology as in 2016 with the renewal dividend being a reduction to premiums and the special dividend being paid in quarterly installments beginning in August 2017.
The biggest news in 2016 was that the BETA Council approved the merger of BETA Risk Management Authority (BETARMA) with ALPHA, a workers’ compensation joint powers authority for California healthcare facilities. The merger closed on January 3, 2017, and BETA is now engaged in integrating over 50 new employees, most of whom are located in our Granite Bay office, near Sacramento. With a new workers’ compensation line of business that covers over 40,000 healthcare workers, BETA will have annual premiums in excess of $125 million and assets of over $600 million.
BETA had a significant transition on its governing boards, mostly as a result of the merger. We welcome four former ALPHA Council members, who were appointed to the BETA Council in December 2016 and took office on January 3, 2017:
- Myron Machula, Chief Financial Officer, Enloe Medical Center
- Sharon Spurgeon, Chief Executive Officer, Coalinga Regional Medical Center
- Dave Morony, Chief Financial Officer, Casa Colina Hospital and Centers for Healthcare
- Scott Chapple, Chief Operating Officer, Oroville Hospital
Mr. Machula was also appointed chair of the new Workers’ Compensation Committee and was appointed to BETA’s Executive Committee.
Tomi Ryba and Mike McCreary stepped down from the BETA Council in late 2016, as did Ed Maring from the BETAlliance Insurance Services board. We will miss all of them and thank each for their years of service to BETA Healthcare Group. Gary Myers, Chief Executive Officer of Mammoth Hospital, was appointed to fill the vacancy created by Mr. Maring’s retirement.
For 2016, BETARMA opened 1,135 claims, closed 1,103 and had 1,242 open claims at year-end. Eighty-four percent of the 922 healthcare comprehensive liability (HCL) claims were closed with no indemnity paid, which is the same as 2015. Claims with no indemnity cost BETARMA $9 million in defense expenses, an average of $11,756 per claim, 5% more than 2015 payout levels. Of the 145 HCL claims closed with an indemnity payment, the average total cost was $279,811, consisting of $228,570 in indemnity expense and $51,241 in defense costs. These figures show a 7% decrease over 2015 average indemnity payments. Overall, defense expenses represented 33% of all claim costs.
Although the 15 large HCL claims (defined as $1 million and higher) represented only 1.6% of the number of closed claims, they accounted for 61% of incurred HCL claims costs and averaged $2 million in incurred costs. Indemnity costs represented 88% of the total.
Total incurred costs for the 131 directors and officers’ liability closed claims were $10,973,680, for an average of $83,769 per claim. Defense costs represented 57% of total incurred costs. There were 50 auto claims closed at an average cost of $4,913.
Health Providers Insurance Reciprocal, RRG (HealthPro) opened 69 physician claims and closed 70 claims at a cost of $2,145,418, 14% of which was indemnity paid. Ninety-three percent of HealthPro physician claims closed without indemnity but had average defense expenses of $23,259. HealthPro opened 20 HCL claims and closed 20 claims at a cost of $1,691,593, 59% of which was indemnity paid. Fifty-five percent of HealthPro HCL claims closed without indemnity but had average defense expenses of $9,462.
BETA is committed to providing its members with the broadest, most favorably priced coverages possible while offering leading-edge risk management and patient and employee safety programs. While we will be there to manage claims professionally and expeditiously when they occur, our mission lies in managing risks and preventing claims from occurring so that patient outcomes are positive and employee work environments remain safe.
Our risk management team was incredibly busy in 2016 expanding the Quest for Zero initiatives in obstetrics and emergency medicine with enhanced tools from our long-time partner, Advanced Practice Strategies. These tools measure knowledge and judgment of clinicians, helping to direct more targeted patient safety efforts. Congratulations to the 27 members achieving Tier 1 status and 23 reaching Tier 2 in obstetrics and to the 22 members attaining Tier 1 status and seven reaching Tier 2 in emergency medicine. Great teamwork and individual effort all around!
Our newest holistic program is BETA HEART℠: Healing, Empathy, Accountability, Resolution and Trust. The purpose of BETA HEART is to bring about culture change by promoting transparent and open dialogue with patients and their families to resolve harm events early and avoid litigation when care is deemed inappropriate. The program is built around five domains, including Care for the Caregiver, to foster an ethical approach to medical error and reinforce trust among patients, families and caregivers. An intensive, multi-year effort, BETA HEART will engage hospital staff and clinicians at all levels and involve extensive education, training and simulation before formal roll out at members’ facilities. Already embraced by over 20 BETA members, BETA HEART holds the key to a seismic shift in how healthcare providers and their insurer will address harm events.
During 2016, BETA completed development and rollout of the first phase of our Claims Underwriting Risk Information System (CURIS), which replaced the legacy claims and policy management system. Two years in the making, CURIS will continue to be enhanced to provide staff, members and brokers with more tools and better data access. A complex rating module to assist in underwriting and pricing risks is planned for 2017.
Where do we grow from here? There are many opportunities as a result of the merger, including adding coverages for existing members and offering a wider range of options to prospective members. BETA is also looking to expand into other states, starting with Washington and Oregon. With rates extremely soft, expansion will likely be slow but steady, and we will be selective from both underwriting and risk management perspectives. BETA also looks to grow its risk management consulting services and claims management facilities and will pursue new opportunities for writing excess liability and workers’ compensation for that market.
We are also exploring the enhanced use of analytics to understand, manage and grow our lines of business. The initial focus is on defense-related expenses, which total almost $13 million per year, in order to identify areas to increase efficiency and decrease costs, while maintaining quality. Longer term, we hope to use BETA’s and its members’ vast amounts of data to better target risk management opportunities, evaluate existing programs and fine-tune underwriting and pricing of risks.
Thank you for your membership in and commitment to BETA Healthcare Group and your active involvement in risk management related to patient and employee safety. Together, we are making a difference.