Magazine article Risk Management

Risk Retention Group for Guardian Elder Care

Magazine article Risk Management

Risk Retention Group for Guardian Elder Care

Article excerpt

Two years ago, when Rich Bruno joined Guardian Elder Care, a small, privately owned nursing home chain, he was on familiar turf. Having worked in many facets of health care management since 1977, Bruno liked that his new job was based in Brockway, the factory town in northwestern Pennsylvania where he and many of Guardian's senior managers grew up and settled down.

The common background shared by Guardian's management is not incidental to the approach the company has taken in acquiring and managing rural long-term care facilities over the past eight years. And it is not incidental to the approach the company has taken in managing risk--including its willingness to become one of the pioneers in Montana's young captive insurance industry.

Frank Varischetti, a successful Brockway businessman, entered the long-term care arena in 1995 by partnering with Raymond L. Calhoun, a local man with a quarter-century of experience managing nursing homes. Since its founding, Guardian Elder Care has acquired 16 relatively small facilities in rural areas similar to Brockway. Varischetti died in 2002, but the mission and the business philosophy that he and Calhoun cultivated remain important drivers of Guardian's success. The company de fines its mission as providing the highest quality of care in a way that develops and maintains long term financial viability. Autonomy is the essence of its business philosophy. "Understand reality, face reality, but always control your own destiny," explains Bruno.

Bruno joined Guardian Elder Care in January 2002 as a regional manager, and he became the company's first risk coordinator in March 2003. Though Bruno had never previously held the title of risk manager, his work in finance and other areas of health care administration had exposed him to risk management and insurance.

His first priority became immediately clear. Guardian's professional and general liability policies were up for renewal in July 2003, and the lowest quote would have increased premiums from $763,000 to more than $1.2 million. The large increase did not reflect the company's loss experience; rather, it reflected a decade-long national trend.

Trends in general and professional liability losses for long-term care facilities in the United States have been increasing at "an alarming rate," primarily because of "an explosion of litigation" that has been spreading from a handful of states into many regions of the country, according to an actuarial analysis prepared by Aon Risk Consultants Inc. for the American Health Care Association. The average long-term care general and professional liability cost per annual occupied skilled nursing bed has increased at an annual rate of 24 percent from $290 in 1990 to $2,880 in 2002. The number of claims per bed is three times higher than it was 12 years ago, and the average claim tripled from $63,500 in 1991 to just under $200,000 in 2002, according to the Aon study.

Insurance costs for nursing homes have skyrocketed as a result of these loss trends, extreme uncertainty and inadequate premium levels during the soft market. Premium levels increased on average 143 percent between 2001 and 2002 on top of an average increase of 130 percent in the prior year, according to the study. In 2002, participants in Aon's study--who represent 26 percent of long-term care providers in the United States--paid $7 million more in premium for $57 million less in coverage than they had in 2001.

Guardian's senior management felt strongly that the insurance industry's response to the litigation nightmare did not "lend credit or credence to those facilities that are doing a good job, which, quite frankly, are the majority," Bruno says.

Calhoun, Guardian's president and CEO, has a reputation for turning around failing nursing homes, and his approach contributes to the company's good loss experience. Guardian acquires facilities that have a depressed value because of regulatory or financial distress; one, in fact, was bankrupt and no longer eligible to receive Medicare and Medicaid reimbursement because it failed to comply with federal and state regulations. …

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