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The Signal and the Noise: Healthcare with tort or not?

August 29, 2015

Where could healthcare be headed? Coming from a time when there was no health insurance and in fact if there was one it was for the livestock! Brave New World  (Aldous Huxely) and Future Shock (Alvin Toffler) had in particular stimulated my imagination. Thanks to origins in a medical family, there lay several influencers. One was surely the Journal of American College of Surgeons! Courtesy my father, who is their Fellow. It would generally carry interesting insights into medical malpractice including debates on tort reform in healthcare. To me, ever since, healthcare and tort go hand in hand. Two recent authors in particular have been a further influence. Antifragile by Nassem Taleb – he makes frontal attacks on how modern medicine may do more harm than good and The Signal and the Noise by Nate Silver. Nate’s focus is on politics, baseball, basketball, poker, hurricanes, global warming, stock market and Capitol Hill.

Nate talks about how being smarter about the future helps us make better decisions in the present? He reminds forecasters to stay motivated by truth rather than by politics and thereby notice a thousand little details that bring them closer to it. Because of these attitudes he believes, they can distinguish the signal from the noise. With everything from the health of the global economy to our ability to fight disease dependent on the quality of our predictions, Nate Silver’s insights are an essential read. In my presentation I endeavour to sift through some of the trends in the world of healthcare and seek help in separating the signals from the noise.

Not many of us realise that when we visit a hospital – while we may get cured of what got us there – we may, however, have contracted another disease. It could also be a side effect of a medicine administered or a combination of a procedure and the medicine. An unintended consequence or Iatrogenics! Are there insurance policies which would cover not only the hospitalisation or treatment expenses and the harmful consequences of hospitalisation, as well? It may then not just stop with Iatrogenics. What about defensive medicine? Underwriters may run into mind blocks of their own creation. A tort component to an existing health cover may be described as a combo of first and third party covers!

Recently, while addressing a predominant group of actuaries, I tried moving their cheese! But these are two different triggers, responded one of them. To my response – don’t they converge- there was an utter silence. While tort has been long embedded in the Indian jurisprudence, we blissfully stay clear – believing that we have some kind of arbitrage till such time our legal machinery becomes a well oiled one. The Companies Act 2013 is a landmark development. Moreover, the MAGGI and UBER cases – notwithstanding their respective legal outcomes – will have far reaching implications for tortious triggers and remedial measures.

Would coverage of pharma liability, clinical trials and medical malpractice be by any stretch of imagination too form a part of health cover? I asked the same audience. It takes quite an effort to converge the varying triggers and the economics of health insurance just does that. Most tend to eventually agree that cost of tort adds to health care ecosystem. If there are no R&D investments into new blockbuster drugs, how do we beat say the drug resistant microbes? Or newer lifestyle health issues? New trials will possibly lead to new drug discovery, these in turn would have risks associated with them. Likewise, someone ought to also pick up the errors and omission costs of doctors and medical establishments. If there were no risk transfer mechanism, this would be a cost push towards the consumer. Hence a more expensive healthcare environment.

We need to revisit what all constitutes healthcare cost and accept that the current form of healthcare expense is only a very narrow approach. The tort component will only grow as the complexities of modern life increasingly impact us. Underwriters and actuaries can only ignore these at their own peril. Last but not the least, can we learn from the challenges already faced by the American society?

Here’s my presentation: Tort in healthcare

Adapting long-tail pricing models: Scope for shared learning – India & China

Abstract: Long-tail liability class poses unique challenges in any jurisdiction where new products are adapted for the first time. The key issue relates to pricing. With no past experience on frequency and severity of claims, in this class, the pricing models have to be adapted from overseas environment. As tort raises its head in adapted markets, pricing adequacy will be tested in such places. In the meantime, what do markets do to ensure there are no rude shocks-in-making. Particularly when pricing pressures in the short-tail classes tend to have a rub-on effect on the longer-tailed. The paper explores the current situation in India; what are the likely pit-falls in making and possible corrective actions. Last but not the least, can India and China share some learning? Despite the differences in market evolution and legal systems, there may still be significant scope for collaboration.

Here is the thought process in the form of the presentation at Shenzhen: Adapting long-tail pricing

As I said, the Companies Act 2013 and some of the recent landmark cases which are still developing would have changed the play-field for good. The point I was making at the Progressive Lawyers Group at Chandigarh was that the onset of tort age would dramatically challenge our already over burdened legal infrastructure. The presentation highlights the emerging triggers and how would they need to be addressed. Perhaps more alternate dispute resolution and outside court settlements: Tort flood

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