Community Health Systems 2015 Annual Report Download - page 161

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
of individual claims could result in the timing of such payments being different from this average. Since claims
are paid promptly after settlement with the claimant is reached, settled claims represent less than 1.0% of the
total liability at the end of any period.
For purposes of estimating its individual claim accruals, the Company utilizes specific claim information,
including the nature of the claim, the expected claim amount, the year in which the claim occurred and the laws
of the jurisdiction in which the claim occurred. Once the case accruals for known claims are determined,
information is stratified by loss layers and retentions, accident years, reported years, geography and claims
relating to the acquired HMA hospitals versus claims relating to the Company’s other hospitals. Several actuarial
methods are used against this data to produce estimates of ultimate paid losses and reserves for incurred but not
reported claims. Each of these methods uses company-specific historical claims data and other information. This
company-specific data includes information regarding the Company’s business, including historical paid losses
and loss adjustment expenses, historical and current case loss reserves, actual and projected hospital statistical
data, a variety of hospital census information, employed physician information, professional liability retentions
for each policy year, geographic information and other data.
Based on these analyses the Company determines its estimate of the professional liability claims. The
determination of management’s estimate, including the preparation of the reserve analysis that supports such
estimate, involves subjective judgment of the management. Changes in reserving data or the trends and factors
that influence reserving data may signal fundamental shifts in the Company’s future claim development patterns
or may simply reflect single-period anomalies. Even if a change reflects a fundamental shift, the full extent of the
change may not become evident until years later. Moreover, since the Company’s methods and models use
different types of data and the Company selects its liability from the results of all of these methods, it typically
cannot quantify the precise impact of such factors on its estimates of the liability. Due to the Company’s
standardized and consistent processes for handling claims and the long history and depth of company-specific
data, the Company’s methodologies have produced reliably determinable estimates of ultimate paid losses.
The Company is primarily self-insured for professional liability claims; however, the Company obtains excess
insurance that transfers the risk of loss to a third-party insurer for claims in excess of self-insured retentions. The
Company’s excess insurance is underwritten on a claims-made basis. For claims reported prior to June 1, 2002,
substantially all of the Company’s professional and general liability risks were subject to a less than $1 million
per occurrence self-insured retention and for claims reported from June 1, 2002 through June 1, 2003, these self-
insured retentions were $2 million per occurrence. Substantially all claims reported after June 1, 2003 and before
June 1, 2005 are self-insured up to $4 million per claim. Substantially all claims reported on or after June 1, 2005
and before June 1, 2014 are self-insured up to $5 million per claim. Substantially all claims reported on or after
June 1, 2014 are self-insured up to $10 million per claim. Management on occasion has selectively increased the
insured risk at certain hospitals based upon insurance pricing and other factors and may continue that practice in
the future. Excess insurance for all hospitals has been purchased through commercial insurance companies and
generally covers the Company for liabilities in excess of the self-insured retentions. The excess coverage consists
of multiple layers of insurance, the sum of which totals up to $95 million per occurrence and in the aggregate for
claims reported on or after June 1, 2003, up to $145 million per occurrence and in the aggregate for claims
reported on or after January 1, 2008, up to $195 million per occurrence and in the aggregate for claims reported
on or after June 1, 2010, and up to $220 million per occurrence and in the aggregate for claims reported on or
after June 1, 2015. In addition, for integrated occurrence malpractice claims, there is an additional $50 million of
excess coverage for claims reported on or after June 1, 2014 and an additional $75 million of excess coverage for
claims reported on or after June 1, 2015. For certain policy years prior to June 1, 2014, if the first aggregate layer
of excess coverage becomes fully utilized, then the Company’s self-insured retention will increase to $10 million
per claim for any subsequent claims in that policy year until the Company’s total aggregate coverage is met.
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