Get ready for a bigger role in risk financing, prepare for more scrutiny
Get ready for a bigger role in risk financing, prepare for more scrutiny
The continuing malpractice insurance crisis is putting more pressure on risk managers to present the best possible image to underwriters, according to representatives from the insurance and risk management fields who recently gathered to discuss how to best respond to new demands.
Risk managers must become directly involved in risk financing, they say, even if that task had been the province of the health care organization’s financial leaders.
That role may be unfamiliar and even daunting to some risk managers, but it is absolutely necessary in light of triple-digit insurance rate hikes, carrier pullouts, increased litigation, and other headaches, says Monica Berry, BSN, JD, LLM, DFASHRM, CPHRM, vice president of risk management and loss control for the Rockford (IL) Health System. Berry also was 2002 president of the American Society for Healthcare Risk Management (ASHRM), which sponsored the recent roundtable. ASHRM gathered the experts to discuss how risk managers can get more involved in the financial aspect of risk financing, an area traditionally left more to the chief financial officer and other financial experts while the risk manager concentrated more on decreasing risk and handling litigation.
Risk managers must break out of that box and use their unique expertise to help the organization acquire better risk financing, Berry says. The insurance crisis is so bad that the risk manager’s skills could prove to be the only way a health care provider will be rescued from ridiculously high rates, she says.
"Our collective expertise in finance, law, caregiving, patient safety, and advocacy gives us a unique perspective as we experience this challenging insurance market," Berry says. "There is an absolute need for a unified approach to risk financing. Risk managers, CEOs, CFOs, and COOs must collaborate to meet insurers’ needs and expectations. A team approach is essential to a successful renewal."
The team approach was not considered necessary in previous years because the financial experts could handle the negotiations with the insurer on their own, says Matthew Dolan, senior vice president for OneBeacon Professional Liability Partners, an insurer in Boston. But as the insurance market hardens beyond what anyone can remember in recent history, insurers are demanding that providers demonstrate much more how they are a safe investment. Every insurer is seeking those providers who can prove they are the lowest risk possible.
"From an underwriting perspective, the state of the union is grim," Dolan says. "The state of the liability market is in profound disarray."
Dolan notes that medical malpractice loss ratios are worse in states transitioning to managed care, and the long-term care industry continues to demonstrate "a woeful inability to address the rapidly aging patient population." Nursing homes typically contribute only 10% of a malpractice premium but will contribute well over 30% of the eventual acts and year loss ratios.
The median malpractice jury award increased 42% from 2000 to 2001, and defense verdicts now occur in about 62% of trials. Indemnity claims are up 9%, he says. Many A-rated insurers and reinsurers have been downgraded, and many have disappeared altogether, Dolan says.
"The result is that carriers who are staying in this business are desperately trying to return to profitability," he says. "Most carriers have a very slim margin for error. They are reevaluating their risk appetite and constructing the box. You will either fit in the box or they will not offer you terms."
As premiums increase, limits are decreasing and other coverage terms are becoming more restrictive. The hard market is likely to continue for at least two or three years, Dolan predicts. It is against this bleak backdrop that risk managers find themselves being drawn more deeply into risk financing. And he says it is not merely a good idea for risk managers to get involved — the underwriter will expect it.
"It is essential that an effective tripartite relationship be established between the risk manager, the broker, and the underwriter. You must understand the mindset of the underwriter and understand that now, more than ever, the underwriter is evaluating the risk manager as much as the risk," Dolan says.
One underwriter confirms that she demands much more of hospitals and other health care providers than in recent years. Donna Croix, assistant vice president for health care facilities with GE Medical Protective, a medical liability insurer in Fort Wayne, IN, says the higher standards are all part of an effort to differentiate hospitals in a search for the best risk.
"An area of major focus is the quality, scope, and overall effectiveness of the hospital’s risk management program," she says. "Do only obstetricians perform deliveries? Does the risk management department report directly to senior management? Is the ER staffed by physicians board certified in emergency medicine?"
Croix says she also asks about whether the medical staff bylaws clearly require adequate medical malpractice insurance for physicians and what initiatives have been taken to address patient safety, medication errors, and fall prevention.
Dolan cautions that it is not enough to have good policies, such as one requiring adequate insurance for physicians. Most hospitals will have the policy, so the bigger issue is how to enforce them.
"I’d rather hear a discussion of how you are managing your risk profile to make sure these policies and procedures are actually performed," he says. "That is probably more important than the policies and procedures themselves."
The organizational structure in the provider can be critically important, says Susan R. Chmieleski, JD, BSN, APRN, CPHRM, assistant vice president and director of health care risk management for Chubb Specialty Insurance. She says her underwriters routinely request organizational charts. They look at not only to whom the risk managers reports, but how they report.
"The kind of access she has to not only the CEO, but the also the CFO and the board of directors. We’re currently asking very specific questions about how and when she reports," she says. "We’re also looking at high-risk areas like obstetrics and scrutinizing things like whether your OB department performs vaginal birth after cesarean. And we expect risk managers to have infinite knowledge of the policies and procedures in these areas."
You also may hear underwriters requesting more data than ever before, says Nancy Hacking, CPHRM, FASHRM, director of risk and safety management at Concord (NH) Hospital and Capital Region Health Care. Previously they commonly requested five years of data on losses; now they want 10 years of data with an explanation for any significant claim.
Beyond the numbers
With all this information exchanging hands, some risk managers might become anxious about incident reporting. For instance, how much do you disclose? Dolan says incident reporting is becoming more important because it is a way for underwriters to dig deeper, to learn more about your organization than what numbers reveal. Not only do they want that deeper view, but they also want to know that you, the risk manager, are using the incident reports for the same purpose.
"Whether these events ultimately evolve into claims is a secondary issue," he says. "But every underwriter is attempting to determine whether the risk manager has that view to the bottom of their organization, has those feelers out to be able to proactively identify events that could turn in to claims, because that is the only way you can muster the most effective, proactive defense."
The underwriter also looks for confidence about the provider’s incident reporting trigger, Dolan says. A high number of incidents is not necessarily a bad thing, he says, and many insurers will even see that as a positive sign that your incident trigger is set low enough to capture all the events that need your attention. Bruce Burns, vice president of finance and chief financial officer at Concord Hospital, says underwriters have responded favorably when presented with a thorough incident report.
"As CFO, I like it too when the risk manager has a good long list of incident reports because it’s a good sign that our risk management department is in touch and knows what’s going on," he says. "You’re less likely to get surprises."
Dolan cautions that a long list of incident reports, by itself, can turn off an underwriter.
"When reporting incidents, you need to be very effective in providing the information and then managing the information they take from that," he says. "An uninformed view by the insurance company, if not properly managed, can result in them putting a lot of loss dollars on these incidents that should not ultimately emerge, and that will obviously skew your loss profile. So reporting of incidents is critical, but reporting incidents with proper information about why you think this is nothing but a proactive reporting of claims that probably do not have significant potential is just as important."
Important for risk manager to report to the top
Burns and Hacking work closely and they say underwriters are pleased to see the risk manager not only reports to the CFO but that they actually work side by side on many risk management issues. Hacking says that has been a key to the success of their risk management program. Part of their collaboration included a formal review of policies and procedures that resulted in a significant overhaul. Multiple volumes of policies and procedures were reorganized into a five-volume set, which is available to all staff both in hard copy and on-line.
"It makes it easier for staff to know what the policies and procedures are," Hacking says. "That’s the kind of thing an underwriter needs to know about if you’ve done something like that. During a recent risk assessment by our insurer, that was highlighted as an outstanding process."
Hacking also advocates risk managers integrating risk and safety whenever possible. She takes advantage of the clinical management orientation meetings for physicians to deputize every clinician as a risk manager. The idea is to get the message to physicians and staff early and to convince them that you want to identify risk early, before a patient or staff member is harmed.
"We also have our risk management department located near the administration offices," she says. "This is a signal to the organization that there is value to the risk management activities within the organization. Reporting to the CFO has enhanced the significance of risk management in the organization, indicating that it is not just another function in the organization but is one of bottom line importance."
Risk consultants are a more common part of the underwriting process than in years past, Hacking says. It now is common for an insurer to send a risk management consultant, often with a background as a hospital risk manager, to assess the provider. Insurers often send risk consultants prior to offering a new policy and before renewal.
"We also see much more request for documentation, much more than what we say five years ago. There are more site visits, and more extensive recommendations for what needs to be done," she says. "The consultants are looking for more beyond documentation. Things like whether the risk manager is well received in the facility when we do a tour of the organization. How often can a risk manager demonstrate that they are consulted by physicians when faced with a difficult situation?"
Consultants also look closely at the relationship between risk management and patient relations. More evidence shows that a close relationship can improve patient safety, Hacking says.
Audio conference tackles HIPAA privacy concerns
The recently released final privacy rule under the Health Insurance Portability and Accountability Act (HIPAA) makes significant changes to the existing regulations. With the April 14, 2003, compliance deadline fast approaching, are your staff receiving the proper training?
The American Hospital Association says implementing HIPAA will require "sweeping operational changes" and will take "intense education of hospital workers and patients." To help you and your staff prepare, American Health Consultants offers HIPAA’s Final Privacy Regulations: What You Must Know to Comply, an hour-long audio conference on Dec. 4, 2002, from 2:30-3:30 p.m., Eastern Time. You’ll learn detailed information on changes to the privacy rule, as well as practical methods to implement new procedures within your facility. Also learn how to successfully manage privacy issues with business associates, and how to spot and avoid costly HIPAA violations. Do you know what your enforcement priorities are? Do you need real-world examples? Our expert speakers, Debra Mikels and Chris Wierz, BSN, MBA, will help you understand your responsibilities and identify potential liabilities. This will allow you to develop a HIPAA compliance strategy with a rationale behind it.
Mikels is corporate manager of confidentiality for Partners Healthcare in Boston. The Partners system includes some of the largest and most respected facilities in the country, including Massachusetts General Hospital, Brigham and Women’s Hospital, and Harvard Medical School. She will provide the practical information and guidance you need to implement a comprehensive privacy policy in your organization.
Wierz is vice president of HIPAA and compliance initiatives for Houston-based Healthlink Inc., a health care consulting firm. She has worked with numerous facilities across the country to prepare them for HIPAA compliance, and now she shares many of her ideas with you.
The cost of the conference is $299, which includes free CE or CME for your entire staff, program handouts, and additional reading, a convenient 48-hour replay, and a conference CD. Don’t miss out. Educate your entire facility for one low price.
For more information or to register for the HIPAA audio conference, please call American Health Consultants’ customer service department at (800) 688-2421. When ordering, please refer to effort cod 65151.
The continuing malpractice insurance crisis is putting more pressure on risk managers to present the best possible image to underwriters, according to representatives from the insurance and risk management fields who recently gathered to discuss how to best respond to new demands.
Subscribe Now for Access
You have reached your article limit for the month. We hope you found our articles both enjoyable and insightful. For information on new subscriptions, product trials, alternative billing arrangements or group and site discounts please call 800-688-2421. We look forward to having you as a long-term member of the Relias Media community.