A new frontier for risk management


A new frontier for risk management

The healthcare industry in the US is changing for the better—but this process also means new risks and new ways of approaching risk management. Insurance broker Marsh’s white paper explores the challenges faced by the sector.

There have certainly been many changes in the healthcare sector over time but they have been evolutionary—parts of the system have changed and it has been gradual. What we are seeing now, I would call revolutionary.”

That is how Holly Meidl, leader of Marsh’s US HealthCare Practice, responds when asked to put the recent changes in the US healthcare sector into a historical context. Nothing like this has ever been attempted before, she says. “People refer to healthcare in the US as a sector. This is a push to a true integrated system. It is the biggest coordinated change the sector has seen.”

Much of the onus for implementing this change will fall at the door of risk managers. A function that was previously regarded as important but perhaps not core to organizations will now become central not just to the way risks are managed but to the way entire departments and organizations are run. And on top of that, you have the insurance implications to contend with.

All this represents a steep learning curve for risk managers. To help them, Marsh has produced a white paper, entitled ‘A New Risk Management Frontier: Accountable Care Organizations’, which summarizes some of the key changes, risks and challenges healthcare risk managers will face going forward.

The white paper argues that this change to a new model of accountable care holds substantial promise and should mean a better future for the industry. It should mean a much better coordination of services across the country and major cost savings. But the change will also force organizations to make unprecedented cultural and operational shifts—many of which the industry has yet fully to identify and manage.

Accountable care organizations (ACOs) are defined as groups of healthcare providers that come together voluntarily to provide coordinated high quality care to Medicare patients. Marsh also notes that, in fact, the term is often used to refer to many types of organizations and networks—the common theme is that all aspire to deliver cost savings and better patient outcomes through better coordination, fewer errors and less duplication of services.

The report notes that some organizations are ahead of others in implementing a change in this direction. Some became early adopters while others waited for the Supreme Court’s decision on the Patient Protection and Affordable Care Act (PPACA).

As Meidl sums up: “While a lot of groups are well on their way to adapting to these reforms, there are many who are not and it is going to take them some time to get there. Some of the state exchanges, for example, are nowhere near ready. The point of this white paper is really to help organizations on that journey.”

There is also, of course, still uncertainty over the PPACA’s future, thanks to the upcoming presidential election. But Marsh believes that the direction of the future of the sector has now been set, and the momentum is too great to reverse the reforms completely.

“You have CMS [The Centers for Medicare & Medicaid Services], the biggest purchaser of healthcare services in the country, already endorsing this and that will move the sector in this direction regardless of what happens to the act now,” says Meidl. “We believe there will be some changes on deadlines, regardless of the outcome of the election, as some of those look quite tight. But the message from us is simple: it is too late to turn the clock back now. Accountable care is here to stay.”


A key change for many healthcare providers will be the formation of these new networks in the first place. The way they are structured will vary greatly, with organizations having to consider carefully the type of structure they adopt. But whichever form they use, the transition to a new structure will also mean risks.
In its report, Marsh identifies five specific risks associated with the transition that ACOs must consider (see box). But in addition to these, the report highlights the risk these pose to the reputation of ACOs, especially in a digital age where patients may use the Internet to shop around for the best care.

Meidl says that in the long term, organizations should see a reduction in litigation, but in the short term the industry could see an upturn in difficulties.

“The risk is the transitional phase; people are worried about that,” she says. “Especially with things like medical malpractice, you can clearly see that in the long term things should improve, but in the short term there could be more suits.

“Second, with so many organizations now linking up, there is a risk there too. You need to choose the right organizations to partner with and do so with the correct legal agreements in place and the right structures. Class action lawsuits could be a risk in this sense.

“Some could say an ACO made a poor choice, or they could claim a monopoly. And then there is the risk of data breaches. We have seen class actions happen in that area in recent years which is new and a real risk for the sector.”

The report highlights the importance of implementing a culture of safety and robust patient care throughout an organization. This process requires, it says, the buy-in of staff at all levels of the organization.

It also suggests that issues such as training should be looked at carefully; a system of ‘patient rounding’ should be implemented, whereby the barriers to safety or communication are identified and addressed; a process of root cause analysis should be used after an adverse outcome to identify mistakes and implement systems to prevent it happening again; and regular communication should be put in place in terms of any policy changes.
From a risk management perspective, the report suggests that risk managers should align themselves more closely with their organizations’ overall strategies. There should be better integration of risk management processes and organizations’ strategic goals, it says, and suggests the creation of a risk management committee including leaders from many departments, regular risk assessments and risk mapping.

The ultimate goal will be the adoption of a more holistic approach by risk managers and the implementation of true enterprise risk management (ERM) across the entire organization.

“Previously, risk managers would tend to assess risks within a fairly narrow spectrum; now, they must take a global, enterprise-wide view of all risks,” says Donna Jennings, a vice president in Marsh Risk Consulting’s Clinical Healthcare Consulting practice. “This will involve working side by side with physicians and hospital leadership while maintaining a close relationship with the clinical and ancillary staff, including the quality department.”

Jennings adds that while the majority of the organizations she works with are very proactive in their approach to this challenge, there is a small percentage that are not. “Some are more reactive and we tend to get engaged when a problem arises. It is obviously better to adapt to these changes in advance and avoid a crisis. For risk managers, it is about embracing new ways of thinking to adapt to the changing healthcare delivery system.”


Sitting behind all these risks and also pondering how to best handle them going forward is the insurance industry. Jennings and Meidl admit that for some risk managers, how they insure—especially some of the new risks they face—can take a back seat. It is also down to the insurance industry, they argue, to develop and provide appropriate solutions.

“The first thing the insurance industry must do is understand what these clients are going through, how their new structures are going to work and what new risks that creates,” says Meidl. “If they understand these things, they will be able to do a better job on the underwriting side and bring solutions to the table.”

She notes that some insurers have invested heavily in appropriate expertise and are developing new products for the healthcare sector. Others should follow this lead, she believes.

“Insurers need to innovate around this and potentially find multiple solutions. Some are still addressing these risks using old policies. That will be fine for some risks but our clients will also need new types of coverage and one thing some companies are looking at is ways of packaging these policies for healthcare organizations.”

In the white paper, Marsh notes that most ACOs will already buy directors & officers (D&O) coverage and that should cover most of the new risks they face. But it also identifies four more risk types that could require bespoke coverage:

• Managed care errors and omissions (E&O) insurance which should be considered by any organization either forming or joining an ACO;

• Provider excess loss insurance, which protects providers against catastrophic individual health claims;

• Cyber/data privacy insurance, which covers data breaches and will be increasingly needed as more information is shared; and

• Medical professional liability insurance (medical malpractice insurance), which provides coverage for claims as a result of physician negligence.

The report suggests that risk managers should schedule face-to-face meetings with their underwriters and brokers to discuss their own internal strategies and how the insurance industry can help deal with new risks that emerge. But it argues that the industry will adapt and insurers will step up to the plate.

As the report concludes: “The new frontier of accountable care presents opportunities for the healthcare industry, including the promise of substantial cost savings. But times of transition often bring organizations their greatest tests and challenge leaders to rethink today’s approaches and find innovative ways to address tomorrow’s demands.

“As the move toward accountable care continues, organizations must confront those demands and improve safety and service cultures, re-evaluate risk exposures and insurance programs and more closely align risk management with strategy. The organizations that can meet this challenge will emerge as leaders in the next era of healthcare delivery.” 
Establishing a provider network
Decisions about which organizations to partner with, how to structure that arrangement legally and how things such as payments and expenses will be shared, themselves carry a significant risk. The report suggests that errors in the way this is done and managed going forward could result in anti-trust allegations, contractual liabilities and lawsuits from patients.

Entering into payer contracts
The report points out that the ACO could assume additional risks depending on the structure of reimbursement agreements with the government and other benefit plans. Risks include the pricing of medical services, contract mismanagement by member providers and incurring medical expenses in excess of agreed levels.

Developing transitional care models
The shift to accountable care will require better coordination by healthcare professionals to ensure the harmonization of care and the better sharing of information. While this will result in better care in the long term, in the immediate term the adjustment increases the risk of errors in the delivery of medical services.

Sharing of data
A critical component of achieving better patient outcomes through an ACO is the sharing of electronic medical records and other data. But with more parties handling and sharing data, the greater is the risk of a potential breach, with the risk of fines and litigation. 

Physician integration
A key component of the transition to accountable care is the alignment of physicians with hospitals. This could mean a greater exposure to medical malpractice litigation for ACOs.

Healthcare industry, Risk managers, Accountable care organisations(ACOs), Insurance,