As the impact of the Affordable Care Act ripples through US healthcare, HRMR asks Kimarie Stratos, who oversees legal, risk and privacy for the US’ third largest public hospital system, how her system’s approach to risk has changed.
Florida-based Memorial Healthcare System’s response to adverse events tells us a lot about how risk management has changed in recent years. From the moment an incident occurs, transparency, communication and speed of response are paramount.
“If there has been an unanticipated outcome at one of our hospitals, risk management is immediately called to investigate; we address any issues straight away. After assessing the care, we’ll meet with the patient and family and disclose information available to us, including adverse information,” says Kimarie Stratos, Memorial’s senior vice-president, general counsel and chief privacy officer.
“We assess as much as we can at the beginning. We are very transparent —that’s the philosophy of the organization.”
Stratos, who has more than 25 years of health law experience, oversees legal, risk and privacy for Memorial’s entire hospital system. This includes six hospitals, numerous primary care and outpatient centers, a nursing home, a clinically integrated network of over 1,200 physicians, a Medicaid accountable care organization (ACO) and numerous other enterprises.
As part of the system’s transparent approach, Stratos has championed the use of mediation as a tool to communicate and settle cases. She personally attends as many as she can.
“Mediation is incredibly effective for the very reason that some people dislike it: you sit face to face with the party that is suing you as they explain what they believe you did wrong. Once there’s a lawsuit, it’s the only time that you can actually have a direct conversation with the person suing you and talk about what happened.”
Stratos is aware that it’s very hard for a defence lawyer to provide the apology, or the explanation, that the plaintiff wants to hear. Sometimes in defending the case, a defence lawyer blames the plaintiff. That lack of connection and empathy can make the situation worse, whereas mediation, if utilized correctly, can allow the hospital to present a human face and can often pave the way to an amicable resolution.
“It’s important to remember that you are dealing with someone who came in to your hospital to get better. Unfortunately, even when everything is done right, a patient may end up in worse shape than when he or she in. If a mistake was made, that needs to be acknowledged. Irrespective of the cause of a negative outcome, a person has suffered, both emotionally and physically, and that fact deserves validation.
“Some people want to hear that changes were made to prevent what happened to them from happening again—yet so often people don’t connect in that way: sometimes, in the context of being business-like and putting up defences, litigants don’t recognise the human component. The way you handle that emotional part can greatly affects results. People need to know that you care.”
A firm line
However, when it comes to settling claims, Memorial is not a soft touch. If Stratos and her colleagues feel that a plaintiff is trying to play the system, they will defend the hospital rigorously, even if—on the surface, at least—this looks like the more expensive option.
“We go through claims runs and if we spot a ‘cheater’—for example someone says they slipped on water when a video shows no water—we don’t pay. Yes, it may cost us $20,000 to litigate the case when we could have settled for $10,000, but we do not believe in paying disingenuous people.”
In part, this approach comes from a moral standpoint: Memorial’s leadership hold integrity as a core value and believe they are doing the right thing by standing their ground. Stratos also believes this stance makes financial sense in the long run: if an organization becomes known for paying in situations where there is no liability, then it potentially faces a rise in spurious claims, with certain plaintiff lawyers deliberately exploiting the system.
“When we balance settling for nuisance value versus paying attorney’s fees and winning, I’ll pay the attorneys. It’s worked out for us: every year our numbers have gone down in terms of expenditure on claims and attorneys’ fees.”
In the five years since she arrived at Memorial, Stratos has concentrated much of her effort on the system’s approach to insurance. Memorial has the financial strength to retain a certain portion of its risk—a strategy that was necessary for windstorm, for a period .
“Windstorm has always been something that South Florida hospitals focus on—patients and staff don’t evacuate, even in the worst storms. After Andrew hit, it was virtually impossible to get coverage and pricing was outrageous. Memorial chose not to spend millions of dollars in premium for very little coverage. Instead, it used the money to harden its buildings, and make its facilities safer.
“We have the benefit of being a very financially sound institution. The system is an integral part of the community, providing the majority of care to residents in the area. We have excellent leadership at the executive level, a very talented staff of clinicians, and exceptional community support, all of which have greatly contributed to our financial success. That allows us the luxury of looking at insurance and risk knowing that we can retain risk when we choose to, based on the insurance marketplace.”
Memorial’s leadership has spent a lot of time examining which risks they want to retain versus which risks they want to insure, and at what levels. To facilitate this, they hired an insurance manager.
The new role helps the system address the financial realities of the Affordable Care Act (ACA), which has dramatically increased hospitals’ focus on controlling costs. This concern caused a recognition that newer risks, such as cyber and regulatory risks, were perhaps more financially concerning than clinical risk, and if not controlled, could result in balance sheet losses that would put hospitals out of business.
“Our insurance manager has worked with our broker to assess risk. As a result, we’ve significantly increased the number of risks that we insure, and have enhanced coverage for other risks, such as cyber. Last year we purchased regulatory coverage, which until recently, was not available in the healthcare marketplace.”
Memorial’s problem-solving approach to insurance led to its eventually obtaining windstorm insurance at a very competitive price, after a lengthy examination by the insurer found its buildings structurally able to withstand hurricane-force winds.
Moving to ERM
Now that Stratos is satisfied with Memorial’s approach to insurance and clinical risk, she is looking more closely at other aspects of risk management within the system. The risk management department is already functioning well, keeping pace with ACA-related changes and helping the system achieve strong financial results. However, she now plans to take it to the next level by implementing a more strategic approach to risk through enterprise risk management (ERM).
“Traditional hospital risk management had been quite reactive and was very focused on clinical risk. Risk managers had clinical backgrounds. Their focus was managing clinical risk and the resulting claims; there was no real focus on corporate risk nor any process-oriented, organization-wide assessment, at least not in community hospitals or smaller systems.
“In order to manage risk these days, you’ve got to have knowledge of everything happening within the corporation. In the past, individual silos dealt with their particular risks, but there was no process in place to assess and mitigate risk across the continuum. That’s what we’re working to do—we want to put a comprehensive ERM system in place.”
The intention is to achieve a formalised process that identifies, evaluates, quantifies and manages risk across the whole organization. As part of this, Stratos and her colleagues are currently looking at software-related tools that are springing up to help achieve this goal.
“We need to be able to identify and determine the significance of business risks throughout the organization and then decide, based on a careful analysis of occurrence probability and potential damage, where our resources will go to mitigate those risks.
“What you need these days from the risk management standpoint is somebody who’s very proactive—a perpetually curious person with critical thinking skills and very good communication skills, including listening. If you don’t listen, you’re not going to pick up on the nuances that will lead you to knowledge.”
Coping with consolidation
Like most US healthcare providers, Memorial has been affected by the wave of consolidation driven by the ACA. Amid all the mergers and changing cultures is an array of risks.
“Everybody’s merging, cultures are changing and that brings risks you didn’t anticipate. Even if you do due diligence, there are so many things you’re not going to know, so you need to have a process in place that lets you really examine all the moving pieces,” says Stratos.
Memorial certainly has a lot of pieces: it has an ACO, it runs its own healthcare plan with more than 23,000 members, and it owns and operates a home health agency. It also employs hundreds of physicians, all bringing a host of new exposures.
Part of its response has been to hire a risk manager to deal solely with the Memorial Physician Group.
“We’ve done this because we’re hiring physicians very rapidly. They’ve had their own practices, and while we know they are good doctors, we need to educate and assist them in managing risk. The risk issues inherent in rapid acquisition of practices are enormous. If you don’t have a comprehensive system to address those issues, you’re going to end up with a loss,” says Stratos.
Looking to the future
As Memorial negotiates the changing risk landscape, Stratos is keenly aware that the ACA has caused not-for-profit health systems all over the US to become far more focused on cost and quantifiable results. Increased competition, combined with new regulatory and legislative changes, can easily send a health system spiralling down.
Against this backdrop, Memorial’s robust financial performance is a result of constant vigilance and forward thinking.
“My CEO often says that we need to be cautious about how we address problems, because today’s solutions often become tomorrow’s problems. This is particularly true of the technology revolution in healthcare—you can install an alarm system to mitigate one kind of risk, and then you face another: the risk of alarm fatigue.”
Stratos believes the system’s stability going forward will come from leadership’s ability to connect the various risk pieces in order to see the whole picture, and that the success of risk management will rely on the risk managers’ ability to form meaningful connections with staff.
“At the end of the day, if you can’t connect with people, you can’t lead people and manage risk. With 13,000 employees, a risk manager can’t manage risk alone. I’m pleased to say my risk people do a great job. Increasingly, sharing knowledge and empowering the rest of the staff will be essential.
“I’m excited about the future because I love the quantifiable results that good processes bring—in this case, taking better care of people.”
Memorial Healthcare System, US, Kimarie Stratos, Risk Management