How Healthcare Organizations Can Reduce Their Total Cost of Risk.

By: Bill Bower

We spoke to Bill Bower, Senior Vice President and Director of Healthcare at Gallagher Bassett, about this issue, who shared his learnings from more than 30 years in the industry.

Q: What trends are we seeing when it comes to total cost of risk in the healthcare industry?

Bower: Liability risk has always been a natural part of being in the healthcare industry, but I've certainly seen the nature of it evolve in my time in risk transfer, claim management, and clinical risk management. When I began my career as a trial attorney, healthcare institutions took on relatively low levels of risk, perhaps having a small, aggregated retention with large amounts of excess coverage for which they paid premium. Control of both allocated expense, as well as indemnity, rested with the insurance carriers. As organizations began to retain higher levels of risk, the dynamic changed.

First, as to claims management, institutions negotiated for greater, if not exclusive, claim control. Many created infrastructure to manage these claims "in house" or, perhaps, managed this function through the services of a third-party administrator, which would allow for expertise in claims management without the associated overhead and related costs.

Of course, a robust claims management process is absolutely essential to marshaling a defense and achieving an optimal result. It is certainly an effective means of lowering the professional liability spend rate. However, claims management is still reactive and costly — the event has already occurred.

The shift in risk transfer organizations further realized that even greater impact on total cost of risk could be achieved through a disciplined approach to process improvement — to stop the bad things from happening. Deploying resources to prevent clinical misadventure improves patient care, reduces morbidity and mortality, and can appreciably reduce exposure and the total cost of risk.

Q: How do timely communication and collaboration partner to help reduce total cost of risk?

Bower: George Bernard Shaw once wrote that, "The single biggest problem in communication is the illusion that it has taken place." Timely, open, and honest discourse is vital across all levels of what we do and can lead to significant reduction in professional liability expense. I'll give two examples.

Within healthcare institutions, and in relation to medical misadventures, communication must be timely and brutally honest. Everything we do is marred by human error. Mistakes are going to happen in any setting. In the healthcare space, it is vital that errors are recognized and communicated. It's not enough to have an incident reporting mechanism. An organization also needs a strong culture that supports it. Open and timely communication leads to recognition of process/system vulnerabilities, which in turn, allows for the creation and deployment of solutions. When you stop the bad things from happening, patient care is improved, and professional liability expense is reduced.

On the claims side, it's like a spoked wheel. Timely and genuine communication needs to flow back and forth, to and from our clients, our insurance/reinsurance partners, our defense attorneys, and the like. Through this, we can more readily mobilize our defense to a claim or, alternatively, better understand when a claim needs to be settled and turn our attention to resolution planning.

We advise our clients that we will tell them what they need to know, which may not be what they want to hear. Telling them they have a bad case that needs to get settled isn't a sign of weakness; it's merely sharing what they need to know. In turn, we expect the same from our defense counsel. Suppressing bad news leads to surprises, delay in action, and less than optimal solutions.

Q: How can we differentiate between the cost of risk and the cost of risk management?

Bower: The total cost of risk actually includes the cost of risk management. It is a broad concept that has a number of components, such as premium costs, deductibles, retained loss, allocated expense, and the cost of risk management, to name a few.

As we see healthcare organizations take on more risk, it's important that preventative initiatives are implemented to help reduce the risk of a claim occurring. This is where our team often comes in to help our healthcare partners with the right advice early on, so they can make quick and informed decisions about what the next steps need to be. When it comes to considering budgets for risk and risk management, it's important that organizations consider their appetite for preventative vs. reactive measures. A robust incident management and process improvement system commands resources. But the investment is well worth it.

As patients and the public invest vast amounts in their own preventative well-being measures, it's important that carriers and healthcare entities don't lag behind on this topic. This can change the balance of costs, as you may be able to reduce your cost of claims management by preventing the claim in the first place.

Q: At what point should disclosure come into play?

Bower: As I said before, everything we do is marred by human error. People will make mistakes. Whether a one off clinical misadventure, or a system error that results in injury, recognition should trigger consideration of disclosure. First and foremost, it's doing the right thing because it's the right thing to do. Patients and families deserve to be told when an error has occurred and, where appropriate, what steps the organization is taking so that the same type of event doesn't happen again. However, disclosure can also be an extremely powerful measure to reduce the cost of risk and the severity of a claim. Oftentimes, the disclosure conversation alone is sufficient to satisfy patients and their families. They simply want to know why something happened.

Other times, compensation is discussed and afforded prior to litigation and the formidable expense that comes with it. It's very important to select the right team members for disclosure discussions — people who can compassionately, but directly, convey the message and answer questions. Not every clinician has this skill set. When questions remain unanswered by the care team, patients and families seek answers elsewhere, oftentimes leading to a lawsuit. But, to engage early with a patient and family and reach a quick resolution is invaluable in reducing total cost of risk.

Q: What else should we consider to reduce professional liability expense?

Bower: The best defense is a good offense. Healthcare organizations can appreciably reduce the total cost of risk by engaging in proactive behavior by timely, honestly, and effectively communicating when medical misadventures occur and by executing process improvement plans to enhance patient care. When injury does occur as a result of individual clinical error or process mishap, consider disclosure and move toward resolution. Should injury result in a lawsuit, open and honest discourse about the case is essential so that an informed strategy can be employed to prepare the case for trial or to work toward resolution.