How Healthcare Organizations Can Reduce Their Total Cost of Risk

By: Bill Bower

Risk is always present regardless of industry, but in fast-paced and high-stakes settings such as those in healthcare, mitigating risk and managing impacts efficiently and effectively are extremely important. Historically, healthcare institutions have taken 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 and indemnity rested with the insurance carriers. As organizations began to retain higher levels of risk, the dynamic drastically shifted.

Bill Bower, EVP — practice leader, Healthcare Vertical, discusses the evolution of change within the healthcare industry and what it means for healthcare organizations and managing their bottom lines.

Bower: First, as to claims management, we're continuously seeing institutions negotiating for greater, if not exclusive, claim control. Many have created infrastructure to manage claims in house or, perhaps, manage this function through the services of a third-party administrator, which allows for expertise in claims management without the associated overhead and related costs.

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 — as the event has already occurred.

The shift in risk transfer organizations further realized that even greater impacts on TCOR [total cost of risk] could be achieved through a disciplined approach to risk mitigation through process improvement — to stop bad things from happening. Understanding the key risks that are driving claims, whether they be workers' compensation or professional liability, is helpful when determining where to focus mitigation strategies. Organizations that are better informed will naturally be able to better protect their business and their people — speaking to both care providers and patients. Given the advancements in data-mining applications and tools, partnering with an organization that has its finger on the pulse, for lack of a better term, can uncover unique insights and trends, allowing for better preparation and mitigation tactics. Deploying resources to prevent clinical misadventures improves patient care, reduces morbidity and mortality, and can appreciably reduce exposure and TCOR.

Q: How do timely communication and collaboration partner to help reduce TCOR?

Bower: George Bernard Shaw once wrote, "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 reductions 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 the 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, 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 defenses 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. Settling a bad case isn't a sign of weakness, and we'll be forthcoming with this recommendation if it is the better solution. 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: TCOR 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 healthcare organizations take on more risk, it's important that preventative initiatives are implemented to help reduce the risk of an incident occurring that could lead to patient and/or staff harm and, potentially, a claim. We incorporate a robust system of data analytics, drawing from our own information as well as that of the client. From this, we can identify themes, trends, and opportunities for improving processes and better mitigating risk — whether directed at workplace safety or reducing patient harm. This is where we often come 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 appetites 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, carriers and healthcare shouldn't lag behind on this topic. This can change the balance of costs, as claims management costs can be reduced by preventing the claim in the first place.

Q: At what point should disclosure come into play?

Bower: People will make mistakes, whether a one-off clinical misadventure or a system error that results in injury, and recognition should trigger consideration of disclosure to the patient. It's a matter of 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. Disclosure can 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 because 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 compassionately but directly convey the message and answer questions. When questions remain unanswered by the care team, patients and families seek answers elsewhere, oftentimes leading to a lawsuit. Engaging early with a patient and family and reaching a quick resolution are invaluable in reducing TCOR.

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

Bower:The best defense is a good offense. Healthcare organizations can appreciably reduce TCOR by engaging in proactive behavior by timely, honestly, and effectively communicating when medical misadventures occur and by executing process improvement plans to provide safe work environments for healthcare teams and enhance patient care. When injury does occur to a patient as a result of an individual clinical error or a 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.

Gallagher Bassett provides seamless, integrated, and comprehensive litigation, third-party claims administration, and risk management services tailored to the needs of individuals and healthcare organizations. Our deep expertise and comprehensive approach to the healthcare industry's biggest challenges provide us the opportunity to partner with our clients to lower their TCOR while providing superior service.

Contact us to learn more about how we can help you protect what matters most.