Taking care of the workers
WICHY / SHUTTERSTOCK.COM
Rapid change in healthcare delivery and payment systems in the US and around the world should inspire healthcare industry captive insurers to innovate. Paying claims, reducing variation in losses and protecting the balance sheet is job one. But beyond financial stability, what can the captive do to further the mission of its parent organisation?
Healthcare captives have enjoyed growing surplus for much of the last decade for reasons including improving patient safety, proactive risk management, low discount rates, conservative actuaries, improving investment environment and soft reinsurance conditions to name a few. Parent companies of these captives are now in a position of potentially great advantage—if they are willing to take it.
Communication-and-resolution programmes (CRPs) encourage disclosure of unanticipated care outcomes to affected patients including an apology and reimbursement or compensation if appropriate. While these programmes seem like common sense to those outside the industry, they represent a significant change for many healthcare providers who have been stung by a highly variable, unreliable and punitive medical malpractice system.
The effect of this system is a ‘deny and defend’ approach to unanticipated care outcomes that leaves neither patients nor providers satisfied with the result. A CRP serves to provide a fair settlement to patients without enduring a painful litigation process. In the most basic terms, these programmes are the right thing to do for patients and providers.
Adopters of CRPs cite both economic and moral reasons for choosing to implement and operate these programmes. As liability insurers, healthcare captives share or own the economic impacts of these programmes and therefore have significant interest in the successful operation of a CRP. One of the most advanced practitioners of CRP programmes in the US, Stanford Health Care enjoys the benefits of captive insurance.
Over the last seven years, The Risk Authority-Stanford has operated the Process for Early Assessment and Resolution of Loss (PEARL) for Stanford Health Care. The fiscal results of the programme are promising—frequency of lawsuits is down about 45 percent and according to Aon’s Healthcare Liability Benchmark study, Stanford’s loss rate remains a fraction of that of its benchmark peers. To wit, the loss rate has been excellent both before and after the implementation of PEARL, but importantly, the programme has clearly not led to increased costs.
When a captive is involved, the economic benefits of the CRP are retained within the organisation and the number of interested parties is reduced. Medical malpractice insurers have been seen as a potential barrier to CRPs. Self-insured healthcare organisations have an incredible advantage in that the insurer is their own and far from being a barrier can be a catalyst for the CRP. In the end, the CRP can reduce the severity of claims or prevent incidents from becoming claims altogether. As such, the captive has a direct financial interest in the effective launch and operation of the CRP.
A 2014 paper, Implementing Hospital-Based Communication-And-Resolution Programmes: Lessons Learned in New York City, published in Health Affairs found that strong support for such programmes from top leadership at the hospital and insurers as well as adequate staff resources are critical to the success of CRPs. Healthcare captives can help meet each of these three criteria and can be catalyst for these programmes.
Healthcare captives provide the parent with three key advantages to launching and operating the CRP. First, the captive board likely has several key leaders who can provide the CRP with the political momentum and support it needs to succeed. Next, the strong results of the captive can fund significant risk management grants to get the programme started. Last, for physicians participating in the programme, the captive can remove fear of negative consequences from their medical malpractice insurer. When considered together, these advantages make the captive a logical starting place for a CRP.
"In addition to funding, the captive can also credit or debit premium to encourage behaviours that benefit the CRP. Premium credits can be used to incentivise physicians and staff."
Effective CRPs require a champion or champions within the organisation to function. In addition, organisational leadership needs to provide the political will and cover to encourage the use of the CRP. The captive board likely includes several key CRP programme stakeholders and as such is an ideal ‘home’ for the governance of the CRP. In addition to key leadership, the captive could form a CRP committee that operates the CRP for the captive.
As the CRP programme gets underway, the captive committee provides regular reporting to the board. It should measure and track lessons learned from the programme. A key element to successful CRPs is the patient and/or their family understanding what changes have been made to reduce the likelihood that whatever happened to them will happen again. The captive can make available risk management grants to fund these changes. One key metric used by The Risk Authority-Stanford is the ratio of PEARLs to claims with an identified goal of handling a majority of incidents as PEARLs rather than claims.
Risk management grants represent a significant opportunity for healthcare captives to invest in loss prevention and mitigation. There are several costs associated with starting and running a CRP that may be best handled via a grant in the early year or years. These costs could include marketing to and education of providers, hiring or retraining claims handling staff to work as a CRP liaison, and external medical reviews. Eventually, any ongoing operational costs should be shifted to the parent organisation.
In addition to funding, the captive can also credit or debit premium to encourage behaviours that benefit the CRP. Premium credits can be used to incentivise physicians and staff to participate in education programmes. Premium debits can be used to inspire prompt reporting of incidents to risk management.
One of the fears of CRPs is they are an invitation to increased litigation. The captive should make clear to insureds that they will not be punished for initiating a CRP. If a premium allocation model is used, CRPs should be considered a system-wide cost and not impact the allocation in any way. The captive can facilitate continued focus on the aggregate and not let any single claim result impact overall CRP strategy. As a strategy and over a long period of time the CRP will add value to the organisation both by reducing costs—blunting the impact of potentially severe claims—and adding value, increasing patient and employee satisfaction by doing the right thing in the face of unfortunate circumstances.
From the captive operations perspective it is always important to clearly communicate changes in process to the actuary and reinsurers. This is especially important because the underlying data with which loss reserves and forecasts are calculated will change. There may in fact be an increase in incidents that are tracked as the CRP is launched. Reinsurers will want to understand the programme and the potential impact on them. The programme should be constructed with reinsurance reporting requirements and involvement clearly understood.
Captive insurers provide an advantage. It is time for healthcare captives to press that advantage for the benefit of patients, providers and the healthcare system as a whole. Captives have the political power, money and functional role to ignite and launch a successful CRP.
John Littig is the chief financial and underwriting officer of The Risk Authority. He can be contacted at: Jlittig@theriskauthority.com
PEARL, CRP, reinsurance, insurance, John Littig, The Risk Authority, North America, Bermuda
Taking care of the workers