3D Printing Offers New Risk Challenges
As commercial 3D printing advances from occasional to routine use, the product liability landscape will shift around it. Defective and counterfeit product exposures, among others, will arise for all participants along the manufacturing continuum, industry experts said.
In an adverse incident, said Rob Gaus, product risk leader, Marsh, liability will be apportioned among participants in the manufacturing and distribution stream: product manufacturer, printer manufacturer, software designer, feedstock supplier, distributor (especially if it modifies the product) and retailer (if the manufacturer is not well capitalized). No case law exists yet.
In 3D printing, a computer sends the software containing a product design to one or more printers, which builds the product, layer by layer, from many kinds of materials — plastics, metals, drugs, paints and even human tissue.
David Carlson, U.S. manufacturing and automotive practice leader, Marsh, said 3D-printed products are treated the same as any other new operation that poses new risks.
Underwriters and brokers must first assess the company’s risk management profile and risk appetite. When production, research and development teams look at technology, “they should loop in risk management. Risk management should be part of the continuum, or the company could get into sticky situations.”
The emerging risks include unregulated manufacturing, said Mark Schonfeld, a partner at Burns & Levinson LLP in Boston specializing in business and intellectual property law.
If 3D printing enables production of, say, just 100 hip implants or 100 hearing aids, such work will generally take place outside of a traditional mass-production factory, which is subject to government regulation and inspection.
“Insurance companies like FDA oversight of manufacturing because it makes products safer and helps identify responsibility when things go wrong,” Schonfeld said.
To protect themselves and their clients, Schonfeld advises insurers to keep abreast of technological developments, consult with a creative and knowledgeable attorney about how to address liability exposure, and adjust existing policies to be fair to consumers and prevent injury to the insurance company.
3D printing also raises the risk of counterfeit products, said Peter Dion, line of business director-product liability, Zurich Insurance. The digital “recipe” in the software design, and is vulnerable to capture, he said.
Although there is no encryption mechanism for the software, one solution might be to transfer the digital file in pieces only as they are needed by the printer to prevent capture of the entire design signature, Dion said.
Manufacturers have always struggled with counterfeit products, but 3D printing magnifies the risks because it can slash the time from product development to market-ready product to a matter of hours and requires no molds or prototypes. “Hackers can take the proprietary blueprint or software, send it to a third-world country, and have the product ready for market tomorrow,” said Carlson. “That’s a business disruption issue. Counterfeiters can put a company out of business.”
Drug manufacturers may subvert counterfeiters by adding tracer elements and watermarks to their formulations, which protects their reputations, profits and public health. “If the counterfeiters get the recipe wrong, they might not produce high-quality drugs for public consumption,” Carlson said.
Other manufacturers can also use watermarks and digital rights management (DRM) software to prevent file sharing. Still, Carlson said, counterfeiting is an old problem. “Bad guys have always exploited new technologies for their personal gain.”
The materials used by manufacturers present a greater potential loss exposure than the 3D printer itself, said Dion, noting that it is just another piece of equipment, like a pencil or a lathe.
For example, if a 3D printer is used to replicate a cupcake, the manufacturer should be as careful of contaminants in the mix as traditional bakers need to be. “When 3D printer manufacturers purchase materials from suppliers, they need to perform due diligence on their supplier’s products also.”
Risks in Three Dimensions
Companies are leaving themselves exposed to a host of costly and unexpected risks if they fail to come to grips with the new challenges presented by 3D printing technology.
Industry experts said that businesses need a fundamental review of their risk management processes and controls to deal with the potential problems caused by this new technology or they could find themselves being sued for copyright infringement or, worse still, having to pay out millions in product liability claims.
3D printing or additive printing, as it is commonly known in the industry, is the process of producing solid three-dimensional objects using a digital blueprint. It works by using a computer to send the design to a printer that then builds the product.
PwC estimates that 67 percent of manufacturers already use 3D printing, while NASA has been testing the technology in its space station for years. It is widely used for creating prototypes in the aviation, automotive and medical industries, and applications range from plane engines and car spare parts to surgical implants and prosthetic limbs.
With the industry expected to grow in value by 25 percent to $17.2 billion by 2020, according to consultancy firm A.T. Kearney, the scope for the technology is almost limitless — as are the potential risks, including counterfeiting and the manufacture of illegal drugs.
“The biggest risk of 3D printing is that you can make anything, anywhere in the world and that presents a host of potential problems,” said Mark Schonfeld, a partner at Burns & Levinson LLP.
“Those problems in the main include product liability, intellectual property, and safety and security issues.”
Supply Chain Risks
Schonfeld said that the biggest difference between 3D printing and traditional manufacturing is the complexity of the supply chain and the number of different parties involved.
“With 3D printing, you have more players than you would have in the traditional manufacturing process, where most of the participants work for the same company,” he said.
“So if something goes wrong with the product, who is liable – is it the designer, the supplier, the manufacturer or even the end user?
“Currently there is no legislation governing 3D printing, so it is often very hard to tell who is responsible.”
Rob Gaus, global product risk group leader at Marsh, said there are three key factors affecting any manufacturing process: “It’s about having a clearer focus on the materials that are being used, the financial strength of your supply chain partners, and the quality assurance program and processes that you have in place,” he said.
“Overarching all of those risks is the product risk management process, which revolves around risk assessment and how they apply in foreseeable use and misuse scenarios.”
Robert Weireter, vice president and senior underwriter at Swiss Re, said that increasing the scale of 3D print manufacturing also creates the problem of ensuring the quality and durability of the end product.
“When you print out something in a small-scale environment, you have a lot of control over the process, and therefore over the quality of the finished product,” he said.
“However, with 3D printing, questions arise when you increase the scale to a commercial level. Can you still ensure the quality of the finished product?”
Another key issue with 3D printing is counterfeiting or the illegal copying of products.
Provided you have the right design or blueprint and a 3D printer, it’s easy to quickly produce, for example, your own iPhone at home.
“It’s very easy if you have your own 3D printer at home to scan a design into your printer, print it out and sell it,” said Cindy Slubowski, vice president and head of manufacturing at Zurich North America.
“We have seen some claims, and the real issue is that the original manufacturer who has the rights to that product now has a counterfeit product out there that it knows nothing about and that can cause serious issues in terms of liability, patent and trademark infringement.”
No one is immune from the intellectual property risks associated with 3D printing, said Tom Srail, technology, media and telecommunications industry group leader at Willis North America.
“Intellectual property is a significant risk not only for the organization making the product but also for the supply chain as a whole and for other companies’ copyrights, trademarks and patents in similar types of products and areas,” he said.
“Even if you’re not producing anything using 3D printing, you can still be exposed to risks in the supply chain with other entities using the technology to counterfeit or copy what you are doing.”
Michael Bruch, head of emerging trends/ESG business services and chief underwriting officer, risk consulting, at Allianz Global Corporate and Specialty SE (AGCS), said that the convergence of manufacturing and digital technology also make unauthorized copying of product designs easier to do in the future.
“Because it will be much harder to track these products, traceability will become an even bigger issue than it was before,” he said.
“It will also bring a whole suite of issues such as piracy and copyright infringement to the fore.”
Therefore, it’s important for companies to do due diligence before manufacturing new products, said Shawn Ram, executive managing director and western regional manager at Crystal & Company.
“When manufacturing or technology companies develop a certain product, they have to do due diligence on patents and discovery on trademarks and copyrights, which is often overlooked because of the time and cost involved,” he said.
Security and Privacy Fears
The shadow of cyber risk also lurks around 3D printing. It’s no stretch to imagine someone hacking into a computer system and fundamentally changing the design of a product.
“You have this whole file sharing component in 3D printing that you don’t have in traditional manufacturing and so that automatically becomes a huge potential security and privacy issue,” said Zurich’s Slubowski.
“We are seeing a lot of 3D printing going into hospitals these days and if someone were to hack into their computer system and modify the design of a key component they produce, such as a heart valve for a patient, then the consequences would be unthinkable.”
Ram said that the lack of a strong regulatory environment in 3D printing also makes it much easier to manufacture a product such as a weapon that can cause harm or damage.
“There are still a lot of gray areas because there are so many different parties involved in the process, so it can be hard to create any meaningful regulations,” he said.
AGCS’s Bruch said that like any new technology, 3D printing will have its teething problems at first, but provided it is closely monitored, risks can be eliminated early in the manufacturing process.
“In terms of cyber risks, risk managers will need to review all of their IT risks in both their office computer systems and production lines and throughout the whole digitalized manufacturing chain from the first idea to the final 3D printed end-product,” he said.
3D printing also opens up the possibility of criminals exploiting the technology for their own gain, said Emily Cummins, managing director of tax and risk management at the National Rifle Association.
“Quite simply, any company that uses credit cards to run its business, which is most, carries a potential threat of being exposed to cyber risk,” she said. She cited a recent case where a criminal gang used a 3D printer to produce an ATM skimmer that was used to steal customers’ details.
“The kind of fraud that can be perpetrated from extracting the information on credit cards includes identity theft and financial theft.”
Risk Management Procedures Lag Behind
All of these risks have opened up companies to a host of potential claims running to millions of dollars, particularly on the product liability side.
Slubowski said the biggest danger to companies is failing to understand their exposures.
“If you don’t understand all of the nuances around 3D printing, then you will probably find yourself with claims that you didn’t anticipate you were going to have,” she said.
“We have seen it in the industry before where small companies get hit with large claims and they go out of business because they can’t come back from the reputational and monetary damage they have suffered.”
Despite companies’ best intentions, many are still lagging behind in terms of their risk management procedures for dealing with the risks of 3D printing, experts said.
Willis’ Srail said that the evolving technology of 3D printing means that companies have to continually adapt their risk management models.
“Some companies are well along the way with that,” he said. “However it’s safe to say that most companies are not ready for everything that is coming.
“It’s something that organizations will need to look at internally, externally and throughout their supply chain, and to undergo an ongoing improvement process by reviewing all of these risks on a continual basis.”
Ram went even further to say that 3D printing is still not even on some risk managers’ radar.
“Our general awareness of the value and opportunity of 3D printing is relatively nascent and so many risk managers aren’t prepared for it,” he said.
However, despite all the risks and possible downsides of 3D printing, Cummins is upbeat about the future.
“As an innovation, 3D printing can be managed either as a sustaining innovation that you can use to improve your business or as a disruptive innovation that overtakes an existing market and puts companies out of business,” she said.
“So those companies that get on board early on with the new technology can use it in a sustaining way to enhance their product and become industry leaders.”
It’s all in the Code: Five Essential Characteristics of HCPCS that Influence Outcomes
Payers are no stranger to codes. Claim and policy administration systems are filled with them. Moreover, whether designating claim type, feature, branch office, policy term, type of injury, or another classification, their use facilitates consistency and understanding. Codes also guide clinical and financial decision-making. At the foundation of medical cost management are three code sets. The International Statistical Classification of Diseases and Related Health Problems (ICD) diagnostic and procedure codes, ICD-10-CM and ICD-10-PCS respectively, are used to classify diseases, disorders, injuries, infections, and symptoms. National Drug Codes (NDCs) help ensure claimants received the correct strength, dosage form, and type of medication. Their use also helps pharmacists recognize the difference between products that may look or sound alike. Yet another useful code set is the Healthcare Common Procedure Coding System (HCPCS) created to identify services, products, and procedures rendered for the condition. It is on this code set we will focus.
When processing ancillary benefits in workers’ compensation and auto no-fault, HCPCS can determine whether the item is considered medically necessary and therefore, available to the claimant and otherwise related to the compensable condition. Codes can also affect the reimbursement amount. Thus, if a coding error is made, there can be significant adverse impacts to payers and claimants alike. For example, the vendor could stop supplying the item based on insufficient reimbursement, or the payer could deny the product or service completely. Both are detrimental to the claimant or overall claim outcomes. Coding errors may also result in claim leakage if applied incorrectly or misunderstood in the review process. It is therefore essential that payers be mindful of five essential characteristics of HCPCS.
#1 – HCPCS are generic
Like pharmaceuticals, there are many different providers and manufacturers of similar durable medical equipment (DME) items. However, HCPCS are not specific to brand and usually hundreds of different products can fall under the same HCPCS. In addition, some codes include certain services, such as evaluations and fitting fees, whereas some codes do not. For example, some health HCPCS rarely indicate the actual services being provided in the home, such as wound care or home infusion, but instead simply indicate an RN or LPN visit.
#2 – Unit of measure influences coding
Some supply codes have very specific units of measure, which can result in HCPCS quantities that are not whole numbers and can result in mathematical errors or rounding. For example, HCPCS code A4450 has a unit of measure of ‘per 18 square inches’ and is assigned to a roll of tape that is 2 inches by 5.4 yards, equaling 388.8 square inches. The quantity for this HCPCS code would therefore be 21.6. Additionally, some HCPCS codes specify ‘per pair’ or ‘each,’ so understanding the actual supply is important to determine the appropriate quantity.
# 3 – Sometimes, there is not a specific code
Centers for Medicare and Medicaid Services (CMS) has created a number of miscellaneous codes that have generic definitions and can be used when no other CPT or HCPCS code matches the description of the product or service provided. Miscellaneous codes can be easily abused either unintentionally due to lack of time and knowledge, or intentionally by a provider seeking a higher reimbursement rate. This is because miscellaneous codes typically do not carry a fee schedule due to their versatility and, therefore, may be reimbursed at higher amounts than a non-miscellaneous code. For example, K0108 defines a ‘wheelchair component or accessory, not otherwise specified;’ however, most wheelchair parts have a specific code outside of this one which could be more appropriate while also carrying a lower allowable amount.
#4 – Supplemental modifiers are useful
A supplemental modifier or identifier is a billing value that further clarifies the HCPCS/CPT code by telling the payer more about the billed product or service. Their application influences reimbursement because fee schedules largely differ depending on which modifier is reported. A rental (RR) for example, does not warrant the same reimbursement as a purchase (NU) yet both a purchase and rental of the same product carry the same HCPCS. Consider the following codes, K0001 = ‘STANDARD WHEELCHAIR’, K0001 RR = ‘STANDARD WHEELCHAIR’ that has been rented, and K0001 NU = ‘STANDARD WHEELCHAIR’ that has been purchased. Depending on the fee schedule, reimbursement could be $45 or $500.
Modifiers are also useful because they can define the unit of measure. By default, a HCPCS with a modifier of ‘RR’ is a rental per month. However, in some cases a provider may bill for a device daily and therefore interpret the fee schedule as daily rather than monthly. In this scenario, the provider may bill with a daily unit of measure, billing a quantity of 30 instead of the allowable amount of one. For devices that are rented daily, such as a negative pressure wound therapy device or continuous passive motion device, it is important to understand the unit of measure being used (monthly or daily) and be mindful that the daily billing exceeds the monthly allowable.
# 5 – The diagnosis influences allowable amounts
Some HCPCS change based on the diagnosis of the injured person and therefore, the allowable amount may fluctuate. For example, depth-inlay shoes are coded as an Orthotic (L – code) if the patient does not have a diabetic diagnosis and is using the shoes for orthopedic reasons. The same depth-inlay shoe may be used for a diabetic patient, but it would warrant an A-code, which can have a higher reimbursement level.
The use of coding assists claims professionals in compensability decisions, guides clinical decision-making, informs point-of-sale utilization controls, influences claim handling policies and procedures, and provides a valuable data point in statistical and analytics models. Moreover, their use facilitates better clinical and financial claim management in terms of payments that are more accurate, greater processing efficiency and consistency, and improved clinical management as a result of better understanding the medical condition(s) associated with the claim and the various therapies in use. Remaining mindful of the aforementioned five essential characteristics of HCPCS can therefore not only mitigate claim leakage but also achieve a better outcome.