Risk Insider: Jack Hampton

The Cutting Edge of Health Care Reform

By: | July 26, 2016 • 3 min read
Jack Hampton is a Professor of Business at St. Peter’s University in New Jersey and a former Executive Director of the Risk and Insurance Management Society (RIMS). He was named a Risk Innovator in 2008 by Risk and Insurance®. He can be reached at [email protected]

The Land of Lincoln health care exchange just announced it is closing as a result of big financial losses. Naturally, the first thing that comes to mind is podiatry.

The closing after three money-losing years is bad news for Illinois joggers. They need periodic visits to the podiatrist to treat abused toenails and painful calluses.


So why should those who don’t live in Illinois, or even jog, care? Let me explain.

Health care tries to balance the cost and benefits of service with care and understanding for the emotional needs of the patient. By and large, it does a great job.

The problem is a mismatch between the backgrounds of the people who provide service and the services needed. Routine treatments do not rise to the level of disorders. Annual physicals are not complicated.

We need a better system for routine and preventative health care. We are getting it, but too slowly.

An over-reliance on testing and high-priced technology is one reason exchanges are going out of business. Here is another:

Dennis D’onofrio, Doctor of Podiatric Medicine, has an office in Torrington, CT. He did post graduate work at Yale and residency at a VA hospital.

He has two board certifications and three hospital affiliations. His achievements verify his prowess with corns, calluses and ingrown toenails.

Does Dr. Dennis, with all his expensive learning, have to perform at this level of medical intervention? Pedicurists, often lacking a high school degree, can treat feet in storefront salons.

Imagine Dr. D’onofrio, board certified and all, sanding down a big toe. Could a lesser-trained health care professional perform many of his daily tasks?

The mismatch between medical treatment needed and qualifications of the provider drives up the cost of health care and creates shortages of medical services.

We need a better system for routine and preventative health care. We are getting it, but too slowly.

If we do not accelerate the process, the cost of health care may bury both medical providers and federal efforts to subsidize services for the needy and disadvantaged.

Question for the Illinois Department of Insurance. Can we find capable people and train and certify them to perform routine and preventative medical service?

Would this lower the cost of health care and could it have kept the Land of Lincoln cooperative viable doing what it does at a cost people and the government can afford?

We know the answer. Medical providers are doing it already. Nurses perform procedures once in the realm of doctors.


We are training medical assistants in areas as varied as family medicine, geriatrics, internal medicine, pediatrics, oncology, and cardiology. We need to accelerate the authorization for them to do more before financial pressure collapses the current system.

Concluding thoughts. I wonder if Dr. D’onofrio has student loans from his medical school days. Perhaps a leased Mercedes with monthly payments. A vacation home in the Caribbean.

We would not want this dialogue to hurt him. The man is a magician when it comes to treating minor foot pain.

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Risk Insider: Jason Beans

Medicare Paves the Way

By: | April 12, 2016 • 2 min read
Jason Beans is the Founder and Chief Executive Officer of Rising Medical Solutions, a medical cost management firm. He has over 20 years of industry experience. He can be reached at [email protected]

While it’s uncommon to think of Medicare blazing a trail anywhere, it is certainly at the forefront of value-driven health care. As of January 1, 2016 the Centers for Medicare & Medicaid Services (CMS) deployed 10 alternative payment models that increasingly tie healthcare payments to value.


With the ACA as a catalyst for change, Medicare is making assertive advances to replace the fee-for-service model we all know and love. Recent/upcoming activities include:

  • New Bundled Payment Plan for Joint Replacements – On April 1st, CMS launched its bundled payment initiative that’s designed to eliminate the significant geographic variance in reimbursements for inpatient total joint procedures.
  • First Set of Core Measures Used as Basis for Quality Payments – In February, CMS released seven sets of clinical quality measures to be used for value-based care.
  • Merit-Based Incentive Payment System (MIPS) – In January, CMS met its 2016 goal of shifting 30 percent of fee-for-service payments to value-based reimbursements; in 2018, they’re committing to 50 percent.
  • Physician Quality Reporting System (PQRS) Initiative – In 2017 physicians will receive negative payment adjustments for not satisfactorily reporting quality metrics to CMS.

One outcome of Medicare’s advancements that particularly caught my eye was reported by the Agency for Healthcare Research and Quality (AHRQ) in November 2015.

Their research indicates that hospital-acquired conditions (HAC’s) decreased 17 percent between 2010 and 2014, from 145 to 121 per 1,000 discharges, while readmission rates dropped 8 percent.

This resulted in an estimated 87,000 lives saved, and a cost reduction of $19.8 billion. These dramatic results occurred during a period of concerted effort by hospitals to reduce adverse events spurred by Medicare’s move toward value-based payment models.

Currently, the best fit for workers’ comp is Medicare’s Bundled Payment models, which set a single rate for services during an episode of care. This concept is certainly not unfamiliar to workers’ comp.

While these numbers certainly illustrate the business aspect of health care, more than that, they illuminate the striking financial and quality impact that value-based models can have on healthcare delivery.

Most compelling is that the 2010-2014 programs that drove these drastic improvements were largely Medicare’s pilot forays into value-based care.

Now that Medicare is fully implementing these programs, imagine the impact broader application could have in areas like workers’ comp.

At their foundation, value-driven models reward high quality and cost effective patient care. While Medicare has many models, there are four basic forms, three of which—Affordable Care Organizations (ACOs), Merit-Based Incentive Payment Systems (MIPS), and Capitated Rates—pose major obstacles for most workers’ comp payers today. All require significant patient volume to mitigate the providers’ risk and administrative burden, historical data and benchmarking efforts, and direction of care capabilities.

Currently, the best fit for workers’ comp is Medicare’s Bundled Payment models, which set a single rate for services during an episode of care. This concept is certainly not unfamiliar to workers’ comp.

The simplest (and oldest) model is DRGs, where hospitals are paid a flat rate for a diagnosis/procedure, regardless of treatment. We’ve also long seen case rates for physical therapy.


Surgical episodes provide an ideal opportunity to employ bundled payments for all treatment associated with a given procedure. Other creative iterations of value-based payments could be used as well, such as the Ohio BWC’s program for knee injuries.

While there is no fast-track to value-based care in workers’ compensation, there are certainly steps we can and should take today. With Medicare paving the way through proven models and successful outcomes, it’s time we bring what’s working elsewhere into our world.

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Sponsored: Berkshire Hathaway Specialty Insurance

Why Marine Underwriters Should Master Modeling

Marine underwriters need better data, science and engineering to overcome modeling challenges.
By: | October 3, 2016 • 5 min read

Better understanding risk requires better exposure data and rigorous application of science and engineering. In addition, catastrophe models have grown in sophistication and become widely utilized by property insurers to assess the potential losses after a major event. Location level modeling also plays a role in helping both underwriters and buyers gain a better understanding of their exposure and sense of preparedness for the worst-case scenario. Yet, many underwriters in the marine sector don’t employ effective models.

“To improve underwriting and better serve customers, we have to ask ourselves if the knowledge around location level modeling is where it needs to be in the marine market space. We as an industry have progress to make,” said John Evans, Head of U.S. Marine, Berkshire Hathaway Specialty Insurance.

CAT Modeling Limitations

The primary reason marine underwriters forgo location level models is because marine risk often fluctuates, making it difficult to develop models that most accurately reflect a project or a location’s true exposure.

Take for example builder’s risk, an inland marine static risk whose value changes throughout the life of the project. The value of a building will increase as it nears completion, so its risk profile will evolve as work progresses. In property underwriting, sophisticated models are developed more easily because the values are fixed.

“If you know your building is worth $10 million today, you have a firm baseline to work with,” Evans said. The best way to effectively model builder’s risk, on the other hand, may be to take the worst-case scenario — or when the project is about 99 percent complete and at peak value (although this can overstate the catastrophe exposure early in the project’s lifecycle).

Warehouse storage also poses modeling challenges for similar reasons. For example, the value of stored goods can fluctuate substantially depending on the time of year. Toys and electronics shipped into the U.S. during August and September in preparation for the holiday season, for example, will decrease drastically in value come February and March. So do you model based on the average value or peak value?

“In order to produce useful models of these risks, underwriters need to ask additional questions and gather as much detail about the insured’s location and operations as possible,” Evans said. “That is necessary to determine when exposure is greatest and how large the impact of a catastrophe could be. Improved exposure data is critical.”

To assess warehouse legal liability exposure, this means finding out not only the fluctuations in the values, but what type of goods are being stored, how they’re being stored, whether the warehouse is built to local standards for wind, earthquake and flood, and whether or not the warehouse owner has implemented any other risk mitigation measures, such as alarm or sprinkler systems.

“Since most models treat all warehouses equally, even if a location doesn’t model well initially, specific measures taken to protect stored goods from damage could yield a substantially different expected loss, which then translates into a very different premium,” Evans said.

Market Impact

That extra information gathering requires additional time but the effort is worth it in the long run.

“Better understanding of an exposure is key to strong underwriting — and strong underwriting is key to longevity and stability in the marketplace,” Evans said.

“If a risk is not properly understood and priced, a customer can find themselves non-renewed after a catastrophe results in major losses — or be paying two or three times their original premium,” he said. Brokers have the job of educating clients about the long-term viability of their relationship with their carrier, and the value of thorough underwriting assessment.


The Model to Follow

So the question becomes: How can insurers begin to elevate location level modeling in the marine space? By taking a cue from their property counterparts and better understanding the exposure using better data, science and engineering.

For stored goods coverage, the process starts with an overview of each site’s risk based on location, the construction of the warehouse, and the type of contents stored. After analyzing a location, underwriters ascertain its average values and maximum values, which can be used to create a preliminary model. That model’s output may indicate where additional location specific information could fill in the blanks and produce a more site-specific model.

“We look at factors like the existence of a catastrophe plan, and the damage-ability of both the warehouse and the contents stored inside it,” Evans said. “This is where the expertise of our engineering team comes into play. They can get a much clearer idea of how certain structures and products will stand up to different forces.”

From there, engineers may develop a proprietary model that fits those specific details. The results may determine the exposure to be lower than originally believed — or buyers could potentially end up with higher pricing if the new model shows their risk to be greater. On the other hand, it may also alert the insured that higher limits may be required to better suit their true exposure to catastrophe losses.

Then when the worst does happen, insureds can rest assured that their carrier not only has the capacity to cover the loss, but the ability to both manage the volatility caused by the event and be in a position to offer reasonable terms when renewal rolls around.

For more information about Berkshire Hathaway Specialty Insurance’s Marine services, visit https://bhspecialty.com/us-products/us-marine/.

Berkshire Hathaway Specialty Insurance (www.bhspecialty.com) provides commercial property, casualty, healthcare professional liability, executive and professional lines, surety, travel, programs, medical stop loss and homeowners insurance. The actual and final terms of coverage for all product lines may vary. It underwrites on the paper of Berkshire Hathaway’s National Indemnity group of insurance companies, which hold financial strength ratings of A++ from AM Best and AA+ from Standard & Poor’s. Based in Boston, Berkshire Hathaway Specialty Insurance has offices in Atlanta, Boston, Chicago, Houston, Los Angeles, New York, San Francisco, San Ramon, Stevens Point, Auckland, Brisbane, Hong Kong, Melbourne, Singapore, Sydney and Toronto. For more information, contact [email protected].

The information contained herein is for general informational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any product or service. Any description set forth herein does not include all policy terms, conditions and exclusions. Please refer to the actual policy for complete details of coverage and exclusions.



This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Berkshire Hathaway Specialty Insurance. The editorial staff of Risk & Insurance had no role in its preparation.

Berkshire Hathaway Specialty Insurance (www.bhspecialty.com) provides commercial property, casualty, healthcare professional liability, executive and professional lines, surety, travel, programs, medical stop loss and homeowners insurance.
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