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Black Swan

Bigger Than the Big One

The most-feared quake of all results in economic catastrophe.
By: | August 4, 2014 • 8 min read
Since the Tohoku quake in Japan, scientists have changed their thinking on how bad the big one could get.

When it starts at 2:12 p.m. on an October Thursday, residents of California old enough to remember previous big quakes assure themselves that they’ve been through this before.

But in another 10 seconds or so, they see that they are profoundly wrong.

The shaking, stronger than anything ever measured in the United States, goes on and on, not for seconds, but for minutes. Panic builds to horror as people are thrown to the ground, stoned by debris from crumbling office buildings or crushed in their cars under collapsed freeway overpasses.

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This is a quake even bigger than “The Big One,” which modelers tend to peg as something in the 7.6 to 8.0 range on the Richter scale. This is an 8.5 magnitude quake on the San Andreas Fault with an epicenter at Cape Mendocino in Humboldt County, about 250 miles north of San Francisco.

According to modeling firm EQECAT, a subsidiary of CoreLogic, the rupture in Humboldt County triggers a cascade of four contiguous San Andreas Fault segment ruptures that end in Southern California at Indio in the Salton Sea.

It was fire that destroyed much of San Francisco in the legendary 1906 earthquake, but it is salt water this time that plays a substantial role in the undoing of that great city and its bigger cousin, Los Angeles.

In Southern California, the quake provokes a submarine landslide, 100 miles or so in length and miles wide, that runs from the coastal waters of Santa Barbara down to San Luis Rey in San Diego County.

That immense shifting of underwater soil in turn pushes water toward land in a tsunami that runs a mile or so inland in places, damaging large oil refineries in El Segundo and Torrance, and creating an environmental disaster.

Hundreds of billions of dollars of Southern California’s high-priced residential and commercial real estate is erased in 10 minutes. Thousands die within that same time span.

The Port of Los Angeles and the Port of Long Beach, the two biggest U.S. container ports, are shut down, severely damaged by the shaking and the tsunami.

To the north, the “Achilles heel” of San Francisco, its bay-side seawall, ruptures in multiple places, spilling bay water into the city.

The four-mile seawall, which runs from Hyde Street and Fisherman’s Wharf in the north to Pier 54 and Channel Street in the south, was cobbled together in 21 sections from 1878 to 1924. The land mass filled in behind the seawall is composed of sand, clay and gravel in places and liquefies under a quake of this magnitude, undermining the city’s Embarcadero roadway and severing crucial utility and public transportation connections.

San Francisco is far better prepared for seismic activity than any U.S. city. But when the seawall fails, the surging bay water undermines downtown office buildings already weakened by the shaking, and several of them collapse.

The destruction of the seawall shuts down the Transbay Tube, the underwater Bay Area Rapid Transit rail connection between San Francisco and Oakland, stranding hundreds of thousands of commuters in the broken cities.

Damage to the Bay Bridge shuts down first-responder access from the east. Damage to the Golden Gate Bridge cuts off aid from the north.

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With emergency responders in the rest of the state frantically working to save their own populations, the city is sealed off from help, stricken and flood ravaged. Its residents tend to the injured and dying as best they can as spiraling smoke obscures the sun and sirens wail unceasingly.

The Fallout

According to EQECAT, the insured losses from a cascading San Andreas rupture measuring 8.5 on the Richter scale would amount to $140 billion.

Before the Tohoku quake of March 2011, scientists thought that an 8.5 on the San Andreas was inconceivable, according to Mahmoud Khater, chief science and technology officer with EQECAT. But before Tohoku, no one thought that the fault in Japan could produce a 9.0. The most it was thought capable of was an 8.4.

Tragically, the world now knows better, after more than 16,000 Japanese deaths and more than $30 billion in insured losses.

“It is really Tohoku that has altered the scientific and actuarial thinking,” Khater said.

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The importance of the Ports of Long Beach and Los Angeles to trade with technology suppliers in Asia is just one piece of the extended business interruption and contingent business interruption aftermath of an 8.5 on the San Andreas that would lead to global economic losses of $1 trillion.

“We clearly agree that it would be a multi-year event,” said Jamie Miller, head of North American property for Swiss Re.

EQECAT estimates that there is $2.2 trillion in residential and commercial property exposure in California. The company said fatalities from the event we envision would run into the tens of thousands.

As gruesome as tens of thousands of deaths would be, and as daunting to the insurance industry as $140 billion in insured losses may appear, Miller and his colleagues at Swiss Re fear that even greater economic calamity awaits, should this event occur.

Alex Kaplan, vice president, global partnerships, public sector business with Swiss Re, points to the low take-up rate of personal lines earthquake insurance in California, the weak financial condition of the federal and local governments, and how that combination could balloon into a national economic calamity.

“You talk about firefighting and other ongoing expenses that aren’t passed on through insurance, coupled with less homeowners to pay for it. That to me is the black swan.” — Jamie Miller, head of North American property, Swiss Re

Consider, under Kaplan’s direction, that only 12 percent of homeowners in California carry earthquake insurance.

Modelers say 1 million homes would be severely damaged in the 8.5 quake.

“That’s 880,000 homes that are uninsured and 660,000 of those homes have mortgages,” Kaplan said.

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Not only will there be hundreds of billions of dollars in damage but as a result of the earthquake, the rate of mortgage defaults and credit losses in California will spike, he said.

“Keep in mind that California has one-sixth of all underwater mortgages,” he added.

In addition, the federal government will be unable to sufficiently bail out local governments in California, which will suffer greatly reduced property tax collections just as public services such as police and fire protection are stretched to the limit.

Jamie Miller, head of North American Property, Swiss Re

Jamie Miller, head of North American Property, Swiss Re

“FEMA’s current funding scheme is inadequate to handle something like this,” Kaplan said.

From 2005 through 2011, the agency’s average disaster appropriation was $1.75 billion per year, Kaplan said. But spending on supplemental appropriations amounted to an average of $4.6 billion per year.

“There is no probabilistic modeling that goes into how the federal government allocates funds,” Kaplan said.

“You talk about firefighting and other ongoing expenses that aren’t passed on through insurance, coupled with less homeowners to pay for it,” Miller said.
“That to me is the black swan.”

Mitigation and Recovery

For years — since the Loma Prieta quake that struck the Bay Area in 1989, and the Northridge quake that hit Los Angeles in 1994 — governments in California have taken aggressive measures to limit the damage that would occur in a major quake and to make California cities more resilient.

In April, with a grant from the Rockefeller Foundation, San Francisco appointed the world’s first Chief Resiliency Officer, Patrick Otellini. The Rockefeller program will eventually fund 100 such positions worldwide.

“We have a mentality that we need to get over and that is we are the biggest country in the world with the deepest capital markets and The Big One wouldn’t be that big of a deal. I don’t think that’s true.” — Alex Kaplan,  vice president, Swiss Re

In the new position, Otellini is putting to work his 10 years of experience in the private sector helping businesses negotiate the City of San Francisco’s permitting and code requirements process and his more recent job, which he still holds, as the director of the city’s Earthquake Implementation Program.

The host of initiatives he is working on include measuring the vulnerability of the city’s seawall and creating a plan to improve it, coordinating the various utilities whose services the city depends on to increase their post-disaster resiliency, and implementation of a program designed to speed up occupancy of hotels and other businesses post-quake provided they have been inspected by city-approved engineers.

Under Otellini’s direction, the city’s Board of Supervisors passed an ordinance last year that required owners to retrofit and make more earthquake-proof rental properties with wood frame construction, built before 1978, and having five or more residential units with two or more stories over a “soft story” — a story with large open spaces like a garage or retail space with large windows.

The city’s experience in 1989 told it that housing stock would be totally destroyed should The Big One hit.

Otellini said there are 60,000 residents living in rent-controlled housing who would lose that protection in a big quake had the city not taken action.

“Not to mention the impact on our city services and the fact that these buildings tend to be very defining of the architecture of San Francisco,” he said.

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Although it’s not regulating a big piece of the city’s overall commercial and residential building stock, the measure is an example of how governments can begin to pick off lower hanging fruit and make their cities incrementally more resilient.

The Los Angeles City Council took note of the San Francisco measure and passed its own ordinance. The two city governments are now working together on a number of resiliency initiatives and to make state politicians more aware of what else needs to be done.

“I am very excited about that dialogue,” Otellini said.

The efforts of Otellini and others will lessen the cost of The Big One and bring businesses and communities back quicker, said Swiss Re’s Kaplan.

“I am very impressed with how public entities from the city level, to the state level, to the federal level are thinking about the physical resilience of a particular region,” Kaplan said.

“How do you retrofit the buildings, how do you communicate the risk, and they have done a tremendous job of enhancing that over the years,” he said.

“What I am still concerned about is the financial resilience, how are you going to fund these losses?” he asked.

Kaplan said he now sees U.S. cities taking a much more engaged approach to which insurance or insurance-linked securities solutions could help to remove the volatility from public sector balance sheets in the case of a disaster.

“The Mexican government is highly sophisticated in that regard and we see it is starting to happen in the U.S.,” Kaplan said.

“We have a mentality that we need to get over and that is we are the biggest country in the world with the deepest capital markets and The Big One wouldn’t be that big of a deal,” Kaplan said.

“I don’t think that’s true.”

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Additional 2014 black swan stories:

Toxic Tornado

When a nuclear reactor melts down due to a powerful tornado, deadly contamination rains down on a metropolitan area.

Sub-Zero Sucker Punch

A double dose of ice storms batter the Eastern seaboard, plunging 50 million people and three million businesses into a polar vortex of darkness and desperation.

Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at dreynolds@lrp.com.
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Black Swan

Toxic Tornado

When a nuclear reactor melts down due to a powerful tornado, deadly contamination rains down on a metropolitan area.
By: | August 4, 2014 • 9 min read
082014_02_cs_tornado_craft_shop

It is a warm, humid spring day in Dallas/Fort Worth when strong thunderstorms begin to develop alongside a high-altitude weather system that includes strong winds and convective energy coming from the Rocky Mountains.

By mid-afternoon, the atmosphere reaches a tipping point. A massive supercell thunderstorm along the weather front produces large, damaging hail and what is later designated as an EF5 tornado, with winds in excess of 200 mph.

The most recent tornado of this size as designated by the National Weather Service was on May 20, 2013, when an EF5 struck Moore, Okla., killing 24 people, flattening neighborhoods and schools, and injuring more than 350 people.

This Texas tornado is much, much worse.

Video: An EF5 tornado in May 2013 flattened much of Moore, Okla.

Moving in the usual southwest to northeast direction, it creates a damage path about 1 mile wide and nearly 200 miles long, and directly strikes the Comanche Peak Nuclear Power Plant in Glen Rose, Texas, about 40 miles west of Fort Worth and 60 miles west of Dallas.

The power plant’s reactor was built to withstand winds up to 300 mph, but it can’t withstand what happens after the tornado throws around multiple gas-filled tanker trucks, which explode and kill numerous workers.

Matthew Nielsen, director of Americas product management at RMS, created the model for our Comanche Peak Nuclear Power Plant black swan scenario.

Matthew Nielsen, director of Americas product management at RMS, created the model for our Comanche Peak Nuclear Power Plant black swan scenario.

Debris fills the air as the powerful winds destroy much of the plant’s emergency equipment, making it impossible to maintain proper conditions and temperature within the reactor. The remaining power plant workers feverishly try to manually shut down the nuclear reactor before it melts down. They can’t.

When the reactor’s heat exceeds the ability of the plant’s processes to cool it down, radioactive gases begin to snake their way into the funnel stacks. The radioactive contamination is carried by the ferocious winds directly toward Dallas/Fort Worth.

Communication fails as area power lines go down, so it is difficult to warn the 7 million residents of the Metroplex, as Dallas/Fort Worth is known. Residents know the tornado has been sighted and try to prepare, but they don’t know that deadly airborne toxins are being carried toward them.

The Damage

About 10,000 homes and 700 commercial structures in the direct path of the tornado are completely destroyed and another 35,000 suffer damage, according to a model built by RMS. Roofs are ripped off apartment houses and multi-family dwellings. Vehicles are tossed around like toys, and with the storm striking at rush hour, workers on the roads are exposed to flying debris and high winds.

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Even with residents sheltering in basements and safe rooms, fatalities reach into the 500-700 range — putting this event in line to be the deadliest tornado in U.S. history, after the Tri-State tornado of 1925, which killed 695 people in Missouri, Illinois and Indiana.

But it is the unseen radioactive contamination that ultimately makes the deadliest mark on the area.

Immediate fatalities from radiation poisoning number about two dozen, but as the contaminated rainfall seeps into the ground soil and water supply, the long-term health of the residents — and their descendants — is jeopardized. So, too, are the cattle and other agricultural products of Texas, which leads the nation in the number of ranches and farms it holds.

Chernobyl and Fukushima are the only events of a similar nature, even though the United States has seen its own recent near misses.

The radioactivity causes large swaths of area to be cordoned off, making it difficult to repair transmission and power lines as well as homes and businesses.

“The hard truth is that many businesses will close and many people will move from the area,” said Todd Macumber, president of international risk services, Hub International.

Chernobyl and Fukushima are the only events of a similar nature, even though the United States has seen its own recent near misses.

In 2011, a tornado knocked out power to the Browns Ferry Nuclear Power Plant near Huntsville, Ala., requiring the shut down of its three reactors. The plant fired up backup diesel generators until power was restored. The storm also disabled the plant’s sirens, which are needed to warn nearby residents in a crisis.

That same year, a tornado barely missed damaging 2.5 million pounds of radioactive waste at the Surrey Power Station in southeastern Virginia, although it touched down in the plant’s electrical switchyard and disabled power to the cooling pumps. The operators needed to activate backup diesel generators to run the two reactors until power was restored.

Twenty-eight years after the radioactive disaster at Chernobyl in 1986, some parts of the Ukraine remain a toxic wasteland. And in Japan, an initial evacuation area of about 2 miles surrounding the Fukushima Daiichi Nuclear Power Plant was soon widened to about 12.5 miles.

About 300 tons of  highly radioactive water has leaked from storage tanks at the Fukushima Daiichi Nuclear Power Station.

About 300 tons of highly radioactive water has leaked from storage tanks at the Fukushima Daiichi Nuclear Power Station.

Now, three years after three of Fukushima’s six reactors melted down, the area is still unlivable and 40 miles away, diagnoses in children of thyroid cancer, which is caused by radiation poisoning, are skyrocketing, according to some reports.

Nearly 16,000 people died in the 2011 earthquake and tsunami that struck Japan, causing the meltdown. About 160,000 people were evacuated, 130,000 buildings were destroyed and $210 billion in damage was sustained.

The Texas scenario has a lot of variables, said Matthew Nielsen, director of Americas product management at RMS, who created the model for our Comanche Peak Nuclear Power Plant black swan scenario.

The likelihood of a tornado, with thunderstorms and hail, causing massive structural damage is about 1 in 200 years, he said. Such an event would result in at least $20 billion in insured losses and uninsured losses of about the same amount.

But a tornado following the exact path as this scenario — striking the power plant and heading into the Dallas/Fort Worth Metroplex — has a much, much smaller chance — about 1 in 10,000 years.

“Given the fact that tornadoes are very rare, it isn’t something that I think people should be screaming and running around frantically about,” Nielsen said. “But it’s certainly something that could happen.”

As for losses due to the radiation? “There’s not a lot of historical data points that we can confidently say that that portion would be x or y billion,” he said.

The Recovery

Any rebuilding will be delayed by the threat posed by radioactive contamination, which may spread over a large area via the thunderstorms and storm water runoff.

From an insurance perspective, all personal and commercial lines of insurance have a nuclear energy hazard exclusion. American Nuclear Insurers (ANI) provides third-party liability insurance for all power reactors in the United States.

“We are responsible for the insurance coverage protecting the operators from claims alleging bodily injury or property damage offsite from [radioactive] materials,” said Michael Cass, vice president and general counsel at ANI, a joint underwriting association with 20 insurance company members.

082014_02_cs_tornado_nuclear350pxNEWThe ANI was created under the Price-Anderson Act of 1957 and provides a primary policy limit of $375 million for claims due to offsite consequences from the release of radioactive materials from the 100 operating nuclear power plants in the United States. It also covers some plants that are shut down or in the process of being decommissioned, he said.

The ANI also covers costs related to emergency response and evacuation, including food, clothing and shelter, he said.

The joint underwriting association also administers an additional excess layer of about $13.2 billion, the costs of which would be borne by the power plant operators, and would be apportioned equally among them.

For any claims above $13.6 billion (which includes both the primary and excess layers), the Price-Anderson Act requires the U.S. Congress to “take steps to come up with a scheme to provide full compensation to the public and to continue claims payments,” Cass said.

“They could assess or tax the energy industry in some fashion or form. It doesn’t say that specifically, but that is what is alluded to.”

None of the insurance companies that are ANI members would be adversely affected if such a black swan event were to occur, he said.

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“There would be a loss reserve recorded on their balance sheets, per participation in our pool, but we do have funds set aside for these catastrophic events where we wouldn’t be requiring any additional funds,” Cass said.

Damage to the power plant itself would be covered by Nuclear Electric Insurance Ltd., which insures electric utilities and energy companies in the United States. Current limits are $1.5 billion per site on the primary program, and up to $1.5 billion per site in its excess program.

Allan Koenig, vice president, corporate communications at Energy Future Holdings, which operates Comanche Peak, said the plant is robustly protected. It has two independent systems that can provide off-site power as well as backup diesel generators, to allow the units to be safety shut down in the event of natural catastrophes.

He also noted the plant has safety shields for fuel storage casks, a 45-inch-thick steel-reinforced concrete containment building wall, and fire protection redundancies.

As for the affected businesses and homeowners, they may be left in a swirling vortex of coverage confusion. The situation would have the flavor of what happened after Superstorm Sandy, when coverage often depended on whether damage was caused by flooding or wind surge.

The question for Texas insureds would be whether the damage was caused by the tornado or by the radioactivity.

“It’s an incredibly complex question and a complex issue that is really only solvable and resolvable if and when the incident occurs,” said John Butler, vice president of the environmental practice at Hub International.

“What it boils down to is the chicken and the egg scenario,” he said. “What came first? Either event has the ability on its own to create a total loss.”

Resilience and redundancy should be the key takeaways from this, said Peter Boynton, founding co-director of the Kostas Research Institute for Homeland Security at Northeastern University in suburban Boston.

“If we can retain a percentage of the critical function of whatever system we are talking about, the difference between 0 percent and 30 percent when the bad thing happens is huge.” — Peter Boynton, founding co-director of the Kostas Research Institute for Homeland Security, Northeastern University

Instead of viewing catastrophic events from an emergency management perspective, where the discussion revolves around what was — or was not — managed well, it’s better to look at the way design can lead to “continuity of function,” he said.

When Boynton was head of emergency management for the state of Connecticut, he managed the statewide response in 2011 to Hurricane Irene, which knocked out 70 percent of the state’s electric grid, leaving residents unable to access many gas stations, ATMs and grocery stores.

If the state had designed a “resiliency approach” prior to the event, it could have built in a pre-determined amount of redundancy into the system so that, say, an additional 20 percent or 30 percent of the grid remained viable.

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“If we can retain a percentage of the critical function of whatever system we are talking about, the difference between 0 percent and 30 percent when the bad thing happens is huge,” Boynton said.

In the Texas scenario, if the crisis planning included a redundancy for warning nearby residents even when the power and communication lines failed — such as by using satellites to create a minimal level of continuity — the amount of death and destruction could have been lessened.

“Otherwise, we really are setting ourselves up for an impossible discussion,” he said. “You can’t just pick up these pieces at the moment of crisis. You have to understand how system design can play a role.”

Analyzing such a black swan scenario is a useful exercise, said Justin VanOpdorp, manager, quantitative analysis, at Lockton.

“Can this actually happen? Yes. Will it? Maybe not,” he said. “I think what it does is, it helps to think through it just to be prepared for those situations when they do arise.”

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Additional 2014 black swan stories:

Bigger Than the Big One

When the 8.5 magnitude earthquake hits, sea water will devastate much of Los Angeles and San Francisco, and a million destroyed homes will create a failed mortgage and public sector revenue tsunami.

Sub-Zero Sucker Punch

A double dose of ice storms batter the Eastern seaboard, plunging 50 million people and three million businesses into a polar vortex of darkness and desperation.

Anne Freedman is managing editor of Risk & Insurance. She can be reached at afreedman@lrp.com.
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Sponsored: Healthesystems

The Next Wave of Workers’ Comp Medical Cost Savings

Reducing WC claims costs in one area often inflates them in another.
By: | August 4, 2014 • 6 min read

Managing medical costs for workers’ compensation claims is like pushing on a balloon. As you effectively manage expenses in one area, there are bound to be bulges in another.

Over the last decade, great strides have been made in managing many aspects of workers’ compensation medical costs. Case management, bill review and pharmacy benefits management are just a few categories that produce significant returns.

And yet, according to the National Council on Compensation Insurance (NCCI), medical costs remain the largest percentage of workers’ comp expenses. Worse still, medical costs continue to be the fastest growing expense category.

Many medical services are closely managed through provider negotiations, bill review, utilization review, pharmacy benefits management, to name a few. But a large opportunity for medical cost containment remains largely untouched and therefore represents a significant opportunity for cost savings.

Ancillary medical services is a term used to describe specialty or supplemental health care services such as medical supplies, home health care, durable medical equipment, transportation and physical therapy, etc.

According to Clifford James, Vice President of Strategic Development at Healthesystems in Tampa, Fla., modernizing the process for managing ancillary medical services presents compelling opportunities for cost savings and improved patient care.

Source: 2014 Healthesystems Ancillary Medical Services Survey

“The challenge of managing these types of medical products and services is a cumbersome and extremely disconnected process,” James said. “As a result, it represents a missing link in an overall medical cost management strategy, which means it is costing payers money and patients the most optimal care.”

James singled out three key hurdles:

Lack of transparency

As the adage goes, you can only manage what you can measure.

Yet when it comes to the broad range of products and services that comprise ancillary benefits, comprehensive data and benchmarking metrics by which to gauge success are hard to come by.

The problem begins with an antiquated approach to coding medical services that was developed in the 1970s. The coding system falls short in today’s modern health care environment due to its lack of product and service level detail such as consistent units of measure, quantity and descriptors.

As a result, a meaningful percentage of ancillary benefits spending is coded as “miscellaneous,” which means a payer has little to no visibility into what product or service is being delivered — and no way to determine if the correct price is being applied or if the item is even necessary or appropriate.

Source: 2014 Healthesystems Ancillary Medical Services Survey

“It’s a big challenge. Especially when you consider that for many payers, it’s difficult to determine exactly what they are spending, or identify what the major cost drivers are when it comes to ancillary services,” James said. And when frequently over 20 percent of these types of services are billed as miscellaneous, payers have zero visibility to effectively manage these costs.

Measurement and monitoring

Often, performance that is monitored is given the most attention. Therefore, ancillary programs that are closely monitored and measured against objective benchmarks should be the most successful.

However, benchmarks are hard to determine because multiple vendors are frequently involved using disparate data and processes. There isn’t a consistent focus on continuous quality improvement, because each vendor operates off of their own success criteria.

“Leveraging objective competitive comparisons breeds success in any industry. Yet for ancillary services there is very limited data to clearly measure performance across all vendors,” James said. “And for payers, this is a major area of opportunity to promote service and cost containment excellence.”

Source: 2014 Healthesystems Ancillary Medical Services Survey

Inefficiency

If you ask claims executives about their strategies for improving the claims management process, a likely response may be “workload optimization.” The goal for some is to enable claims professionals to handle a maximum case load by minimizing administrative duties so they can leverage their expertise to better manage the outcome of each case.

But the path towards “workload optimization” has many hurdles, especially when you consider what needs to be coordinated and the manual way it frequently is done.

Ancillary benefits are a prime example. For a single case, a claims professional might need to coordinate durable medical equipment, secure translation services, arrange for transportation and confirm the best physical therapy plan. Unfortunately they often don’t have the needed time, or the pertinent information, in order to make quick, yet informed, decisions about the ancillary needs of their claimants.

In addition there is the complexity of managing multiple vendor relationships, juggling various contacts, and accessing multiple platforms and/or making endless phone calls.

SponsoredContent_HES“We’ve been called the ‘industry integrator’ by some people, and that’s accurate. We are delivering a proven platform connecting payers with providers and vendors on the ancillary medical benefit front. It’s never been done before.”
– Clifford James, Vice President of Strategic Development, Healthesystems

Modernizing the process

To the benefit of both payers and vendors, Healthesystems offers Ancillary Benefits Management (ABM).

The breakthrough ABM solution consists of three foundational components — a technological platform, proprietary medical coding system and a comprehensive benefits management methodology.

The technological platform integrates payers and vendors with a standardized architecture and processes. Business rules and edits can be easily managed and applied across all contracted vendors. All processes – from referral to billing and payment – are managed on a single platform, empowering the payer with a centralized tool for managing the quality of all ancillary providers.

But when it comes to ancillary products, the critical and unique challenge Healthesystems had to solve is the antiquated coding system. This was completed by developing a highly granular, product-specific coding system including detailed descriptions and units of measure for all products and services. This coding provides payers with the clearest understanding of all products and services delivered including pricing and all the necessary utilization metrics.

“We bring the highest level of transparency and visibility into all ancillary products and services,” James said, adding that the ABM platform uses an extensive preferred product coding system 15 times more detailed than any other existing system or program.

This combination of sophisticated technology, proprietary coding system and benefit management methodology revolutionizes the ancillary category. Some of the benefits include:

  • Crystal-clear transparency
  • A more detailed and comprehensive view into ancillary products and services
  • An automated process that eliminates billing discrepancies or resubmittals
  • Integrated and consistent processes
  • Strategic program management

Taken together, the system leapfrogs over the existing hurdles while creating entirely new opportunities. It’s a win for vendors and payers, and ultimately for patients, who receive the optimal product or service.

“We’ve been called the ‘industry integrator’ by some people, and that’s accurate,” James said. “We are delivering a proven platform connecting payers with providers and vendors on the ancillary medical benefit front. It’s never been done before.”

To learn more about the Healthesystems Ancillary Benefits Management solution visit: http://www.healthesystems.com/solutions-services/ancillary-benefits

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


Healthesystems is a leading provider of Pharmacy Benefit Management (PBM) & Ancillary Benefits Management programs for the workers' compensation industry.
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