The Best Laid Plans
Disclaimer: The events depicted in this scenario are fictitious. Any similarity to any corporation or person, living or dead, is merely coincidental.
Hale Everson disliked silence and wasn’t bothered by visible distractions. A natural multitasker, he liked to keep D.C. Span, the 24-hour news channel devoted to Washington politics, on his office TV.
As the Human Resources director for the Southern operations of Fuego Motors, a leading European car maker, Hale had been working for years to create a state-of-the-art health care monitoring system for the automobile manufacturing plant’s employees.
On the computer monitor in front of him, there were no less than 10 open spreadsheets.
Hale loved data and along with the auto plant’s risk manager, he had compiled plenty of it.
Hale paused at his keyboard and shifted his attention to his TV set. The U.S. Senate was voting on the passage of the Patient Protection and Affordable Care Act.
“Come on boys, come on,” he said, as he watched the “yes” votes pile up. Hale wasn’t worried about the outcome of the vote. He’d been preparing for this day for years.
When it came to what he required to work well, Brady Heller, the CFO for Apex Care, a regional hospital, was a door-shut type, even though he had a corner office. Brady hated any sort of distraction.
It wasn’t until he got home late that night and watched the 11 o’clock news that Brady found out the Affordable Care Act had passed. Brady watched impassively as his wife sat next to him.
Always keeping his cards close to his vest, Brady quietly calculated what Apex Care had spent over the past four years to acquire numerous specialty practices to build a state-of-the art Accountable Care Organization.
Brady wasn’t worried about the outcome of the vote either. He’d also been preparing for this day for years.
Brady and Hale, friends since college, were walking down the fourth fairway at the local country club when the two community leaders, key members of the local chamber of commerce, put their well-disciplined heads together.
“Nice job picking up Neil Zane’s cardiac practice buddy,” Hale said to his friend with a smile.
“Thanks,” Brady said, as he scanned the grassy rise for his golf ball.
“From what I can tell, you’ve got all the pieces in place,” Hale said.
“I sure hope I do. Cost us enough,” Brady said as he turned to set up a 2-iron shot.
“Brady, hold on just second,” Hale said. Brady turned and looked soberly at Hale, alert to the business-like tone Hale had switched to.
“I think I’ve got all my pieces in place too, and I don’t want to wait ‘til the wind changes. I want to bring my entire workforce to Apex on a direct contract. I’ve got all the data…”
“I bet you do,” Brady said.
“And with my documentation we can get this done sooner rather than later,” Hale said.
“You got everybody ready?” Brady asked.
“I’ve got everybody on board, from Turin to where we’re standing right here,” Hale said, and Brady could tell that Hale meant every word.
Within three weeks, the local business weekly ran a story under the following headline and subhead.
“Fuego and Apex Ink Healthcare Pact”
“Savings and better quality of care in focus in multi-million-dollar arrangement”
The story featured a picture of Brady and Hale shaking hands over a conference table.
Under the direct contract with Apex, Fuego’s workers and their dependents would receive exclusive health care at the regional health giant for three years. The contract was set to renew as long as costs didn’t deviate more than five percent on an annual basis from projections.
Seven months after the direct contract deal was announced, Serge Bernstein, head of Apex’s high-profile bariatric medicine and weight loss clinic, requested a face-to-face meeting with Brady.
“I have to ask you, did you have access to Fuego’s health care data before you agreed to this deal?” Dr. Bernstein asked Brady.
“I know as a matter of fact that the company keeps excellent records,” Brady said as an opening defense.
“Well, I keep pretty good data on my end as well,” Dr. Bernstein said, as he expertly swiped his digital tablet to bring ups some figures.
“The contract with Fuego says costs can’t deviate more than five percent from projections,” he said.
“That’s correct,” Brady said.
“What would you say if I told you that I am seeing instances of diabetes in that population at about 250 percent of projections?” Dr. Bernstein said.
“I’d be very concerned,” Brady said.
“Then you should be very concerned,” Dr. Bernstein said.
Two weeks later it was the hospital system’s head of orthopedics, Krishnan Gilani, who was sitting in Brady’s office.
“I’ve got a four-week waiting list for initial non-emergency evaluations,” Dr. Gilani said.
“Why?” Brady said.
“Have you heard of the Affordable Care Act? This autoworker population requires a lot of care. Many of them are overweight, which complicates treatment. I’ve also got a threefold increase in overall caseload due to all the previously uninsureds coming on board under the new law,” Dr. Gilani said.
“Wow,” Brady said.
“Wow indeed, Mr. Heller,” Dr. Gilani said. “These are substantially out of whack figures and of great concern,” Dr. Gilani said.
Hale and Brady were mostly silent as Hale lined up a putt and the two of them digested the information that the increased number of insureds coming in for treatment was threatening to broadside their direct contracting arrangement.
“It’s the first year of the program,” Hale said after his putt lipped out. “I’m sure the numbers will settle down in years two and three.”
“You’re probably right,” Brady said as he stood over his putt.
“You’re probably right.”
Hale’s view of his in-office television screen is obscured by the bulk of the autoworkers’ union vice president. To the vice president’s left is the union president. Neither of them looks healthy and neither of them looks especially pleased.
“Eighteen months ago you sold this hospital deal to us, saying it would be better for the workers and their families. You said we’d get better treatment, cheaper, and better access to treatment,” the union president said.
“I did say that, that’s true,” Hale said
“None of that was true,” the vice president said.
“We got a guy on the line, he twists his back trying to keep an engine compartment bonnet in place. You know how long it takes him to see a back specialist?”
“I don’t…” Hale begins.
“How about five weeks?” the vice president said. “Five weeks!”
“And this is the only hospital we can go to,” the president said.
“I thought health care reform was about choice. You know what? We have no choice,” the union president said.
“Am I in Russia now because I feel like I’m in Russia,” the union vice president says to the union president.
The quarterly meetings between hospital management and the medical team leaders have become so fraught with tension for Brady Heller that they begin to feel like out-of-body experiences.
Dr. Bernstein, Dr. Gilani and Dr. Helen Beers, chair of the cardiac unit, have Brady in their cross-hairs.
“When you brought my practice into your system, I was assured that I could maintain my care standards, that my cost of risk would be reduced by 20 percent and that my revenues would increase by 30 percent,” Dr. Beers begins.
“None of that has happened,” she said, fixing formidable steel blue eyes on Brady through her titanium eyeglass frames.
“Instead I’m seeing delays in payment. I am seeing care standards that I never would have tolerated independently, and I am seeing this across a number of departments, not just my own,” she said.
“We want access to full financial documentation under the terms of our contracts or we are walking, I am not kidding you,” Dr. Bernstein said.
Brady looked from Dr. Bernstein to Dr. Gilani to Dr. Beers. Nowhere was there mercy or understanding.
Hale has a board meeting of his own to attend.
“If we pay them this $3 million that they’re asking for,” the CFO for North America says to Hale.
“On top of the contracted amount,” he says, looking around the table for emphasis, to make sure everyone is getting his point.
“On top of the contracted amount,” he says yet again, unmercifully.
“What assurances do we have that we’re not going to be shelling out another $3 million in six months to a year from now?” the CFO asks.
“I’m not sure that I can offer you any assurances,” Hale says.
“We’re seeing treatment delays and co-morbidities that are beyond the scope of our projections,” he adds.
“I thought this was the best health care money could buy,” the CFO says.
“It may be,” says the North American CEO, who has made a special point to be at this meeting.
“The issue is we didn’t know it would take this much money to buy it.”
The CEO fires Hale Everson that very evening.
A sizable regional employer and a large health care system come to grief when their directly contracted health care arrangement is blind-sided by health care reform implementation. The planners of the deal fail to take into account the delays in treatment that large numbers of previously uninsured patients coming into the system will create. Contrary to their promises, standards of health care deteriorate and key stakeholders become alienated.
1. The importance of good data: Data is only actionable if it is good data. Fuego Motors thought it had adequately measured the health care risks inherent in its employee population, but events proved it to be woefully wrong. The advent of the Affordable Care Act is going to impact medical treatment and loss projections are going to have to be altered.
2. Assess your contract: Direct contracts to provide health care services to employers might make a lot of strategic sense, but they can turn into straightjackets if not written with enough flexibility to account for increasing health care costs and the unknowns of health care reform.
3. Medical practice acquisition is fraught with perils: Bigger is not necessarily better when it comes to health care business management. Conflicting work cultures and compensation and quality of care expectations can lead to disagreements, litigation or worse if contractual provisions aren’t spelled out adequately.
4. Health care regulation is in conflict: Federal health care reform is not the only wind sweeping the waters. There are numerous federal and state entities regulating health care and their missions and mandates are not in step with each other. Understanding the full lay of the land moving forward is a must.
5. Move with measured steps: There is so much going on in health care practice and regulation right now that the unknowns outnumber the knowns. Look at acquisition targets with more caution than ever before.
6. Be fully transparent: Both sides thought they had all the data they needed. But in the end, their failure to completely share with their data with their respective teams created unpleasant surprises. Being fully candid about all risks is the best strategy in this unsure environment.
The issues covered in this scenario were in part based on the impact of health care reform. This follow-up webinar focused on specific changes to the health care market in the wake of Affordable Care Act implementation and presented actions insureds can take to prepare themselves moving forward.
Disclaimer: The events depicted in this scenario are fictitious. Any similarity to any corporation or person, living or dead, is merely coincidental.
The scenario begins with the brief video below:
It’s five weeks since the day Reggie first felt that twinge in his knee. The pain is still not so great that Reggie can’t live with it, but he’s getting a little tired of it.
After work one day, Reggie is having beers with Smitty Cheeks, one of the company’s mid to long-range truckers, who’s done driving for the week and will be spending the weekend in Memphis.
Smitty and Reggie are engaged in game of 8-Ball at their local blues and barbecue joint. Smitty slams the 8 ball into the corner pocket, winning the game.
“My game,” says Smitty.
Reggie eyes the waitress delivering food to their nearby booth.
“Good thing,” Reggie says. “ ’Cause our food is here.”
The two are tearing into some serious barbecue when Reggie notices Smitty pulling a pill from a vial in his pocket. Reggie’s already had a couple of beers, which makes him a little bolder.
“Watcha’ got there partner?” Reggie says.
“Vicodin,” Smitty says.
“My back’s a mess and I’ve been taking these Vicodins for a while. They help a good deal. Probably not best to drink and use these, but hey, whatever gets you through the night,” Smitty says with a beery wink.
Reggie pauses and then blurts out.
“Could you hook me up with a few of those? I’ve been having some aches and pains myself.”
Smitty pauses, then very efficiently strips the smoked meat off of a turkey wing.
“I can get you all you need buddy and the price is right,” he says, his lips smeared with barbecue sauce and this time not smiling.
The next day, Reggie, whose become more inactive and out of condition since his knee injury, is coming out of the bathroom at home with a towel around his waist.
He’s limping worse than he has been recently. The knee has begun to lock on occasion and feels like it might be giving out. His wife Arlene addresses him.
“When are you going to see a doctor?” she says to him with a worried expression on her face.
“I really don’t know,” says Reggie.
“I really think you should,” she says. “You don’t know what’s going on there and you should at least get it checked out.”
Reggie pauses, embarrassed. Arlene is looking at him compassionately and it softens his defenses.
“I tweaked my knee at work a while back. Tell you what, I’ll tell my boss on Monday and go see somebody.”
“Good,” Arlene says. “You don’t want to go too long before figuring out what’s up.”
Reggie tells his supervisor about his injury. Reggie’s injury is in turn reported to the company’s insurance carrier. But neither the claims adjuster or the employer discuss the idea of Reggie being offered modified duty.
Reggie is referred to an in-network physician, an occupational medicine specialist. The Occ-Med prescribes an anti-inflammatory for Reggie. He also orders an MRI for him and gives him a prescription for four sessions of Physical Therapy and orders him a hinge knee brace, due to the “giving out” feeling Reggie has reported in his knee.
The Occ-Med specialist gets the MRI results, which reveals a tear. Without calling Reggie into have another look at him or gauge how he’s done in therapy, the Occ-Med refers Reggie to an orthopedic surgeon.
Reggie is in the surgeon’s office looking at the MRI results with the surgeon when he gets the news.
“The MRI scan reveals a 4 mm acute medial meniscus tear, Reggie,” the surgeon says.
“We’re going to want to repair this,” he continues.
“You mean surgery?”
“Yes. I don’t want to let this sort of thing go in a man your age,” the surgeon says, patting Reggie on the shoulder compassionately.
Mollified by the surgeon’s kindly tone, Reggie doesn’t question the decision or seek a second opinion.
Reggie doesn’t think to ask about a less invasive approach, like more physical therapy, and the surgeon doesn’t bring it up. The surgeon puts in a request for surgery, which is approved by the adjustor with no follow up or questioning as to its necessity.
Reggie undergoes preauthorized, minor arthroscopic surgery and is initially given six weeks off of work under the direction of the surgeon.
The carrier’s claims adjustor makes a note of the surgery but doesn’t contact the employer or Reggie to check in on his condition.
“It’s a pretty minor procedure,” she tells herself while alternating between looking at her computer monitor, where the details of Reggie’s case are displayed, and checking her cell phone.
Then her phone rings.
“This is Janice,” she says, and clicks to another screen on her computer. Reggie’s case is out of sight, out of mind.
No one from Reggie’s company checks in with him to discuss the future possibility of modified duty or to check on his overall welfare.
The Wheels Come Off
It’s one week post-op and Reggie pays a visit to the surgeon for a wound check.
“Let’s have a look here,” the surgeon says, gently peeling off the adhesive bandage.
“Looking good,” he says.
“Good,” Reggie says.
The surgeon swabs Reggie’s knee with some antiseptic and distracts Reggie as he pulls out the sutures with a discussion about planning for the way forward.
“So, I’m going to give you a prescription for therapy. I want to see you do at least 12 visits to work on regaining full range of motion in the knee and getting your strength back.”
“Got it,” said Reggie.
“How’s your pain?” the surgeon says.
“It hurts, no doubt,” Reggie said.
“Well let me know if you need more pain medication,” the surgeon says.
“I just might do that,” Reggie says before gingerly slipping down from the table.
It’s a week later and Reggie is sitting on the couch at home with the channel changer in his hand and his leg up.
Reggie checks his iPhone, scanning his e-mail inbox.
“Have you heard anything about your physical therapy appointment?” Arlene says from the kitchen where’s she’s pouring some tea for her and Reggie.
“Nothing,” Reggie says.
“I think I’m going to call them,” she says. “We need to get you into physical therapy.”
“Go ahead. I doubt they’ll call you back,” Reggie says. He’s not out of it but his manner is resigned and sluggish.
“It hasn’t been approved or processed yet by the insurance company.”
“Has anybody from your company ever contacted you?” Arlene says.
“Nope. But I’m still getting my workers’ comp checks, I guess I can be thankful for that,” Reggie says.
Reggie palms a pain pill from a vial and swallows it with a sip of water. Arlene can’t see him do this from her vantage point in the kitchen.
“I don’t like it, they should be in touch,” Arlene says.
“You’re probably right,” Reggie says, over his shoulder, taking a break from look at the television.
It’s another week before Reggie gets into therapy. The therapist greets Reggie as he’s ushered into the treatment area.
“Hi, I’m Maggie,” the therapist says. “Come on over to this table and lie down. I want to put some electrical stimulation on your knee and then we’ll get to work on it a little bit.”
Reggie walks over to the table, limping noticeably.
“You had surgery when?” Maggie the therapist says.
“Three weeks ago,” Reggie says.
“Hmmm, you’re late getting in here,” the therapist says.
“After we get through our work here today, I’m going to give you some home exercises to help you get caught up. We need to keep this knee moving and build your strength back up,” she says.
We cut forward to see the therapist working on Reggie’s knee. She flexes the knee slightly and Reggie almost jumps off of the table.
“This joint is stiff,” the therapist says.
“It sure is,” Reggie says.
Reggie’s reacting to the pain and eyes the therapist warily.
Reggie’s back at home and back in front of the television set. This time he’s got the pain medication bottle out in full view.
Arlene comes in carrying some groceries.
“Have you done your therapy exercises today?” she says.
“Not yet,” Reggie says.
She eyes the vial of pills on the table next to Reggie.
“I thought you were done with those,” she says.
“I’m not taking that many of them,” Reggie says. “And I did move. I went to the bathroom.”
Arlene just looks at him. She’s concerned but clearly doesn’t want to start an argument.
Without another word, Arlene heads to the kitchen with the groceries.
It’s five weeks since Reggie’s last visit to the orthopedic specialist and he uses a cane to get into the examination room. The use of the cane was approved by the adjustor.
The surgeon enters the room and sees the cane propped next to Reggie as Reggie sits on the examination table.
The surgeon is very alarmed.
“What’s the cane for?” he says. “I didn’t order you one.”
“I need it to walk,” Reggie says. “My knee’s still killing me and it’s hard to move it.”
“Where’d you get it, the cane?” the surgeon says, clearly disturbed.
“The therapist gave it to me,” Reggie says.
The surgeon quickly scans his electronic pad, looking for the report from the therapist.
“You had six visits. You were late getting in there but you had six visits. Although you should have had 12,” the doctor says, not quite panicking but clearly unnerved.
“You should have been going twice a week.”
Reggie ignores him.
“You said I could have more pain pills if I needed them, right?”
“What?” the doctor says, jarred that Reggie is ignoring him and taking up another subject.
“Yes I said that but I didn’t think you’d…” the doctor says before Reggie interrupts him.
“I’m gonna’ need more pain pills,” Reggie says with an edge.
The doctor says nothing. He’s at a loss.
“Doctor, I want more pain pills,” Reggie says.
This scenario was originally presented at the 2015 National Workers’ Compensation and Disability Conference in Las Vegas.
As part of the discussion, panelists discussed key aspects presented in the scenario.
Panelists included Dr. Robert Goldberg, chief medical officer, Healthesystems; and Dr. Jeffrey Sugar, Associate Medical Director, Sharp Rees-Stealy Medical Group. The session was moderated by Tracey Davanport, director, National Managed Care, Argo Group.
Insights from their discussion are highlighted below:
To Keep Cool in a Crisis, Companies Need a Comprehensive Solution
Threats against corporate security come in many forms, from intentional acts of violence to civil unrest to cyber-attacks. The perpetrators don’t discriminate by company size or sector, and the consequences can range from several thousand dollars lost to several lives lost.
The recent shooting in an Orlando nightclub that killed 49, for example, or last year’s San Bernardino shooting that killed 14, are somber reminders that terrorism and violence can erupt anywhere and in any type of business. In addition to loss of life, violence can translate into business interruption and property damage. In Ferguson, Mo., riots lead to over $4 million in property damage.
Cyber-attacks have also become commonplace, with hackers infiltrating private networks to steal data or hold it ransom.
Is your organization prepared for these risks?
“A lot of companies have a crisis response plan on paper, but they don’t have outside resources to come to their aid if there is an incident,” said Reggie Gibbs, Underwriter and Product Manager, Starr Companies.
Mid-size companies especially tend to lack comprehensive insurance coverage and crisis management services for a variety of security events due either to limited resources or an underestimation of their exposure.
Starr Companies’ Cyber and Terror Response (CTR) solution provides three coverages as well as crisis response services tailored to meet the needs of these companies. Each of its components addresses a common security threat.
“We don’t just want to indemnify the security risks our clients face; we want to help them actively manage them.”
— Reggie Gibbs, Underwriter & Product Manager, Starr Companies
Terror and Political Violence
“Political violence can be defined as a strike, riot, protest, or any type of unrest that gets out of hand and turns violent,” said Gibbs, who specializes in terrorism and political violence, workplace violence, and crisis management.
In the case of the Ferguson protests, any first party property damage or third party liability incurred by the disruption would be covered under the terrorism and political violence segment of the CTR solution.
In the case of a terror attack, organizations cannot necessarily rely on TRIA to pick up property losses. In the case of the Orlando shooting, for example, the likelihood of TRIA being invoked is low because property damage will not meet the threshold for coverage to kick in.
TRIA, reauthorized in 2015, provides a federal insurance backstop in the event of a terror attack. The U.S. Secretary of the Treasury, U.S. Attorney General, and U.S. Secretary of Homeland Security must declare an attack to be an act of terrorism, and property damage must exceed $5 million to trigger TRIA.
“We would still view the Orlando shooting as an act of terror, however, because of who the shooter claimed he was working for regardless if the ties to terror groups are clear or not. Therefore, our coverage would apply,” Gibbs said. Even if TRIA was enacted, however, companies would still have a lot of pieces to pick up following an attack. They may have injured or deceased employees, or face legal action from third parties.
For these situations, and any other incident of violence not driven by terrorism, the workplace violence component of Starr’s CTR solution would act as an umbrella to cover other liabilities such as legal liability, loss of life benefits, psychiatric care, and other crisis response services.
One such incident struck a Boston-area Bertucci’s in early May. An attacker wielding a knife drove his car into a Boston shopping mall before making his way into the nearby restaurant. He killed five, including restaurant workers and patrons.
“There was no ideological or political motivation behind it. He was just deranged.” Gibbs said. “Our workplace violence coverage can handle the loss of life benefits for both the employees and patrons killed in situations like this one.”
In the best cases, though, violence can be prevented altogether.
“If an employee reports a stalking threat, the policy would cover the expense of security guards,” Gibbs said. “In this case, it’s more of a pre-workplace violence coverage. It would de-escalate the situation.”
Attacks can also be non-physical.
Cyber extortion in particular is on the rise. Phishing scams lead employees to click on malicious links, unknowingly downloading ransomware onto their internal networks. The cyber criminals then hold companies’ networks ransom, asking for a sum of money in return for the release of data or to prevent a business interruption. The ransoms can be low — amounts that organizations can afford to pay.
“The hackers don’t want to attract the attention of law enforcement or regulatory agencies,” said Annamaria Landaverde, National Cyber Practice Leader & Professional Liability Underwriting Manager, Starr Companies. Landaverde specializes in the cyber component of the CTR coverage. “The FBI may not get involved if someone asks for $5,000. They are more likely to get involved if someone asks for $5 million.”
Since companies are not required by law to report cyber extortion —like they are for data breaches — many choose simply to pay the ransom and move on without generating any negative news headlines.
“The hackers don’t want to attract the attention of any law enforcement or regulatory agencies. The F.B.I. won’t get involved if someone asks for $5,000. They will get involved if someone asks for $5 million.”
— Annamaria Landaverde, National Cyber Practice Leader & Underwriting Manager, Professional Liability Division, Starr Companies
“A California medical center recently had an incident like this where the hackers asked for $17,000 in ransom,” Landaverde said,” but the amounts can vary.”
While the ransom itself may seem manageable, many companies fail to recognize other costs associated with the identification and removal of the malware from their system. There may also be costs associated with forensics investigations, legal experts, public relations firms, third party lawsuits, and notification and credit monitoring.
“The cyber arm of the CTR coverage extends to liability that an organization would suffer as a result of a breach, or failure of security of the insured’s network,” Landaverde said. That includes not just cyber extortion, but outright data theft or denial-of-service attacks.
Crisis Management Services
“We don’t just want to indemnify the security risks our clients face; we want to help them actively manage them,” Gibbs said.
The fourth component of Starr’s CTR solution – crisis response — provides two outside consultants to insureds, with one specializing in “hard” security services like guards or instances of cyber extortion, and another focusing on crisis communications.
Without these outside services, there is only so much insurance can do in the aftermath of a crisis. Experienced consultants provide a range of security preparedness and response services to complement coverage and help insureds recover from an episode of violence or cyber event.
“From a communications perspective, our consultants can manage the public relations front to create clear and consistent messaging, but they can also stay in touch with families after a terror or other violent attack to make sure everyone stays informed,” Gibbs said.
They also serve as a first point of contact for insureds immediately after an event. If they need guidance quickly, consultants await at the ready.
“When a client purchases the product, they get a 24-hour hotline set up with one of our consultancies,” he said. “They can report an incident at any time, and our consultant will help either resolve a situation or deal with the aftermath in whatever way they can.”
While the Cyber and Terror Response package provides a comprehensive solution tailored for mid-size companies, Starr also offers standalone cyber liability and crisis management coverage on a primary and excess basis.
“For companies with greater exposure to a particular type of risk, or who simply want higher limits or greater customization, we have those standalone polices.” Landaverde said.
For more information on Starr Companies’ Cyber and Terror Response solution, visit https://www.starrcompanies.com/Insurance/CyberAndTerrorResponse.
Starr Companies is the worldwide marketing name for the operating insurance and travel assistance companies and subsidiaries of Starr International Company, Inc. and for the investment business of C. V. Starr & Co., Inc. and its subsidiaries.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Starr Companies. The editorial staff of Risk & Insurance had no role in its preparation.