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.
Brains Not Brawn
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:
A Grey Area
For five weeks, Mike lives in a grey area populated by denial and tentative healthcare delivery. Mike reports his injury to his employer and is referred to an occupational medicine specialist. The specialist prescribes Vicodin, a pain killer and Naproxen, an anti-inflammatory.
Mike also discusses light duty alternatives with his employer. Mike tries light duty, taking a stab at acting as a carpenter’s assistant, essentially, cleaning up and doing menial work like sweeping up sawdust and chucking small pieces of wood into the dumpster.
Mike is plagued by pain, and acting against the advice of the occupational medicine specialist, he starts taking two to three Vicodin a day on the job to manage. Buffered by the Vicodin, Mike ignores the verbal agreement he has with his employer and begins to use his shoulder harder.
At one point, frustrated with the inaccurate work of an underling, Mike picks up a circular saw and starts making cuts to beams and other hefty pieces of wood.
After six weeks, Mike’s pain hasn’t gotten any better and under pressure from Mike’s employer, Mike’s occupational medicine specialist refers him to an orthopedic specialist.
At the orthopedic surgeon’s office, Mike is sitting on the examination table with the doctor standing before him.
The doctor, a much smaller man than Mike, places his right hand on Mike’s left wrist.
“Okay, try to lift your arm,” the doctor says.
Mike tries to lift his arm with the doctor pushing down against him but is struggling.
“You’re very weak in the shoulder,” the doctor says. “I’m afraid you have a substantial rotator cuff tear but we’ll order an MRI just to be sure,” the doctor says.
“What if it’s torn, what then?” Mike says.
“You’re looking at surgery with a minimum of six months off of work,” the doctor says.
“Six months? Why?” says Mike.
“Rehabilitation from rotator cuff surgery isn’t easy. You could have some setbacks. I’m giving you a conservative estimate,” the orthopedic surgeon says.
“Why operate at all?” says Mike.
“You can’t walk around with a rotator cuff tear in your line of work for any period of time,” the doctor says.
“It’s way too risky for a man your age.”
“I’m only 54, Doc,” Mike says gamely.
“At your age, honestly, you’re going to have to be very diligent in rehab to bring this thing back all the way,” the doctor says, tapping Mike lightly on his injured left shoulder.
The MRI confirms what the doctor felt to be true. Mike has a full thickness tear of his rotator cuff.
“You see that?” the doctor says to Mike as they look at the MRI image together.
“Looks like it’s torn all the way through,” Mike says.
“Yes it is,” the surgeon says. “We need to set a date to operate. And as I said during our last visit, you’re going to have to be diligent in rehab to bring this shoulder back successfully.
A New Reality
As a former high school wrestler and carpenter, Mike is accustomed to injury and injury recovery. It seemed like he recovered from a torn meniscus in his right knee during his wrestling days in a matter of weeks.
In his twenties, he broke a finger in his right hand in a bar fight in Muscatine, Iowa.
In his thirties, he broke the fifth metatarsal bone in his left foot when he rolled his ankle over a log while dove hunting near Lake Okochobee.
Each time he came back fine. Over the years, Mike developed a quiet confidence that his strong body will never fail him.
But one look at Mike as he sits on his living room couch with his left arm in a sling says that this time might be very different. He’s four weeks post surgery and he’s already gained 20 pounds. Post surgery, his doctor gave him a generous prescription of Oxycontin, 80 pills. Mike still has 50 of those pills, a fact he is keeping from his wife and his doctor.
“Really honey?” his wife says as she stands in the living room doorway watching Mike open another beer as he watches a Florida State football game.
There are three finished beers on the coffee table in front of Mike. “What?” Mike says as he takes a sip of beer.
“You know what,” his wife says. “You’ve been drinking a lot more beer since you’ve been off work.”
“Not really,” Mike says.
His wife walks closer to Mike and peers into a pizza box.
“You ate that entire pizza?”
“Thin crust,” Mike says by way of a joke.
His wife pauses, not enjoying the joke.
“Are you still taking painkillers? Because you know you shouldn’t be drinking and taking that prescription.”
“Nah, I dumped ‘em in the garbage. I don’t need ‘em anymore.” Mike says.
“Hummmph,” his wife says, not pleased with the whole picture and seeming to doubt Mike’s word.
“What about your physical therapy exercises that you’re supposed to be doing at home?”
“I’m doin’ ‘em,” Mike says.
“When?” his wife asks him.
Mike glares at his wife and she reacts.
“I know what you’re thinking,” she says, crossing her arms.
“You think I’m being a nag. Well I’ve got news for you Mike Manning. Just because I care enough to ask after your health doesn’t make me a nag!”
As soon as she leaves the room, Mike fishes in his pocket and brings out a vial of pills.
With practiced dexterity, Mike uses his slinged left hand to hold the pill bottle while he wrests the top off with his right. Mike pops a pill in his mouth and washes it down with a slug of beer.
Mike had initially taken the painkillers according to the instructions on the bottle. But two months into his recovery, he’s now ingesting twice that amount on a daily basis.
Back at his doctor’s office, six weeks post-op, Mike’s shirt is off while the doctor checks his range of motion and his strength.
“Okay, stand up and raise your arm as high as you can,” the doctor says.
Mike gamely raises his arm, but he can’t raise his hand above chest height.
“Keep working hard in therapy,” the doctor says. “How’s your pain?”
Mike gives a pain rating of eight over ten. Excess pain behavior.
“Eh, it still hurts, especially when I’m trying to sleep,” he says.
“Okay, we started you on Oxycontin but I’m going to see if you can get by on Vicodin,” the doctor says.
“Sounds good,” Mike says, avoiding eye contact with the doctor. Mike still has a renewal on his Oxycontin and he’s happily envisioning doubling up with Oxycontin and Vicodin even before the doctor has put pen to paper to write him a new prescription.
Mike flexes his knee.
“My right knee has started to hurt too,” Mike says. “Don’t know what’s up with that.”
The doctor looks at Mike as Mike flexes the knee.
“It looks like you’ve picked up a considerable amount of weight since you’ve been off Mike. That could be affecting your knee.”
“Yeah, probably so,” Mike said, patting his gut affectionately.
“How’s rehab going?” the doctor says. “You doing the home exercises they’re giving you?”
“Eh…sure,” Mike says.
From the doctor’s expression, he’s not too convinced.
Six months post-injury, Margorie Kessel, a claims supervisor for Mike’s employer’s workers’ compensation carrier, has a look at Mike’s file and does not like what she sees.
“His opioid use is like a runaway train,” Margorie says to herself.
“I’m going to put a nurse on this case.”
Off the Rails
Nine months post-injury, Mike is at physical therapy, lying on his back while a therapist works on his shoulder.
The physical therapist is holding Mike’s left arm and trying to gain more range of motion by steadily pushing Mike’s shoulder past where it wants to go.
The therapist is straining, and from the expression on his face, even nine months past injury, Mike is experiencing serious pain in the shoulder.
“Wow,” the therapist says.
“You’re as tight now as you were three months ago.”
“I know,” Mike says without much conviction.
The therapist sheds her sweatshirt.
“You’re giving me a workout,” she says. She picks up Mike’s arm again and resumes work.
Just then, another patient shouts out to Mary.
“Hey Mary, can you come over here? I’m not sure what to do on this exercise ball,” the other patient says.
“Sure, just a sec, Mary says.
“Here Mike,” so some work with this hand weight and I’ll be right back.”
The therapist leaves Mike and he continues on with the hand weight.
The therapist comes back.
“Sorry about that. Where were we?” But instead of picking up Mike’s left arm she picks up his right arm.
“It’s the left arm,” Mike says impatiently.
“Oh, right, sorry about that,” the therapist says.
“Okay, let’s see here,” she says, picking up Mike’s left arm.
She strains again, trying to get some motion out of the stiff joint.
She pauses, tuckered out.
“Are you sure you’re doing those home exercises I’ve been giving you?” she says. How many times is he doing it? How many times are you doing it? He can’t remember.
“You’re just not making the progress I’d hoped you would at this point.”
“I’m doin’ ‘em,” Mike says, again, somewhat unconvincingly.
Just then, another patient calls out for help from the overworked therapist.
“Hey Mary, am I doing this leg extension correctly?”
“Um, let me see,” Mary says, as Mike rolls his eyes impatiently.
“Hold on a sec, sorry,” Mary says as she puts Mike’s arm down again.
Mike lies on the table for another couple of minutes as the therapist gets caught up in the other patient’s questions.
Mike looks over to the therapist, working on the other patient.
“That’s it,” he says. “I’m out of here.”
Despite his weight and his gimpy knee, Mike slides off of the table and leaves, limping as he goes.
“Mike! Mike! Where are you going?” Mary says.
“Out! I’m going out of here! I’ve had it!” Mike says.
Three months later, Margorie Kessel is taking another look at Mike’s file.
“So now we’ve got a frozen shoulder. Probably looking at a six-figure settlement for permanent disability. And he’s still at the drugstore,” she says.
“What the heck happened to this claim?”
This scenario was originally presented at the 2014 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. Kurt Hegmann, Associate Professor, The Rocky Mountain Center for Occupational & Environmental Health. The session was moderated by Tracey Davanport, director, National Managed Care, Argonaut Insurance.
Insights from their discussion are highlighted below:
Healthcare: The Hardest Job in Risk Management
Radically changing cost and reimbursement models.
Rapidly evolving service delivery approaches.
It is difficult to imagine an industry more complex and uncertain than healthcare. Providers are being forced to lower costs and improve efficiencies on a scale that is almost beyond imagination. At the same time, quality of care must remain high.
After all, this is more than just a business.
The pressure on risk managers, brokers and CFOs is intense. If navigating these challenges wasn’t stress inducing enough, these professionals also need to ensure continued profitability.
“Healthcare companies don’t hide the fact that they’re looking to reduce costs and improve efficiencies in practically every facet of their business. Insurance purchasing and financing are high on that list,” said Leo Carroll, who heads the healthcare professional liability underwriting unit for Berkshire Hathaway Specialty Insurance.
But it’s about a lot more than just price. The complexity of the healthcare system and unique footprint of each provider requires customized solutions that can reduce risk, minimize losses and improve efficiencies.
“Each provider is faced with a different set of challenges. Therefore, our approach is to carefully listen to the needs of each client and respond with a creative proposal that often requires great flexibility on the part of our team,” explained Carroll.
Creativity? Flexibility? Those are not terms often used to describe an insurance carrier. But BHSI Healthcare is a new type of insurer.
The Foundation: Financial Strength
Berkshire Hathaway is synonymous with financial strength. Leveraging the company’s well-capitalized balance sheet provides BHSI with unmatched capabilities to take on substantial risks in a sustainable way.
For one, BHSI is the highest rated paper available to healthcare providers. Given the severity of risks faced by the industry, this is a very important attribute.
But BHSI operationalizes its balance sheet in many ways beyond just strong financial ratings.
For example, BHSI has never relied on reinsurance. Without the need to manage those relationships, BHSI is able to eliminate a significant amount of overhead. The result is an industry leading expense ratio and the ability to pass on savings to clients.
“The impact of operationalizing our balance sheet is remarkable. We don’t impose our business needs on our clients. Our financial strength provides us the freedom to genuinely listen to our clients and propose unique, creative solutions,” Carroll said.
Keeping Things Simple
Healthcare professional liability policy language is often bloated and difficult to decipher. Insurers are attempting to tackle complex, evolving issues and account for a broad range of scenarios and contingencies. The result often confuses and contradicts.
Carroll said BHSI strives to be as simple and straightforward as possible with policy language across all lines of business. It comes down to making it easy and transparent to do business with BHSI.
“Our goal is to be as straightforward as we can and at the same time provide coverage that’s meaningful and addresses the exposures our customers need addressed,” Carroll said.
Claims: More Than an After Thought
Complex litigation is an unfortunate fact of life for large healthcare customers. Carroll, who began his insurance career in medical claims management, understands how important complex claims management is to the BHSI value proposition.
In fact, “claims management is so critical to customers, that BHSI Claims contributes to all aspects of its operations – from product development through risk analysis, servicing and claims resolution,” said Robert Romeo, head of Healthcare and Casualty Claims.
And as part of the focus on building long-term relationships, BHSI has made it a priority to introduce customers to the claims team as early as possible and before a claim is made on a policy.
“Being so closely aligned automatically delivers efficiency and simplicity in the way we work,” explained Carroll. “We have a common understanding of our forms, endorsements and coverage, so there is less opportunity for disagreement or misunderstanding between what our underwriters wrote and how our claims professionals interpret it.”
Responding To Ebola: Creativity + Flexibility
The recent Ebola outbreak provided a prime example of BHSI Healthcare’s customer-centric approach in action.
Almost immediately, many healthcare systems recognized the need to improve their infectious disease management protocols. The urgency intensified after several nurses who treated Ebola patients were themselves infected.
BHSI Healthcare was uniquely positioned to rapidly respond. Carroll and his team approached several of their clients who were widely recognized as the leading infectious disease management institutions. With the help of these institutions, BHSI was able to compile tools, checklists, libraries and other materials.
These best practices were immediately made available to all BHSI Healthcare clients who leveraged the information to improve their operations.
At the same time, healthcare providers were at risk of multiple exposures associated with the evolving Ebola situation. Carroll and his Healthcare team worked with clients from a professional liability and general liability perspective. Concurrently, other BHSI groups worked with the same clients on offerings for business interruption, disinfection and cleaning costs.
Ever vigilant, the BHSI chief underwriting officer, David Fields, created a point of central command to monitor the situation, field client requests and execute the company’s response. The results were highly customized packages designed specifically for several clients. On some programs, net limits exceeded $100 million and covered many exposures underwritten by multiple BHSI groups.
“At the height of the outbreak, there was a lot of fear and panic in the healthcare industry. Our team responded not by pulling back but by leaning in. We demonstrated that we are risk seekers and as an organization we can deploy our substantial resources in times of crisis. The results were creative solutions and very substantial coverage options for our clients,” said Carroll.
It turns out that creativity and flexibly requires both significant financial resources and passionate professionals. That is why no other insurer can match Berkshire Hathaway Specialty Insurance.
To learn more about BHSI Healthcare, please visit www.bhspecialty.com.
Berkshire Hathaway Specialty Insurance (www.bhspecialty.com) provides commercial property, casualty, healthcare professional liability, executive and professional lines, surety, travel, programs, and homeowners insurance. 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 regional underwriting offices in Atlanta, Boston, Chicago, Los Angeles, New York, San Francisco, Toronto, Hong Kong, Singapore and New Zealand. For more information, contact firstname.lastname@example.org.
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.