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.
An Act of Violence
Alex Block settled down on a sunny afternoon in May of 2015 at the counter of Presto, a regionally famous sandwich shop in Pittsburgh, and hungrily eyed the pastrami sandwich on his plate.
Thick slices of white Italian bread stuffed with French fries, coleslaw and sweet-spicy, aromatic meat shaved super-thin. This was not the time to second-guess on the calories. This moment called for just diving right in.
Block’s self-indulgence felt justified. Three years ago, he’d returned to this former mill town, his bank accounts bulging with cash from a 14-year career as a Wall Street investment banker.
What he did with about $4 million of that cash got tongues wagging. It even got him a headline on the front page of the local business paper.
Block invested in his grandfather’s former aluminum fabrication company in nearby Lawrenceville with the idea of bringing it back as an aluminum decking company, dubbed Sarachelle Decking, Inc. The first word of the company name was a combination of the names of Alex’s two daughters, Sara and Rochelle.
Some online commentators greeted the news with ridicule. Block’s business looked to some like a bone-headed move spurred by nostalgia.
“This ain’t the Steel City no more, buddy,” grumbled an out-of-work ironworker, commenting on the online news story about the launch of this small to mid-sized company. Many in the Pittsburgh manufacturing community thought that Block would never make it in manufacturing.
But Block was no bonehead. He put his Wharton MBA and his curiosity to good use, researching South American bauxite production to identify lesser known suppliers who would give him a price advantage over larger companies.
It was in Guyana that he found the bauxite producer that made the whole thing click for his company. He added to that advantage by lining up a local smelter that he found through his business school contacts.
Now, three years later, the glimmer of real gold was appearing. Just this spring, Force-Tek, one of the publicly traded railroad and highway infrastructure companies, picked up his product in a seven-figure contract. Who was laughing now?
What better way to toast his success than with a stuffed sandwich at Presto’s? That form of celebration was a personal tradition that dated back to his high school days when Alex’s father would proudly treat him when he won wrestling matches.
Block made short work of the French fry-stuffed pastrami sandwich. As he finished off his diet cream soda, his eyes settled on the television set above the lunch counter. A news report showed footage of Venezuelan troops pouring over the Guyanese border. A long-simmering border dispute was erupting into armed conflict.
The operation providing Block’s bauxite was located a mere 200 miles to the east of the Venezuelan border incursion. The image of the Venezuelan troops stopped Block cold.
In an instant Block’s mind ran through the possibilities.
The degree to which the bauxite plant itself was threatened was one area of concern. But Block’s Guyanese producer was also heavily dependent on labor from the neighboring country of Suriname.
Even if the bauxite plant wasn’t captured or otherwise affected, it could suffer business interruption if its labor supply was blocked.
“How long the dispute will last and to what degree it will embroil neighboring Suriname are unknowns,” said the British-accented broadcaster.
“But one thing is certain,” he continued. “Business and personal travel in this area of the world will be inadvisable for weeks, possibly months to come.”
“No kidding,” Block said out loud to himself, eliciting a sharp, critical glance from a co-ed sitting on the next stool, apparently peeved that Block had interrupted her concentration as she thumbed through her iPhone.
In one afternoon, Alex Block’s bright business prospects darkened considerably. The pastrami sandwich that he’d rationalized as an earned indulgence now sat heavy in his stomach.
The Venezuelan incursion accomplished just what Block feared it would do.
Officials in Suriname tightened down their borders, blocking the movement of workers into Guyana for three months.
A months-long military border dispute between Venezuela and Guyana claimed dozens of lives per week. The fighting never escalated to a country-wide engagement, but the damage to the sustainability of Sarachelle Decking was done. Block’s Guyanese bauxite producer was forced to cease production until the situation stabilized.
Block moved quickly to identify another bauxite producer but he was outflanked.
He was forced to compete with larger aluminum makers and fabricators for bauxite from their existing suppliers. The higher price from those bauxite producers erased a key business advantage.
In a meeting with his CFO, Block faced the music.
“We’ve got margin erosion here that worries me greatly,” said the CFO, Kristian Moorehead.
The company was meeting its production obligations to Force-Tek and other key customers, but it was looking at an operating loss within one more quarter if it couldn’t cut costs.
Even with a full order book, Block did what he felt he had to do and laid off a shift. Maybe the layoff was too much too soon, an over-reaction, but Block was Wall Street trained. You didn’t wait, you acted.
The news sent ripples through the Pittsburgh manufacturing community and was gleefully picked up on by Block’s competitors.
“They’re not going to be around long,” was what a salesmen for one of the company’s competitors told a customer in the Midwest, where Sarachelle Decking did most of its business.
“Why do you say that?” said the customer.
“For one, they source from Guyana, which is under attack from Venezuela if you haven’t noticed,” the salesman said.
“Secondly, they’ve only been in business four years and they just laid off an entire shift last month,” the salesman said.
“I think you better ask yourself what it’s going to do to your business if you buy from them and they go under,” he added.
“I guess I’ll have to take that under advisement,” the customer said.
Alex Block was not an insurance naïf. His due diligence work as an investment banker gave him more than a passing acquaintance with products such as property insurance, D&O insurance, workers’ compensation, environmental insurance and other coverages.
As he scrambled to save his company and the prolonged Guyana-Venezuela strife played out, Block and his CFO examined their coverages to see if they could find relief.
They did not find relief. What they found were gaps, not only in their coverage but in their risk management strategy.
Back to the Drawing Board
As an event beyond his control, Alex Block couldn’t help but think that the conflict in South America that deprived him of a key supplier should have been compensable from an insurance standpoint.
After all, wasn’t it comparable to a storm or flood knocking out his factory for a few weeks or even longer? The answer was that it was, and it wasn’t.
Supply-chain insurance that would have provided a payout on the clear supply-chain disruption that Sarachelle Decking suffered wasn’t in place.
On the risk mitigation end, Block was so enamored of the business advantage his Guyanese bauxite supplier gave him that he didn’t look at the flip side. He failed to imagine what losing it would do to him and failed to arrange for back-up low-cost suppliers.
Over drinks with a pal from his Wharton days, Block got the lowdown on what he should have known and done going in.
“I mean the supply chain cover is something you arguably might not have been able to get to begin with,” his friend said between sips of his vodka martini.
“It’s not like there’s that much coverage out there and with your limits the carriers that handle that might have passed on you,” he said.
“But the supply chain analysis, you should have done and could have done,” he said. “It would have pointed out that your strength and your weakness were both coming from the same supplier,” he said.
“And a contingency plan?” his friend said.
“If I’d known …” Alex began.
“If you’d known. But good to have in any event,” his friend said.
With no end to the South American conflict in sight, Sarachelle Decking was locked into a bauxite price that gradually undermined its ability to compete.
The company was able to function for a full two years beyond the day that Block first axed one of the production shifts.
But in 2017, the day came when Alex Block’s dream of resurrecting his grandfather’s company came to an end. The same reporter that wrote a front page business journal story on him in 2012 visited him to write the epitaph on Sarachelle Decking.
In the five years he’d been in Pittsburgh, Alex Block had gotten used to the feel of a smaller town. His New York days seemed like a distant memory. This was his hometown after all.
But something told him he’d be back in that rat race before long.
Risk & Insurance partnered with the Society of Actuaries (SOA) to produce this scenario. Below are perspectives from an actuary on ways to prevent losses presented in the scenario. This perspective is not an editorial opinion of Risk & Insurance.
1. Analyze and prioritize risks: All business prospects need to be analyzed for potential pitfalls, as the business owner in the scenario did not prepare for unexpected events, such as labor shortages from regional instability or the unavailability of a critical supply point that impacted his entire supply chain.
The 2014 Emerging Risks Survey from the Joint Risk Management Section, of which the SOA is a sponsor, identifies emerging risks ranging from environmental to geopolitical. Key geopolitical risks can include:
- Interstate and civil wars
- Failed and failing states
- Regional instability
- International terrorism
- Retrenchment from globalization
The businessperson in the scenario should have considered various geopolitical risks, among other risks that impact the company. Another set of emerging risks to consider include societal:
- Pandemics and infectious disease
- Regime liability and regulatory framework issues
- Demographic shifts
2. Create relevant and actionable contingency plans: While it is important to research and identify potential shortfalls or risks presented from working with suppliers, vendors or other partners, it is also necessary to take action with this information. The loss of a key supplier, such as in this scenario, must be met with immediate action or dire consequences can occur. Planning ahead is necessary, so backup suppliers and sources of materials should be in place for the company. It is also vital to understand what risks may affect the suppliers’ business, which can ultimately impact the company too. For example, there are currency risks when dealing with suppliers based in another country, such as fluctuations in the economy, changes with the interest rates or issues with foreign exchanges.
3. Understand coverages: The risk exposures, a company’s appetite for risk and several other factors should weigh in to the decision of insurance coverage. Even if a company doesn’t have a chief risk officer, who that responsibility lies with needs to be identified and their knowledge of coverages and coverage limitations needs to be comprehensive.
4. Harness your consultants’ knowledge: The businessperson in this scenario depended too much on his own knowledge and did not seek counsel from insurance consultants or an insurance carrier, which was a vast oversight on his part. It is important to have a clear understanding of coverages and risk mitigation processes through tapping into the valuable insights of available resources and experts.
For more information about SOA, please visit www.soa.org/impact
Achieving More Fluid Case Management
Risk management practitioners point to a number of factors that influence the outcome of workers’ compensation claims. But readily identifiable factors shouldn’t necessarily be managed in a box.
To identify and discuss the changing issues influencing workers’ compensation claim outcomes, Risk & Insurance®, in partnership with Duluth, Ga.-based Healthcare Solutions, convened an April roundtable discussion in Philadelphia.
The discussion, moderated by Dan Reynolds, editor-in-chief of Risk & Insurance®, featured participation from four tenured claims management professionals.
This roundtable was ruled by a pragmatic tone, characterized by declarations on solutions that are finding traction on many current workers’ compensation challenges.
The advantages of face-to-face case management visits with injured workers got some of the strongest support at the roundtable.
“What you can assess from somebody’s home environment, their motivation, their attitude, their desire to get well or not get well is easy to do when you are looking at somebody and sitting in their home,” participant Barb Ritz said, a workers’ compensation manager in the office of risk services at the Temple University Health System in Philadelphia.
Telephonic case management gradually replaced face-to-face visits in many organizations, but participants said the pendulum has swung back and face-to-face visits are again more widely valued.
In person visits are beneficial not only in assessing the claimant’s condition and attitude, but also in providing an objective ear to annotate the dialogue between doctors and patients.
“Oftentimes, injured workers who go to physician appointments only retain about 20 percent of what the doctor is telling them,” said Jean Chambers, a Lakeland, Fla.-based vice president of clinical services for Bunch CareSolutions. “When you have a nurse accompanying the claimant, the nurse can help educate the injured worker following the appointment and also provide an objective update to the employer on the injured worker’s condition related to the claim.”
“The relationship that the nurse develops with the claimant is very important,” added Christine Curtis, a manager of medical services in the workers’ compensation division of New Cumberland, Pa.-based School Claims Services.
“It’s also great for fraud detection. During a visit the nurse can see symptoms that don’t necessarily match actions, and oftentimes claimants will tell nurses things they shouldn’t if they want their claim to be accepted,” Curtis said.
For these reasons and others, Curtis said that she uses onsite nursing.
Roundtable participant Susan LaBar, a Yardley, Pa.-based risk manager for transportation company Coach USA, said when she first started her job there, she insisted that nurses be placed on all lost-time cases. But that didn’t happen until she convinced management that it would work.
“We did it and the indemnity dollars went down and it more than paid for the nurses,” she said. “That became our model. You have to prove that it works and that takes time, but it does come out at the end of the day,” she said.
The ultimate outcome
Reducing costs is reason enough for implementing nurse case management, but many say safe return-to-work is the ultimate measure of a good outcome. An aging, heavier worker population plagued by diabetes, hypertension, and orthopedic problems and, in many cases, painkiller abuse is changing the very definition of safe return-to-work.
Roundtable members were unanimous in their belief that offering even the most undemanding forms of modified duty is preferable to having workers at home for extended periods of time.
“Return-to-work is the only way to control the workers’ comp cost. It’s the only way,” said Coach USA’s Susan LaBar.
Unhealthy households, family cultures in which workers’ compensation fraud can be a way of life and physical and mental atrophy are just some of the pitfalls that modified duty and return-to-work in general can help stave off.
“I take employees back in any capacity. So long as they can stand or sit or do something,” Ritz said. “The longer you’re sitting at home, the longer you’re disconnected. The next thing you know you’re isolated and angry with your employer.”
“Return-to-work is the only way to control the workers’ comp cost. It’s the only way,” said Coach USA’s Susan LaBar.
Whose story is it?
Managing return-to-work and nurse supervision of workers’ compensation cases also play important roles in controlling communication around the case. Return-to-work and modified duty can more quickly break that negative communication chain, roundtable participants said.
There was some disagreement among participants in the area of fraud. Some felt that workers’ compensation fraud is not as prevalent as commonly believed.
On the other hand, Coach USA’s Susan LaBar said that many cases start out with a legitimate injury but become fraudulent through extension.
“I’m talking about a process where claimants drag out the claim, treatment continues and they never come back to work,” she said.
Social media, as in all aspects of insurance fraud, is also playing an important role. Roundtable participants said Facebook is the first place they visit when they get a claim. Unbridled posts of personal information have become a rich library for case managers looking for indications of fraud.
“What you can assess from somebody’s home environment, their motivation, their attitude, their desire to get well or not get well is easy to do when you are looking at somebody and sitting in their home,” said participant Barb Ritz.
As daunting as co-morbidities have become, roundtable participants said that data has become a useful tool. Information about tobacco use, weight, diabetes and other complicating factors is now being used by physicians and managed care vendors to educate patients and better manage treatment.
“Education is important after an injury occurs,” said Rich Leonardo, chief sales officer for Healthcare Solutions, who also sat in on the roundtable. “The nurse is not always delivering news the patient wants to hear, so providing education on how the process is going to work is helpful.”
“We’re trying to get people to ‘Know your number’, such as to know what your blood pressure and glucose levels are,” said SCS’s Christine Curtis. “If you have somebody who’s diabetic, hypertensive and overweight, that nurse can talk directly to the injured worker and say, ‘Look, I know this is a sensitive issue, but we want you to get better and we’ll work with you because improving your overall health is important to helping you recover.”
The costs of co-morbidities are pushing case managers to be more frank in patient dialogue. Information about smoking cessation programs and weight loss approaches is now more freely offered.
Managing constant change
Anyone responsible for workers’ compensation knows that medical costs have been rising for years. But medical cost is not the only factor in the case management equation that is in motion.
The pendulum swing between technology and the human touch in treating injured workers is ever in flux. Even within a single program, the decision on when it is best to apply nurse case management varies.
“It used to be that every claim went to a nurse and now the industry is more selective,” said Bunch CareSolutions’ Jean Chambers. “However, you have to be careful because sometimes it’s the ones that seem to be a simple injury that can end up being a million dollar claim.”
“Predictive analytics can be used to help organizations flag claims for case management, but the human element will never be replaced,” Leonardo concluded.