Scott D. Buchholz
Risk management professionals face ever increasing challenges in today’s healthcare environment. The risk management professional plays a crucial role in fulfilling the commitments of healthcare providers to provide the best quality of care possible as well as the continuous assessment and improvement of the quality of care and the services rendered to patients.
Changes in the healthcare industry have made it more important than ever for healthcare providers to be proactive in identifying risks and taking appropriate preventative measures. New developments in medicine, combined with heightened regulatory and legal requirements have introduced new, unexpected and sometimes complex risk issues for healthcare providers. The job responsibilities of risk managers are as broad as ever and include financial, legal and operational dimensions that frame the contemporary practice of medicine.
The advent of managed care in healthcare has been the most influential factor in increasing the duties and objectives of risk managers. Managed care imposes an oversight on healthcare provider decision-making and requires physicians and hospitals to assess the costs and quality of care received under various treatment protocols. As of 1995, more than 71% of U.S. employees were enrolled in managed care plans. As a result, employers are looking with more interest into managed care organizations and the quality of the selected healthcare providers and provider organizations. The power of the healthcare purchasing dollar befalls the managers of employment benefit programs and their select managed care plans.
The purpose of this article is to discuss how the promotion of risk management both in and outside of the healthcare delivery system can ensure the delivery of quality care and increase the financial rewards to the healthcare provider in today’s healthcare economy.
Risk Management Process
Historically, the goals of an overall risk management program have been to (1) Identify the areas of actual or potential risk, (2) Prevent, as much as possible, injuries to patients, visitors and employees and (3) Prevent or limit financial loss to the hospital and its staff.1 A risk management professional’s job description includes a number of basic duties including insurance/risk financing, claims management, occurrence reporting and risk program administration/education.
The risk manager is charged with: (1) Identifying potential losses, (2) Evaluating potential losses, (3) Selecting the appropriate technique or combination of techniques for treating loss exposures, and (4) Administering the risk management program.2
The economic impact of risk has traditionally been measured by analyzing the frequency (or likelihood) and severity (economic impact) of claims. Economic impact is measured by indemnity payments (verdict awards and settlements) and expense (legal costs). The historical economic value of the risk manager to the organization has been to control loss. Such a limited perception of a risk manager’s value to the organization is shortsighted.
The importance of a solid and proactive risk management program is not limited to the reduction of the economic impact of indemnity and expense payments related to claims. The economic impact of a quality risk program should also be measured by the development of good will and the increased level of satisfaction by the purchasers of healthcare, medical errors, these being employers and managed care organizations. Healthcare executives should take full advantage of every benefit of an effective risk management program. A quality risk management program with commensurate results should be marketed to patients, employers and managed care organizations (MCOs). Thus, demonstrably effective (data-driven) risk management becomes a powerful marketing tool. As more fully discussed below, today’s purchasers of healthcare are ripe for receipt of results-oriented data concerning effective risk management programs. The healthcare provider should be able to expect to profit from the promotion of it’s the provider’s risk management program.
Employers/MCOs and Customer Satisfaction
Managed care organizations have historically been interested in cost containment. Over the past few years, several large employers such as GTE have increased the focus on quality, under the theory that “quality drives down costs.”3 Employers increasingly believe that a link between quality and cost for healthcare coverage is imperative for a good managed care organization.4 The cost containment features of a managed care plan makes it less costly to the employer than the traditional indemnity plan. Employers want to make it attractive for all employees, including those with the greatest medical care needs, to join the best managed care organizations (Most often the healthy employees join MCO’s and the less healthy employees opt for the indemnity programs). By embracing MCO oversight and cost containment policies, the employer should be or is more likely to be satisfied that the employer and the employees will get high value for their healthcare dollars.5 Employers are looking for means by which they may judge the quality of a particular healthcare provider and/or managed care organization. Many employers look to the National Committee on Quality Assurance and its system for rating quality.6 Whether or not employees and/or their families are better off with the care they receive is an important criteria for judging quality of a health provider. Patient satisfaction is highly associated with quality, but in addition, clinical indicators such as information that comes from procedures rates and screening rates are also used by employers to measure the quality of care. If the healthcare community (i.e., healthcare administrators, physicians, etc.) does not manage itself with regard to quality, today’s employers will – by signing on with another healthcare provider organization.
The reality is simple. Managers in the non-healthcare industries do not rely on price alone to sell their goods. Today’s employers and their employees alike want to know about safety. For example, questions regarding automobile safety increasingly accompany questions regarding price. Safety and quality performance are measures used by industry managers on a daily basis. The same performance measures are being increasingly used to analyze the performance of healthcare delivery systems.
So how can executives and administrators of healthcare delivery systems improve their performance vis a vis the purchasers of healthcare services?
Risk Management and Profit
As described above, a highly visible risk management program can lead to greater “sales”, “customer satisfaction” and long term relationship between the healthcare providers and their customers. By focusing on the quality of healthcare and marketing this strength to MCO/employers, the healthcare provider should profit.
As an example, Volvo American has long marketed its vehicles not as the most stylish, not the fastest, not the most luxurious automobile, but as the safest automobile in the market. Safety, quality and risk reduction in healthcare is equally if not more important than in other industries. Lately, the majority of the automobile industry has focused much of its marketing on the results of outside testing agencies (i.e., J.D. Power, Consumer Reports, insurance association crash tests, etc.) Similar but more exhaustive quality surveys occur in the healthcare field. The risk management professional is most often not only the spokesperson/defender of the healthcare provider’s quality of care, but also the organizer of data presented to the independent agency. Although highly marketed in other industries, healthcare senior management have not done enough to market their safety results. Nor for that matter, those professionals involved in policing risk and quality been perceived as a marketing asset.
A recent survey completed by KPMG Peat Marwick for the Commonwealth Fund provided some insight into the purchasing behaviors of companies in assessing quality in health plans.7 Although the purpose of the survey was to learn how health purchasing behaviors of small or mid-sized companies differ from those of “mega-employers,” important data was gained concerning employer reliance on data related to quality in selection of health plans. The survey showed 74% of all companies (200 workers and more) considered the number and quality of physicians when selecting a health plan. Over all, 75% of all companies viewed employee satisfaction as a factor when selecting a health plan. Interestingly, cost of service ranked third behind quality and employee satisfaction as a factor in selecting health plans.8
Healthcare organizations must begin to view risk management professional’s role not simply in loss control terms but as a means by which the healthcare delivery system may profit. The return on every dollar spent in risk management should increase with the understanding that quality/risk reduction is underestimated in healthcare revenue calculations.
Advice for the Risk Management Professional
Employee productivity is the measuring stick between those who have jobs and those who do not. In today’s era of mergers and acquisitions, the supply of traditional risk managers exceeds the demand. As a result, it becomes all the more important for risk managers to increase their value and to leverage economic realities in their favor. One means by which risk management professionals can increase their importance to healthcare organizations is to demonstrate to senior management the economic impact that the quality risk management professional can have on the “bottom line” as described above.
A hospital risk manager must work to increase medical staff support for the risk management program. In most healthcare settings, physicians are often too busy to be “bothered” with risk management programs. Many physicians do not take the time to understand what risk management professionals hope to accomplish. Physicians who are not aware of the benefits and goals of a risk management program tend to view risk managers negatively.
Risk managers must overcome these stumbling blocks. A risk management professional must recognize that a physician’s goals include both providing quality care and getting paid for that care. It is crucial that a risk manager educate physicians and medical office managers about the benefits of a proactive risk management program. Once physicians are made aware of the benefits of such a program, they will recognize that their time is not being wasted by engaging in risk management programs, that it is in fact, “value-added.” Further and most importantly, the physician should and can understand that an effective risk management program can protect them and provide for an additional “insurance policy” against claims and litigation. By marketing risk management to physicians as a focal point of the healthcare delivery system of a facility or organization, the risk manager becomes an important cog in increasing clinical outcomes, patient referrals and revenue.9
To best accomplish the strategy of impressing senior management of the important role a risk management professional plays in the healthcare environment, the risk management should assess their credential for applicability to the “new” job requirements of the risk management professional. Risk managers should obtain a set of credentials that displays broadness and diversity. Beyond credentials in healthcare such as nursing etc. and undergraduate degree in business or an MBA would provide a greater perspective to the increasing business risks that healthcare providers face today.
In summary, healthcare providers are marketing their services to highly organized and intelligent purchaser’s of healthcare. Quality assurance and patient satisfaction determine where the healthcare dollar is going to be spent. Those healthcare providers and provider orgainzations who do not make their risk management professionals a high profile and well supported part of their healthcare operations will lose a valuable opportunity to increase their market share and profitability in this competitive healthcare economy.
- Robert I. Mehr and Bob A. Hedges, Risk Management; Concepts and Applications (Homewood, IL; Richard D. Irwin, Inc., 1974), Chapters 1 and 2. See also C. Arthur Williams Jr., George L. Head, Ronald C. Horn and G. William Glendenning, Principles of Risk Management and Insurance, Section Edition, Volume I (Malvern, PN; American Institute for Property and Liability Underwriters, 1981), pages 15-18.
- George E. Rejda, Principles of Risk Management and Insurance (New York, NY; HarperCollins Publishers, Inc., 1992), Chapter 3, pages 48-49.
- “Employers in Managed Care: The Search for Quality” Forum, June, 1996.
- “Quality Healthcare is Good Business”, The Business Roundtable, September 1, 1997.
- “A Visit with Margaret O’Kane – The NCQA’s President Speaks”, Managed Care, March, 1997.
- “When Employers Choose Health Plans: Due NCQA Credit—- and HEDIS Data Count?” The Commonwealth Fund, New York, 1998.
- Guthrie, M.D., Gaining Physician Support for Risk Management. Journal for Healthcare Risk Management (Volume 19 #4 pages 6-10.)