Public Risk April 2019 by Moire Marketing Partners

PUBLISHED BY THE PUBLIC RISK MANAGEMENT ASSOCIATION APRIL 2019

USING DATA TO MITIGATE RISK IN SCHOOLS PAGE 6

ALSO IN THIS ISSUE

PRIMA EXECUTIVE DIRECTOR BIDS FAREWELL

Marshall Davies Announces Retirement

PAGE 11

REFERENCE-BASED PRICING:

Strategies to Dramatically Reduce Healthcare Costs and Minimize Program Risks

PAGE 12

FOUR STEPS FOR ALIGNING THIRD-PARTY RISK MANAGEMENT WITH OPERATIONAL PRIORITIES PAGE 16

Specialized Offerings. Public Entity Expertise. Old Republic Insurance Group offers a full suite of risk management and insurance solutions, and Third Party Administration (TPA) services, with specialized offerings and expertise to meet the unique needs of public sector clients.

BITCO Insurance Companies1 Old Republic Aerospace 2 Old Republic Specialty Insurance 3 PMA Companies3 Insurance contracts are underwritten and issued by: 1. BITCO General Insurance Corporation and BITCO National Insurance Company; 2. Old Republic Insurance Company; 3. Pennsylvania Manufacturersâ&#x20AC;&#x2122; Association Insurance Company, Manufacturers Alliance Insurance Company, Pennsylvania Manufacturers Indemnity Company.

orgig.com

The Public Risk Management Association promotes effective risk management in the public interest as an essential component of public administration.

APRIL 2019 | Volume 35, No. 4 | www.primacentral.org

CONTENTS

PRESIDENT Jani J. Jennings, ARM Risk Manager City of Bellevue Bellevue, NE PAST PRESIDENT Amy J. Larson, Esq. Risk and Litigation Manager City of Bloomington Bloomington, MN PRESIDENT-ELECT Scott J. Kramer, MBA, ARM County Administrator Autauga County Commission Prattville, AL

Using Data to Mitigate Risk in Schools

Forestine Carroll Risk Manager Memphis Housing Authority Memphis, TN Sheri Swain Director of Enterprise Risk Management Maricopa County Community College District Tempe, AZ Donna Capria, CRM, CIC, AINS Risk & Insurance Coordinator WaterOne of Johnson County Lenexa, KS Michael S. Payne, ARM, HEM Risk Manager City of Fresno Fresno, CA

By Charlie Wund

DIRECTORS Brenda Cogdell, AIS, AIC, SPHR Risk & Safety Director County of Hillsborough Tampa, FL

PRIMA EXECUTIVE DIRECTOR BIDS FAREWELL Marshall Davies Announces Retirement By Jennifer Ackerman, CAE

Melissa R. Steger, MPA Asst. Director, Workers’ Compensation University of Texas System Austin, TX NON-VOTING DIRECTOR Marshall Davies, PhD Executive Director Public Risk Management Association Alexandria, VA EDITOR Jennifer Ackerman, CAE Deputy Executive Director 703.253.1267 • jackerman@primacentral.org ADVERTISING Jennifer Ackerman, CAE 703.253.1267 • jackerman@primacentral.org

Reference-Based Pricing:

STRATEGIES TO DRAMATICALLY REDUCE HEALTHCARE COSTS AND MINIMIZE PROGRAM RISKS By Marty Joseph

IN EVERY ISSUE

16 Four Steps for Aligning ThirdParty Risk Management with Operational Priorities By Quin Rodriguez

Public Risk is published 10 times per year by the Public Risk Management Association, 700 S. Washington St., #218, Alexandria, VA 22314 tel: 703.528.7701 • fax: 703.739.0200 email: info@primacentral.org • Web site: www.primacentral.org Opinions and ideas expressed are not necessarily representative of the policies of PRIMA. Subscription rate: $140 per year. Back issue copies for members available for $7 each ($13 each for non-PRIMA members). All back issues are subject to availability. Apply to the editor for permission to reprint any part of the magazine. POSTMASTER: Send address changes to PRIMA, 700 S. Washington St., #218, Alexandria, VA 22314. Copyright 2019 Public Risk Management Association

| 4 NEWS BRIEFS | 19 ADVERTISER INDEX

APRIL 2019 | PUBLIC RISK

THINK. SHARE. TRANSFORM. the leading event for public risk professionals

JUNE 9 â&#x20AC;&#x201C;12 2019

MESSAGE FROM PRIMA PRESIDENT JANI JENNINGS, ARM

The Song Remembers When

esearch at the University of California at Davis pinpointed an area of the brain that stores memories by linking them to familiar songs and the emotions associated with those memories. The affect a song will have on someone can often be determined by a person’s past emotional experience with that song. In fact, a study with Alzheimer’s patients has shown that playing some of their favorite pieces of music can jog their memory when discussing past events. My major life events, happy or sad, are memorialized by the songs I heard during those times. It was 2011 and the women of pop were dominating the music charts. Adele, Katy Perry, Pink and Lady Gaga accompanied me from the radio during my growth with PRIMA. Having been involved already for several years on PRIMA committees, it was fun to finally meet some PRIMA peers with whom I had done committee work via phone meetings and face-to-face at the LDC meetings and annual conferences. Those peers have become some of my dearest friends. Jack Owen’s Barefoot Bluejean Nights will always be the time those friends and I danced at the Wildhorse Saloon at PRIMA’s annual conference in Nashville (Music City). The conference that year coincided with CMA Fest. I recall chatting with one of my PRIMA friends who had gone to downtown Nashville the afternoon the artists were setting up. Not being a country music follower, he started a conversation with a gentleman there asking what all the tents and stage equipment were for. The man explained that there was a big country music festival beginning. They chatted a while and said good-bye and when my friend told us about it later, he said, “Met a nice guy…said his name was Clint Black.” Our jaws dropped and though we laughed and ribbed him, he remained clueless about country music.

Those times with my PRIMA friends were and still are some of the best times of my life. But it was that same year that I got to know PRIMA Executive Director Marshall Davies. I knew of Marshall, I had heard high praise about him, and I had been introduced to him but didn’t really get to know him until I first served on the Leadership Development Committee. That was when I became a card-carrying member of the Marshall Davies fan club. Working intently, socializing, and dancing with my PRIMA family came in second only to the cherished, more quiet times when the music was turned down and I had the good fortune of chatting with Marshall. As I developed a friendship with Marshall, I realized he was one of the smartest men I had ever met. Highly educated, diversely experienced, and street savvy, I was fascinated by his conversations. I developed a tremendous amount of respect for him because even though he was so highly educated, I never saw him look down upon those less educated or less fortunate. In fact, he often times would disavow the smug attitudes of academia while showing admiration for those hard-working, common folks who shape our world and provide service to others.

saw how diligently he was striving to leave PRIMA in a sustainable place and how important it was to leave its direction in capable, loving hands. It was time for him to pass the torch. While he may have had some worrisome moments as he finished his work with PRIMA, leaving its fate to all of us who would be responsible for continuing what he had worked so hard to build, he never voiced doubt. Instead he would quietly say, “I always have faith in people, giving them the benefit of the doubt that they will do the right thing.”

Marshall has a unique ability to make everyone feel like they are the most important person in the room. That is not to take away from his genuine intent or to say that the person is unimportant. It is merely one more example of the admirable qualities Marshall possesses that make him so likable. He will tell you, and he’s right, that his best quality is his ability to really listen to people. He will then quickly add, “But when I do speak, why say two words when I can say four!”

“Still I guess some things we buried Are just bound to rise again, For even if the whole world has forgotten The song remembers when”

After Marshall announced his retirement, it became very clear that it would be very difficult for him to leave. But this wasn’t about him. Marshall, as always, was putting PRIMA first. While working with him the past several years, I

You may or may not have noticed that each of the columns I have written this year for the Public Risk magazine have been titled with the name of a song. Music speaks to me in such a way that it felt natural to include it somehow in my writing. My cherished memories of times spent developing my friendships through PRIMA, specifically with Marshall, I am sure will be associated with the songs I hear throughout the rest of my life. Each time I hear a Bruno Mars or Ed Sheeran song, I know I’ll think of how truly honored I was to have had the good fortune to be PRIMA President when Marshall Davies still served as PRIMA’s Executive Director.

Rock on, Marshall Davies. Rock on. Sincerely,

Jani Jennings, ARM PRIMA 2018–2019 President Risk Manager City of Bellevue, NE

APRIL 2019 | PUBLIC RISK

NEWS BRIEFS

NEWS Briefs

REPORT: TOXIC COAL ASH CONTAMINATING GROUNDWATER IN 39 STATES

A study published by the Environmental Integrity Project and Earthjustice examined data made public for the first time a year ago pursuant to coal ash regulations issued in 2015. The U.S. Environmental Protection Agency began regulating coal ash after some “high profile structural failures and spills” exposed the “true scope of coal ash’s threat.”

“

We are understating the true scope of the

“

An extensive analysis of monitoring data found unsafe levels of toxic pollutants were present in groundwater at 91 percent of the nation’s 242 coal-fired power plants that filed reports.

problem in several ways… Any coal ash dumps that

were closed before 2015 are not regulated, they’re not monitored, and we don’t know much about them.

Abel Russ, the lead author of the report and EIP lawyer

Coal ash is a byproduct of burning coal that contains toxic chemicals like arsenic, a known carcinogen, and lithium, which is associated with neurological damage. Other chemicals detected at coal ash dumps at four sites in Oklahoma include lead, sulfate, boron, molybdenum and radium. Abel Russ, the lead author of the report and an EIP lawyer, said the “new data provide convincing evidence” that EPA should be working “toward stronger protections for human health and the environment.” It has initiated instead efforts to roll back the Obama-era Coal Ash Rule even after a federal circuit court held this past year those regulations didn’t go far enough. Russ said the analysis of data reported by 265 coal-fired plants shows those facilities fall into three categories. In addition to 242 plants where groundwater contamination appears to be coming from regulated coal ash dumps, there are 12 plants that show signs of contamination, but the source could not be traced with certainty and 11 where the groundwater meets drinking water standards.

PUBLIC RISK | APRIL 2019

“We are understating the true scope of the problem in several ways,” Russ said. “Any coal ash dumps that were closed before 2015 are not regulated, they’re not monitored, and we don’t know much about them.”

the federal Coal Ash Rule’s groundwater monitoring requirements last year because they either closed their ash dumps before the rule went into effect in 2015 or were eligible for an extension.

The data came from over 4,600 groundwater monitoring wells located around the ash dumps of 265 coal-fired power plants, which is roughly three quarters of the coal power plants across the United States. The rest of the plants did not have to comply with

Once the material is removed, it will be backfilled with soil, revegetated, maintained and monitored for a period of time. Those stages of the project are scheduled through the remainder of this year with a certificate of closure expected to be filed in 2020.

Homicides and shootings are on the decline in Chicago this year, police said. There have been 44 homicides to date, compared with 80 by this time last year, or a 44 percent decrease, Chicago police said in a statement. There have been 214 shootings so far in January and February, they said, compared with 282 in the first two months of last year. The number of shooting victims also has declined, with 253 in 2019, compared with 345 last year, police said. February saw a 40 percent decline in homicides and a 7 percent reduction in shootings, compared with the same time period last year, officials said. Chicago has been plagued with violent crime, and it has achieved unwanted attention for lawlessness, such as weekend crime sprees. But police said they have been making strides to address the problem. “Crime data for February provides strong evidence that the Chicago Police Department is on the right path towards improving public safety,” police Superintendent Eddie Johnson said, pointing to the success of “building neighborhood partnerships,” beefing up manpower and deploying “new technology.”

AS MEASLES OUTBREAKS RISE, STATES RECONSIDER VACCINE EXEMPTION Measles outbreaks across the nation are prompting state lawmakers to consider eliminating vaccination exemptions for religious and personal beliefs that have been claimed by the parents of some children. Public health experts and officials blame the exemptions as one reason why states are seeing an increased number of cases of measles.

Laws allowing parents to opt out of vaccinations were created by states trying to strike a delicate balance between religious freedom, personal choice and public health. But the most recent measles outbreaks, which have infected 159 mostly unvaccinated people in 10 states, is leading some states to reconsider. “That goes beyond religious freedom,” said Burke.

“What you see as religious choice could possibly cause negative health outcomes for other members of your community and society,” said Pat Burke, a Democratic state lawmaker in New York who is pushing to eliminate the state’s religious exemption.

“

Every state requires that students be vaccinated to enroll in school, and all states allow exemptions for children who are too sick to receive vaccines or who have a weakened immune system.

What you see as

religious choice could

possibly cause negative health outcomes for

other members of your

community and society.

“

CHICAGO HOMICIDES DROPPED BY NEARLY HALF IN JANUARY AND FEBRUARY

Pat Burke, a Democratic state lawmaker in New York

APRIL 2019 | PUBLIC RISK

USING DATA TO MITIGATE

PUBLIC RISK | APRIL 2019

RISK IN SCHOOLS

BY CHARLIE WUND

ISK IS EVERYWHERE. It surrounds us as an invisible layer of chance, ever-changing as probability of manifestation is impacted by our

real-time decision making. The decision to run a yellow light could be

another passing moment on your way to work, or it could end up being a life-changing event.

We make our choices based on information. Those who have never been in an accident before or have collected incomplete data may be more inclined to take the chance. Those with children in the car, or perhaps noticed the police officer at the intersection, will probably make the choice to stop. We all aggregate information and process risk differently, and at different speeds. Since the boom of “big data,” many industries have more information than they can handle. Treasure troves of “gold” aggregated in structured and un-structured data sets must now be mined to uncover the true value. Artificial intelligence has been employed to help make informed decisions, but it’s not meant to decide for us. More, a tool to point us in the right direction and assist with identifying the proper course.

One industry behind the curve in big data is education. Not for a lack of data, but education has not always been on the cutting edge of innovation and is largely a paper-based industry. There are rows and rows of filing cabinets at our school and district offices, much like what used to exist at the doctor’s office. This process for record-keeping is costly, difficult to access, and [probably most importantly] does not allow for the aggregation of data etched on paper. However, what may seem like a technology issue, is really a communication problem. Many Student Information Systems [SIS] have been developed to take education from paper to paperless, but these digital platforms can’t help the communication rift between the employees and district’s risk management office. Rarely does the opportunity occur for a risk manager

APRIL 2019 | PUBLIC RISK

USING DATA TO MITIGATE RISK IN SCHOOLS

to effectively communicate with the “front line” reporters of teachers, janitors and medical staff. Yet, these are the employees who are surrounded by valuable risk data in our schools every day. The process for student accident reporting is in bad need of a digital face lift. During the early phases of our product development, we assessed the process by which districts deploy and collect student accident forms. Either paper or PDF report forms are filled out and sent to a central office, which are then processed into a district wide database or placed in the file cabinet. Often the district form won’t meet the reporting requirements for the school nurse or athletic trainer, causing double data entry. Sending the data to die and increasing administrative burden aren’t even the worst of it. The current process creates a lag in communication as emails, faxes, or snail mail must be sent to each child’s caregiver. The time and effort it takes to inform each coach, teacher, nurse, athletic trainer, parent and administrator regarding the removal of play for one student, increases the chance the

message isn’t received and returns to activity without proper medical approval. We asked ourselves why wasn’t there a way to send real-time reports, while reducing the administrative burden for all? Current technology (2012) allows us to upload a photo of our lunch to all our “friends” from our cell phone, but real-time transfer of a student’s medical “status” is asking too much? Something needed to be done. The solution came to us once we examined student accident forms from districts throughout the country. They all asked for the same basic information regarding an incident. Names, date, and care/treatment info all seemed to be collected with some additional information here and there, but for the most part the same 15 data points were being collected. We saw an opportunity to streamline the accident reporting process and improve communication at the same time. Our goal was to standardize the information data across the board. Any epidemiologist will

tell you “dirty data” is the worst. Establishing a structured data set of “dropdown” choices satisfies the basic accident reporting requirements of any district, while also allowing to compare “apples to apples” when lining up multiple districts. By adding the ability for individual schools to add custom questions, we satisfied the reporting requirements of any accident report form. Once the reporting process saved people time in their day, the data started to flow and the true power of streamlined reporting surfaced. For example, in 2013 one school reported eight concussions from a population of 150 football players during the first three weeks of practice. At that rate 37, concussions were projected to occur during the remaining 12 weeks of the season. In other words, almost 25 percent of the students on that team would suffer a concussion. Because the school has a centralized reporting database, accessible by those specifically responsible for student safety, the trend triggered

The solution came to us once we examined student accident forms

from districts throughout the country. They all asked for the same basic information regarding an incident. Names, date, and care/treatment info all seemed to be collected with some additional

information here and there, but for the most part the same 15 data points were being collected. We saw an opportunity to streamline the accident reporting process

and improve communication at the same time.

PUBLIC RISK | APRIL 2019

alarms and warranted further investigation. What transpired was a correlation to the football helmet being worn by the concussed students. All eight of the injury reports indicated the child was using a helmet bought by the parents, as opposed to school issued equipment. This stat was music to the district’s ears. However, data collected is only useful if its actionable and who provided the helmet shouldn’t increase the chance a student is at risk. Additionally, the parents had all bought five-star rated helmets and the district had issued four-star ones. Logic would suggest opposite outcomes than what was happening. Turns out, when purchasing a helmet at the sporting goods store, neither the parent or the salesperson knew how to properly fit a helmet. Improper fitting equipment is a known cause for injury and avoidable with annual training at the beginning of each season. At this point, the school sent an email alert to the parents on the football team to have their child see the athletic trainer, if they weren’t using a district issued helmet. With a vigil eye and well-informed students, only three concussions were reported during the remaining 12 weeks of the season. An outcome awarded with a state championship. After highlighting one school’s use of data, it’s important to stress district control over who is able to access information and for what purpose. It does no good for coaches on the football team to access field hockey injuries. To further the point, providing real-time access to injury reports for a risk manager overseeing four high schools can be overwhelming. Systems must be able to “sandbox” information in meaningful ways. Once we scale data access to a state or regional level, processing information in a standardized format is essential. Establishing YoY comparison between data points and tracking user reporting behaviors, not only allows for the reader to digest the information but also provides a running log of policy impact. Decision makers can identify areas of concern [before claims occur] and measure the impact deployed interventions have, both intended and not.

This process is often referred to as Continuous Quality Improvement (CQI).

we can establish a Cost Per Student [CPS] based on each school’s population.

It seems intuitive that CQI should be applied to any health and safety issue, but none more than concussions and the rising concern for CTE. Some in the insurance world have referred this as the “ticking time-bomb” of youth sports. Allegations for improper care delivery and transparency were the backbone of the NFL litigation settlement, yet many haven’t updated their injury record keeping accordingly.

The topic of conversation shifts to the “why” at this point. It can be argued that School B has the smallest population, therefore the highest CPS, but the difference is so drastic we need to dig more. We uncovered that out of the ~$118,000 in medical care costs incurred, over 50 percent came from surgical repair. What the reports also hides is that School B is a private school, while Schools A and C are public.

If a district takes a proactive approach to improving their methods for accident reporting, future claim and litigation costs can be reduced with a centralized database of incident information. Accident reports should allow for continuous updates, all the way through a documented clear bill of health, to avoid witness interviews and unnecessary attorney fees. However, proper documentation provides additional benefits other than reducing the costs of deposition. Once such use case is highlighted in the actuarial process.

Knowing this, some may assume the parents at School B have private personal insurance and can afford surgical repair, while those in public school rely on rehabilitation treatments without access to specialty care. We would suggest, that having a smaller pool of students to field athletic programs increases the chance overuse injuries occur, typically in ligaments requiring surgery. Either way, knowing what data is in your risk “cup” and how fast it is filling up allows for a healthy discussion aimed at improving the safety of your students.

Historically, claims have driven rates. Reviewing the number of claims and total claim cost is without question a retroactive process. When we attempt to project risk, the deck is stacked in the provider’s favor as risk can’t be measured by the number of accidents avoided. Counting “zeros” is one of the hardest thing to do in any study, but with proper documentation, we can come close.

It’s important to know what’s going on around us, but many still rely on national norms. Hopefully, that used to be because accessing data was previously burdensome and labor intensive. Unfortunately, many are of the mindset that “ignorance is bliss” and if they are aware what is occurring, then liability actually increases.

Visualize the flow of accident reports like a pitcher of water and every exposure environment as a glass; each a different size and shape. As water is poured into each glass, they fill at different rates nearing potential “spillover” into a claim. By monitoring the data flowing into each glass, we can intervene before claims occur and reduce our loss. Without proper reporting and data aggregation, providers will continue to establish rates on 10 year runs. Take the example of three different schools, each in the same geographic region. We are able to monitor the total number of injury reports and compare to those requiring some sort of medical follow-up [potential claim]. After applying regional care costs for the procedures provided,

Whatever you decide, I’ll leave you with this. Early on we met with the lead council for a county office of education and posed the same question. His answer forged the basis for our continued effort in the quest to improve student safety. He said, “If I’m defending two districts and the first has access to data and is doing everything they can to act in the student’s best interest, and the other has no idea what’s going on… I’d rather be defending the first.” Charlie Wund is the president/CEO of InjureFree.

APRIL 2019 | PUBLIC RISK

Further your public sector risk management education without leaving the office! This Webinar series features top presenters delivering risk knowledge to your desktop!

PRIMA’S 2019 RISK MANAGEMENT

WEBINAR SERIES PRIMA WEBINARS ARE FREE FOR MEMBERS! Visit www.primacentral.org today to register for individual Webinars or for the entire program!

A PR I L 17 | 1 2 : 0 0 P M – 1 : 3 0 PM E ST UNDERSTANDING YOUR GREATEST RISKS SPEAKER: Ron Bush, President, Ron Bush Consulting, Inc. DESCRIPTION: Businesses and individuals across the planet are under attack by cyber criminals of every type: hostile governments, corporate espionage, terrorists, crime families and lone wolves. Yet, most do not recognize this nor do they take the risk seriously, except when their own information is compromised. In this presentation, you will learn what the risks are, the danger of ignoring them and what your organization can do to protect its employees and its customers, while simultaneously limiting its liability should a breach occur. AT T E N D E E TA K E AWAYS :  Understand the concept of cybersecurity  Learn what puts information at risk  Learn how to protect your valuable information

For more information, or to register, visit primacentral.org/webinars.

PRIMA Executive Director Bids

Farewell

MARSHALL DAVIES ANNOUNCES RETIREMENT

BY JENNIFER ACKERMAN, CAE

N A YEAR WHEN PRIMA IS CELEBRATING ITS 40TH BIRTHDAY, there has been one constant at the organization for as long as I can remember: Executive Director Marshall Davies. For nearly 20 years, Davies has set the course for the association and served as its commander and North Star. Under his leadership guidance, PRIMA’s list of accomplishments and member offerings has grown tenfold—from bringing PRIMA’s technology into the 21st century to introducing PRIMA members to enterprise risk management and the ISO 31000 standard. At the end of April, Davies will retire from PRIMA. “I’m one of the lucky ones.” said Davies. “I was able to do what I loved and get paid for it.” When asked about his retirement plans, Davies said, “First I plan to spend time with my family, including three children and six grandchildren. I will also find something new and constructive that I love to do. Whatever it turns out to be, it’s highly unlikely it will involve a television or easy chair!” On behalf of PRIMA, its board of directors, members and staff, best of luck and a happy retirement! Davies last day is Friday, April 26, 2019.

PRIMA Deputy Executive Director Jennifer Ackerman will take the reins of the association following Davies’ retirement. Ackerman has been with PRIMA for 12 years.

APRIL 2019 | PUBLIC RISK

REFERENCE-BASED PRICING: STRATEGIES TO DRAMATICALLY REDUCE HEALTHCARE COSTS AND MINIMIZE PROGRAM RISKS BY MARTY JOSEPH

hat is a “sleep aid” for a hospitalized child, and why does it cost $800?1 When hospital bills include a “mucous collection system,” or a “cranial support system,” what do they mean?

In plain English, these items are a teddy bear, a box of Kleenex, and a pillow. Billing practices like these are why many employers are increasingly dissatisfied with the lack of transparency in healthcare costs and are looking for new approaches that give them more control, greater accountability and better consistency. It’s also much needed as the cost of healthcare continues to rise. A June 2018 PricewaterhouseCoopers report announced that medical costs are expected to grow 6 percent in 2019— an unsustainable rate that outpaces inflation.2

PUBLIC RISK | APRIL 2019

With opaque prices, plan sponsors simply don’t know what they are paying for—and, more specifically, if what they are paying for is even necessary. For example, a preferred provider organization (PPO) might offer discounts as high as 50 percent on medical services and products. While this discount may seem significant, it is often applied to prices that are already overblown. Consider this example: A New York Times article reported that some facilities charged as much as $1,000 for a toothbrush.3 Even with a generous 50 percent discount, that’s still $500 for a toothbrush. In

PPO plans, this type of inflated and variable pricing occurs across all healthcare services. With costs unchecked, employers have seen health benefits balloon into a major line item on organizational budgets. Consequently, they are demanding that their HR departments find innovative solutions that provide employees with quality benefits while also reining in costs. To meet these objectives, a growing number of public entities and other employers are considering moving towards “Reference-Based Pricing” (RBP). In this article, we’ll explain

what RBP is and how it can save significant costs for plan sponsors. We’ll also discuss the risks and challenges associated with these programs, and how employers can proactively address these issues to make their RBP plans successful.

WHAT IS REFERENCE-BASED PRICING?

RBP aims to reimburse providers at a fair and reasonable price based on a set benchmark or reference point as opposed to what is quoted in a provider’s bill. Under RBP, the plan administrator works with an RBP repricing vendor to ensure the costs on medical bills are aligned or adjusted to these pre-determined amounts—typically set as a percentage of either what Medicare would pay for the same health service or the actual cost of delivering that service. For example, RBP might pay certain providers at 120 to 150 percent of standard Medicare reimbursement rates, which is lower than what would typically be billed. Groups have the flexibility to set these percentages and work with both the plan administrator and RBP repricing vendor to customize their plan.

Whereas members of a PPO plan must seek care from providers in a network or pay more to go out of network, RBP eliminates the concept of the provider network altogether. This means members have more freedom to select providers, and they are given informational resources to help them make informed decisions in selecting providers.

WHAT ARE THE KEY BENEFITS? Both employer and employees can achieve significant cost savings through RBP. Let’s look at a success story. In late 2014, Montana’s Health Care and Benefits division received an urgent directive to address the state’s escalating healthcare costs.4 Montana’s benefits division used RBP to change how it would conduct business with the 60 hospitals in the state. Hospital charges accounted for 43 percent of their employee healthcare costs. Under RBP, the state informed hospitals what it was willing to reimburse for various services. It used Medicare rates as a reference point to initiate discussion and negotiation. After two years, the state deemed this program a success. It saved $15.6 million in 2018 based on the estimated costs it would have paid had it

not switched to RBP. To leverage this success, the state is considering expanding the program beyond its 35,000 state employees to also cover city, county and university employees.

HOW ARE SAVINGS AND BENEFITS ACHIEVED?

Companies that work with employers to implement RBP, namely the plan administrators and RBP repricing vendors, have reported major savings for their clients—up to a 25 to 30 percent overall reduction or an average savings of $150,000 per 100 employees in the first year.5 Primarily, savings are achieved by using a fair price reference like Medicare, but reductions are also attained through cost transparency. Under a traditional PPO, a high-level summary bill is sent without detailed charges. However, organizations should never pay a $30,000 bill without seeing individual charges. The repricing of an RBP claim involves reviewing each bill, particularly complex hospital bills, line-by-line. This audit is meant to identify duplicate charges and erroneous items that inflate the cost of the claim. Billed items like the $800 sleep aid (teddy

APRIL 2019 | PUBLIC RISK

REFERENCE-BASED PRICING

bear), the mucous collection system (Kleenex box) and the cranial support system (pillow) are examples of charges resolved by auditors. Sometimes, the RBP team will utilize a physician to review bills and ensure services are medically necessary. For certain medical procedures, such as a knee replacement, they will even verify that the right medical equipment was used and accounted for in the bill. After the bill is adjusted, the RBP vendor reprices the billed amount, according to the plan’s pre-set level (the designated percentage of Medicare). This repricing, along with the initial audit, yields significant savings compared to a PPO plan. However, cost savings are not the only benefit. With price transparency and more accurate bills, employers gain more insight into their employee populations. The plan administrator will provide data and reports on claims and demographics, enabling an employer to better manage its group’s overall needs. In addition, with the freedom and flexibility to choose providers, members become smarter healthcare consumers, especially when coupled with direct access to information and patient advocacy.

WHAT ARE THE RISKS AND HOW CAN THEY BE MINIMIZED? RBP, while picking up steam, is still a relatively new model. Since it differs from a traditional PPO model, it is important to work with expert partners—including the broker, plan administrator and RBP repricing vendor—who have had experience with RBP since its beginning. An experienced team will be able to guide an HR department through many of the common challenges that come with implementing a new kind of health plan. They can advise organizations of the following risks and strategies:

• Balance billing. The biggest concern with RBP is the threat of a balance bill. When a facility bills for a procedure and only receives part of that amount, it may bill the member for the outstanding balance. For example, if a facility expects to be paid $3,000 for a procedure, and the RBP claim is repriced and paid at $1,000, the facility may attempt to recover the remaining $2,000 by sending a balance bill to the patient.

PUBLIC RISK | APRIL 2019

There are several steps the experienced RBP team will take to minimize and address this issue. The RBP administrator will perform both upfront and ongoing training to ensure members understand the appropriate steps to take should they receive a balance bill. Members are instructed to review their Explanation of Benefits (EOB) and compare it to the bill. If there is a discrepancy, the member should pay only the amount designated as the “patient responsibility” on the EOB and report the discrepancy to the RBP team, which will take care of disputing the balance. To reinforce this process, the administrator will remind members about the possibility of a balance bill each time a claim is processed. In some cases, direct contracts can be established to eliminate balance billing. When direct contracts are not an option, the administrator can make members aware of “safe harbor” or “friendly” facilities. Using these providers dramatically reduces the likelihood of balance billing. This issue also occurs in the traditional PPO market, but under those plans, members often lack the support they need. When working with an experienced RBP administrator, members have access to robust resources that guide them every step of the way. In addition, the repricing vendor often provides access to legal resources that help resolve balance bill disputes—with almost no cases resulting in litigation. • Denial of care. On occasion, members may go to a provider and be told that their health plan is not accepted. In these situations, the provider can call the administrator listed on the member’s ID card to confirm eligibility. An experienced administrator will have a call center with staff members who are well-trained and versed in RBP. They will walk the provider through the specifics of the plan, which typically results in the provider accepting the member. • Member disruption and HR headaches. RBP can cause member disruption and hassles for HR, due to the two issues outline above. It is critical that employers choose partners who can ensure a seamless member experience. Administrators who have a comprehensive member outreach

and advocacy programs will minimize potential confusion and frustration that come with a transition to RBP. Those with deep experience are in the best position to implement and administer these plans. Organizations should do their homework and select knowledgeable partners.

AN APPROACH THAT’S GAINING MOMENTUM

Use of RBP is growing—and with good reason. In February 2019, North State Journal reported that North Carolina is another state looking to use RBP to cut an estimated $300 million annually from its plan costs and another $60 million from employee costs in the first year.6 These figures show that RBP can create savings for employers and employees. With early adopters beginning to experience success, other public entities will likely follow suit. The RBP model allows employers to have more control over their healthcare costs. It shifts the paradigm from a top-down setting of prices to a bottom-up focus on what organizations are willing to pay, often using Medicare reimbursement rates or the actual cost of delivering that service as a fair and reasonable starting point for negotiation. When partnered with an experienced RBP team, employers can facilitate a plan that includes member education and ongoing outreach to proactively address risks and ensure optimal RBP success. Marty Joseph is the founder and president of Benefits Administrative Services (BAS), a division of HealthComp Holdings. ENDNOTES 1 Bell, Allison. “PPOs, bad billing and other problems with the health care system,” BenefitsPro, May 30, 2018. 2 PwC, “Medical cost trend: Behind the numbers 2019,” June 2019. 3 Rosenberg, Tina. “The Cure for the $1,000 Toothbrush,” New York Times, August 13, 2013. 4 Appleby, Julie. “Montana’s experience with reference-based pricing: Will other states follow?” Kaiser Health News, June 25, 2018. 5 Savings based on an average range from plan administrators and RBP repricing vendors. 6 Klepper, Brian, “North Carolina’s brewing battle over health care value,” North State Journal, February 11, 2019.

Four Steps for Aligning Third-Party Risk Management with Operational Priorities

BY QUIN RODRIGUEZ

Last year was the year of third-party risk setbacks. Two of last year’s most infamous third-party issues were the wide-spread E. coli outbreak— infecting countless consumers with illness—and the nationwide IV bag shortage, which strained hospital supplies and impeded operations. With these and several other public third-party incidents, vendor risk management quickly became a trending topic.

PUBLIC RISK | APRIL 2019

In 2017, less than half of respondents to a Ponemon Institute study said managing thirdparty risks is a priority in their organizations, with only 17 percent of respondents rating their companies’ effectiveness in mitigating thirdparty risk as highly effective. However, the crippling outcomes of recent mishaps have quickly propelled third-party risk to the front of many C-suite initiatives. This abrupt shift in priorities has left many leaders unsure of where to start and how to best implement these practices without disrupting other risk-based operations. The good news is there are effective methods for incorporating third-party risk management into enterprise operations that can enhance other business priorities, rather than become a disruption. These four tips will provide the path of least resistance to successful third-party risk management.

CONDUCT A THIRD-PARTY RISK AUDIT

Most risk professionals will suggest a good first step in developing or improving third-party risk management is conducting a risk audit—identifying your risks, controls and issues. The same applies for your vendors. Your vendors’ risks may be unique to their specific enterprises, but they still have the potential to directly impact your business strategy, operations and finances. That’s why it’s important to identify and understand your vendors’ risks, as well as how they affect your business. Once risks are identified, it’s best to distinguish the following controls: preventive, detective and corrective. Preventive controls start with developing thorough contracts that clearly define vendors’ commitment to upholding your enterprise standards and compliance obligations. This sets the tone for how well your third-party risk management program will proactively work for you on the front end. As the first line of defense, preventive controls are highly valued because it’s better to be risk aware, rather than risk reactive. Detective controls are put in place to recognize errors or irregularities. This includes monitoring systems, regular evaluations, and vendor reports. These are key components of successful

implementation. You can use information gathered from these checks and balances to make necessary adjustments to improve your third-party risk management program. Lastly are corrective controls—controls that are used to mitigate risks that have evolved into issues. Ideally, if the detective controls are used properly, mitigation shouldn’t have a major effect on enterprise operations or finances. However, many times we can’t control how quickly an issue progresses, so corrective controls should be fluid to ensure all levels of impact are covered.

IDENTIFY INTERNAL AND EXTERNAL AMBASSADORS

Third-party risk management cannot be exclusive to the C–suite and other top leadership. There must be ambassadors throughout all enterprise departments and across all levels to implement and maintain an effective thirdparty risk management program. Leadership should encourage employees to contribute to the betterment of the third-party risk management program—letting employees know their

Once ambassadors are identified, clearly define their responsibilities and develop step-by-step processes detailing expectations. Whether internal or external, these ambassadors are critical to managing preventive and detective controls. That means they should be familiar with governance, risk and compliance policies and procedures, and how identified third-party risks affect their departments and teams. Creating these partnerships can improve consistency and increase predictability.

CREATE AN ENGAGEMENT MODEL ROOTED IN ACCOUNTABILITY

Accountability is maximized when ambassadors are empowered to own the detective controls. As your ambassadors have a more intimate relationship with your detective controls, ensure they are involved in the checks and balances processes, including monitoring and reporting. Their insights help enterprise leaders decide whether to make minor adjustments to controls, policies and procedures, or completely develop new ones.

To reduce third-party risk and improve visibility, you must first know where you are. How is your current third-party risk management program performing? Is it being applied enterprise-wide? Do you even have a program in place? Enterprise leaders must also take an active role in rallying the troops and encouraging engagement to develop and improve effective third-party risk management policies and procedures. It must be a team effort for your third-party risk management program to run smoothly. perspectives are welcome and needed. This a great way to increase employee engagement. Collaborating with vendor ambassadors is helpful too. Vendors have more visibility into their own risks, so creating alliances with other vendor departments can be advantageous. Encourage these outside perspectives and align them with your objectives and regulations where appropriate.

USE TECHNOLOGY FOR MATURING YOUR PROGRAM

Without the right technology, it’s easy to lose track of all the moving parts of third-party risk management. However, investing in the right risk management information system and enterprise risk management solution can result in higher quality information, improve process optimization, provide better capital allocation and more secure reputation protection.

APRIL 2019 | PUBLIC RISK

FOUR STEPS FOR ALIGNING THIRD-PART Y RISK MANAGEMENT WITH OPERATIONAL PRIORITIES

While some organizations may choose basic software solutions, a more advanced solution with capabilities like risk management, compliance management, internal control management and issue management is ideal for implementing an effective program. Enterprise leaders can make more informed decisions that will reduce risks and risk exposure, while improving enterprise communication and compliance. These technologies help manage essential third-party risk management functions such as automation and reporting. Most importantly, they support an integrated approach with a centralized system, facilitating collaboration.

THE END RESULT IS HIGH PERFORMANCE

to oversight. Finally, the proper technology ties it all together. It’s hard to identify and implement actionable resolutions without a centralized system that automates your third-party risk management processes. Do your research and find solutions that are most suitable for your enterprise. Quin Rodriguez is the vice president of strategic marketing for Riskonnect.

Without teamwork, enterprise leaders miss out on additional insight and are more vulnerable

LEARN IN YOUR OWN TIME WITH

PRIMA PODCASTS! PRIMA’s Podcasts are a quick and convenient way to learn on-demand and on your own time!

Meant to provide you with information on specific topics important to the public risk management sector and hot topics, PRIMA Podcasts are the perfect way to fit in education and training into your busy schedule.

Check www.primacentral.org for new Podcasts!

PUBLIC RISK | APRIL 2019

CURRENT PODCAST TOPICS INCLUDE: Comorbid Conditions The Aging Workforce

AND MORE!

ADVERTISER INDEX

Munich Reinsurance America. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inside Back Cover Old Republic Insurance Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inside Front Cover Rimkus Consulting Group, Inc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . page 15 Travelers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Back Cover HAS YOUR ENTITY LAUNCHED A SUCCESSFUL PROGRAM? An innovative solution to a common problem? A money-saving idea that kept a program under-budget? Each month, Public Risk features articles from practitioners like you. Share your successes with your colleagues by writing for Public Risk magazine! For more information, or to submit an article, contact Jennifer Ackerman at jackerman@primacentral.org or 703.253.1267.

FIND US ON FACEBOOK!

CALENDAR OF EVENTS PRIMA’s calendar of events is current at time of publication. For the most up-to-date schedule, visit www.primacentral.org.

PRIMA ANNUAL CONFERENCES June 9–12, 2019 PRIMA 2019 Annual Conference Orlando, FL • Gaylord Palms June 14–17, 2020 PRIMA 2020 Annual Conference Nashville, TN • Gaylord Opryland June 13–16, 2021 PRIMA 2021 Annual Conference Milwaukee, WI • Wisconsin Center June 5–8, 2022 PRIMA 2022 Annual Conference San Antonio, Texas • Henry B. Gonzalez Convention Center

PRIMA INSTITUTE October 21–25, 2019 San Diego, CA

ISO 31000 TRAINING November 13–14, 2019 New Orleans, LA

PRIMA WEBINARS April 17 • Understanding Your Greatest Risks May 15 • Fentanyl and the Safety of First Responders June 26 • Jail Operations: Evolving Changes and Risk Reduction July 17 • Cultivating a Safety Culture August 21 • Avoiding Liability: Early and Regular Communication with Your Legal Team September 25 • Steps to Developing a Risk Appetite Framework

Keep up with what’s happening at PRIMA and connect with your risk management peers! Visit us at www.facebook.com/primacentral.

October 16 • Integrating ERM with the Strategic Planning Process November 20 • Improving Safety in Government by Changing Driving Behavior December 11 • What Your Attorney REALLY Wants from Risk Management

APRIL 2019 | PUBLIC RISK

You Know Risk Management is Valuable. Why Doesn’t Everyone? Check out PRIMA’S

VALUE OF RISK MANAGEMENT SERIES Public sector risk management is often not well understood or supported by other public entity staff and policy makers. To overcome this, we must be able to measure the value of risk management and communicate it to others This five webinar series provides you with the tools to do exactly that. TOPICS INCLUDE: Module 1 — Overview Module 2 — Total Cost of Risk Module 3 — Risk Maturity Models Module 4 — The Risk Appetite and Risk Tolerance Framework Module 5 — Strategies for Communication and Change Management In addition to the webinars, PRIMA members will also have access to reference guides and case studies.

For more information, visit primacentral.org/vrms.

Protect your evolving community What will your community look like in five years? The future may be uncertain, but your risk solutions shouldnâ&#x20AC;&#x2122;t be. #CommunityMR | www.munichreamerica.com/alternativemarket Products and services are provided by American Alternative Insurance Corporation and/or The Princeton Excess & Surplus Lines Insurance Company, affiliates of Munich Reinsurance America, Inc

NOT IF, BUT HOW

Every community has a story. We help protect it. Travelers has solutions designed specifically for public entities. Our public entity experts work with local communities to design insurance programs tailored to their unique challenges â&#x20AC;&#x201D; from public safety to catastrophic weather to online breaches of sensitive data. We are dedicated to helping communities protect themselves from the unexpected, so that they can continue to tell their stories. To learn more, contact your independent agent or broker.

travelers.com ÂŠ2015 The Travelers Indemnity Company. All rights reserved. Travelers and the Travelers Umbrella logo are registered trademarks of The Travelers Indemnity Company in the U.S. and other countries. 0427 Rev. 6-15