Title Slide JUN 8 – 10, 2015 Healthcare Captives.

Title Slide

JUN 8 – 10, 2015

www.bermudacaptive.bm

Healthcare Captives

Healthcare Captives

Speakers:

• Susan Pateras, SVP, Healthcare Practice Leader, Iron-Starr Excess Agency Ltd.

• Kim Morgan, SVP, Healthcare Practice Leader Bermuda, Endurance

• John Littig, Stanford University Medical Network (Aon Client)

Moderator:

• Nancy Gray, Regional Managing Director – Americas, Aon Captive & Insurance Management

Captive Growth

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 20140

1000

2000

3000

4000

5000

6000

7000

8000

4659 46884881 4951

5119 5211

5525 55875831

61256420

6876

Source: Business Insurance – March 16, 2015

Captives by Industry Groups

Healthcare – Lines of Business Written

...means healthcare is

• Big news

• Big business

• Experiencing transformational change

and fundamentally challenging the insurance market’s ability to adapt and respond.

The New Normal for Healthcare…

Healthcare is big news.

US HEALTH CARE SYSTEM WASTES $750B A YEARHospitals consider benefits, risks of becoming insurers too

Tuits, Vanguard Mass. Doc Network in TalksHealthcare Partners acquires N.M. medical group

STRONG HEADWINDS CONTINUEMedicare Penalizes Hospitals Over ReadmissionsA GIANT HOSPITAL CHAIN IS BLAZING A PROFIT TRAILSupreme Court Ruling Allows States to Opt out of Medicaid Expansion

• Healthcare is America’s largest industryo Employs a sixth of the Country’s workforce

• America’s total healthcare bill for 2014 was approximately $3 trilliono More than the next ten biggest countries combinedo We spend $8.5 billion treating back paino There are 31.5 MRI machines per million people in the U.S. but 5.9 per

million in Englando We spend $17 billion a year on artificial knees and hips which is 55% more

than Hollywood takes in at the box officeo Medicare’s drug purchasing costs are $40 billion a yearo Approximately $65 billion was spent last year on blood, urine and other

routine lab tests

• 75% of America’s 5,700 hospitals are non-profit organizations

Healthcare is big business.

Healthcare is BROKEN…..

• Fee for Service vs Quality

• Lack of coordination

• Level of uninsured's

• Chronic Diseases unmanaged

Healthcare - in a state of transition

• The system isn’t really a systemo A system defined as a group of interrelated or interdependent

elements forming a complete wholeo Today’s healthcare system remains a highly fractured, costly,

poorly coordinated approach to care delivery

…However,

The goal is to become a highly coordinated system of providers supported by a common electronic backbone, compensated on outcomes based on efficient, high quality care and service while broadening access to care.

The New Normal for Healthcare

The Healthcare system is experiencing transformational change, but…

Achieving the goal requires fundamental

change.


• As the nation navigates healthcare reform, one of the key strategies they will deploy is integration.

• Successful health systems will need to achieve an “essential” market position to drive revenues and achieve scale.

o They will integrate physicians to support quality and cost initiatives.o They will need to be able to demonstrate value to employers and

payors.o They will need to align with other providers to enable patients to move

seamlessly across multiple care sites.o They will need to possess sophisticated IT and care management

infrastructures.o They will need to have access to capitol to fund increasing capital

expenditure requirements.


How will successful organizations adapt?

• New and emergent• Challenge existing standards of care• Extend across multiple product lines• Often emerge from a convergence of factors and dynamics that

historically were not related

Success in the “new normal” of healthcare requires a deep understanding of the contextual drivers in how healthcare organizations are likely to

change and adapt in a post ACA environment.


The risks associated with increasingly complex healthcare delivery are:

• A broad, multi-state geographical footprint• Multiple hospital locations, including specialty hospitals and teaching

facilities• Outpatient clinical services• Physician practices• Managed care health insurance products and services• Complex “at risk” reimbursement• Long term care facilities• Self funded employee healthcare benefits• Sophisticated risk transfer structures: captives, self-insured retentions,

and other alternative finance vehicles


Can our industry respond to increasingly integrated, complex healthcare delivery systems whose business models include the following?

New World … Emerging Risk

Client Need

Breadth of Coverage &

Contract Certainty

Credentialing

Supervision

Tort Environment

Standard of Care

• Protocols

Electronic Health

Records

Key Force

Key Force

Clinical Integration

Accountable Care and

Continuum of Care

Revenue and

Expense Controls

Quality and

Outcomes

Evolving Landscape

Risks

Utilization Review

Negligence

Gatekeeping

Discrimination/ Misconduct

Privacy & Network

Regulatory

Stop Loss

Reimbursement Rate

?

Emerging Claim Trends

1. BATCH , or multi claimant losses

o Last 24 months : 2 batch claims paid for total of $290M (all carriers)

• Allegation types:o Improper Supervision/Credentialingo Infection Controlo Sterilizationo Privacyo Supply Chaino Drug Diversion/Patient Infectiono Equipment Erroro Medical Study Errors

Emerging Claim Trends• Why now?

o Common coverage

o Greater recognition of root cause events affecting multiple patients

o Follow on actions from regulatory investigations/Medicare overbilling

o Plaintiff Attorney Recognition of Batch Coverage

• Variables Affecting Settlement Values

o # of potentially affected patients

o Recognition of “fear of” claims

o Potential for losses to exceed limits

o Venue; caps; community perceptions

o Aversion to headline risk

• Lesson : Focus on physician behavior


2. Sepsis/Multiple Amputation Cases

• Significant increase in #’s reported in last 3 yearso Failure to diagnose in ERo Hospital Acquiredo Admissions with Sepsis

• Typical settlement range $10M up to … $17.8M; $19.9M, $32M, $17.7Mo 2 Verdicts in Fla of $30M

• Why Now?o Providers are salvaging patients that as recently as 5 years ago were not salvageable, but

with significant cost in terms of loss of limbs and or organs, kidneys in particularo Antibiotic resistance is making treatment more difficulto There are simply more septic patients

• Lesson: Focus on quick identification and sepsis bundles


3. Electronic Health Records

• Despite the significant technological and clinical improvements by virtue of data to help diagnose and treat as well as provide alerts and hard stops, EHR’s are proving complex systems from a liability perspective – kinks still being worked out

• Provides plaintiff more information, eg when records are altered, alerts silenced

• Training Issues

• System Issues – difficult to print chart

• Too many drop downs, auto carry through, cut and paste

• Just one example of unintended consequences and there will be more in this changing environment …

Integrated Product

POTENTIAL

NEW

PRODUCTS

????

21

PRIVACY &

NETWORK

LIABILITY

FIDD&O/EPL

HPL

Pt. GL

MCE&O

GLAUTO

ELNON-

OWNED AIRCRAFTHELIPAD

EXCESS

The Risk Authority

We believe in inspiring tomorrow’s risk management leaders by providing exposure to dynamic, innovative strategies that help organizations leverage

and expand the value of their risk management investments.

TRA Structure

Value Driven Enterprise Risk Management

• Builds on the “core” of Traditional & Enterprise Risk Management

• Uses data and decision science in the risk process to create risk intelligence.

VDERM

- $ +-

p

VALUE PROTECTION VALUE CREATION

Current State Future State

VDERM Tool Kit

ERM Decision Analysis

Design Thinking

Risk Management Strategies

Risk Identification Loss Prevention Loss Mitigation

APS

Safe Patient Handling

Risk Education

Stanford Risk Assessments

Physician Peer Support

PEARL

Simulation

ERM ISO 31000

Value Protected & Value Created

Risk InterventionsExample: Safe Patient Handling

IDENTIFY Data review indicated escalation in Workers’ Compensations costs over 2 year period. Survey indicated decreased compliance with utilization of patient handling equipment.

ASSESS WC data indicated repositioning, transporting, lifting patients accounted for 70% of costs. Literature revealed potential >70% reduction in patient & RN injuries, >15% reduction in nursing turnover, >90% savings in lost work days, if robust Safe Patient Handling program was implemented.

EVALUATE Total Value ROI for institution-wide program calculated as $5.18M.Included expected savings in workers’ compensation claims, reduction in nursing turnover, increase in patient satisfaction, reduction in lost & restricted days, and other factors.

MITIGATE Developed and implemented “Lift Coach” pilot program in high risk area, including experts to conduct bedside training, rounding, inventory management and patient care assists.

MONITOR Results from April 1 – August 31, 2015: • 91% decrease in patient handling injuries; 100% decrease in

lost work days and 99% decrease in restricted work days due to patient handling injuries, 30% increase in compliance.

• Received approval to proceed with institution-wide program.

Risk InterventionsExample: TRANSFORM Program

IDENTIFY Patient Harm• Severe sepsis/shock rate: 1.78*• Acute Respiratory Failure rate: 2.44*

ASSESS Incident review revealed lack of early recognition and early intervention.Team Communication was major contributing factor.Only 30% of clinicians had prior simulation experience.

EVALUATE

Developed TRANSFORM program for in-situ team training using microsystem theory. Expected outcomes: decreased hospital-acquired complications, unplanned transfers, O:E Mortality, improved safety culture.

MITIGATE Program implemented: Initial Team Training, Simulated Practice, Group Reflection, Daily Practice.Achieved 90% first time participation in Team training, enabled critical mass participation with feedback regarding team performance.

MONITOR Correlated improvements in patient harm over 3 years:• Severe sepsis/shock rate: 0.21*• Acute Respiratory Failure rate: 0.21*

• Weighted O:E Mortality: 0.5• AHRQ Safety Culture rating:

66.3%

• Weighted O:E Mortality: 0.4

• AHRQ Safety Culture: 83.3%

*complications per 1000 unit discharges

Risk InterventionsExample: Patient Advocacy Reporting Systems

IDENTIFY Vanderbilt study indicated ~2% of patients injured due to negligence sue; non-$ factors motivate patients to sue; some physicians attract more suits; unsolicited complaints/concerns are predictive of claims.

ASSESS Comprehensive review and initial screen for high risk physicians at Stanford in 2009.Estimated ~15-20 physicians would qualify as high risk based on analysis of PARS® data and appropriate for committee consideration for intervention.

EVALUATE

Vanderbilt measured ROI with potential 49% reduction in risk management payouts for high risk physicians involved in the program.

MITIGATE Program rolled out via PARS Committee. Measured interventions implemented: Level I – III

MONITOR High risk physicians identified; 71% noted as improved (29% no longer need intervention).Decreased disruptive behavior and improving Professionalism.NB: Risk management ROI not measured by design.

Risk InterventionsExample: Obstetrics Simulation Program

IDENTIFY OB claim rate: 11 per year (2000-2005).$1.85 million average annual losses.

ASSESS Claims and Incidents data analysis reveal major contributing factors.• Clinical Judgment (Selection & Management of delivery) in

76% of cases.• Communication regarding patient’s condition was a major

factor in 60% of cases.

EVALUATE

Developed in-situ simulation program.Risk management data and input utilized to focus modules on high risk areas

MITIGATE Implemented in 2005, 30 drills per year, 2 hours per drill, covering 9 different scenariosChange in clinical protocols; space redesign

MONITOR Correlated reduction in OB-related claims: 8.3 claims per year for first 3 years of the program; 1.6 claims per year for past 7 yearsROI study from 2001-2011 calculated $700k per year less payouts 331% return on investment

SUMIT Loss Rate vs. AON HPL Benchmark

The graph shows Stanford loss rate vs Aon 2014 HPL Benchmark California & Teaching Hospitals Loss rate.

Red represents the total loss rate for Stanford.

Blue represents the total loss rate for Aon HPL Benchmark California

Green represents the total loss rate for Aon HPL Benchmark Teaching Hospitals.

Loss Rate = Ultimate loss at $15M divided by Occupied Bed Equivalents9/1/2005-06 9/1/2006-07 9/1/2007-08 9/1/2008-09 9/1/2009-10 9/1/2010-11 9/1/2011-12 9/1/2012-13 9/1/2013-14

0

1000

2000

3000

4000

5000

6000

Consolidated SUMIT Aon Benchmark: California

Aon Benchmark: Teaching Hospitals

Loss and Expense Payments Per Discharge

SUMIT Indemnity

Payments are

86% below the UHC average.

SUMIT’s combined costs

are 33% below the UHC

average.

SUMIT Data as of 2/28/2014

Indemnity Paid Loss and Expense Paid $-

$20.00

$40.00

$60.00

$80.00

$100.00

$120.00

$140.00

$160.00

$180.00

$200.00

UHC Average SUMITResults published: May 15, 2014

SUMIT Insurance Company Ltd.Claims and Litigation 35

UHC Claims Benchmarking Study

Combined Ratio:The sum of losses, loss adjustment expenses and captive expenses divided by net premium

Lower is better, values over 100% indicate an underwriting loss for the year, investment income is not considered

2008 2009 2010 2011 2012 2013 2014 Average

-20.0%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

57.9%

11.4%

110.4%

55.1%

108.7%

3.8%

45.9%

56.2%

SUMIT Combined Ratio

Expense Ratio (net of premium target premium credits) Loss Ratio

SUMIT Insurance Company Ltd.Risk Finance

SUMIT Financial Indicators


As the healthcare market continues to evolve at an

unprecedented rate with increased merger and acquisition

activity, alliances, and new ventures overshadowed by

increased government oversight, captives and companies

such as Endurance, Ironshore and Risk Authority will

continue to listen, explore and probe in order to develop

innovative solutions for today's needs as well as those that

may be on the horizon.

Title Slide JUN 8 – 10, 2015 Healthcare Captives.

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