HOSPITAL TRACKS RISKS FOR SAVINGSPosted On: Jan. 26, 1997 12:00 AM CST
OAK PARK, Ill.-Combining the mutual goals of risk management and quality management along with developing a method for quantifying potential losses has helped a Chicago area hospital reduce its cost of risk.
At the heart of the program at West Suburban Hospital Medical Center in Oak Park, Ill., are various mechanisms for generating information on problems that ultimately could result in claims, an atmosphere in which hospital physicians and staff are encouraged to report those problems and a database for compiling and tracking the information that is collected.
That information is critical to convincing insurers the hospital is a low risk. At the same time, it helps hospital officials identify ways to improve the quality of the service provided to West Suburban's patients. And that improved quality provides an additional reward in the risk management process.
"Quality helps us build defenses," said Melinda S. Malecki, West Suburban's director of risk management/legal services.
West Suburban's efforts were driven by a recognition of the need to reduce the hospital's self-insured retention and its overall cost of risk, Ms. Malecki said. Five years ago, the hospital had a $3 million self-insured retention on its occurrence-based liability coverage.
"This hospital, like many hospitals, doesn't make that kind of money that we could fund that $3 million retention or pay out $3 million on a claim," she said. "That was our biggest fear, that we would have to pay out a $3 million claim."
The aim of its information-gathering effort was to prove that the hospital was a good enough risk that it could get insurance at a lower retention and still an affordable price. "To do that, we had to go to the excess carriers and show why we are low risk," Ms. Malecki said.
Ultimately the effort proved successful, and for the past three years West Suburban has had a $1 million self-insured retention on a claims-made excess liability program with The St. Paul Fire & Marine Insurance Co. with limits of $25 million per occurrence/$25 million aggregate.
West Suburban and nearby Loyola University Medical Center in Maywood, Ill., which joined forces in a health care network arrangement last year, together will save an average of $2.7 million annually on their three-year jointly marketed general and professional liability program because of West Suburban's efforts, said Ms. Malecki. Loyola currently does not have a similar risk management and quality improvement effort in place.
West Suburban's comprehensive program involves monthly peer quality review for every department in the hospital, including physicians.
"Part of our success here at West Suburban is driven by the fact that our medical staff participates in the review process," said Jane A. Matz, director of quality/utilization management and administrative director of medical staff services at the hospital.
In developing the quality management peer review system the hospital's quality and risk management staff worked closely with the medical staff to develop trust and open lines of communication.
"This is something that is not easy to do," Ms. Matz said. "Things happen. Bad things happen to people in hospitals some times. You don't mean for them to happen but they do."
The hospital indemnifies physicians for any legal issues that might arise from their doing peer review in good faith.
"In addition to the medical staff support we also have the support of the board of directors," Ms. Malecki said.
The board has its own quality management committee, and board member Marianne Schiavone, the quality panel's chairwoman, recalls that when she first joined the hospital's board she and other board members typically would not learn of problems until they became lawsuits.
"The sharing of information makes it easier for any mistake to be rectified," Ms. Schiavone said. And if a mistake can't be corrected, at least hospital staff can learn from it and prevent it from happening again.
The board's quality management panel meets monthly to discuss particular incidents. Sometimes it asks various quality improvement teams established throughout the hospital to re-examine issues if board members believe the team didn't capture the nature of the problem, Ms. Schiavone said.
"If you look at something closely enough you end up with a result that you can take to a completely different area of the hospital and say, 'Look what we found. Can this be made to apply to you?'*" the board member said.
The result of examinations by groups representing all aspects of the hospital is that referrals of events to be investigated as potential liabilities come from throughout the West Suburban organization.
An emphasis like West Suburban's on gathering incident information and tracking them before they turn into claims is an approach gaining popularity with hospitals, said Edward M. Wrobel, a principal with Tillinghast-Towers Perrin in Weatogue, Conn.
"We are seeing more and more hospitals try to do that. I think it's a beneficial type of program," he said. "The real key, of course, is responding to that information and being able to implement risk management practices that lead to a reduction in losses."
At West Suburban, information on events that are investigated is compiled in a database that provides the mechanism for quantifying possible claims in the future.
Together, the review process and the database make it possible to offer detailed information to the hospital's excess carrier, a particular concern since the hospital switched to claims-made coverage, said Nancy Jarasek, West Suburban's assistant director of risk management, who is responsible for maintaining the database.
"We have a very high level of reporting to our excess carrier so that they have a comfort level with what is out there," Ms. Jarasek said. The database includes information the excess carrier might want on any sort of claim situation and allows various permutations of that data.
Ms. Jarasek reports monthly to the carrier on potential claims as well as cases that have been filed. "I think this shows the carrier that we are seriously watching our risk," she said.
Collecting that data and quantifying potential claims "is very time consuming," Ms. Malecki conceded. "But if you are a qualified risk manager this is something that is not difficult to do."
She noted that out of seven lawsuits filed against the hospital in a 12-month period, the hospital was able to alert its excess carrier to five of them even before they became suits.
"That's something that's important to report to underwriters," Ms. Malecki said. "What we're talking about is an early warning system."
"We knew that in meeting with the underwriters we could really capitalize on all the information that was being produced by West Suburban," said Eileen M. Oswald, senior vp of healthcare risk management at Chicago-based Near North Insurance Brokerage Inc., West Suburban's broker.
The management of its early warning system and the statistics that were being developed were key elements of West Suburban's successful efforts to lower its retention, reduce its premiums and switch to claims-made coverage, Ms. Oswald said.
Tillinghast-Towers Perrin's Mr. Wrobel noted that it's difficult for hospitals to try to quantify potential claims, but the kind of database West Suburban has constructed can make it possible.
"In medical professional liability in particular it's not an easy task to put a hard dollar amount on it because there's such a long time lag. A claim may not be paid out for a long time after an incident occurred," he said.
"(But) they're tracking incidents so they're looking at things even before they become claims and a large number of things probably will never become claims, but a keen risk manager can identify similar kinds of events and see what they have turned into."
Ms. Malecki said West Suburban has relied heavily on Near North in its efforts to reduce its liability insurance costs, and Linda Milliken, a vp in Near North's health care division noted that the broker saw its task going beyond reducing the hospital's excess liability premiums.
"We're real clear on the fact that the excess premiums that the system pays to the underwriter are a much smaller piece of what their total cost of risk is and we feel if we don't do something to affect that total cost of risk then we're not doing our job as a broker," Ms. Milliken said.