“PROMISED LAND” ENTERPRISE RISK MANAGEMENT

“PROMISED LAND” ENTERPRISE RISK MANAGEMENT Willis HRH Health Care Practice

13th Annual Forum

July 14, 2009

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ENTERPRISE RISK MANAGEMENTModerator:

Ken Felton, RN, MS, CPHRM, FASHRMWillis National Health Care Practice

Panelists:

Shulamith KleinSenior Director of Risk and Insurance ServicesEmory University & Emory Healthcare

Sheila Hagg-RickertSystem Director of Risk ManagementCHRISTUS Health

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HOSPITAL FINANCIAL AND ORGANIZATIONAL RISK INCREASING Financial risk growing in healthcare Complexity of risks are changing The Noblis – Center for Health Innovation research

Losses in investment income Difficulty accessing capital

Risk Managers will face increased challenges

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AMERICAN COLLEGE OF HEALTH CARE EXECUTIVESResearch concluded:Quality and patient safety a top three concern for CEOs Creating Implementing Monitoring

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RESEARCH OF U.S. HOSPITALSThe Agency for Healthcare Research and Quality

“A study of U.S. Hospitals found that while most collect information on adverse events, far fewer make effective use of the data”1

The Senate Health, Education, Labor and Pensions Committee Concluded: No consistent progress in improving quality United States ranked last out of 19 countries on mortality

1Health Care Daily, Patient Safety Most Hospitals Collect Adverse Data But Systems Need Improvement, Volume 13, Number 236, Tuesday, December 9, 2008., pg. 1.

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CRISIS IS FAILURE OF RISK MANAGEMENT Enterprise Risk Management (ERM) is attracting more attention Corporate cases have motivated organizations to embrace ERM External pressures encouraging enterprise-wide risk Organizations have begun to develop, support and commit to

ERM

EEMORY MORY HHEALTHCAREEALTHCAREEEMORY MORY HHEALTHCAREEALTHCARE

Enterprise Risk Management,is it the “Promised Land”?

Willis HRH Health Care Willis HRH Health Care PracticePractice

Annual ForumAnnual Forum

Nashville, TNNashville, TN

July 14, 2009July 14, 2009

Shulamith KleinShulamith Klein

Senior DirectorSenior Director

Office of Risk & Office of Risk &

Insurance ServicesInsurance Services


Emory at a glanceEmory at a glanceEmory at a glanceEmory at a glance

• Teaching, research, academic Teaching, research, academic healthcarehealthcare

• 23,500 employees23,500 employees• 12,500 students12,500 students• $ 3.0 billion operating budget$ 3.0 billion operating budget

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Emory HealthcareEmory HealthcareFacts & FiguresFacts & Figures


• Largest healthcare system in Largest healthcare system in GeorgiaGeorgia

• Tertiary, geriatric, orthopaedic Tertiary, geriatric, orthopaedic hospitalshospitals

• Multi-specialty & pediatric Multi-specialty & pediatric outpatient outpatient

• Long term care & independent Long term care & independent living living

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• 1,241 occupied hospital beds1,241 occupied hospital beds• 11,100 employees11,100 employees• 533 fte employed physicians533 fte employed physicians• $ 1.6 billion net revenue$ 1.6 billion net revenue• $ 64 million charity care$ 64 million charity care

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Emory’s philosophy Emory’s philosophy regarding riskregarding risk

Emory’s philosophy Emory’s philosophy regarding riskregarding risk

““ Risk, in one form or another, is present Risk, in one form or another, is present in virtually all worthwhile endeavors. in virtually all worthwhile endeavors. We recognize that not all risk is bad We recognize that not all risk is bad and our goal is not to eliminate all and our goal is not to eliminate all risk, for by doing so we would cease risk, for by doing so we would cease all productive activity. Rather, our all productive activity. Rather, our goal is to assume risk judiciously, goal is to assume risk judiciously, mitigate it when possible, and prepare mitigate it when possible, and prepare ourselves to respond effectively and ourselves to respond effectively and efficiently when necessary.”efficiently when necessary.”

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Why ERM?Why ERM?Why ERM?Why ERM?

• Break through operational silosBreak through operational silos• Identify key exposuresIdentify key exposures• Gauge vulnerability pointsGauge vulnerability points• Assess appetite for riskAssess appetite for risk• Identify best practicesIdentify best practices• Plan proactivelyPlan proactively• Prioritize resources Prioritize resources • Reinforce accountability Reinforce accountability

NO SURPRISES!NO SURPRISES!

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It starts at the top It starts at the top It starts at the top It starts at the top

Audit Committee of the BoardAudit Committee of the Board

Chief Internal Audit OfficerChief Internal Audit Officer

Exec VP Finance and Exec VP Finance and AdministrationAdministration

The President is on boardThe President is on board

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Emory Enterprise-wide Risk Management (ERM)ERM Executive Sponsors/Risk Chairs and Framework

ERM Executive Sponsors Committee(Reputational & Strategic Risks)

• President (Committee Chair)

• Provost and Executive VP for Academic Affairs

• Executive VP for Finance and Administration

• Executive VP for Health Affairs

• President and CEO, Emory Healthcare

• Senior Director, Office of Risk and Insurance Service (Co-Chair)

• Vice President, Finance

• Vice President of Investments, Chief Investment Officer

• Senior Vice Provost, Academic Planning & Faculty Development

• Special Assistant to Sr. VP & Dean, Campus Life

• Vice President, Human Resources

• Vice President, Information Technology & CIO

• Senior VP and General Counsel

• Senior VP and Dean, Campus Life

• Vice President and Secretary of the University

• Vice President for Communications & Marketing

ERM Steering Committee

• Chief Audit Officer (Co-Chair)

• Deputy General Counsel

• Vice President, Health Affairs Research

• Vice President for Research Administration

• Vice President, Campus Services

• Chief of Staff to Vice President, Campus Services

• Executive Director, Critical Event Preparedness and Response

June 26, 2009

Finance and Investment

InformationTechnology

Campus Safetyand Physical

Plant

Governanceand Corporate

Affairs

Academicand Student

Affairs

HumanResources

ResearchHealthcare

and ResearchHealthcare


Emory UniversityEmory UniversityEnterprise Risk ManagementEnterprise Risk Management

Guiding PrinciplesGuiding Principles

Emory UniversityEmory UniversityEnterprise Risk ManagementEnterprise Risk Management

Guiding PrinciplesGuiding Principles• Emory upholds an early-warning system for identification of adverse occurrences;Emory upholds an early-warning system for identification of adverse occurrences;

• All individuals are empowered to report problems and concerns early on, without All individuals are empowered to report problems and concerns early on, without fear of retribution;fear of retribution;

• Reports of adverse occurrences are responded to promptly and thoroughly;Reports of adverse occurrences are responded to promptly and thoroughly;

• Investigations of adverse occurrences, complaints, and concerns are conducted Investigations of adverse occurrences, complaints, and concerns are conducted with integrity and continue until the fact-finding process is concluded;with integrity and continue until the fact-finding process is concluded;

• Reliable and useful information is shared promptly with leadership and other key Reliable and useful information is shared promptly with leadership and other key constituencies;constituencies;

• Communication with the Emory community and the public at large is pro-active, Communication with the Emory community and the public at large is pro-active, honest, and respectful of individual privacy;honest, and respectful of individual privacy;

• Emory maintains a framework for regularly assessing the effectiveness of risk Emory maintains a framework for regularly assessing the effectiveness of risk management practices and a culture that fosters process improvement when management practices and a culture that fosters process improvement when indicated.indicated.

These are the principles to which we hold ourselves, and those with whom we These are the principles to which we hold ourselves, and those with whom we partner.partner.

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It’s a process…It’s a process…phase 1…phase 1…

It’s a process…It’s a process…phase 1…phase 1…

• Sub-committees identified 555 Sub-committees identified 555 “risks”“risks”

• Ranked by severity and frequencyRanked by severity and frequency• Steering Comte edited down to Steering Comte edited down to

141 141 • Rankings re-assessed Rankings re-assessed • 57 “key” risks based on final risk 57 “key” risks based on final risk

factorsfactors

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……phase 2…phase 2………phase 2…phase 2…

• Primary Operational Leader (“POL”) Primary Operational Leader (“POL”) - - primary responsibility over functional primary responsibility over functional area where risk has greatest potential area where risk has greatest potential impact, (e.g., CEO, COO, Dean, EVP, impact, (e.g., CEO, COO, Dean, EVP, Provost)Provost)

• Risk Mgt Process Owner (“RMPO”) Risk Mgt Process Owner (“RMPO”) - - sufficiently familiar with risk to prepare sufficiently familiar with risk to prepare comprehensive Risk Management Plan, comprehensive Risk Management Plan, (e.g., Directors, Quality Officers, VP)(e.g., Directors, Quality Officers, VP)

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• President charged RMPOs with President charged RMPOs with Risk Management Plans Risk Management Plans

Steps being taken to manage Steps being taken to manage risk at acceptable levelrisk at acceptable level

Operational and communication Operational and communication responses to adverse responses to adverse occurrencesoccurrences

2 pages in 90 days2 pages in 90 days

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• Steering Committee reviewed 57 Steering Committee reviewed 57 plansplans

AccountabilityAccountabilityExisting interventions or wish Existing interventions or wish list?list?

• RMPOs revised plans RMPOs revised plans • 57 plans delivered to Executive 57 plans delivered to Executive

CommitteeCommittee

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……and phase 5and phase 5……and phase 5and phase 5

5 risk hearings/yearly, 3-hour sessions5 risk hearings/yearly, 3-hour sessionsMaximum 2 operational areas/sessionMaximum 2 operational areas/session5 min presentation, 5 min q&a5 min presentation, 5 min q&a

• Bridge gap between exposure and Bridge gap between exposure and response plan?response plan?

• Incorporate “best practices”Incorporate “best practices”• Balancing mitigation costs with Balancing mitigation costs with

strategic goalsstrategic goals• Are we at an acceptable risk level?Are we at an acceptable risk level?

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18 months to 18 months to kickoffkickoff

18 months to 18 months to kickoffkickoff

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Pres

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Fra

mew

ork

Exec

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Initi

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Plan re

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xec

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isk

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Mar/Apr

2006

August

2006

Nov

2006

April

2007

May

2007

June

2007

August

2007

Sept

2007


Lessons learnedLessons learnedLessons learnedLessons learned

• Process itself reveals trends and Process itself reveals trends and opportunities for risk mitigationopportunities for risk mitigation

• Need to stay focused on critical Need to stay focused on critical risks risks

• Priorities change over time due to Priorities change over time due to internal and external factorsinternal and external factors

• Set reasonable expectations Set reasonable expectations

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New in FY09New in FY09New in FY09New in FY09

#1 Adjustments to “key” risks -#1 Adjustments to “key” risks -Conflict of commitmentConflict of commitmentLiquidity riskLiquidity risk

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New in FY09New in FY09New in FY09New in FY09

#2 Mapping -#2 Mapping -Share key risks with Board Share key risks with Board Committee responsible for specific Committee responsible for specific operational areaoperational area

Governing body needs to be aware Governing body needs to be aware of risk management processes in of risk management processes in place place

Audit Committee maintains Audit Committee maintains responsibility for overseeing ERM responsibility for overseeing ERM processprocess

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PerspectivePerspectivePerspectivePerspective

• Bubble charts, COSO cubes, and Bubble charts, COSO cubes, and influence diagrams aren’t for influence diagrams aren’t for everyoneeveryone

• It’s easy to over-engineer the process It’s easy to over-engineer the process

• Privilege and confidentiality matter Privilege and confidentiality matter and can be managedand can be managed

• Staff make decisions involving risk Staff make decisions involving risk every day without calling it Enterprise every day without calling it Enterprise Risk Management Risk Management

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……And I believe in a And I believe in a promised land…promised land…

……And I believe in a And I believe in a promised land…promised land…

Broad-based management Broad-based management ownership ownership

++Principled actionPrincipled action

++Common senseCommon sense

==SuccessSuccess

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Frequency & Frequency & severity severity

Frequency & Frequency & severity severity

Likelihood of occurring (frequency)Likelihood of occurring (frequency)1-low: <10% chance of occurring in 2 years1-low: <10% chance of occurring in 2 years2-medium: <25% chance of occurring in 2 years2-medium: <25% chance of occurring in 2 years3-high: <50% chance of occurring in 2 years3-high: <50% chance of occurring in 2 years4-very high: >50% chance of occurring in 2 years or already 4-very high: >50% chance of occurring in 2 years or already

occurringoccurring

Potential Impact (severity)Potential Impact (severity)1-minor: unlikely to have permanent or significant effect on 1-minor: unlikely to have permanent or significant effect on

institution’s reputation or achievement of its strategic institution’s reputation or achievement of its strategic objectivesobjectives

2-moderate: will have significant impact on institution but 2-moderate: will have significant impact on institution but can be managed without major impactcan be managed without major impact

3-serious: will have significant effect on institution and 3-serious: will have significant effect on institution and require major effort to manage and resolve occurrence, as require major effort to manage and resolve occurrence, as well as its ramificationswell as its ramifications

4-very serious: will threaten existence of institution if not 4-very serious: will threaten existence of institution if not resolvedresolved

Risk factor = [(.50) x (frequency)] + (severity)Risk factor = [(.50) x (frequency)] + (severity)21

Promised Land: Enterprise Risk Management

Sheila Hagg-Rickert, MHA, MBA, JD, CPCU, DFASHRM,

CPHRMCHRISTUS Health

Houston, TX

July 14, 2009

CHRISTUS Health and Emerald Assurance Cayman, Ltd: A Brief History

CHRISTUS Health:Founded in 1868 in Galveston, TXSystem one of the 10 largest Catholic healthcare systems in U.S.40+ hospitals and other facilities in TX, LA, UT, MO, AR, GA and NM+ Mexico

Assets>$ 5 billion and FY 09 revenues > $4 billionEmerald Assurance Cayman, Ltd.

Formed in 2003Single-parent structureAssets> $150 millionRetained risk, excess and reinsurance coverage- U.S., Bermuda and London

The CHRISTUS ERM Process to Date

Formally initiated mid-2008Initial educationDevelopment of a corporate frameworkRisk identificationRisk assessmentFY 09 pilot projects

ERM Pilot Projects

ERM Oversight CommitteeSenior Leader Process OwnersTask Forces

Specific Deliverable (Matrix, Algorithm, Database) to identify gaps in processes, develop priorities, apply controls and assign responsibilities

Quarterly MetricsERM Scorecard

Round I Projects:Plant and Equipment Infrastructure: Repair, Maintenance and ReplacementRevenue Cycle and CollectionsStrategic and Business Planning

Semiannual Reporting Through Audit Committee of the BoardRound II Projects:

Physician AlignmentResource AvailabilityEmergency Preparedness

Emerald Assurance’s Support of ERM

Broadening of insurance coverages provided through the captive:

Employer’s LiabilityWorker’s Compensation (as a reinsurer)D&O/ Employment Practices Liability deductible buyback

Security Guard Liability (as a reinsurer)25% of first $100 million Property layer on a quota share basis

Reinsurer for Employed PhysiciansExpenses Related to Miscellaneous Business LitigationEvaluating extending coverage to indemnity


Funding of System-Wide Loss Prevention Initiatives:Associate Back Injury PreventionElectronic Fetal Monitoring Certification

Education and trainingPurchase of lift equipment

Performance-Based Development System (PBDS)Assessment of clinical competency, judgment and decision-

making and inter-personal communication skillsMentoring and re-testingTermination Premium discounts

Building Hardening in Gulf Coast LocationsSimulated Learning Labs


Emerald Innovations Grant Program:Applications submitted by local facilities Must include measurable goals, timelines, resource requirements, metrics, budget, cost/benefit analysis, etc.

Multi-disciplinary screening and selection committees

Focus on start-up and demonstration projects$9.6 million distributed to date


Other Emerald-Funded Initiatives:Risk Management ScorecardICARE (Issue, Cause, Analysis, Resolution, Education) Docket

Risk Management and Occupational Health and Safety Councils

AICE Infection Control Tracking SoftwareRASMAS Product Recall Tracking SoftwareLegal Solutions Suite SoftwareEmergency Department Education and Loss Prevention Algorithms

Emerald Assurance’s Support of ERM:

Covering expenses related to uninsured litigation through the captive

Provides rationale for RM to handle all litigationProposal to expand to indemnity coverage with specified facility retention and coverage limits

CHRISTUS energy management initiative

How a Captive Can Help Foster ERM

Providing additional or broader insurance coveragesFunding loss prevention initiatives

Limitations to Utilizing Your Captive as an ERM Vehicle

Risks typically must fit within definition of insurable risks to be coveredLack of “follow form” excess coverageRegulator unfamiliarity with ERM processDifficulties in making actuarial projectionsTendency of organization to view captive as a source of free money to fund virtually anything

The Future of Emerald Assurance as an ERM Vehicle

Expand Emerald Innovations grant process to include:

ERM risksInitiatives proposed by other system departments

Fund ERM education Review specific ERM risk mitigation and risk financing strategies as they are developed to determine feasibility of Emerald’s providing assistance

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ERM READINESS ASSESSMENT SURVEY RESULTS

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

Poor

Fair

Satisfactory

Good

Excellent

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ERM READINESS ASSESSMENT SURVEY RESULTS

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

Poor Fair Satisfactory Good Excellent

Poor

Fair

Satisfactory

Good

Excellent

“PROMISED LAND” ENTERPRISE RISK MANAGEMENT Willis HRH Health Care Practice

13th Annual Forum

July 14, 2009

“PROMISED LAND” ENTERPRISE RISK MANAGEMENT

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