PowerPoint Presentation

David McMillanPershing Yoakley & Associates, P.C.(800) 270-9629dmcmillan@pyapc.comLarry Vernaglia, Esq.Foley & Lardner LLP

(617) 342-4079lvernaglia@foley.comPage #June 26-29, 2011AHLA Annual MeetingCast of Characters David the COO performed by David McMillan

Larry the GC performed by Larry Vernaglia

Mike the CEO performed by Himself

Page #June 26-29, 2011AHLA Annual MeetingLast Week After a Strategic Planning Retreat

Page #June 26-29, 2011AHLA Annual MeetingOne Week LaterPage #June 26-29, 2011AHLA Annual MeetingConnecting the Dots: Comprehensive Enterprise Risk Management

Page #June 26-29, 2011AHLA Annual MeetingMaking the Case for Enterprise Risk ManagementHealthcare reform is causing many health systems to quickly react/respond to proposed changes (i.e., bundled payments, ACO regulations, value-based purchasing, etc.)Too often, health systems are failing to proactively plan for the response of the reaction to healthcare reform often leaving the system at riskHastened decisions are often made in silos and without considering the impact/risk to all entitiesEnterprise Risk ManagementPage #June 26-29, 2011AHLA Annual MeetingChallenger Mission STS-51-L a series of seemingly harmless decisions were made that incrementally moved the space agency toward a catastrophic outcome."

SOURCE: Gladwell, Malcolm. Gladwell.com blog post. New Yorker . Blowup, Jan. 22, 1996Page #June 26-29, 2011AHLA Annual MeetingThe Challenger Explosion: Not just a mechanical failure

On January 28, 1986, the space shuttle Challenger was to make a highly anticipated and historic journey into outer space. The mission was not only a pledge of hope for science, but also a launch crossing boundaries that had never been explored before. Representing Americas economic, social, political, and scientific success, the Challenger mission was supposed to make Americans feel more comfortable with the thought of space travel.

The major factors of the Challenger Explosion go beyond a mechanical failure. The ultimate cause of the catastrophe was the poor communication among engineers and managers who each interpreted information from differing perspectives and made decisions based on different organizational pressures. The communication breakdown involved the engineers, who had knowledge of the possible mechanical failure, and administrators, who made the decision to launch. The engineers were the on the job workers involved in the creation and perfection of the shuttle, whereas the administrators were less involved in the technical aspects of the shuttle. The engineers had doubts that O-rings in the solid rocket booster properly sealed joints protecting the internal structure of the booster from the extreme temperatures of exhaust gases.

6What is ERM?Formal DefinitionA process, effected by an entitys Board of Directors, management and other personnel, applied in strategy [sic] setting and across the enterprise, designed to identify potential events that may affect the entity, and manage risks to be within its risk appetite, to provide reasonable assurance regarding the achievement of entity objectives. SOURCE: Committee Sponsoring Organization of the Treadway Commission. Enterprise Risk Management Integrated Framework, Executive Summary. September 2004.Page #June 26-29, 2011AHLA Annual MeetingWhat is ERM?Practical DefinitionCreating an effective structure through combining the correct players with an appropriate strategy, equipping these players with a common understanding and appreciation for the direction of the health system and engaging these players in a process to evaluate enterprise risk.

Page #June 26-29, 2011AHLA Annual MeetingManaging Risks in Healthcare is ComplexHealth systems operate multiple businesses with divergent priorities within one entityAn enterprise risk management framework, consisting of an effective structure and a disciplined process, intersects each distinctive business initiative to provide a holistic view of the health system.Real EstateCapital Planning Physician Alignment Information Technology Regulatory ComplianceFinancial PerformancePatient AccessEnterprise Risk Management Structure and ProcessPage #June 26-29, 2011AHLA Annual MeetingRisk Management in Face of Rapidly Changing EnvironmentYesterday:Financial derivatives in capital and debt structuresToday:Physician-Hospital IntegrationTomorrow:Managing to the PPACA and private payor models

Page #June 26-29, 2011AHLA Annual MeetingA Practical Approach( + )*RightProcessesRightPeopleDisciplinedApproachAbility to Evaluate Risks=>Page #June 26-29, 2011AHLA Annual Meeting

The Right ProcessRisk management must be driven from the top downAt its core, an ERM framework is proactive, not reactiveA framework acknowledges that confronting risks before they are emergent yields significant benefitA comprehensive risk management framework does not automatically ensure that a system will be void of future and present risks

StructureProcessPage #June 26-29, 2011AHLA Annual MeetingThe Right ProcessRisk Mapping:A data generating process using local perceptions to identify and address risks in order to reveal transactions, departments, or processes that face different types and levels of riskSOURCE: Worldbank.org; online at http://siteresources.worldbank.org/EXTTOPPSISOU/Resources/1424002-1185304794278/4026035-1185375653056/4028835-1185375811087/1_Risk_mapping.pdfPage #June 26-29, 2011AHLA Annual MeetingThe Right Process The ToolRisk MeasurementMinimalModerate/ AcceptableUntenableClinical QualityFinancial/EconomicLegal/ComplianceMarketing/BrandPatient ExperienceRelationalPage #June 26-29, 2011AHLA Annual MeetingPerspectiveProspectiveSenior VPNew Initiative/ TransactionNew Initiative/ TransactionNew Initiative/ TransactionDepartments/ServicesDepartments/ServicesDepartments/ServicesLittle SigmaDepartments/ServicesComprehensiveRisk ProfileComprehensiveRisk ProfilePage #June 26-29, 2011AHLA Annual MeetingIsolated Risk vs. Systemic RiskRisk Profile 1Risk Profile 2Risk Profile 8Risk Profile 53Systemic RiskHow many Moderates = Untenable?Isolated RiskRisk MeasurementMinimalModerate/ AcceptableUntenableClinical QualityFinancial/EconomicLegal/ComplianceMarketing/BrandPatient ExperienceRelationalRisk MeasurementMinimalModerate/ AcceptableUntenableClinical QualityFinancial/EconomicLegal/ComplianceMarketing/BrandPatient ExperienceRelationalRisk MeasurementMinimalModerate/ AcceptableUntenableClinical QualityFinancial/EconomicLegal/ComplianceMarketing/BrandPatient ExperienceRelationalRisk MeasurementMinimalModerate/ AcceptableUntenableClinical QualityFinancial/EconomicLegal/ComplianceMarketing/BrandPatient ExperienceRelationalPage #June 26-29, 2011AHLA Annual MeetingThe Right PeopleThe Right People make up the ERM evaluation teamRight People, typically members of senior management, are responsible for evaluating risks respective to his or her position within the organization and hold responsibility for strategic initiatives( + ) *RightProcessesRightPeopleDisciplinedApproachAbility to Evaluate Risks=>Page #June 26-29, 2011AHLA Annual MeetingThe Right PeopleCEOCFOCOOCMOCNOCIOHuman ResourcesLegal CounselRisk ManagerReal Estate/Facility Management Key LeaderPage #June 26-29, 2011AHLA Annual MeetingAccumulating the ResultsCEOSVP Operations Risk SurveySVP Information Risk SurveySVP Finance Risk SurveySVP Quality Risk SurveyPage #June 26-29, 2011AHLA Annual MeetingThe Importance of Process and PeoplePage #June 26-29, 2011AHLA Annual MeetingThe Ingenuity of Complete Fools

Page #June 26-29, 2011AHLA Annual MeetingDisciplined ApproachFrequencyTransparencyBoard InvolvementAccountability( + ) *RightProcessesRightPeopleDisciplinedApproachAbility to Evaluate Risks=>Page #June 26-29, 2011AHLA Annual MeetingAbility to Evaluate RisksRisk management must be driven from the top down and embedded in an organizations cultureAt the core of the ERM framework, an entity must be proactive, not reactiveHealth systems should plan for risks, and create an efficient structure and a disciplined process to evaluate potentially risky strategic decisions.( + ) *RightProcessesRightPeopleDisciplinedApproachAbility to Evaluate Risks=>Page #June 26-29, 2011AHLA Annual MeetingChallenges to Implementing a Contemporary ERM SystemCommunication

Lean and TransparentCulture

Having the courage to embrace the value propositionScale

The sheer number of risk elements to be assessedObjectivity

Objectivity requires taking subjectivity into account. - Lorraine CodePredictive Element

Ability to evaluate future associated risksPage #June 26-29, 2011AHLA Annual MeetingConnecting the Dots: Comprehensive Enterprise Risk Management

Page #June 26-29, 2011AHLA Annual Meeting