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Page 0 June 26-29, 2011 AHLA Annual Meeting David McMillan Pershing Yoakley & Associates, P.C. (800) 270-9629 dmcmillan@pyapc.com Larry Vernaglia, Esq. Foley & Lardner LLP (617) 342-4079 lvernaglia@foley.com Slide 2 Page 1 June 26-29, 2011 AHLA Annual Meeting Cast of Characters David the COO performed by David McMillan Larry the GC performed by Larry Vernaglia Mike the CEO performed by Himself Slide 3 Page 2 June 26-29, 2011 AHLA Annual Meeting Last Week After a Strategic Planning Retreat Slide 4 Page 3 June 26-29, 2011 AHLA Annual Meeting One Week Later Slide 5 Page 4 June 26-29, 2011 AHLA Annual Meeting Connecting the Dots: Comprehensive Enterprise Risk Management Slide 6 Page 5 June 26-29, 2011 AHLA Annual Meeting Making the Case for Enterprise Risk Management Healthcare 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 risk Hastened decisions are often made in silos and without considering the impact/risk to all entities Enterprise Risk Management Slide 7 Page 11 June 26-29, 2011 AHLA Annual Meeting A Practical Approach ( + ) * Right Processes Right People Disciplined Approach Ability to Evaluate Risks = > Slide 13 Page 12 June 26-29, 2011 AHLA Annual Meeting The Right Process Risk management must be driven from the top down At its core, an ERM framework is proactive, not reactive A framework acknowledges that confronting risks before they are emergent yields significant benefit A comprehensive risk management framework does not automatically ensure that a system will be void of future and present risks Slide 14 Page 13 June 26-29, 2011 AHLA Annual Meeting The Right Process Risk 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 risk SOURCE: Worldbank.org; online at http://siteresources.worldbank.org/EXTTOPPSISOU/Resources/1424002-1185304794278/4026035-1185375653056/4028835-1185375811087/1_Risk_mapping.pdf Slide 15 Page 14 June 26-29, 2011 AHLA Annual Meeting The Right Process The Tool Slide 16 Page 15 June 26-29, 2011 AHLA Annual Meeting Perspective Prospective Senior VP New Initiative/ Transaction Departments/Services Little Sigma Departments/Services Comprehensive Risk Profile Comprehensive Risk Profile Slide 17 Page 16 June 26-29, 2011 AHLA Annual Meeting Isolated Risk vs. Systemic Risk Risk Profile 1 Risk Profile 2 Risk Profile 8 Risk Profile 53 Systemic Risk How many Moderates = Untenable? Isolated Risk Slide 18 Page 17 June 26-29, 2011 AHLA Annual Meeting The Right People The Right People make up the ERM evaluation team Right 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 ( + ) * Right Processes Right People Disciplined Approach Ability to Evaluate Risks = > Slide 19 Page 18 June 26-29, 2011 AHLA Annual Meeting The Right People CEO CFO COO CMO CNO CIO Human Resources Legal Counsel Risk Manager Real Estate/Facility Management Key Leader Slide 20 Page 19 June 26-29, 2011 AHLA Annual Meeting Accumulating the Results CEO SVP Operations Risk Survey SVP Information Risk Survey SVP Finance Risk Survey SVP Quality Risk Survey Slide 21 Page 20 June 26-29, 2011 AHLA Annual Meeting The Importance of Process and People A common mistake that people make when trying to design something completely foolproof is to underestimate the ingenuity of complete fools. Douglas Adams, British Comic Writer Slide 22 Page 21 June 26-29, 2011 AHLA Annual Meeting The Ingenuity of Complete Fools Slide 23 Page 22 June 26-29, 2011 AHLA Annual Meeting Disciplined Approach Frequency Transparency Board Involvement Accountability ( + ) * Right Processes Right People Disciplined Approach Ability to Evaluate Risks = > Slide 24 Page 23 June 26-29, 2011 AHLA Annual Meeting Ability to Evaluate Risks Risk management must be driven from the top down and embedded in an organizations culture At the core of the ERM framework, an entity must be proactive, not reactive Health systems should plan for risks, and create an efficient structure and a disciplined process to evaluate potentially risky strategic decisions. ( + ) * Right Processes Right People Disciplined Approach Ability to Evaluate Risks = > Slide 25 Page 24 June 26-29, 2011 AHLA Annual Meeting Challenges to Implementing a Contemporary ERM System Communication Lean and Transparent Culture Having the courage to embrace the value proposition Scale The sheer number of risk elements to be assessed Objectivity Objectivity requires taking subjectivity into account. - Lorraine Code Predictive Element Ability to evaluate future associated risks Slide 26 Page 25 June 26-29, 2011 AHLA Annual Meeting Connecting the Dots: Comprehensive Enterprise Risk Management