the value of risk management

The Value of Risk Management The Stanford Experience

Jeff DriverChief Executive OfficerThe Risk Authority of the Stanford University Medical Network

Objectives:Describe what is meant by strategic risk management, value-driven enterprise clinical risk management, and return on risk strategy

Learn a financially successful, translatable, and scalable approach to managing clinical risk through the Stanford example

Identify risk management programmatic outcome measures and expected five year results based on the Stanford Clinical VDERM model

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Agenda:Context: About Stanford University Medical Center

History of Risk Management

Introduction to Value-Driven Risk Management at Stanford

Financial and Other Outcomes

Clinical Risk Management

Concluding Remarks

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HISTORY

Context: The Stanford University Medical Network

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Context: Risk Management ServicesCNTX

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Risk Management Services






Concluding Remarks

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HISTORY

The History of Risk Management

The Evolution of Risk Management

1700sModern theory of

probability

1955-1964“Modern” Risk

Management, self-protection, insurance

1980sMedical malpractice

crisis; high premiums, partial coverage

1985 - COSO

1990sRisk Management

becomes a “corporate affair”

1999 IOM report; focus on patient safety

2008National HealthCare

Quality ReportRisk Management

profession is in status-quo mode

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Early Risk Management

Traditional Risk Management

Enterprise Risk Management

2013AIG Study

“Clear need to improve patient

safety to provide an ROI”

HISTORY

2004COSO publishes Enterprise Risk Management

Integrated Framework

2009ISO 31000

standards released

2002Sarbanes-Oxley Act & National Patient Safety Goals (The Joint Commission)


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The New Religion of Risk Management, Peter L. Bernstein, Harvard Business Review, March/April (1996): 47-51



The theory of probability, an instrument for risk management, began in 1654 with a game of dice.

All the risk-management tools we employ today stem from the developments between 1654 and 1754.

HISTORY


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Traditional Risk Management (TRM)

HISTORY

Risk Management Handbook for Healthcare Organizations: The Essentials , R. Carrroll, P. Nakamura, 5th Edition, Volume 1 , 2006

Traditional Risk Management focuses on preventing loss through insurance and claims.

Traditional Risk Management offers a fragmented view that can be reactive and not focused on business vision and strategy.


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Enterprise Risk Management (ERM)

In 1992, in response to financial fraud in the 1980s, the Committee of Sponsoring Organizations of the Treadway Commission (COSO) created a process for examining risk across an entire organization to protect, create shareholder value and make good decisions.*

Regulations shaped the COSO process to allow audits, rather than focus on actions to mitigate risk for all losses.**

Healthcare has been slow in adopting ERM and there has been little improvement in patient safety. According to a US government report, 44% of all 2008 adverse events were preventable and 1 in 7 experienced an adverse event.***

*Enterprise Risk Management Handbook For Healthcare Entities, R. Carroll, P. Nakamura, R. Rose, 2nd Edition, 2013

HISTORY

**The End of Enterprise Risk Management, D. Martin, M. Power, AEI-Brookings Joint Center for Regulatory Studies, 2007 *** Adverse Events in Hospitals: National Incidence Among Medicare Beneficiaries, OIG 2010


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*Rethinking Strategic Risk, H. Ristuccia, Risk Management, April 10, 2013

The use of data to make good, consistent and transparent decisions is critical to managing future strategic risk.*

Pharmaceutical and energy industries have been successful using this. Some examples are:

Chevron made $78 billion more**SmithKline Beecham tripled their return from 5:1 to 15:1***

HISTORY

Data Analysis for Decision Making

**Chevron Overcomes the Biggest Bias of All, C. Spetzler, SDG White Paper 2011

***How Smithkline Beecham Makes Better Resource Allocation Decisions, P. Sharpe, T. Keelin, Harvard Business Review, March – April 1998






Concluding RemarksCR

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HISTORY

Introduction to Value-Driven Clinical Risk Management at Stanford

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BEST BETTER BASELINE

WORSE“The Merely

Useless”

WORST

“The Worse Than

Useless”

• Firm builds quantitative methods

• Inputs are validated with proven statistical methods

• Additional empirical measurements are used where optimal

• Portfolio analysis of risk/return is used

• Quantitative methods are used utilizing some proven components

• Scope of risk management expands to include more forms of risk

• Management’s intuition drives risk assessment and mitigation strategies

• Formal risk management is not attempted

• Detailed “soft” or “scoring” methods are used or misapplied quantitative methods are used but not counted on by management

• May be no worse that baseline except it wastes time and money

• Ineffective methods used with great confidence, even though they add error to evaluation

• Much effort spent on seemingly sophisticated methods but no objective, measurable evidence that they improve on intuition

• Methods cause erroneous decisions to be taken that would not have otherwise been made

Risk Management Success/Failure Spectrum

Migration from Traditional Risk Management to Value-Driven Risk Management

VDRM

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Hubbard, Douglas: The Failure of Risk Management, 2009

Building on Traditional and Enterprise Risk Management

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Early Risk ManagementVDERM uses data and decision analysis in the risk process.

VDRM

FINFinancial and

OtherOutcomes

C&LClaims and Litigation

Management

CRM


Stanford’s Formula for Value-Driven Risk Management

VDRM

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5yrs/49% $






Concluding Remarks

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HISTORY


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Risk Management OutcomesFIN

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Metric DesiredResult

Observed Result

Comment

Reporting Pattern Faster Inconclusive Average incident to report lag is one year

Frequency Lower Lower Annual reported claims dropped 29%

Closing Pattern Faster Inconclusive Small number of closed claims

Severity Lower Inconclusive Some large post-PEARL closed claims

Overall Cost Lower Lower 49% reduction over 5 years

* Reinvestments in Loss Control Programs vs. Premium Rebates and Holidays

PEARL vs. University of Michigan

Insurance Premium Compared to Average

Insurance Premium (FN1)

Premium Compared to Hospital Benchmark (FN2)

Stanford Hospital 20% lower 11% lowerStanford Clinics 18% lowerLucile Packard Children’s Hospital at Stanford 13% lower 27% lowerLucile Packard Clinics 32% lower

Aon Premium Benchmarking Study - 2012

FIN Premium Benchmarks

(FN1) Average insurance premium estimates were calculated using the data provided by SUMC and informal indications provided by two carriers per year.

(FN2) The Aon benchmark premiums are calculated using the Aon Hospital Professional Liability and Physician Professional Liability Benchmark Analysis.

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Premium Benchmarking Study Primary ProgramSeven Year Average






Concluding Remarks

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HISTORY

Value Driven Clinical Risk Management =International Organization for Standardization ISO 31000 Risk Management Standards + Modern Decision Analysis Science

CRM

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Source: ISO 31000:2009 Relationships between the risk management principles, framework and process.

• Risk IdentificationIdentify sources of risk, areas of impact and consequences.

• Risk AnalysisUnderstanding the risk and whether it needs to be fully evaluated.

• Risk EvaluationCompare the level of risk established in the previous stage with the risk tolerance criteria established.

• Risk TreatmentModification of risk and decision on treatment option.

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Platform for CRM: ISO 31000CRM

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Platform for CRM: SimplifiedCRM

Five Critical Steps

CRM Platform for CRM - Simplified

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Value Protected & Value Created

Figure out what types of future events might prevent or slow the achievement of objectives or enhance the prospects of success.

The coding of medical malpractice claims is the center of

our patient safety model.

CODING

Identify: The Model MethodologyCRM

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Identify: Clinical Coding

Clinical Coding

Focuses on what needs to be fixed• Technical: human factors,

skills, cognitive issues• Communication: provider

to provider, provider

Prioritizes where to focus resources• Surgery, OB, ED, nursing,

medication issues• Frequency and volume,

clinical severity, financial losses

Identifies who is involved• Physicians, nurses,

residents, fellows, technicians, etc.

Supports resourcing solutions; how can we make it happenLeadership buy-in, financial investment in patient safety initiatives

CRM

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What (is alleged to have) happened delayed dx, missed dx, wrong dx, failure to dx skill based, retained FB, pt management post-op improper placement of C-line, improper choice of

tx pregnancy, labor/fetal distress, delivery falls, enviro hazards, assaults (non-employee)

Why it (might have) happened narrow dx focus, no consults, patient monitoring scheduling, reporting results, follow up

monitoring med record, informed consent, patient education improper use of equip, inexperience, poor

technique

Who was the provider/service(s) involved

Emergency Service Radiology, Pathology, Nursing Medicine (Gen Med, Cardio/Hem

Onc/Hospitalist…) Surgery (Gen Surg, Bariatric/Cardiac/Urology…) OB/GYN, Orthopedics, Neurosurgery

Responsible Service (1 primary + secondary)

Primary and secondary contributors Includes all providers in a specialty

CRNA in Anesthesiology NP in OB

Contributing Factors (RN review, multiple)

Clinical judgment Clinical systems Communication Technical skill

Major Allegation (based on complaint, 1-1 ratio)

Diagnosis-related events Surgical events (non-anesthesia) Medical treatment events Obstetrical events Safety & security events

Identify: Using an Accident Causation TaxonomyCRM

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Five Critical Steps


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Determine which risks are most critical and how individual risks are related to each other. Value Protected

& Value Created

CRM Assess: Sample Risk Register

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IMPA

CT

LIKELIHOOD

CRM Assess: Sample Heat Map

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Five Critical Steps


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Evaluate outcomes and decide which risks need to be addressed


Value andRisk Map

ProbabilityAssessments

Quantified ValueModel

Waterfallof Value

Tornado Diagram

Strategic DecisionInsights

Dashboards/Monitoring

A B C D E F

1

2

3

4

5

uu uuuuu

uuuuu uu

••

QuantifiedHeat Maps

VA

LU

E C

RE

AT

ION VALUE PROTECTION

Utilizing decision analysis methodologies throughout the risk evaluative process expands the value proposition of risk programs.

Evaluate: Sampling of Decision Analysis ToolsCRM

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Five Critical Steps


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This is where the action is. Develop and follow steps to reduce risks at the top of your list as well as steps to increase potential benefits.


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CRM Risk Assessment and Mitigation

Stanford University Medical Center Risk Mitigation Strategies in Process

Factors Obstetrics Neurosurgery Orthopedics SHC Nursing LPCH Nursing

Clinical Judgment(38%)

6 interventions 2 interventions 2 interventions 4 interventions 2 interventions

Technical Skill(26%)


Communication(14%)


Administration/ System issues(12%)

2 interventions 5 interventions 2 interventions

Five Critical Steps


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Determine if your risk management process has been effective. Monitor the timeliness and effectiveness of the various outlined steps to reduce risks and boost gains.







Concluding Remarks

CR

CRM

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HISTORY

FINFinancial and

OtherOutcomes

C&LClaims and Litigation

Management

CRM


Stanford’s Formula for Value-Driven Risk Management

VDRM

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5yrs/49% $

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The Value of Risk Management

Concluding Remarks

the value of risk management

Documents

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