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Downturn in economy may bring more challenges for risk managers
Expect more ED usage, lower patient compliance, reimbursement problems
The current recession is hitting every sector of the economy, and health care is no exception. In addition to the financial woes that are affecting many companies, health care providers are facing a second threat the increased risks and liabilities that stem from the way people respond to their own money problems. Health care risk managers should be on the lookout for those recession-related risks and do what they can to minimize the damage.
One of the most direct effects of the recession will be seen in the emergency department (ED), says Michael Mathis, a health care analyst and consultant with the Dallas office of Korn/Ferry International, a consulting company that focuses on executive recruitment. State-level budget cuts for Medicaid recipients will result in increased ED visits, he predicts, and that means an inevitable increase in ED-related liability exposure.
"It is absolutely true that we are seeing state-level budget cuts for Medicare recipients," he says. There is a pendulum of reasoning for this nonprofit health care systems rely on a growth engine that revolves around access to capital for growth. With the capital markets being frozen right now, we are experiencing impacts on operating performances," Mathis says. "As Medicare reimbursements remain flat or decline, we see debt levels increase. Along with this, we see ED levels rise, because patients lose access to primary care services. They begin to hold off on receiving care until it is a dire situation. Hence, the increase in ED visits."
Mathis says ED patient volumes have grown 2.5% to 3% over the past decade, and that figure is only going to accelerate during a recession. In addition, he expects inpatient and outpatient volumes to decline in the near-term as patients put off nonlife-threatening operations and procedures.
Risk managers also should watch for decreased staffing ratios that could threaten patient safety, says Christy Dempsey, RN, MBA, CNOR, senior vice president for clinical operations at Patient Flow Technology Inc., a company based in Boston that provides advice on improving ED management.
"I worry that the economy will force hospitals to increase the number of patients per nurse, which is a huge risk for hospitals in terms of medication errors and adverse events," she says. "Elective surgery cases are already showing a decline. People will wait longer to go to the doctor and will be sicker when they arrive in the ED or the clinic. This will require more and more expensive treatments, further driving up the cost without the bread-and-butter revenue from elective volume."
Risk managers may become involved in the controversy over executive compensation, says C.J. Bolster, vice president with the Atlanta office of the Hay Group consulting firm, which assists companies with executive recruiting and other management issues. The recession and the government bailouts have put a spotlight on executive pay packages and perks that some consider excessive, so Bolster says health care risk managers should be prepared to respond.
"Scrutiny of executive compensation practices has increased in the past year and will only continue to increase this year. Greater transparency is required from hospitals," he says. "There is a high likelihood that the criticism of for-profit executive compensation practices will cascade into the not-for-profit arena, thus impacting many hospitals."
That criticism, and the organization's response to it, may have a significant impact on recruitment and retention of top leaders, Bolster says.
"Risk managers must work to assist boards to meet their regulatory obligations while at the same time being mindful that outstanding leadership will need to be in place to navigate the turmoil that lies ahead," he says. "It's a delicate and often uncomfortable line."
Take proactive approach to recession
Mathis says risk managers must approach the issue with a proactive attitude. ED costs in hospitals already are scrutinized closely, and now the risk manager must emphasize that there is even less margin for error in a challenging economy. One strategy is to divert people from the ED in the first place. Discourage them from coming to your high-liability department by giving them other options.
"In order to take some of the strain off the ED, many organizations are establishing community centers as health care access alternatives, especially for those without insurance. These centers are set up to diffuse ED traffic with the hope that related ED visit costs will go down," Mathis says. "The intention is that with the availability of community centers, patients will think twice before visiting EDs."
An additional goal of the centers is to inform patients of health care system benefits, which in turn may result in them obtaining coverage. Educating patients is increasingly important, Mathis says, which means web sites must be up to date, on-site seminars should be offered, and corresponding literature should be available. While there is a front-end cost to establishing those centers, he says it is a worthwhile investment and is beneficial even if one out of 10 garners coverage.
There are numerous ways that the economy affects health care risk management, Mathis says. For instance, institutions that depend on charitable giving may see less revenue, which almost always means tighter budgets for risk management and everyone else.
"A lot of health care systems depend on philanthropic donations, and we have already seen significant declines in giving in this market," he says. "For many corporations and organizations, philanthropy is the first area to receive drastic cuts. This impacts health care organization growth, as this funding source generally provides for enhanced services and new buildings. With the current decline in giving, organizations are also holding off on adding staff in this area."
Elective procedures declining
Many facilities already are seeing a decline in elective surgeries, which can mean a big decline in revenue, say Kevin Schulman, MD, a professor of medicine at Duke University's School of Medicine in Durham, NC. He also serves as the director of the school's Health Sector Management program.
"We'll probably also see difficulty in collecting patient copays and deductibles, if you're not seeing that already," Schulman says. "There's also an immediate hit on capital planning, which seems to be driven by the banking crisis as much as the overall economy. That being said, health care still seems to be holding up OK right now. We may not see the real effects for a while."
Some analysts say the health care industry may be among the last to feel the full brunt of the economic slowdown, because health care tends to lag behind the rest of the economy. But the effects are coming, they say.
"If the economy is still down this summer, then the contracts we sign for next year will look very different from the contracts we have today," he says. "We'll see increasing difficulties from the uninsured this year, but next year from the insured, in terms of what their benefit packages look like."
The dropoff in elective procedures may have a substantial effect on some providers, cautions George Pillari, a managing director with the Healthcare Industry Group at Alvarez & Marsal in San Francisco.
"These procedures tend to be the bread and butter for some facilities, the profitable procedures that usually have good payers, and you can count on that money as a solid part of your revenue stream," he says. "When that revenue falls off sharply, you lose a small but important part of your payer mix. Even if they represent only a couple percent of your overall revenue, they might represent 20% of your profits."
That revenue decrease can ripple through an organization and prompt budget cutbacks and staff cuts, but Pillari says it remains to be seen whether the decrease is just a temporary response borne of fear and uncertainty or whether it will be a lasting effect for the next couple of years.
Employer-based health insurance programs are going to feel the pinch of the economy and tighten their payment standards, says Joan T. Schmit, PhD, professor of risk management and insurance at the University of Wisconsin-Madison, Wisconsin School of Business.
"I would anticipate a major effect of the economy will be a retrenchment of employer-based health insurance programs. Employers are likely to watch their costs much more than in the past, forcing health care providers to justify their activities even more than before, and likely restricting what is covered," she says. "I would anticipate the possibility of greater liability threats in this environment, for example, exclusion of procedures that when denied lead to further health deterioration."
Ron Wince, CEO of Guidon Performance Solutions, a consulting group based in Mesa, AZ, says he has been advising his health care clients not to let patient safety and risk management take a hit because of the economy. Though it is common to hear employers say every department has to share the pain of budget cuts, it can be shortsighted to cut risk management efforts, he says. The result could be a significant liability payout in the future that more than negates the budget savings.
"We're also encouraging our clients to keep their attention on the small improvements they can make without any added expense," he says. "This includes ideas like making sure items are clearly labeled and easily identified even in a dark room, where you store oxygen bottles, how you store gurneys so they don't create a hazard for staff and patients. We have to remember the impact things like this can have even when we're worried about more big-picture concerns with the economy."
Even in the face of recession-related challenges for health care, Schmit says risk managers should remember that they already have the skills and the tools to address them. Health care risk managers must focus on the basics, she says.
"The fundamentals of risk management do not change. Health care providers should be encouraged to continue to maintain their quality of service, risk communication, transparency, and long-term focus," Schmit says. "Their profitability is likely to suffer in the short run as some retrenchment occurs, but the long-term success of their practice will be more likely to succeed."
For more on how the recession will affect health care risk management, contact:
C.J. Bolster, Vice President, The Hay Group, Atlanta, GA 30308. Telephone: (404) 575-8700.
Christy Dempsey, RN, MBA, CNOR, Senior Vice President for Clinical Operations, PatientFlow Technology Inc., Boston. Telephone: (617) 358-5060.
Michael Mathis, Analyst and Consultant, Korn/Ferry International, Dallas. Telephone: (214) 954-1834.
George Pillari, Managing Director, Healthcare Industry Group, Alvarez & Marsal, San Francisco. Telephone: (408) 656-7070. E-mail: email@example.com.
Joan T. Schmit, PhD, Professor, Risk Management and Insurance, University of Wisconsin-Madison, Wisconsin School of Business. Telephone: (608) 262-3819. E-mail: firstname.lastname@example.org.
Kevin Schulman, MD, Professor of Medicine, School of Medicine, Duke University, Durham, NC. Telephone: (919) 668-8101. E-mail: email@example.com.
Ron Wince, CEO, Guidon Performance Solutions, Mesa, AZ. Telephone: (866) 986-4414.