The Value of Risk Management

1. The Value of Risk Management The Stanford Experience Jeff DriverChief Executive OfficerThe Risk Authority of the Stanford University Medical Network

2. 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 2

3. CNTX HISTORY CRM VDRM Agenda: CR 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 FIN 3

4. CNTX Context: The Stanford University Medical Network 4

5. CNTX Context: Risk Management Services Risk Management Services 5

6. CNTX HISTORY CRM VDRM Agenda: CR 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 FIN 6

7. The History of Risk Management The Evolution of Risk Management 1980sMedical malpractice crisis; high premiums, partial coverage1985 - COSO 1700sModern theory of probability 2009 ISO 31000 standards released 2004 COSO publishes Enterprise Risk Management Integrated Framework 1999 IOM report; focus on patient safety HISTORY Early Risk Management Traditional Risk Management Enterprise Risk Management 1955-1964“Modern” Risk Management, self-protection, insurance 1990s Risk Management becomes a “corporate affair” 2002 Sarbanes-Oxley Act & National Patient Safety Goals (The Joint Commission) 2008 National HealthCare Quality Report Risk Management profession is in status-quo mode 2013 AIG Study“Clear need to improve patient safety to provide an ROI” 7

8. The History of Risk Management Early Risk Management • Early Risk Management 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 The New Religion of Risk Management, Peter L. Bernstein, Harvard Business Review, March/April (1996): 47-51 8

9. The History of Risk Management Traditional Risk Management (TRM) 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. • Early Risk Management HISTORY Risk Management Handbook for Healthcare Organizations: The Essentials , R. Carrroll, P. Nakamura,5th Edition, Volume 1 , 2006 9

10. The History of Risk Management 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.*** • Early Risk Management HISTORY *Enterprise Risk Management Handbook For Healthcare Entities, R. Carroll, P. Nakamura, R. Rose, 2nd Edition, 2013 **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 10

11. The History of Risk Management Data Analysis for Decision Making • 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 *Rethinking Strategic Risk, H. Ristuccia, Risk Management, April 10, 2013 **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 11

12. CNTX HISTORY CRM VDRM Agenda: CR 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 FIN 12

13. Introduction to Value-Driven Clinical Risk Management at Stanford 13

14. VDRM Migration from Traditional Risk Management to Value-Driven Risk Management BEST BASELINE BETTER WORSE“The Merely Useless” WORST“The Worse Than Useless” Risk Management Success/Failure Spectrum • 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 • 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 • Management’s intuition drives risk assessment and mitigation strategies • Formal risk management is not attempted • 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 • Hubbard, Douglas: The Failure of Risk Management, 2009 14

15. VDRM Building on Traditional and Enterprise Risk Management • Early Risk Management • VDERM uses data and decision analysis in the risk process. 15

16. VDRM Stanford’s Formula for Value-Driven Risk Management • CRMClinical Risk Management • C&LClaims and Litigation Management • FINFinancial and OtherOutcomes 5yrs/49% $ 16

17. CNTX HISTORY CRM VDRM Agenda: CR 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 FIN 17

18. Financial and Other Outcomes FIN 18

19. Risk Management Outcomes FIN * Reinvestments in Loss Control Programs vs. Premium Rebates and Holidays 19

20. Premium Benchmarks FIN Aon Premium Benchmarking Study - 2012 Premium Benchmarking Study Primary ProgramSeven Year Average PEARL vs. University of Michigan (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. 20

21. CNTX HISTORY CRM VDRM Agenda: CR 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 FIN 21

22. CRM Value Driven Clinical Risk Management =International Organization for Standardization ISO 31000 Risk Management Standards +Modern Decision Analysis Science 22

23. Platform for CRM: ISO 31000 Risk Identification Identify sources of risk, areas of impact and consequences. Risk Analysis Understanding the risk and whether it needs to be fully evaluated. Risk Evaluation Compare the level of risk established in the previous stage with the risk tolerance criteria established. Risk Treatment Modification of risk and decision on treatment option. CRM Source: ISO 31000:2009 Relationships between the risk management principles, framework and process. 23

24. Platform for CRM: Simplified CRM 24

25. Platform for CRM - Simplified Five Critical Steps CRM Value Protected & Value Created Figure outwhat types of future events might prevent or slow the achievement of objectives or enhance the prospects of success. 25

26. Identify: The Model Methodology The coding of medical malpractice claims is the center of our patient safety model. CRM CODING 26

27. Identify: Clinical Coding • Prioritizeswhere to focus resources • Surgery, OB, ED, nursing, medication issues • Frequency and volume, clinical severity, financial losses • Focuses on what needs to be fixed • Technical: human factors, skills, cognitive issues • Communication: provider to provider, provider CRM • Clinical Coding • Identifieswho is involved • Physicians, nurses, residents, fellows, technicians, etc. Supports resourcing solutions; how can we make it happen Leadership buy-in, financial investment in patient safety initiatives 27

28. Identify: Using an Accident Causation Taxonomy • 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) Major Allegation(based on complaint, 1-1 ratio) • Diagnosis-related events • Surgical events (non-anesthesia) • Medical treatment events • Obstetrical events • Safety & security events CRM • 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 • 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 28

29. Platform for CRM - Simplified Five Critical Steps CRM Determine which risks are most critical and how individual risks are related to each other. Value Protected & Value Created 29

30. Assess: Sample Risk Register CRM 30

31. Assess: Sample Heat Map CRM IMPACT LIKELIHOOD 31

32. Platform for CRM - Simplified Five Critical Steps CRM Evaluate outcomes and decide which risks need to be addressed Value Protected & Value Created 32

33. A B C D E F 1 2 3 4 5 Evaluate: Sampling of Decision Analysis Tools CRM Utilizing decision analysis methodologies throughout the risk evaluative process expands the value proposition of risk programs. VALUE CREATION VALUE PROTECTION Value andRisk Map Probability Assessments Quantified Value Model Waterfall of Value Tornado Diagram Strategic Decision Insights Quantified Heat Maps Dashboards/ Monitoring • • uu uuuuu uuuuu uu 33

34. Platform for CRM - Simplified Five Critical Steps CRM 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. Value Protected & Value Created 34

35. CRM Risk Assessment and Mitigation 35

36. Platform for CRM - Simplified Five Critical Steps 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. CRM Value Protected & Value Created 36

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38. CNTX HISTORY CRM VDRM Agenda: CR 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 FIN 38

39. VDRM Stanford’s Formula for Value-Driven Risk Management • CRMClinical Risk Management • C&LClaims and Litigation Management • FINFinancial and OtherOutcomes 5yrs/49% $ 39

40. The Value of Risk Management Concluding Remarks 40