Never Say “Never Event”: New Healthcare Risks and How They Are Managed

1. Never Say “Never Event”:New Healthcare Risks andHow They Are Managed

2. MODERATOR: Sanford Elsass, President & CEO, Uni-Ter Group PANELISTS: Chad C. Karls, FCAS, MAAA, Principal, Consulting Actuary, Milliman Katherine M. Keefe, Esq., Partner, Marshall, Dennehey, Warner, Coleman& Goggin Nancy Rehkamp, Principal, LarsonAllen LLP Never Say “Never Event”

3. Overview • Definition of “Never Events” • Emergence of “Value-Based Purchasing" (VBP) and "Never Events" • Legal Basis of "Never Events“ • Changing Demographics • Potential Impact on Insurance Industry • Key Learning Points • Q&A

4. Definition of “Never Events” • A misnomer • Adverse health events & medical errors that are “never” supposed to happen to patients receiving care in hospitals & other healthcare facilities. • Examples: • Surgery on the wrong body part • Stage 3 or 4 pressure ulcers acquired after admission • Injury resulting from misuse or malfunction of a device used in patient care

5. Emergence of “Value Based Purchasing” • Current Medicare payment system: consumption and quantity of care • Center of Medicare and Medicaid Services (CMS) • transforming Medicare from passive to active purchaser • Goal: increase quality, avoid unnecessary costs • VBP drivers: Congress, MedPAC and IOM reports, private sector • Medicare Trust Fund solvency

6. Emergence of “Value Based Purchasing” • Emergence of “Value-Based Purchasing” • Value-Based Purchasing Initiatives • Hospital Pay for Reporting • Hospital VBP Plan • VBP Nursing Home Demonstration • VBP programs will affect home health, physicians & other providers • Against VBP backdrop, "Never Events" emerge

7. Legal Basis of "Never Events" • Deficit Reduction Act of 2005, Section 5001(c) • Required CMS to select at least two conditions: • High cost, high volume, or both • Assigned to higher-paying DRG if present as secondary diagnosis • Reasonably prevented through using evidence-based guidelines

8. Legal Basis of "Never Events" • Deficit Reduction Act • October 1, 2007: Hospitals required to submit claims data indicating whether diagnoses are "present on admission" • October 1, 2008: No payment for care associated with Hospital Acquired Condition unless identified as present on admission • Medicare hospital payment regulations specified Hospital Acquired Conditions and include "Never Events"

9. Hospital Acquired Conditions and "Never Events" • Object left in surgery* • Air embolism* • Blood incompatibility* • Cathether-associated urinary tract infection • Decubitus ulcers • Vascular catheter-associated infection * "Never Events“

10. Hospital Acquired Conditions and "Never Events" • Surgical site infection-mediastinitis after CABG • Falls-specific trauma codes • Extreme manifestations of poor glycemic control • Surgical infection post certain ortho, bariatric surgeries • DVT/PE post hip, knee replacement surgeries

11. "Never Events": It's not just hospitals and it's not just Medicare • Medicare to expand "Never Events" approach to other care settings, providers • Medicaid has instituted “Never Events” non-payment policy • Private payers have instituted "Never Events" non-payment policies • Aetna, Wellpoint Cigna, the Blues • Many states enacting laws, policies regarding non-payment of "Never Events": ME, MA, NY and PA

12. Medical Malpractice Impacts of "Never Events" • CMS-selected Hospital Acquired Conditions and "Never Events" based, in part, on whether condition could reasonably be prevented through application of evidence-based guidelines • Regulations now contain evidence-based guidelines! • Potential impact on standard of care issues

13. Medical Malpractice Impacts of "Never Events" • Coming from plaintiffs' bar near you: • "It's negligence per se: the hospital did not follow CMS' approved evidence-based guidelines." • Discovery requests and deposition questions regarding payment (or lack thereof) • Arguments over role of medical expert • CMS has specified preventable error • Blessed specific prevention guidelines

14. Explosive Health Growth - Key Drivers Health care utilization changes from, among others: • Dramatic growth in older adults • Earlier diagnoses and treatment • Substitution of levels of care • Workforce availability • Changing customer expectations • Changes in health status (obesity, Alzheimer's)

15. The Aging Services Field Is Evolving Spectrum of Services Need Driven Want Driven Preventative Long Term Care Hospital Active Adult Communities Continuing Care Retirement Communities/Multi-Level Campus Intentional Community Acute Hospitalization Geriatric Assessment Assisted Living Board & Care Intermediate Care Outpatient Therapies Health & Wellness Centers Telehealth & Home Technologies Senior Membership Subacute Rehab Respite Care Palliative Care Wellness Programs Independent Living Day Care Home Health Long Term Acute Hospitalization Hospice Community Based Services Dementia Assisted Living Case/Disease Management Personal Care Assistance Skilled Nursing Care Diagnostic & Treatment Center Medical Social Skilled LTC Source: Greystone Communities Continuum of Care Chart adapted by LarsonAllen LLP

16. Financial Stress: Changing Economics

17. Epidemic of Diagnoses or Technology Advances? • A NY Times article outlined the epidemic of diagnoses occurring • What is normal? • The ability to identify and diagnose conditions before they occur • Result: Greater health care utilization • Source: NY Times, 1/2/07; “What is making Us Sick Is an Epidemic of Diagnosis”; H. Gilbert Welch, Lisa Schwartz & Steve Woloshin.

18. Demand Predictors & Influencers Environmental Factors Public Policy Factors DEMAND Lifestyle and Consumer Choice Factors Income and Wealth Factors

19. Demand Predictors & Influencers - Acute Provider Practice Patterns Environmental Factors DEMAND Regulatory & Reimbursement Policies Access to Health Care Services

20. Medicare Discharges Increase with Age Medicare discharges per 1000 grow significantly as an individual ages. The rapid growth in the population 75 and older may result in higher numbers of Medicare admissions and more individuals requiring post-acute services. Source: The Chart Book 2007, CDC published 1/08

21. Doctor Visits Increase with Age Total physician/provider visits have increased over the lasts five year for most age groups, but particularly for those over 55. The growth in the eldest of older adults will exacerbate the physician and physician extender shortages. Currently about 33% of primary care physicians are age 55 or older. Source: The Chart Book 2007, CDC published 1/08

22. Population Growth of 85+ - 2010 The 85+ cohort is growing most significantly in the West. Source: US Census Bureau Estimated Population Growth based on 4/05 Interim Projections

23. Population Growth in 85+ - 2020 Growth will continue across the country with many Southern states growing faster. Source: US Census Bureau interim estimates 4/05 accessed via the web 12/07

24. Age Distribution Changes Will Challenge Us The rapid growth in older adults with significantly lower growth in younger populations will create challenges to informal caregiving, workforce availability, and other issues. Source: US Census Bureau Statistics accessed 12/07 The above states with the exception of Massachusetts represent the 15 largest % increases in the 65+ population. Massachusetts is 37th on the list.

25. Decreasing Role of Family Pushes up Demand Percentage of Family Caregiving: 1988 1995 2001 2010 2030 97% 95% 91% National Ratios: Caregiver Ratio 7.51 6.78 4.34 Elderly Dependency Ratio 4.75 4.61 2.76 The Caregiver Ratio is a comparison of the number of elders 85 + to women aged 45 to 64. The Elderly Dependency Ratio is the number of elders 65+ compared to workers aged 20 to 64. The lower the ratio the fewer the number of caregivers or workers. The expected decline in available caregivers and available workers will be over 40% Each 1% drop in family care giving requires approximately $30M in additional public funds for Minnesota and every 5% change increases Medicaid 50% in New York. Source: National Caregivers Association & US Census Population Projections by Age & Sex

26. The Changing Customer Source: The McKinsey Quarterly, Nov/Dec 2007; Serving the Aging Baby Boomers; McKinsey Global Institute

27. Medicare Advantage Plans Impact Care DCs per 1000 65+ have declined to 302 in Florida and to 301 in Minnesota by 2007. Enrollment in Medicare Advantage plans and Special Needs managed care plans have increased. The use of acute and post-acute services by these plans is not clear yet. The use of SNF following an acute stay is about 15% in Florida and 22% in Minnesota. The use of Home Health is about 13% in Florida and about 12% in Minnesota. Source: Kaiser Family Foundation, Statehealthfacts.com; accessed 2/08; MHA & FHA Hospital DC Reports, 2006

28. Customer Satisfaction as a Predictor Hospital quality managers think quality is improving, but believe there is greater opportunity to improve customer satisfaction. Customer satisfaction ha long been considered a predictor of liability risk. Source: Health Research & Education Trust, in partnership with the AHA,, Hospital Improvement Activities: A Snapshot of the State of the Art, 2008

29. The RN Workforce is Aging • The RN shortage is estimated to be 1,000,000 by 2020 even assuming a 2% per year decline in hospitalizations. • RNs are growing older and are not being replaced by new graduates. • RNs typically leave the nursing profession in mid-50s for other fields or retirement. Source: Florida Dept. of Health, 2008; Nurse Workforce Demand Report 2000 – 2020, HRSA, US Department of Health & Human Services,

30. Estimating the Demand for Physicians Current estimates of physician shortages are growing, particularly for primary care. Current studies show the following: • The number of Health Professional Shortage Areas has grown from 1,885 in 1997 to 3,814 in 2007. • Currently 33% of active physicians are 55 years or older. • International Medical Graduates currently make up 25% of physicians practicing in the US and 26% of the physician residency slots in 2005. IMG currently hold the following residency slots: • 42% of Internal Medicine • 37% of Family Practice • 24% of Pediatric • Federal Policy is encouraging physician group practices of seven or more. • The HSRA estimates the primary care physician shortage will reach 250,000 by 2020. Sources: *What Works – Healing the Workforce Shortages; PricewaterhouseCoopers Health Research Institute; 2007

31. Estimating the Demand for Physicians • Physician shortages growing, especially primary care • HSRA estimate: PCP shortage will reach 250,000 by 2020. • Current studies show: • The number of Health Professional Shortage Areas has grown from 1,885 in 1997 to 3,814 in 2007 • 33% of active physicians are 55 years or older. • IMGs make up 25% of physicians practicing in the US and 26% of the physician residency slots in 2005 • IMGs currently hold the following residency slots: • 42% Internal Medicine, 37% Family Practice, 24% Pediatric • Federal Policy encouraging larger physician group practices Sources: *What Works – Healing the Workforce Shortages; PricewaterhouseCoopers Health Research Institute; 2007

32. Regulatory Changes Are Evolving • DRG recalibrations and reclassifications into 745 MS-DRGs which became effective October, 2007. • Recognition of hospital acquired health events or complications as non-covered services effective 10/08. • Medicare patient 24-hour advance discharge notice. • Post-Acute Care Payment Reform Demonstration mandated by the DRA of 2005. • Creation of Medical Home demonstrations effective 10/08 Note: Many of the proposed changes will not impact payment to Critical Access Hospitals.

33. Florida Demand Model Demonstrates Change The Florida Demand Model demonstrates a continuing shift to the least restrictive environment.

34. Florida Demand Model Demonstrates Growth The increasing focus on funding at the lowest level of services and a customer preference to stay in their own homes will result in increased demand for assisted and independent living across the country.

35. Florida Estimated Growth in Home Care Medicare Medicaid/State Funded The total home care visits, Medicare & Medicaid/Florida State funded are expected to grow rapidly. The growth nationally in private duty home care from 2000 to 2005 has been over 200% and due is expected to continue growing rapidly. The growth of home care will be limited by the costs of travel (both gas and time) and the availability of staff.

36. Professional and General Liability Insurance Key Implications of Changing Demand: • The demand for services reflects • a growing level of clinical complexity and intensity in all levels of care which may increase the liability risks. • Dramatic growth in post-acute care and assisted living • as a substitute for acute care and skilled nursing care may increase the professional and general liability risk for these providers. • The substitute of one level of care for another without additional hours of care could increase care delivery risks • SNF for acute, assisted living for long term care

37. Professional and General Liability Insurance Key Implications of Changing Demand (continued): • A shortage in available nursing staff to meet the growing demand could mean individuals elect to assume greater personal risk. • Potential increases in risk may occur if providers do not clearly articulate the level of care available. • Regulatory changes to reduce malpractice at a care delivery site that do not also cover the physician, nurse or other care giver may shift liability to those individuals.

38. Underwriting Ramifications • Healthcare provider shortages may lead to less qualified providers treating sicker patients • An increase in IMG providers may lead to communication issues between providers and patients • Increased vicarious exposures to employers caused by increased use of physician extenders • Risk management needs to play a larger & more visible role in the underwriting process

39. Key Learning Points – Implications to Leadership • Greater shifts of care to post-acute venues • Increased reliance on formal care • Broader eligibility for public services • Innovation in delivery and models of care Expanded options available for health, shelter and care Pioneering models of funding for services, i.e., SNPs, Waivers Declining funding and demand for SNF services

40. Key Learning Points – Implications to Leadership • Expanded options available for health, shelter and care • Pioneering models of funding for services, i.e., SNPs, Waivers • Declining funding and demand for SNF services

41. Key Learning Points – Implications to Leadership • The changes have occurred slowly over the last 25 years with the implementation of the DRG system, managed care, population growth, increases in technology and changes in informal care giving. • Mapping the Future allowed us to quantify the impact of the evolving and future changes on customer demand for aging services.

42. Never Say “Never Event”: New Healthcare Risks and How They Are Managed Questions and Answers

43. Many thanks to • Sanford Elsass • Chad Karls • Katherine Keefe, Esq. • Nancy Rehkamp