Managing Risk with Summit ReView

Managing risks effectively is critical to the financial health of your company. It starts with accurate risk analysis and ends with cost-effective risk management strategies. This is a complex task, but it is now easier since we have introduced Summit ReView. Summit ReView is a package of consulting services designed to provide detailed analysis of risk exposure as well as recommendations to mitigate those risks. Some of the services included in Summit ReView include:

  • Our proprietary InSight analysis, which helps you determine if you should purchase reinsurance coverage and, if so, the appropriate deductible levels and average daily maximum limitations given your claim history, contracted arrangements with network facilities and referral patterns. (See Insights into large claims.)
  • A detailed evaluation of your medical management department’s structure, policies and procedures, with comparisons to nationally recognized benchmarks and recommendations for improving program efficiencies and effectiveness.
  • Our reinsurance “Report Card,” an objective measure for comparing reinsurance options.
  • A comparison of material contractual provisions contained in the excess loss agreements issued by current leaders in the health plan reinsurance marketplace.
  • A high-level assessment of the financial competitiveness of your pharmacy benefits management program.
  • An assessment of your directors and officers/errors and omissions policy.
  • Referrals to consultants who can serve as interim executives and assist with strategic planning.
  • An analysis of your investment and cash management strategies and recommendations for improvements.

These services may be “unbundled” and pricing depends on the options selected.

With our experienced, talented people who grew up with pricing, underwriting, and administering medical excess products and our “bird’s eye view” of the marketplace, we can offer you additional perspectives that often prove invaluable in helping you develop on-target risk management strategies.

Insights into large claims

This article is part of a series of case studies—real stories of how managed care companies increased profits by using Summit Re’s resources to increase sales, decrease expenses, and manage claims. An insight is the act or result of comprehending the inner nature of things or seeing intuitively (Webster’s dictionary). This is a good description of what takes place in a Summit Re InSight analysis.

We often have a better perspective for viewing this inner nature of a large claim, since we only deal with coverage for large claims. Your staff must spend a majority of their efforts in areas that involve smaller and much more frequent claim events. This case study is an example of how an InSight analysis conducted by Summit Re helped a plan gain a better view of the inner nature of its catastrophic claims.

Situation: An increase in large claims

ABC health plan, located in a large metropolitan area, focuses on Medicaid members, specifically AFDC/TANF eligible members. AFDC/TANF membership is primarily composed of mothers and their children, and the majority of the large claims for this population involve premature infants or other infants with significant problems at birth. For this reason, the large claims from these situations are primarily from inpatient hospital confinements at facilities equipped to treat infants who are severely premature or have other critical problems. ABC health plan was seeing an increase in large claims from this population.

Cause: Reimbursement structure

ABC health plan utilized strong DRG contracts for most facilities in its state. The exception to this was for facilities classified as children’s hospitals. These facilities were considered in a unique category by the state for its Medicaid reimbursement methodology, and the plan was simply following the state’s lead for reimbursement. These types of facilities were paid on a percentage of billed charges determined by the state.

The state’s intention was to recognize these facilities as unique, and the state therefore concluded that the DRG reimbursement was not appropriate given the level and type of services the children’s hospitals were providing. What that meant for ABC health plan was that its most severe and highest cost claims were often being reimbursed at a percentage of billed charges. In this instance, the plan had little ability to contractually modify this reimbursement, although that was certainly an option for the plan to explore.

The reinsurance implication

How did these circumstances translate to the health plan’s needs for catastrophic medical excess reinsurance coverage? The plan had been purchasing coverage with a relatively low average daily maximum limitation for inpatient hospital services because of a mistaken perception that the strong DRG reimbursements at many facilities and deep discounts at children’s facilities were protecting it from all risk except for the exceptionally long hospital stays. In reality, the facilities being reimbursed at a percentage of charges had been rapidly raising their rates and, despite the presence of deep discounts, the plan was experiencing average per-day charges on many large claims well in excess of its average daily maximum limitation for inpatient hospital services. This meant that the plan was absorbing a great deal of variability from large claims due to payments at very high costs per day.

Options

Now that the plan recognized the circumstances under which it was operating for many large claims, it could now consider the options for managing the risk. Re-contracting with children’s hospitals in its service area at more favorable terms would, of course, be a wonderful solution since it could be structured to significantly reduce the plan’s overall risk. In this instance, however, the plan was not in a position to implement such a provider contracting change. This course of action could certainly be considered in the future.

What could be restructured easily was the reinsurance coverage so that it would provide more coverage for high cost days. The best and most immediate solution for this plan was a higher average daily maximum limitation for inpatient hospital services, coupled with a slightly higher deductible. This allowed the plan to exchange reinsurance premium dollars for better reinsurance reimbursement for both long-stay and high cost-per-day hospital risk.

Although these changes may seem obvious to the party reviewing large claims day in and day out, they were not at all intuitive to the plan’s management staff, who had been spending a majority of their time and effort managing the everyday activities and finances of a health plan. It is, in fact, the purpose of the InSight analysis to bring these circumstances to the forefront when they otherwise would remain hidden in the day-to-day activities of the plan.

Analyze Your Reinsurance Coverage

Summit Re uses a proprietary coverage analysis tool, called InSight™, to give CEOs and CFOs the quantitative decision-making data they need to make informed reinsurance decisions. InSight™ is designed to ensure that you obtain the most value out of your reinsurance coverage. Please contact your Summit Re regional vice president for a personalized demonstration of this tool which will allow your plan a better understanding of how to structure coverage to ensure its effectiveness.

Avoid Reinsurance Coverage Errors

This “top ten” list of coverage features that can limit a health plan'’s reinsurance recoveries is based on our experience in managed care reinsurance and reflected in InSight™, our coverage analysis tool.

  1. Limited coverage for high-cost inpatient tertiary care referrals. Where are the high costs-per-day problems:  in network or out-of-network?
  2. Artificial per diems, case rates or fee schedules that do not reflect actual plan costs.
  3. Reinsurance deductibles chosen at a level too low, producing too many reinsurance claims with the reinsurer’s margin built in.
  4. Inpatient per day coverage limits not mirroring plan underlying average daily costs for high cost claims.
  5. Purchasing reinsurance on budgetable claims such as professional services versus hospital inpatient-only coverage.
  6. Reinsuring chronic cases. Again, the reinsurer will build in its margin on a budgetable claim.
  7. Covering outpatient facility benefits which may have limited value for catastrophic reinsurance.
  8. Variable coinsurance and its potential for lowering coverage on high-cost out-of-network hospital confinements. Alternatively, coinsurance may vary by inpatient costs per day.
  9. Reinsurer definitions – If the treaty has separate definitions for acute care, medically necessary or experimental treatments, the reinsurer may exclude certain claims that you have paid because of its ability to use its own definitions that may not match your health plan’s certificate of coverage.
  10. Alternate funding programs – These complex programs are another way for a reinsurer to protect its downside risk without giving the plan real risk protection.

To avoid reinsurance coverage errors, contact us today to arrange for a demonstration of the coverage analysis tool. Current clients have a coverage analysis done as a routine part of our annual renewal process.