The Value of
Risk Management
The Stanford Experience
Jeff Driver
Chief Executive Officer
The 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
2
Agenda:
CNTX
Context: About Stanford University Medical Center
HISTORY
History of Risk Management
VDRM
Introduction to Value-Driven Risk Management at Stanford
FIN
CRM
CR
Financial and Other Outcomes
Clinical Risk Management
Concluding Remarks
3
CNTX
Context: The Stanford University Medical Network
4
CNTX
Context: Risk Management Services
Risk Management Services
5
Agenda:
CNTX
Context: About Stanford University Medical Center
HISTORY
History of Risk Management
VDRM
Introduction to Value-Driven Risk Management at Stanford
FIN
CRM
CR
Financial and Other Outcomes
Clinical Risk Management
Concluding Remarks
6
HISTORY
The History of Risk Management
The Evolution of Risk Management
2004
1980s
1700s
1999
Medical malpractice
crisis; high premiums,
partial coverage
1985 - COSO
Modern theory of
probability
Early Risk
Management
1955-1964
“Modern” Risk
Management, selfprotection, insurance
COSO publishes
Enterprise Risk
Management
Integrated
Framework
IOM report; focus
on patient safety
Traditional Risk
Management
1990s
Risk Management
becomes a
“corporate affair”
2009
ISO 31000
standards released
Enterprise
Risk Management
2002
Sarbanes-Oxley Act
& National Patient
Safety Goals (The
Joint Commission)
2008
2013
National HealthCare
Quality Report
Risk Management
profession is in
status-quo mode
AIG Study
“Clear need to
improve patient
safety to provide an
ROI”
7
HISTORY
The History of Risk Management
Early Risk Management
The theory of probability, an instrument
Early Risk Management
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.
The New Religion of Risk Management, Peter L. Bernstein, Harvard Business Review, March/April (1996): 47-51
8
HISTORY
The History of Risk Management
Traditional Risk Management (TRM)
Traditional Risk Management focuses on preventing loss through insurance and
claims.
Early Risk Management
Traditional Risk Management offers a fragmented view that can be reactive and
not focused on business vision and strategy.
Risk Management Handbook for Healthcare Organizations: The Essentials , R. Carrroll, P. Nakamura, 5th Edition, Volume 1 , 2006
9
HISTORY
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.*
Early Risk Management
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
**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
HISTORY
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***
*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
Agenda:
CNTX
Context: About Stanford University Medical Center
HISTORY
History of Risk Management
VDRM
Introduction to Value-Driven Risk Management at Stanford
FIN
CRM
CR
Financial and Other Outcomes
Clinical Risk Management
Concluding Remarks
12
Introduction to Value-Driven Clinical
Risk Management at Stanford
13
VDRM
Migration from Traditional Risk Management to
Value-Driven Risk Management
BEST
BETTER BASELINE
WORSE
“The Merely
Useless”
• Firm builds
quantitative
methods
• Inputs are
validated with
proven statistical
methods
• Quantitative
methods are
used utilizing
some proven
components
• Additional
empirical
measurements
are used where
optimal
• Scope of risk
management
expands to
include more
forms of risk
• Portfolio analysis
of risk/return is
used
• 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
WORST
“The Worse
Than
Useless”
• 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
VDRM
Building on Traditional and Enterprise Risk Management
Early Risk Management
VDERM uses data
and decision analysis
in the risk process.
15
VDRM
Stanford’s Formula for Value-Driven Risk Management
CRM
Clinical Risk
Management
C&L
Claims and
Litigation
Management
FIN
Financial and
Other
Outcomes
16
Agenda:
CNTX
Context: About Stanford University Medical Center
HISTORY
History of Risk Management
VDRM
Introduction to Value-Driven Risk Management at Stanford
FIN
CRM
CR
Financial and Other Outcomes
Clinical Risk Management
Concluding Remarks
17
FIN
Financial and Other Outcomes
18
FIN
Risk Management Outcomes
Metric
Desired
Result
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
19
FIN
Premium Benchmarks
Premium Benchmarking PEARL
Study vs. University of Michigan
Primary Program
Seven Year Average
Aon Premium Benchmarking Study - 2012
Insurance Premium
Compared to Average
Insurance Premium (FN1)
Premium Compared to
Hospital Benchmark (FN2)
Stanford Hospital
20% lower
11% lower
Stanford Clinics
18% lower
Lucile Packard Children’s Hospital
at Stanford
13% lower
Lucile Packard Clinics
32% lower
27% lower
(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
Agenda:
CNTX
Context: About Stanford University Medical Center
HISTORY
History of Risk Management
VDRM
Introduction to Value-Driven Risk Management at Stanford
FIN
Financial and Other Outcomes
CRM
Clinical Risk Management
CR
Concluding Remarks
21
CRM
Value Driven Clinical Risk
Management =
International Organization for
Standardization ISO 31000 Risk
Management Standards + Modern
Decision Analysis Science
22
CRM
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.
Source: ISO 31000:2009 Relationships between the risk management principles, framework and process.
23
CRM
Platform for CRM: Simplified
24
CRM
Platform for CRM - Simplified
Five Critical Steps
Figure out what types of
future events might prevent
or slow the achievement
of objectives or enhance
the prospects of success.
Value Protected
& Value Created
25
CRM
Identify: The Model Methodology
The coding of
medical malpractice
claims is the center of
our patient safety
model.
CODING
26
CRM
Identify: Clinical Coding
Prioritizes where to
focus resources
•
•
Focuses on what needs to
be fixed
Surgery, OB, ED, nursing,
medication issues
Frequency and volume, clinical
severity, financial losses
•
•
Technical: human factors,
skills, cognitive issues
Communication: provider to
provider, provider
Clinical
Coding
Identifies who 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
CRM
Identify: Using an Accident Causation Taxonomy
Major Allegation (based on complaint, 1-1
ratio)
 Diagnosis-related events
 Surgical events (non-anesthesia)
 Medical treatment events
 Obstetrical events
 Safety & security events
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)
Responsible Service (1 primary +
Who was the provider/service(s) involved
secondary)
 Primary and secondary contributors
 Includes all providers in a specialty
 CRNA in Anesthesiology
 NP in OB
 Emergency Service
 Radiology, Pathology, Nursing
 Medicine (Gen Med, Cardio/Hem Onc/Hospitalist…)
 Surgery (Gen Surg, Bariatric/Cardiac/Urology…)
 OB/GYN, Orthopedics, Neurosurgery
Contributing Factors (RN review, multiple) Why it (might have) happened
 Clinical judgment
 Clinical systems
 Communication
 Technical skill
 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
CRM
Platform for CRM - Simplified
Five Critical Steps
Determine which risks are
most critical and how
individual risks are related
to each other.
Value Protected
& Value Created
29
CRM
Assess: Sample Risk Register
30
Assess: Sample Heat Map
IMPACT
CRM
LIKELIHOOD
31
CRM
Platform for CRM - Simplified
Five Critical Steps
Evaluate outcomes and decide
which risks need to be addressed
Value Protected
& Value Created
32
Evaluate: Sampling of Decision Analysis Tools
CRM
VALUE CREATION
Utilizing decision analysis methodologies throughout the risk
evaluative process expands the value proposition of risk programs.
VALUE PROTECTION
Value and
Risk Map
Probability
Assessments
Quantified Value
Model
A
B
C
D
E
Waterfall
of Value
F
1
2
3
4
5
Tornado
Diagram
Strategic Decision
Insights
•
•
Quantified
Heat Maps
Dashboards/
Monitoring
uu uuuuu
uuuuu uu
33
CRM
Platform for CRM - Simplified
Five Critical Steps
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
CRM
Risk Assessment and Mitigation
Stanford University Medical Center Risk Mitigation Strategies in Process
Factors
Obstetrics
Clinical
Judgment
(38%)
6 interventions
Technical Skill
(26%)
Communication
(14%)
Administration/
System issues
(12%)
Neurosurgery
Orthopedics
SHC Nursing
LPCH Nursing
2 interventions
2 interventions
4 interventions
2 interventions
3 interventions
4 interventions
2 interventions
4 interventions
4 interventions
4 interventions
5 interventions
3 interventions
5 interventions
6 interventions
2 interventions
5 interventions
2 interventions
35
CRM
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.
Value Protected
& Value Created
36
37
Agenda:
CNTX
Context: About Stanford University Medical Center
HISTORY
History of Risk Management
VDRM
Introduction to Value-Driven Risk Management at Stanford
FIN
CRM
CR
Financial and Other Outcomes
Clinical Risk Management
Concluding Remarks
38
VDRM
Stanford’s Formula for Value-Driven Risk Management
CRM
Clinical Risk
Management
C&L
Claims and
Litigation
Management
FIN
Financial and
Other
Outcomes
39
The Value of
Risk Management
Concluding Remarks
40