Jayne Gest

It can be more than a full-time job to keep up with technology as it evolves, and smaller and midsize entities that tend not to have dedicated technology staff can face even more acute challenges.

So many changes occur, it’s hard to know what’s available, says Paul Karlin, M. Ed., director of Education Technology & Services at Blue Technologies Smart Solutions. Also, you must train staff and invest in maintenance to keep technology from sitting around unused or broken.

At the same time, organizations need to continually budget for change.

“They’ll say, ‘OK, we’re done. We’ve got a great network and computers,’” Karlin says. “They don’t realize that it’s going to be three, four or five years, and then they have to do it all over again. It’s an ongoing need that has to be budgeted for every year.”

Smart Business spoke with Karlin, who helps schools integrate technology into classrooms and buildings, about how all entities can stay on top of technology needs.

How are schools and classrooms using technology today?

Schools like any organization use technology to conduct business — from keeping track of attendance and grades to payroll, accounts receivable, marketing and communication. And like the corporate world, the right technology maximizes efficiency and employee productivity, while reducing costs.

In addition, whether your classroom is in the educational world or corporate America, technology can improve learning. It’s a vehicle for direct instruction, such as Internet research, educational software or apps. Another use is assessment. In schools, based upon Common Core Standards, groups of states are adopting national tests given on computers, driving schools to update bandwidth.

Technology also is used as a tool to solve problems, create things and be more productive. This higher-level learning, when educating students or employees, isn’t just reading material and taking a test. For example, when learning about global warming, a science teacher challenges students to come up with energy-saving devices, using computer modeling and 3-D printers to develop prototypes. It goes beyond comprehension to becoming part of the dialog of how to make the world better.

What do you recommend as the way to best keep up with technology changes?

There are two overarching strategies. Entities can invest in their own technology staff. If they are large enough and have the resources, it’s a good way to go. But the technology field is very competitive, with IT people moving from job to job. If your key tech person puts in his or her two-week notice, it can leave you scrambling.

The other strategy is to build technology partnerships. Your technology partner can use proven business practices, which in IT includes monitoring, providing a help desk, having disaster recovery, ticketing systems to track problems, etc. You don’t have to worry about retention, and there’s no knowledge gap. You’ll get regular updates on what’s working, what’s not and what’s coming to help inform your decision-making.

Technology partners usually don’t just consult; they deliver products, and provide equipment, services and training. Their middle name has to be accountability, because if they don’t get it done, they aren’t going to be around anymore.

How can organizations prioritize updates or new technology?

The latest technology fad shouldn’t drive updates. For example, organizations are implementing one-to-one computing, where there’s a computer for every person. But if that takes too much attention away from instructors in an educational setting, it may not be a good fit. First, understand organizational goals and needs, and then match those to updates or new technologies.

Consider how to improve efficiency and reduce costs. You may save money by introducing a new technology like server virtualization — five servers function as 20, via software, to reduce support and energy costs. Also, determine if introducing a software package or process will save time or allow staff to focus on their core roles.

Whether it’s technology change or any other change, don’t jump on the bandwagon. Start with the need, problem and/or goal before you come up with solutions. Technology is not going to fix everything; it’s just a piece of the answer.

Paul Karlin, M. Ed., is a director of Education Technology & Services at Blue Technologies Smart Solutions. Reach him at (216) 271-4800, ext. 2281 or pkarlin@btohio.com.

Insights Technology is brought to you by Blue Technologies

More Ohio employers are becoming financially stable after the Great Recession. These same business owners are earning high compensation and looking for additional ways to defer taxes. This has led to an increase in companies desiring to start a 401(k) plan.

The 401(k) plan is not only good for retention and recruiting, it’s also a great way to lower taxable income. Plans today are a good blend of benefiting both rank-and-file and highly compensated employees.

“However, when designing the plan, a big pitfall is when an employer doesn’t understand the provisions and how to operate the plan going forward — that can get plan sponsors into a lot of trouble,” says Heather Taylor, QKA, QPA, Manager, Sales and Business Consulting, at Tegrit Group. “Sponsors must stay engaged after the plan is implemented. It’s not just quickly scanning the document and signing. You really need to understand it, because the biggest risk is not operating a plan the way it’s written.”

Smart Business spoke with Taylor about what to know when setting up a 401(k) plan.

What common mistakes do you see when plan sponsors set up 401(k) plans?

Plan sponsors should consult with a third-party administrator (TPA) or consultant to identify a plan design that meets the company’s needs. Too often, providers put plan sponsors in a design that may be easy to administer but does not necessarily meet their goals and objectives. Don’t let a provider put your plan into a ‘box’ to make their job easier. If someone isn’t taking the time to sit down and talk through what you want to accomplish in detail, it’s a sign they may not implement the right plan for you.

Remember to take advantage of annual tax credits. Companies with fewer than 100 employees starting their first qualified plan are eligible to receive up to a $500 tax credit each year for the next three years to offset start-up and installation costs. Employer contributions may be deductible as well.

During the start-up process, don’t rush. Why would you want to offer a bad 401(k)? Ask lots of questions and take time to understand the plan’s limits, testing, reporting and required disclosure notices.

Be sure to give a complete picture of your organization, including discussing other entities you own or plans to acquire or merge with other companies. The more information you provide, the better. You may not think it’s important, but let the experts decide if it’s relevant. For example, controlled group and affiliated service group testing is complex. Your TPA will need to determine if employees at the holding company or other organizations you own (if you are above certain ownership percentage thresholds) must be included in the plan.

What’s key to know about employer contributions?

If you’re setting up a safe harbor plan, employer contributions are mandatory. Take a survey to see which staff will make contributions to get an idea of what your obligation is going to be. In contrast, many traditional 401(k) plans have a discretionary match or discretionary profit sharing contribution, which isn’t required every year.

Safe harbor plans are more common today. They allow highly compensated employees to put away maximum contributions without plan testing. It doesn’t bypass all testing, but is a good option if you’re concerned about discrimination.

Once the plan is set up, what’s next?

You can rely on the experts to perform the above functions, but review the plan regularly. Be aware of and adhere to:

  • Not giving participants investment advice.

  • Timely deposits. For plans with less than 100 participants, the employee deferral deposit time frame is seven business days from the time the payroll is effectively segregated from corporate assets.

  • ERISA fidelity bond coverage. Persons handling plan funds or other plan property generally must be covered by a fidelity bond to protect the plan against loss resulting from fraud and dishonesty.

  • Compliance requirements to avoid penalties and fees.

  • Maintaining updated salary deferral and beneficiary designation information.

You’re also obligated to ensure employees who have satisfied eligibility requirements are given the opportunity to participate by the effective date of the elective deferral component. Failure to do so can be costly in terms of lost earnings and penalties.

Heather Taylor, QKA, QPA, is a manager of Sales and Business Consulting at Tegrit Group. Reach her at (330) 983-0519 or heather.taylor@tegritgroup.com.

Insights Retirement Planning Services is brought to you by Tegrit Group

The current market is making some investors question their allocation strategies amid concerns of volatile equity markets and where bonds might go.

Your portfolio strategy, however, needs to be about how you want to be positioned in the market for the long haul, taking into account your financial risk capacity and emotional risk tolerance, says Sabrina Lowell, CFP®, chief operating officer at Mosaic Financial Partners.

“If you’re investing with a sound, diversified strategy, the conversation shouldn’t be that much different if the market is up, down or flat,” Lowell says. “If you’re not trying to outguess things, you’re just making minor tweaks around the edges. Making big moves, if there’s a lot of upside or downside volatility, can be really expensive in the long run if you make the move at the wrong time.”

Smart Business spoke with Lowell about the current market conditions and setting up a sound investment strategy.

What are the biggest market questions?

When the market is doing really well, some people ask, ‘Should I be moving more into equities? Should I be doubling down?’ That, however, is exactly the wrong strategy.

With standard rebalancing, you typically employ a buy-low, sell-high strategy. So, that could mean taking money out of stocks and deploying it in bonds or other asset classes that aren’t necessarily as correlated with stocks or bonds. Putting more dollars in the stock market could increase your portfolio’s risk profile at just the wrong time.

Another concern is that when interest rates rise, the bond market will go down. Yes, that’s a concern, but it doesn’t mean you should get rid of all bonds. Instead, look at the type of bonds you’re investing in. Diversify with a balance of domestic, international and world strategy bonds for the short and intermediate term with an emphasis on shorter maturity, which is less subject to longer-term volatility.

How should your allocation strategy be set up? How does behavioral finance affect this?

Don’t put as much weight into what the market is currently doing. That doesn’t mean you should have your head in the sand. However, if you’ve employed a sound strategy, and came to a conclusion about how your portfolio should look before the market caught on fire, don’t switch strategies in light of what’s going on now.

Behavioral finance looks at how people react. Take the recency bias, for example. When investors see the market go up for multiple months, they think this pattern, which may not even be a pattern at all, will continue — and statistically that’s not the case. It’s important to set up a strategy you can stick with whether the market is up or down. When you take on too much risk, you set yourself up to take poor actions later, because you will be motivated to sell out when the market is down.

Take a careful look at how your experience, outlook or belief system impacts the investment choices you make. What assumptions are you making? Where are you getting your information? You need to understand your emotional risk tolerance — how much risk you are comfortable taking.

How can you discover your risk tolerance?

There are a number of ways to understand your emotional risk tolerance, including filling out a questionnaire to see where you fall on the risk spectrum.

Then, compare that against your investment strategy and financial risk capacity. Are you taking on more risk than you need to in order to achieve your goals? If you are more risk conservative, what other factors can you control, such as working longer, saving more or modifying expenses.

What happens if a couple’s emotional risk tolerances are different?

More often than not, couples have different emotional risk tolerances. You may already have an inclination of who falls where, but it’s important to get baseline, factual data. Then, you can explore the trade-offs with your financial adviser to find a medium balance. The more conservative person usually carries more weight; if you push him or her to be more aggressive, it can be problematic when things don’t go well.

However, now is a great time to assess risk tolerance because with a strong market you’re not in a high emotional state. In panic mode, it’s difficult to make good decisions.

Sabrina Lowell, CFP, is chief operating officer at Mosaic Financial Partners. Reach her at (415) 788-1952 or sabrina@mosaicfp.com.

Insights Wealth Management & Finance is brought to you by Mosaic Financial Partners Inc.

After more than 10 years as president and CEO of Zippo Manufacturing Co., Greg Booth is still amazed by the product’s brand recognition.

In many places, there’s 90 percent brand awareness. When Japanese consumers were asked to name top American brands, their first responses were Coke, McDonald’s, Nike and Zippo.

“Prior to coming to work at Zippo, I worked for two large companies — a $2 billion and a $10 billion corporation — and on a regular and ongoing basis we worked hard to build our brand and increase brand awareness, and so forth,” Booth says. “And we were very successful in the category. But to get to the level of brand awareness that Zippo enjoys, that is Herculean at best.

“In the oil industry, if we had 25, 30, 35 percent brand awareness in a market, we were thrilled, and just wouldn’t think of spending the next umpteen-million to get to a level of 60 or 70 percent.”

Two of Zippo’s biggest challenges, however, stem from its name recognition — maintaining a strong presence in more than 160 countries while trying to diversify into new products.

Here’s how Booth and Zippo’s employees — 610 at Zippo and 300 at W.R. Case and Sons Cutlery Co. — are keeping the 82-year-old company growing today.


Protecting the brand

Hard work, determination and luck brought global success, and now Booth says the company’s No. 1 challenge is maintaining or protecting its brand.

“And I find it unfortunate, quite frankly, that we have to spend the time, the money and the energy we do just to protect something we already own,” Booth says.

“But trademark owners recognize that if you don’t aggressively protect your brand, you always stand a chance of losing it or having it diluted by others using all or a portion of your name.”

Booth, and owner George B. Duke, grandson of Zippo’s founder, fight an ongoing battle to protect Zippo’s name and shape. It’s something that comes across Booth’s desk weekly.

“Counterfeiters and knock-off artists build products that resemble ours and sell them either with our brand name on them, pure counterfeits, or sell them using as much of our trade dress as they possibly can to pass it off as a Zippo lighter,” Booth says.

The company employs people who spend nearly all of their time surfing the Web for trademark infringers. It also spends time lobbying in China and Washington, D.C.

Luckily, the fight has become easier, Booth says. China, now part of the World Trade Organization, is developing its own brands, thus getting a better feel for the plight of trademark owners.

Along with trademark registrations, Zippo has shape registration in about 60 countries. Booth says shape registration is difficult to obtain because other lighter manufacturers block them, saying that they make that shape, too.

“The brand is what’s worth all the money, not the metal we bend and the lighters we make. It’s Zippo — the trademark is worth who knows how much. We say the billion-dollar trademark. But that’s what you have to protect, and protect aggressively — and sometimes your hair gets grayer as a result of those kinds of battles,” he says.


Staying relevant

Zippo’s business has grown nearly 60 percent in the past 10 years. More than 90 percent of its business is still lighters and fuel, even though tobacco-related products are declining.

Part of that is because of global sales — nearly 60 percent of Zippo’s sales are offshore. Zippo has only been in China since 1993, but that market is already about 40 percent the size of its U.S. market.

The other factor is becoming more of a lifestyle product.

When creating products in your brand family or category, or even when creating a new brand, Booth says you need to stay relevant with whoever your target audience may be.

When Booth first became CEO, the average age of a lighter buyer was 44 or 45 and rising, giving them an identity problem with younger generations.

“Most brands want to at least influence young people or people early in their lives so they continue to buy the brand later in life,” Booth says.

A 21-year-old who buys a pocket lighter now may purchase a candle lighter at 45.

But if you want to be relevant to a younger target audience, the execution is critical, he says. You want to talk to them how they want to be spoken to, socializing with them where they live, which today is via social media.

“We talk to them all the time,” Booth says. “We tell them what we’re doing, where we’re going, why we’re doing it.

“You want to be in their face electronically. You want to be involved with something that means something to them, something they enjoy.

“So, we’re involved in music — Live Nation for example,” he says. “We’ll sponsor 100 to 150 concerts around the country each year, and we have the Zippo booth and the Zippo people and everybody there, so the fans know who is sponsoring it.”

Another strategy is being conscious of what makes a lighter worth collecting. Several years ago, Zippo went to the Art Institute of Pittsburgh and asked students to create art to put on lighters. It was so successful Zippo now sponsors contests for student artists to create relevant art for products.

All that effort has paid-off. Today, the average age of a lighter buyer is in their mid-30s.


Launching new products

When Booth saw the buying trends in the tobacco category 10 years ago, the company started working on developing new products.

The strength of the brand name, however, has worked against the company. Booth says the more mature the market, the more challenging it is.

“So, in our oldest market, the good ol’ U.S., it’s harder to diversify because when you say to consumers, ‘What would you think about buying a hand warmer from Zippo?’ sometimes the reaction is: ‘You mean the guys that make lighters? Why would I buy a hand warmer from those guys?’

“If we do the same thing in a less mature market like Japan or China, consumers far more easily grasp the concept and accept the new products because they haven’t been tied to Zippo, the cigarette lighter, for 80 years,” Booth says.

It’s also a challenge coming into channels already crowded with competition. Booth says you have to get retailers on board with putting the product on shelf space that already has velocity and profit.

To keep from stretching its brand into something it shouldn’t, Booth says Zippo does a mountain of consumer research.

“Research is a monumental first step. You have to find what your brand will support by way of a product,” he says. “I’m sure there are 20 different things that we could go out and try to do that wouldn’t be very successful. But if we stay in the flame category, and categories or products that are normally lifestyle-related, the research we’ve done tells us we should do reasonably well.”

Stretching the brand led to a misstep a few years ago, when Zippo bought an Italian leather purse company called Zippo — for the trademark.

Zippo, unsuccessfully, tried to run the business for five or six years. There was a lack of good management, and Zippo just didn’t know enough about women’s leather purses. Booth says they ultimately discovered that Zippo purses weren’t fashion at all, but rather purses that women carried to work.

But research is just the first step. It also takes the right sales force, the right channel of distribution, the right public relations and media, and the correct level of dollar support, while not trying to launch too many new products at once.

“You have to be committed, and I think the other thing you have to be — other than well-organized and smart — you have to be incredibly patient,” Booth says.

Even with the challenges, Booth is excited about growing into more of a lifestyle brand, launching products in the outdoor recreational camper and patio categories. Zippo is looking to add grills and stoves to hand warmers, fire starters and lanterns in the coming months.

“We do these new product development sessions and come up with these potential products for market. We have a potential portfolio of products that could take us out five or six years, but you can’t do it all at once,” he says. “So, we do a couple here and a couple there, because it’s a handful getting them launched, and they are pricey when you build them from scratch.

“Yes, there’s lots of excitement and lots of opportunity as we’re going in a lifestyle direction,” Booth says. “But thank heavens Zippo lighters continue to sell in phenomenal volumes.”


Takeaways

  • Aggressively protect your brand so others don’t dilute it.
  • Stay relevant with your target audience by relating to them.
  • Research thoroughly before launching new products.


The Booth File:

Name: Greg Booth
Title: President and CEO
Company: Zippo Manufacturing Co.

Born: Bradford, Pa.

Education: Bachelor’s degree in biology and chemistry from the Indiana University of Pennsylvania.

What was your first job and what did you learn from it? I was a paperboy for the Bradford Era, way back when. I was probably 13, 14 or something like that. I had to walk about a mile and a half to pick up the papers and start the route, and the route took another hour or hour and 15 minutes. I did that before I went to school.

You have to get up and go do the paper route no matter how bad you feel, or how good or bad the weather is. You have a responsibility to deliver these papers — I think at the time I had about 110 customers. You just had to get up.

What is the best business advice you ever received? One thing I was either told or learned over the years is that no matter who you work for or around — no matter what you think of the individual — if you listen and pay attention, you’re probably going to learn something from everybody. I remember in one case, I learned what not to do.

If you pay attention and are open-minded, you can learn something every day from your environment or the people you work around.

Do you have a favorite Zippo lighter? It’s a pink lighter that I carry in my pocket all the time. It’s one of our pink powder-coated lighters that has a beautiful picture of my daughter on it, who I tragically lost in a car accident five years ago.

 

Zippo trivia

  • The original Zippo windproof lighters cost $1.95. A similar lighter today retails for $15 to $16. The design has remained virtually unchanged.

  • The Bradford factory produces 50,000 lighters a day.

  • In 2012, Zippo produced its 500 millionth lighter.

  • The original 1947 Zippo Car, customized for $25,000, traveled to all 48 states in the 1950s. When Zippo looked to restore the car prior to its 50th anniversary, however, it had disappeared without a trace. Despite a PR campaign asking “Have you seen this car?” Zippo had to buy a second Chrysler, customizing it to look exactly like the original.

  • During World War II, Zippo dedicated all manufacturing to the U.S. military; this was a significant catalyst to establishing Zippo as an American icon.

  • There are approximately 4 million Zippo collectors in the U.S. and 11 collectors clubs worldwide. The highest amount paid for a Zippo lighter was $37,000 for an original 1933 model.

  • There are more than 288,000 Zippo-related videos on YouTube, and 600,000 fans on Facebook. More than 22 million people have downloaded the Zippo smartphone app.

  • The Zippo lighter has been featured in more than 1,500 movies, stage plays and television shows.


Learn more about the Zippo Manufacturing Co. at:

Facebook: www.facebook.com/Zippo
Twitter: @Zippo



How to reach: Zippo Manufacturing Co., (814) 368-2700 or www.zippo.com

In 2004, two friends — Henry Thorne, a world-leading roboticist, and Rob Daley, a successful businessman — discovered over lunch they shared a vision for the type of company they each wanted to build that would foster creativity, collaboration and loyalty.

Rather than working alone, the two teamed up to take advantage of their complimentary skills and backgrounds, with Thorne as CTO and Daley as CEO.

“We also knew there were only two ways to make it as an entrepreneur: create a new market or change an existing one,” Daley says. “With its steadily decreasing price, electronics were both cheap and powerful for the first time ever (known as Moore’s Law) and could be used as a change agent to completely redefine an industry.

“We decided to focus our efforts on the plumbing industry, a field that had not significantly changed since the introduction of copper pipes after World War II,” he says.

The two built a showerhead demo that used behind-the-scenes electronics to control the exact temperature of the water. Daley says they took the prototype to the Pittsburgh Home Show, expecting a wave of excitement from tech-savvy men.

That wasn’t the case.

“Elderly women living alone loved the product because it was a tool that could help them maintain their independence, and mothers wanted something similar for the bathtub so their children would be safe and comfortable while bathing,” Daley says.

“After researching both elder care and juvenile products, we determined the juvenile product industry presented the most appealing opportunity, and the spout cover — 4moms’ first product — was born.”

Officially established in 2006 under the parent company Thorley Industries LLC, 4moms has experienced rapid growth in recent years. Sales were close to $30 million in 2013, and are projected to hit $60 million and $100 million in each of the next two years.

Here’s how Daley and Thorne got their company off the ground and are now focusing on identifying the right people, partners and systems to scale the business as it grows.


Entering the market with solutions

Usually, in a static market, like the juvenile products industry, incumbents win, Daley says. But by effecting change, companies can successfully enter the market.

4moms was built on the philosophy that the future of robotics lies in taking abstract or expensive technology and making it practical for ordinary use.

It also gives the company an impetus for creative growth because parenting can always be just a little easier, and technology consistently gets faster, lighter and less expensive.

In the company’s first focus group of mothers, the group explored juvenile product pain points, providing valuable insight that led to product creation.

“People don’t buy products. They buy solutions, and robotics helps us provide those solutions,” Daley says.

One way to become more innovative with product development, in any industry, Daley says, is to first minimize the scope. Then, work hard to get the job done right, while continuing to improve it.

Along those lines, 4moms is introducing new products similar to existing, successful products. For example, in January, 4moms launched rockaRoo®, a baby swing that rocks like a rocking horse. It’s a companion product to the existing mamaRoo®, an infant seat with five motions that mimic a parent comforting his or her baby.

Later this year, the company also will launch a lightweight version of its popular origami® stroller.


Managing growth through the right culture

With success has come rapid growth. The company secured more than $40 million in strategic funding. It also projects 300 percent revenue growth over the next three years, driven by increased demand for current and new products.

In addition, the team is adding U.S. retailers and is poised to secure several more international partners. Current retail channels include more than 500 U.S. stores and distributors in more than 40 countries.

Daley says it’s important to make sure you have good people to handle the rapid growth.

“Culture is everything,” Thorne adds.

A focus on innovation, passion and people should help ensure the company doesn’t lose its way while undergoing exponential growth, Daley says.

By fostering creativity, collaboration and loyalty, while offering opportunities for growth and encouraging employees to develop their own ideas, he says you can create a successful company culture.

Some values they want to keep in mind:

  • Never let fear of failure limit your creativity, and be open to change whenever good ideas present themselves.

  • If you’re passionate about what you do, that will inspire passion in others.

  • Treat people like they are your most important assets, because that’s what they are.

In addition, some specific ways that directly contribute to employee happiness and retention include company lunches, new employee retrospectives, leadership development, team member reviews, monthly team “Lunch & Learns” and more.

The company also put together an e-book called “Vision and Values,” which serves as a reminder to the team about what makes 4moms a great place to work.

“We have resisted putting words to things like our mission and our values and our culture. We’re either innovative or we’re not. We’re either a great place to work or we’re not. Anyone can write platitudes but writing them doesn’t make them true,” the introduction states. “However as we grow, it’s important that we don’t lose our way.”

Then, in the 68-page e-book, some of the 113 employees contributed in their own words what 4moms means to them.

“As founders and active leaders at 4moms, we are focused on building a great company that cares about more than just financial success,” Daley says.

How to reach: 4moms, (888) 614-6667 or www.4moms.com

Facebook: www.facebook.com/4moms
Twitter: @4moms

The Institute of Medicine estimated 30 percent of health care spending in 2009 was wasted. Patients get duplicate services, unneeded services or services that haven’t proven to have medical value, which is where medical management can help.

Utilization management enables health plan members and network providers to contact a benefits manager to determine whether services are medically necessary before they are rendered, says Dr. Robert Sorrenti, medical director at HealthLink.

Years ago, physicians, hospitals and providers strongly opposed utilization management, feeling it intruded upon their ability to make decisions. Today, there is acceptance, along with strong interest from those paying for health plans.

“It’s evolved,” Sorrenti says. “I can’t say providers embrace it and love it, but we’re at a time where people accept this as a tool to help manage some of the utilization that takes place.”

Smart Business spoke with Sorrenti about the value of utilization management services to manage unnecessary clinical procedures.

What’s the benefit of utilization management services?

Utilization management moves people to getting the right quality of care at the right time through evidence-based medicine. If you don’t medically need a service, you really shouldn’t get it. CAT Scans involve a lot of radiation, one MRI can lead to another, and certain procedures with unproven outcomes can be deleterious in the long run.

The bottom-line is: Managing expensive and sometimes unnecessary services will result in health care that is less expensive for employers and health plan members.  As plan sponsors, employers have taken a renewed interest in medical management, particularly those struggling to keep pace with health insurance cost increases. They are looking for ways to control that without shifting all cost back to their members.

How does utilization management determine what is, or isn’t, medically necessary?

Health benefits managers, who are accredited through organizations like URAC, employ an extensive process to determine if a service is medically necessary. They utilize medical policy and clinical guidelines to determine the appropriate rationale for carrying out a procedure or service, or using a particular drug. Then, they match up each member’s situation with these policies and guidelines to see if the service makes sense.

Is time a factor with this kind of review?

No. Emergent procedures aren’t reviewed, and with elective procedures there is time for due diligence. Accredited utilization managers have reasonable turnaround times — usually no more than three days — to get back to providers and members.

What services are typically reviewed?

In-patient days are reviewed to ensure patients are moved through the continuum of care. You don’t want them staying in the hospital for $5,000 per day, waiting for a bed to open up in a skilled nursing facility where the cost is $1,000 per day.

Other services being reviewed are:

  • Radiology services, particularly MRIs and CAT Scans.
  • Drugs.
  • Physical therapy. At some point, patients can continue the exercises at home.
  • Sleep studies. Can a study be done at home, rather than at a costly lab or hospital?
  • Durable medical equipment, such as wheelchairs, mattresses, hospital beds or braces. Are patients being persuaded to over-purchase or over-use?
  • Nasal and eye procedures, to distinguish between cosmetic versus medical.
  • Back surgery. This ensures a standard approach of time, medication, physical therapy and watchful waiting is followed before surgery. Back surgery has variable outcomes. You don’t want to jump into it.

How else can employers deter over-use?

Many providers say patients are the ones demanding more services. Employers can empower plan members to have realistic expectations and be careful about demanding unnecessary services. Encourage them to take pride in the decision-making — be wise consumers and ask questions.

Dr. Robert Sorrenti is a medical director at HealthLink. Reach him at (978) 474-5108 or bob.sorrenti@wellpoint.com.

Insights Health Care is brought to you by HealthLink

The Institute of Medicine estimated 30 percent of health care spending in 2009 was wasted. Patients get duplicate services, unneeded services or services that haven’t proven to have medical value, which is where medical management can help.

Utilization management enables health plan members and network providers to contact a benefits manager to determine whether services are medically necessary before they are rendered, says Dr. Robert Sorrenti, medical director at HealthLink.

Years ago, physicians, hospitals and providers strongly opposed utilization management, feeling it intruded upon their ability to make decisions. Today, there is acceptance, along with strong interest from those paying for health plans.

“It’s evolved,” Sorrenti says. “I can’t say providers embrace it and love it, but we’re at a time where people accept this as a tool to help manage some of the utilization that takes place.”

Smart Business spoke with Sorrenti about the value of utilization management services to manage unnecessary clinical procedures.

What’s the benefit of utilization management services?

Utilization management moves people to getting the right quality of care at the right time through evidence-based medicine. If you don’t medically need a service, you really shouldn’t get it. CAT Scans involve a lot of radiation, one MRI can lead to another, and certain procedures with unproven outcomes can be deleterious in the long run.

The bottom-line is: Managing expensive and sometimes unnecessary services will result in health care that is less expensive for employers and health plan members.  As plan sponsors, employers have taken a renewed interest in medical management, particularly those struggling to keep pace with health insurance cost increases. They are looking for ways to control that without shifting all cost back to their members.

How does utilization management determine what is, or isn’t, medically necessary?

Health benefits managers, who are accredited through organizations like URAC, employ an extensive process to determine if a service is medically necessary. They utilize medical policy and clinical guidelines to determine the appropriate rationale for carrying out a procedure or service, or using a particular drug. Then, they match up each member’s situation with these policies and guidelines to see if the service makes sense.

Is time a factor with this kind of review?

No. Emergent procedures aren’t reviewed, and with elective procedures there is time for due diligence. Accredited utilization managers have reasonable turnaround times — usually no more than three days — to get back to providers and members.

What services are typically reviewed?

In-patient days are reviewed to ensure patients are moved through the continuum of care. You don’t want them staying in the hospital for $5,000 per day, waiting for a bed to open up in a skilled nursing facility where the cost is $1,000 per day.

Other services being reviewed are:

  • Radiology services, particularly MRIs and CAT Scans.
  • Drugs.
  • Physical therapy. At some point, patients can continue the exercises at home.
  • Sleep studies. Can a study be done at home, rather than at a costly lab or hospital?
  • Durable medical equipment, such as wheelchairs, mattresses, hospital beds or braces. Are patients being persuaded to over-purchase or over-use?
  • Nasal and eye procedures, to distinguish between cosmetic versus medical.
  • Back surgery. This ensures a standard approach of time, medication, physical therapy and watchful waiting is followed before surgery. Back surgery has variable outcomes. You don’t want to jump into it.

How else can employers deter over-use?

Many providers say patients are the ones demanding more services. Employers can empower plan members to have realistic expectations and be careful about demanding unnecessary services. Encourage them to take pride in the decision-making — be wise consumers and ask questions.

Dr. Robert Sorrenti is a medical director at HealthLink. Reach him at (978) 474-5108 or bob.sorrenti@wellpoint.com.

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The Foreign Account Tax Compliance Act (FATCA) has been in the news for years, but the effective date of July 1, 2014 is fast approaching.

Any U.S. business that makes a payment to a foreign vendor or investor will need to determine whether or not the payment is subject to FATCA.

The act’s new disclosure requirements cast a pretty broad net — especially with business becoming more and more international, says Chris Paris, regional tax leader in the Greater Bay area at Moss Adams LLP.

“It’s either going to be a big demand on businesses’ internal resources, or they will outsource it to a third-party provider to ensure that they are FATCA compliant,” Paris says. “I believe it will be a pretty extensive list of internal policies and procedures that they are going to need to come up with.”

Smart Business spoke with Paris about what you need to know about FATCA.

What’s the purpose of FATCA?

Part of the Hiring Incentives to Restore Employment Act of 2010, FATCA requires disclosure of information related to payments made to organizations located outside the United States. It seeks to detect and discourage offshore tax evasion by making payments to overseas accounts more transparent.

Ultimately, the U.S. government wants other countries to sign agreements about sharing more information on payments across borders. The idea is slowly gaining traction, although those FATCA provisions are phasing in over 2015 and 2016.

The act’s first step, which starts July 1, is identification — understanding where funds are going and to whom. Step two will be deciding what to do with this information.

The act’s implementation was extended because the new reporting requirements are complex, and the resource-constrained IRS and Department of Treasury took awhile to issue regulations and guidance.

So, who needs to pay attention to FATCA compliance this summer? Is it just banks?

Beyond banks, non-U.S. foreign financial institutions (FFIs) and non-financial foreign entities (NFFEs) are subject to FATCA. There are a number of different investment funds that are going to be identified as FFIs, such as U.S. management companies and investment funds — private equity, venture capital, hedge funds, real estate funds, etc. — with foreign owners. And, of course, U.S. businesses that make payments to foreign entities may become subject to FATCA.

What do business owners need to know?

If you make payments to foreign vendors or investors, you have two options:

  • Choose to be FATCA compliant — meaning you must obtain information on the foreign parties that you’re paying, and disclose it to the IRS by filing additional forms, such as Form 8966 and 1042-S.

  • Decide you don’t want to become FATCA compliant, and then become subject to the 30 percent withholding penalty on payments to any foreign payees.

However, there are a number of exceptions. Just because your company makes a payment to a foreign payee doesn’t mean FATCA will be an issue. For example, paying rent to a foreign entity is exempt.

If you are subject to FATCA, you’ll need to discuss it with your foreign investors or vendors, who may value their privacy. Many of these, such as a high net worth family entity or sovereign European or Middle Eastern wealth funds, don’t necessarily want the U.S. government to know they are receiving payments. That’s why they are organized in the Cayman Islands or Switzerland. Certain foreign partners may opt to pay the 30 percent withholding tax, as a cost of doing business.

How time consuming will it be to set up a FATCA compliance process?

Really large companies are already hiring third parties to come in and FATCA test to ensure they will be compliant. Most business won’t have adequate internal resources, so they’ll outsource this compliance function.

Basically, an organization needs to assess what it’s doing now — identify its current processes and procedures related to payments overseas, determine if exemptions apply and then decide what needs to be done differently, including training staff.

It will be pretty time consuming, but the penalties are so significant that most organizations will likely make the effort.

Chris Paris is a regional tax leader in the Greater Bay area at Moss Adams LLP
. Reach him at (415) 677-8352 or chris.paris@mossadams.com.

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Enterprise risk management (ERM) has become a big buzzword in business the past few years. However, corporate governance and compliance, which is how business executives utilize ERM, is really a traditional management function.

“What’s new about it is that there’s market interest and significant value associated with an enterprise that has implemented true ERM,” says Alyssa Martin, a partner in Risk Advisory Services at Weaver.

When an investment company is looking at an enterprise’s value, a consortium of banks are considering giving a syndicated loan, or companies are weighing a merger or acquisition, an ERM program increases the company’s intrinsic value, illustrating the sophistication of its corporate governance. An organization can also use ERM to improve internal decision making, promoting and instilling risk awareness within its culture.

Smart Business spoke with Martin about integrating ERM into strategic, business and financial management processes.

How does ERM differ from other methods of assessing and managing risk?

Risk assessment was more widely implemented during the regulatory increase and Sarbanes-Oxley wave, but companies often assess risks at the process level in silos.

ERM looks at risk across the entity, casting a wide net, incorporating the results of the risk assessment with integration practices throughout the organization. The first step is to perform an entity level risk assessment identifying the most critical risk categories and related events that influence the organization’s success. Then, you drill these risk considerations down into processes and functions.

An ERM program considers the business goals, objectives and strategies at all times, following these steps to monitor and manage risk on an ongoing basis:

  • Identify, assess and prioritize business risk.
  • Analyze key risks and current capabilities.
  • Determine strategies and new capabilities.
  • Develop and execute action plans and establish metrics.
  • Measure, monitor and report risk management performance.
  • Aggregate results and integrate them with the decision-making process.

An organization identifies the risk categories and specific risk events that have the most material influence, which are not necessarily the most common, for current operations and strategic initiatives. So, a domestic company that wants to grow internationally is changing its business condition and risk influences, and in turn, the management of related risks.

One of the advantages of ERM is that business leaders can move from managing negative events that have occurred to managing key risk indicators, which allows you to get in front of identified critical activities. For example, if a retailer that does 60 percent of its sales on credit monitors key risk indicators, such as U.S. consumer credit ratings and credit interest rates, it can modify business practices or promotional tactics before a credit freeze trickles down. Instead of offering customers no interest for one year, the retailer can offer no interest for six months.

Are many companies already following ERM?

Absolutely. ERM practices such as building internal controls, joint venturing with business partners or identifying regulatory requirements are already occurring within management functions. But an ERM program helps bolt decision-making and business tactics together to create cohesiveness within an organization, where everything is based on the same risk profile and agreed-upon risk tolerances.

With that said, companies must align the ERM program with their existing goals and strategies. This alignment is crucial. It ensures that program activities are not just new tasks but rather different ways of executing the tasks that may or may not include additional elements.

Where do companies fall short with ERM?

The most common mistake is thinking that entity level, enterprise-wide risk assessment equals ERM. That’s only the first step. Companies must use what they’ve learned through the assessment to put management tactics and monitoring into place.

An entity level risk assessment also does not instill a risk-awareness culture. Risk must become part of a company’s operations and decision-making processes through business planning, product development and regulatory compliance.

As an example, when considering performance evaluations, managers need to ask: Did you consider risk when you made that decision? Did you incorporate more anticipatory business planning versus reactionary planning? Risk management must become a component of the executive management’s responsibilities while ERM is integrated across the organization.

Alyssa G. Martin, CPA, MBA, is a partner, Risk Advisory Services, at Weaver. Reach her at (972) 448-6975 or alyssa.martin@weaver.com.

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The IRS is always evolving, remaking itself about once a decade.

At the end of the 1990s, the IRS underwent severe Congressional scrutiny that resulted in the Revenue Reconciliation Act of 1997 and two Taxpayer Bill of Rights to reign in the agency. The IRS lost the power to seize property without due notice and had to start sending out annual statements to both spouses.

Now, over the past four or five years, the pendulum has started to swing the other way — the IRS is perceived as not doing its job fairly or appropriately, so the agency is taking a more heavy-handed approach.

“The new IRS is dealing with a budget that was slashed by a half-billion dollars. It’s technology challenged and fraught with scandal including resignations and a new commissioner, John Koskinen. He made several early appearances in 2014, and the message is clear that resources will be put to the task at hand — combatting offshore tax evasion and tax cheats,” says Douglas Klein, CPA, EA, associate director of tax at SS&G.

Smart Business spoke with Klein, a former IRS agent, about the current state of the IRS and how business owners need to react.

What signs do you see that the pendulum is swinging the other way?

As the tax gap widens, there’s a tremendous push to collect offshore income with reporting changes and amnesty programs for offenders. For example, the Foreign Account Tax Compliance Act, which could be implemented in 2014 or 2015, requires foreign banks doing business in the U.S. to report on U.S. customers.

Also, there’s a need for tax reform. The U.S. has one of the world’s highest corporate income tax rates, around 35 percent. It’s so punitive to keep foreign assets abroad that some companies have moved to tax-friendlier foreign jurisdictions.

So, Congress, the IRS and the president are looking at how to make the U.S. tax system more competitive. Some have suggested lowering the corporate tax rate, moving to a territorial tax system, which only taxes assets under that country’s jurisdiction, and/or creating a tax holiday to allow foreign funds to return to U.S. shores.

What does this mean for business owners?

Even with the problems it faces, a heavy-handed IRS can be aggressive with better tools. In this e-filing age, information matching has improved dramatically. IRS agents are encouraged to look at your website to see where you do business, which better equips them for audits.

Business owners need to stay on their toes. ‘The IRS will never figure this out’ might have been true eight or 10 years ago — but no longer.

How can companies keep in good standing with the IRS?

Some compliance tips are:

  • Never ignore a notice. Even if you’re dealing with a personal crisis or family matter, which should come first, an IRS notice won’t go away if you put it in a drawer. Contact your accountant or tax adviser right away.

  • Use the best tax accounting system you can afford. Don’t skimp on recordkeeping — software and personnel. QuickBooks is wonderful, but it’s only as good as the people working it.

  • Be as educated as possible about all of the taxes that may apply to your business, such as sales, use, payroll, etc.

  • Consider a payroll-processing firm to handle payroll processing. The laws are ever changing in regards to employee benefits and many companies don’t have the expertise to handle this properly. Business owners may not see the benefit of administrative spending, but officers can be personally responsible for unpaid payroll taxes. In terms of the risk, outside payroll companies are inexpensive.

  • Take responsibility for the tax positions on all returns. For example, public companies require the president and/or board chairman to sign off on knowledge of the tax information. Make sure you talk with accountants, external or internal, so you can be comfortable with decisions. The most defendable tax positions come from a dialog and mutual agreement between the tax expert and taxpayer.


To find more about a changing IRS, visit the Taxpayer Advocate Service, the IRS’ independent watchdog, at
www.taxpayeradvocate.irs.gov.

Douglas Klein, CPA, EA IS Associate director of Tax at SS&G. Reach him at (330) 668-9696 or DKlein@SSandG.com.

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