Meredyth McKenzie

Friday, 25 September 2009 20:00

A two-way street

Making your travel process efficient requires organization and communication. You want to have a standard travel policy in place, with preferred vendors, so employees know whom to use when booking travel arrangements.

You also want to develop a partnership with a travel management company and establish clear communication about how you want your travel to be handled so you can achieve the maximum cost savings.

“Having an efficient workflow process makes life easier for the people handling your expenses and makes your reporting more accurate,” says Lynn Pfeiffer, the executive director of operations at Professional Travel Inc. “You cannot accurately gauge and measure your travel costs without a travel policy and efficient process.”

Smart Business spoke with Pfeiffer about how to establish the partnership with a travel management company and how to develop a solid travel policy.

How do you establish a partnership with your travel management company?

You should have a dedicated account manager from the travel management company to work with you. This person serves as the liaison between you and your company and helps direct a lot of the negotiations with regard to car, hotel and air. You should have one to three contacts in your organization meet regularly with that account manager.

You should also physically go and visit the travel management company’s office, so you can meet the individuals handling your travel account face to face, instead of only talking over the phone. Coming on-site and seeing the booking process helps you gain an understanding of what the agents are doing on their end and helps in developing that partnership. The only way that partnership can be communicated down to your employees is if you buy in to it, as well.

You’ll have the most successful program when it truly is a partnership, there’s trust, and you want it to be mutually beneficial for both parties. The relationship won’t work if you come in suspicious or thinking that the travel management company will overcharge you for services.

How do you develop a travel policy and what should be included in it?

You should base it on your company culture and what works best for you and your employees. Your account manager also needs to be direct with you about your total travel budget and expenditures so you can develop the best policy for your company. How stringent your policy will be depends on how much you want to save and where you want to cut costs.

It’s also important to have a policy that is mandated and enforced. This will ensure that you are only spending what is budgeted for travel. You choose one travel management company, and if your employees book travel outside that company, they will not be reimbursed for their expenses. If it’s not reimbursable, employees will not pay out of pocket for business travel expenses. That’s the best way to mandate the policy and ensure preferred vendor usage.

How often should you review your vendors?

Contracts are usually reviewed annually, but the negotiation process can start anywhere from two to three months prior to that renewal process. That gives you a chance to benchmark by your management and vendors reports and compare them to see where you’re making hurdles or where you’re not. It also gives you time to either improve or look for another vendor if the one you’re using is not successful in that particular area.

How should you communicate your travel policy to employees?

If you’re just rolling out a brand-new policy, you can introduce it during an orientation. But if it’s a new travel management company and a new policy, you can host seminars to give employees an opportunity to give feedback and ask questions about the change. Seminars are helpful at clearly communicating what’s expected during this partnership and the need for a travel policy. It also gives you an opportunity to give all the reasons for the change and squelch concerns from those who may not agree with the change right from the start. Your travel management company also needs to be a part of these seminars, so employees can meet these people face to face.

How can you make the booking process more efficient?

You should develop a profile of each traveler prior to making a reservation. This profile will include all frequent-flier information for each airline and any individual or company corporate member discounts that can change your status. This information will automatically appear once that reservation has been made, instead of having to manually enter it every time the traveler books a trip.

What are the benefits of making your workflow travel process more efficient?

When you don’t have a travel policy, you’ll want to do what’s most beneficial and convenient for you personally. That usually doesn’t translate into a cost savings for the company.

Having a policy translates to a safer travel environment. If your travelers are doing their own bookings and not using preferred vendors, you don’t know where they are and cannot reach them in case of an emergency. You’re able to reach employees easier when everyone is in the same system.

Friday, 25 September 2009 20:00

The business of health care

Health care is an important part of the economy, comprising more than 15 percent of the gross national product. However, the industry does not follow normal economic trends because of investment by governmental reimbursement programs, such as Medicare, in the delivery of health services. The government’s role in health care has led to the development of many federal statutes and regulations that govern the business aspects of health care. Many business investments and arrangements that are perfectly legal in other industries are illegal in the health care sector and can even possibly lead to criminal indictments.

“You need to understand the complexity of the law governing health care business transactions if you’re involved in them or you may find yourself in trouble with governmental regulators,” says Tom Baker, shareholder with Baker, Donelson, Bearman, Caldwell & Berkowitz, PC.

Smart Business spoke with Baker about health care business transactions and the statutes and regulations that dominate the health care industry.

What makes health care business transactions different from other transactions?

Approximately 50 percent of all direct health care spending comes from the federal government. Because of this investment, the federal government has enacted numerous statutes and regulations that affect providers and independent suppliers of goods and services to the health industry. State laws also can govern health care business transactions, such as certificate of need and licensure laws. All health care business transactions, even transactions that do not directly involve health care providers, require substantial regulatory due diligence.

What are the statutes and regulations in place for the health care industry?

The regulations are directly tied to payments by the government for services rendered. The laws were designed to protect the public from fraudulent transactions. When the government pays for something, devious people create ways to cut the corners and get money improperly. For example, Medicare dominates the health care industry and is unique because it’s still a fee-for-service program. Nothing can happen without a physician referral, so the statutes and regulations that govern the industry are focused on referral relationships.

The first major statute is the Ethics in Patient Referral Act, or Stark law. This law is a blanket prohibition of physician referrals for certain ‘designated health services’ that are payable by the Medicare program to any entity with which the physician has a financial relationship, including either an ownership interest or compensation arrangement. Stark is absolute, so it’s the first filter you send a transaction through to make sure it complies with statutes and regulations. You have to determine if a physician is involved and whether there is a referral for a designated health service to an entity with which the physician has a financial relationship. If so, then you need to determine whether there is a statutory or regulatory exception that permits the referral.

The Anti-Kickback Statute is the second major law governing referrals. This law is broader than Stark and prohibits the payment or receipt of any remuneration of any kind for the referral of any item or service that is payable by any governmental reimbursement program. It also applies to the ‘arranging for’ such referrals. Therefore, certain relationships that are permissible in almost any other business, such as independent contractor agreements to pay for distribution of a produce or service, could get you in trouble in health care.

How has the consolidation of markets affected transactions?

Health care is an inefficient market, and inefficient markets consolidate. The health care payor market, particularly the provider organization market, has already consolidated. PPOs cover more Americans than any other form of health insurance — 193,000 individuals or about 69 percent of the population. Consolidation over the last five years has led to substantial market power in four PPOs: Blue Cross/Blue Shield, United, Cigna and Aetna. This has accelerated provider market consolidation, causing a ground swell of midmarket health care transactions.

What are the disadvantages of an unintegrated market?

Under antitrust laws, entities that are not clinically or financially integrated cannot collectively negotiate payment rates with the PPOs and other private payors. Independent provider networks can provide some bargaining benefits, but it’s impossible to collectively negotiate price terms unless you achieve some kind of integration. The provider market is integrating in order to gain marketing power. Integration strategies can be either horizontal, through mergers and acquisitions of providers that provide the same or similar services, or vertical, through the combination of several different aspects of the health industry.

The most prominent vertical integration strategy is the acquisition of specialty medical practices, particularly cardiovascular services, orthopedics, or oncology, by hospital systems. Hospital systems are striving to develop centers of excellence as a survival strategy, and vertical integration is required to implement those business plans.

How will the current debate in Washington affect health care transactions?

Health care providers can expect a decrease in payment from government reimbursement programs, even if the public option is not passed. This fact, along with the consolidated PPO market, will continue to drive health care business transactions. There will be no end to midmarket health care mergers and acquisitions over the next two to three years.

Tom Baker is a shareholder with Baker, Donelson, Bearman, Caldwell & Berkowitz, PC, and teaches a course on The Legal Aspects of Health Care Business Transactions in the Auburn University Physicians Executive MBA Program. Reach him at (404) 221-6510 or tbaker@bakerdonelson.com.

Wednesday, 26 August 2009 20:00

On the rise

Health care costs continue to rise. According to a survey by HR.BLR.com and Compensation.BLR.com, 42 percent of employers expect their health care costs to rise at least 10 percent this year. South Florida has been hit by some of the highest health care costs in the nation, which has created numerous problems for those trying to afford medical care.

Employers are looking at all sorts of ways to control health care costs, including creating consumer-directed health plans, educating employees about their health plans and encouraging them to ask questions to make sure they are getting the best medical care for their money.

“Employers are picking up the mantra now of, ‘How can we get avoidance in health care costs and make employees feel a part of the solution, rather than being identified as the problem?’” says Ed Hannum, president and chief operating officer of AvMed Health Plans.

Smart Business spoke with Hannum about how to control health care costs and how businesses can make sure their carriers are providing flexibility so they can make it through this economy.

How can businesses control health care costs in this tough economy?

One way is by designing your own benefits plan, such as looking at consumer-directed health plans or lower-cost alternatives. You can put in deductibles, add co-insurance, and, when appropriate, put in health savings accounts or health reimbursement accounts. You can let employees take ownership over their account. It’s their money; let them use it for their own services. If the employee has ownership, he or she will take better care of the money and how it is spent.

You need to educate your employees about the appropriate care settings, such as urgent care centers. You can even have employees receive information on a particular procedure or test to determine if it is the best route to take. Ask questions to ensure that you are getting the best medical care that you can for your money. A more informed consumer is a better consumer. It makes a difference if you can sit down with your employees and tell them that you’re all in this together. Costs are accelerating, which comes back to you in premium rates, and you’re only able to fund so much. So it’s in the best interest of both of you to make sure you are prudent users of health care. You have to make sure your health insurance dollars go to their maximum benefits.

Why is the stress of the economy more evident in small groups?

The margins are thin, so small groups, mostly 50 employees or less, are more vulnerable. They don’t have the huge war chests that large, national companies have. In Florida, there are a lot of companies in the five- to 20-employee range. Those small groups have really felt the ripple effect from the economy. When business goes south or dries up on a global stage, it comes back and hurts them, so you’re seeing more people laid off in the small groups. We’re also seeing fewer employers who can actually afford health insurance.

These smaller groups have a lot to juggle, and health insurance represents a much larger piece of the benefits line. They know they want to provide it, because they want to make sure their employees and families are taken care of, but they’re just not in the best position due to the economy.

How can businesses make sure their carriers are providing the flexibility needed to weather the storm?

You need to focus on cost avoidance. You need to ask your carrier numerous questions, such as, ‘Do you offer wellness programs or information? How can you partner with me in terms of health fairs and other ways to educate my employees? Can you increase awareness among my work force and their families, in terms of making the right choices lifestyle-wise — eating right, exercising, getting preventative tests, etc.?’ Along with that, carriers can accommodate, through an adequate product portfolio, a range of choices for employees to meet their budgetary needs.

There also needs to be an awareness of costs. You need to understand the cost difference of alternative places for services, such as emergency room versus urgent care center or seeing your primary physician as opposed to an on call doctor in the ER. For example, if a doctor tells one of your employees that he or she needs an MRI, you need to provide information to that employee that maybe going to an urgent care center for the procedure will have a better outcome in terms of wait time and care, instead of sitting in an ER for six to eight hours. Maybe the employee even needs to go back and ask the doctor a few questions to see if an MRI is the right test — maybe a CAT scan would work better.

It’s an exciting time in the country and industry because it’s truly becoming consumer-centered. The winners are going to be those carriers that become a trusted source or adviser to the consumer and employer. The information they give the employer will be believable and credible, and is going to help both the employers and employees. Even with this big storm, there are huge opportunities for the industry, and that sets the framework for the industry over the next 50 years.

ED HANNUM is president and COO of AvMed Health Plans. Reach him at Ed.Hannum@avmed.org.

Wednesday, 26 August 2009 20:00

Do your homework

Even in this economic climate, intellectual property and technology transactions are growing areas.

“Technology transactions cover a very broad area and are getting more and more sophisticated,” says Spencer Garland, practice group manager for intellectual property and technology transactions at Greensfelder, Hemker & Gale, P.C. “To have a successful technology transaction, all parties must do a lot of homework to determine exactly what is being granted or transferred, the limitations involved, and the protection, if any, that is available.”

Smart Business spoke with Garland about how to approach technology transactions and how to ensure that you have the proper protections in place when licensing intellectual property.

What is a technology transaction?

Basically, it is a business transaction in which technology or intellectual property is an important element. As a result, a wide variety of transactions are included in the field, not just licensing or transfer of intellectual property such as patents, trademarks, copyrights and trade secrets.

Other types of transactions include acquisitions and sales of technology businesses, software development and distribution, Internet and Internet hosting applications, data processing, telecommunications, outsourcing, and information security and privacy. Sometimes the transactions are a combination of many of these.

How do you protect your intellectual property for a technology transaction?

Each situation is different. Much depends on the intellectual property involved and the type of transaction. Say you run a company that has invented a device, and you believe it has commercial value. Let’s assume that the invention is patentable and its highest value is not in your core business, so you want to license it.

To protect it, you can apply for a patent, keep it as a trade secret or file for a copyright on the software. If the device can be copied easily, a patent may be the best protection because if the patent is issued, you generally can exclude others from making or selling the device for the term of the patent.

If it can’t be copied easily, then maintaining it as a trade secret might be best. If software is involved, there are copyright considerations, as well. This is just one example, and it requires a lot of investigation to determine what protection can or should be obtained.

You also protect the value of your invention by strategically crafting a licensing strategy. There are many considerations and moving parts. For instance, should the license be exclusive or nonexclusive, broad or limited, or include sublicensing rights? The answers can depend on a good analysis of the applicable markets for the invention. The issues are complex, and knowledgeable professionals in this field will help you a great deal.

What’s the difference if you are a licensor or licensee?

Licensor and licensee interests in a license agreement are very different, but there is at least one common goal — both licensor and licensee want to make money. There are the usual financial issues regarding license fees and royalties, but a license agreement is also about allocating risks, costs and rights between the licensor and licensee. These include infringement risk and indemnity responsibility, allocation of development responsibility, product liability risk, minimum royalty requirements and limitations on liability, among many others.

Many of these issues are resolved based on the relative investment each party makes and the financial reward each party stands to gain from the commercialization of the licensed property. Bargaining power is also a critical factor. These license agreements can be very simple or extremely complex.

How do electronic information security and privacy affect technology transactions?

We read frequently about entity theft and theft of sensitive and personal information — for instance, account numbers, Social Security numbers, health records, credit card numbers and the like. Many laws require the protection of this personal information, for instance HIPAA for health care information and institutions, and the Gramm-Leach-Bliley Act for financial institutions.

Also, the new ‘Red Flag Rules,’ scheduled to be effective Nov. 1, published by the Federal Trade Commission and other U.S. government agencies, require financial institutions and a wide variety of other businesses that grant credit to develop and implement identity theft prevention measures. Think online banking, credit card processing, health insurance and the like. These issues affect technology transactions because agreements that permit access to or storage of such information must provide for its protection.

As a result, businesses and institutions that use or store sensitive personal information must investigate and understand which laws affect them and how to implement appropriate protection.

What are the consequences of failing to do due diligence?

There can be significant consequences for all types of technology arrangements. As an example, let’s say you’ve invested heavily creating a business to make and sell widgets based on a patent you have obtained. Just before you start manufacturing, you get a cease-and-desist letter saying you are infringing a third party’s patent and must cease operations.

To your chagrin, you discover this is true. You may then have to enter into an onerous license with X or even close your new business. By thoroughly researching your right to use your patent to make widgets in advance, you might have dealt with this problem before you made a big investment.

Spencer Garland is the practice group manager for intellectual property and technology transactions at Greensfelder, Hemker & Gale, P.C. Reach him at (314) 516-2613 or msg@greensfelder.com.

Wednesday, 26 August 2009 20:00

Fifth Third Bank on recession

You’ve suffered through the ups and downs of the recession for the past year and a half. You’ve watched your competitors and other businesses shut down and the number of your customers dwindle. You may even have made significant cutbacks yourself in order to survive.

While the recession is not yet over, many economists predict that it will end this year. And now is the time to begin preparing your business to emerge from the recession and position itself to take advantage of new opportunities.

“There will be many changes in your market and industry once the economy starts to improve,” says Timothy P. Kelly, vice president of commercial banking with Fifth Third Bank. “The competitive landscape will be different, as some weaker competitors and vendors may not survive.”

Smart Business spoke with Kelly about how the recession’s impact on financial institutions has impacted other businesses and how business leaders can prepare to emerge from the recession.

What steps can business leaders take to help them emerge from the recession?

You should always be diligent about the cost of operations and carrying inventory, especially when coming out of a recession. Companies that have survived past recessions typically made tough decisions quickly regarding managing operations. No one likes to eliminate staff, cut production or limit inventory, but if you do that early, you’re better positioned to come out of the recession. Avoiding as much leverage as possible during slow times will allow you to leverage more during good times.

You will also need to access credit in order to switch from reducing inventory to building inventory. The availability and cost of credit are important factors during this transition period. In-depth analysis of current market conditions and formal projections, along with business plans, will be useful in this step. Businesses that have a good understanding of their operations and markets will be able to obtain the working capital necessary to invest in inventory and production capabilities.

What other advice would you give a business leader?

You also need to take a closer look at your industry, operations and future opportunities, and work closely with lenders so that you have the right structure and amount of credit in place. This should allow you to prosper in the improving economic environment and take full advantage of opportunities. Avoiding losses due to failing customers and having access to key suppliers, including your bank, is crucial to surviving and thriving as the economy improves.

Companies that are addressing customer credit issues also need to look at account receivable insurance. While such coverage can take many different structures, the risk associated with trade credit can be significantly, if not entirely, reduced. Receivable insurance also provides an additional comfort level that translates into more favorable borrowing arrangements secured by insured receivables.

How can you motivate employees to help you emerge from the recession?

Employee morale has been overshadowed during the recession. You need to tackle the issue of a depressed employee base in order to count on that base to be productive when the time comes.

Engaging employees and keeping them informed about the industry and the impact of the economy on the company will help them get energized and excited.

How will the recession’s impact on financial institutions continue to affect other businesses?

The events that financial institutions have experienced during the recession, including credit losses, ownership changes and failures, will continue to impact the industry for years to come.

With more emphasis placed on the credit underwriting process, clients can expect more questions as banks try to understand them, their needs and their industry. Bankers will likely request more detailed projections, along with a deeper analysis of historical operations in order to structure credit appropriately.

Asset valuation will also be looked at more closely in light of falling prices. Borrowers can expect more requests for updated appraisals on all property as well as current asset valuations or field audits of working capital assets.

This will allow banks to better understand the risks associated with each borrower and industry.

What other financial changes have resulted from the recession?

Banks have had to gain a better understanding of their own funding costs as well as determine rewards for taking credit risks. Prime rate is also no longer a valid index for pricing commercial loans.

Costs of capital for a bank were determined to be much higher than the stated federal funds rate and consisted of the cost of deposits, equity and government TARP funds. Because of quickly escalating credit losses, interest rate credit risk spreads were determined to be significantly underpriced.

Borrowers now may see the London Interbank Offered Rate-based indexes as well as increased credit spreads used to calculate borrowing costs.

The cost of debt is still low, despite a new rate index and higher credit spreads required by lenders. Banks cannot lend money at a loss for too long, but the availability of credit is much more important now than the cost.

Timothy P. Kelly is vice president of commercial banking at Fifth Third Bank. Reach him at (513) 579-4165 or tim.kelly@53.com.

Wednesday, 26 August 2009 20:00

Valuing your business

Asset and contract management have become an important part of business, and knowing your asset information and location will enable you to better understand the value of your business. Developing the right processes also plays a key role in ensuring your assets are managed optimally.

“There are three components of asset and contract management — people, process and technology,” says Steve Robb, vice president and general manager at LaSalle Solutions, a subsidiary of MB Financial Bank. “There has to be a process around how you move assets or change their information, and you need to have the people and technology to manage that.”

Smart Business spoke with Robb about how to manage IT assets and maintenance contracts and how they are tied to your financials.

What are asset and contract management, and how do they impact a business?

Asset and contract maintenance have become a large part of the IT organization. As companies become more automated in everything they do, it is important for IT organizations to keep up with the technology needs of both departments and of individual employees. Asset and contract management impact businesses from many aspects, including financial, compliance and security.

Financially, asset and maintenance management help in determining the value of the IT assets, or devices. Knowing how many computers and network devices your organization has, where they are located and what maintenance contracts they fall under are important in determining how these devices work for your organization and contribute to their value and your bottom line.

Compliance is critical in today’s world. Depending on your industry or the applications your organization uses, you may need to be compliant with multiple statutes and/or regulations, such as Sarbanes-Oxley or HIPAA, as each has their own method of accounting and tracking processes. Having solid processes around asset management is critical in adhering to these compliance needs.

An example is tracking assets appropriately. If you have a storage device that has not been accounted for or has been moved and the information was not updated, it may cause an issue in an IT audit or, if the items are leased, at the end of the lease or maintenance contract.

Also, if your devices are under a maintenance contract and need to be serviced, knowing where the device is at the time of service will enable your manufacturer or partner to find the device and service it in the appropriate time frame. Knowing where your devices are and having all the information about each device enables not only compliance but also operational efficiencies, leading to cost savings.

Security can be either physical or virtual. How is your network connected to the rest of the world? Where are your devices located? Has a portal to the rest of the world been accidentally opened? Not knowing the answer to these questions could put your business and financial information at risk.

How do you track and manage assets financially?

Asset management is like a balance sheet, with debits and credits associated with each asset. For example, let’s say you purchase a $1,000 item. You have to list that item on your financials. Over time, that asset depreciates.

You have to know what has happened to it — do you still have it, or have you gotten rid of it?

The $1,000 is just the acquisition cost; you also need to know the maintenance costs over the asset’s lifetime. You may have that asset for five years and should account for both the acquisition and maintenance contract costs over that time.

If you want to upgrade or change that asset at any point, you need to factor that in and determine if you have maintenance left on the asset. If you’ve prepaid the maintenance for the remainder of the year and it’s only March, you can request to get that money back and apply it somewhere else.

What’s a way businesses can easily manage assets and contracts?

Work with an expert who can offer you a complete toolset with functions within the IT and finance departments.

For example, we offer a Web-based toolset called LAMP. LAMP helps IT and purchasing departments manage the entire life cycle of an IT asset, from acquisition to asset and contracts management and disposition, enabling easier financial management along the way.

How can you manage your assets and update processes as changes occur?

You have to build solid yet straightforward processes, standardizing technologies and practices making it simple for everyone. A lot of companies have failed because they’ve tried to account for or solve every problem an asset could potentially go through, making the process difficult to maintain. If you can’t do something in three clicks, then it’s too difficult and it shouldn’t be part of your process.

It’s important to have flexibility in your processes and toolsets, as change does happen. Manufacturers change, the physical environment and/or people may change, and the financial environment may change. Each will impact the way you manage your assets.

As an IT department grows, the number of devices and the types of equipment necessary to manage all the company’s technology needs to grow. Because of this and the variables mentioned above, a management toolset and partner can be helpful and important to make sure you account for all changes, credits and costs and that you meet the organization’s needs.

Steve Robb is vice president and general manager at LaSalle Solutions, a subsidiary of MB Financial Bank. Reach him at (847) 823-9600 or www.elasalle.com.

Sunday, 26 July 2009 20:00

On the rise

Health care costs continue to rise. According to a survey by HR.BLR.com and Compensation.BLR.com, 42 percent of employers expect their health care costs to rise at least 10 percent this year. South Florida has been hit by some of the highest health care costs in the nation, which has created numerous problems for those trying to afford medical care.

Employers are looking at all sorts of ways to control health care costs, including creating consumer-directed health plans, educating employees about their health plans and encouraging them to ask questions to make sure they are getting the best medical care for their money.

“Employers are picking up the mantra now of, ‘How can we get avoidance in health care costs and make employees feel a part of the solution, rather than being identified as the problem?’” says Ed Hannum, president and chief operating officer of AvMed Health Plans.

Smart Business spoke with Hannum about how to control health care costs and how businesses can make sure their carriers are providing flexibility so they can make it through this economy.

How can businesses control health care costs in this tough economy?

One way is by designing your own benefits plan, such as looking at consumer-directed health plans or lower-cost alternatives. You can put in deductibles, add co-insurance, and, when appropriate, put in health savings accounts or health reimbursement accounts. You can let employees take ownership over their account. It’s their money; let them use it for their own services. If the employee has ownership, he or she will take better care of the money and how it is spent.

You need to educate your employees about the appropriate care settings, such as urgent care centers. You can even have employees receive information on a particular procedure or test to determine if it is the best route to take. Ask questions to ensure that you are getting the best medical care that you can for your money. A more informed consumer is a better consumer. It makes a difference if you can sit down with your employees and tell them that you’re all in this together. Costs are accelerating, which comes back to you in premium rates, and you’re only able to fund so much. So it’s in the best interest of both of you to make sure you are prudent users of health care. You have to make sure your health insurance dollars go to their maximum benefits.

Why is the stress of the economy more evident in small groups?

The margins are thin, so small groups, mostly 50 employees or less, are more vulnerable. They don’t have the huge war chests that large, national companies have. In Florida, there are a lot of companies in the five- to 20-employee range. Those small groups have really felt the ripple effect from the economy. When business goes south or dries up on a global stage, it comes back and hurts them, so you’re seeing more people laid off in the small groups. We’re also seeing fewer employers who can actually afford health insurance.

These smaller groups have a lot to juggle, and health insurance represents a much larger piece of the benefits line. They know they want to provide it, because they want to make sure their employees and families are taken care of, but they’re just not in the best position due to the economy.

How can businesses make sure their carriers are providing the flexibility needed to weather the storm?

You need to focus on cost avoidance. You need to ask your carrier numerous questions, such as, ‘Do you offer wellness programs or information? How can you partner with me in terms of health fairs and other ways to educate my employees? Can you increase awareness among my work force and their families, in terms of making the right choices lifestyle-wise — eating right, exercising, getting preventative tests, etc.?’ Along with that, carriers can accommodate, through an adequate product portfolio, a range of choices for employees to meet their budgetary needs.

There also needs to be an awareness of costs. You need to understand the cost difference of alternative places for services, such as emergency room versus urgent care center or seeing your primary physician as opposed to an on call doctor in the ER. For example, if a doctor tells one of your employees that he or she needs an MRI, you need to provide information to that employee that maybe going to an urgent care center for the procedure will have a better outcome in terms of wait time and care, instead of sitting in an ER for six to eight hours. Maybe the employee even needs to go back and ask the doctor a few questions to see if an MRI is the right test — maybe a CAT scan would work better.

It’s an exciting time in the country and industry because it’s truly becoming consumer-centered. The winners are going to be those carriers that become a trusted source or adviser to the consumer and employer. The information they give the employer will be believable and credible, and is going to help both the employers and employees. Even with this big storm, there are huge opportunities for the industry, and that sets the framework for the industry over the next 50 years.

ED HANNUM is president and COO of AvMed Health Plans. Reach him at Ed.Hannum@avmed.org.

Sunday, 26 July 2009 20:00

The bottom line on safety

Most business owners today will claim that safety is an important aspect of their business, but do they really realize how much their company’s safety culture impacts the bottom line? The way companies manage safety is what distinguishes them from their competition. Without the proper safety management, losses can occur at any time due to inadequate training for newly hired employees, unforeseen hazards, lack of internal accountability or, most often, as a result of focusing on getting the job done without making a safe environment a priority.

Regardless of the causes of accidents, the employer is legally and morally responsible for protecting employees from hazards and injuries in the workplace. The only way to protect yourself and your business is to put policies and programs in place to minimize those risks from happening and prevent future problems.

“Any time there are losses in a company, you face possible morale issues among employees and loss of production time to deal with the situation and subsequent investigations into the accident,” says Gerry McEwen, a safety/loss control representative with GMGS Insurance Services. “You also face employee downtime due to the loss and investigation. And if there’s a fatality, you will have to spend time and money on employee counseling. There will be major effects from such losses on the company overall, not just on the employees but to the bottom line.”

Smart Business spoke with McEwen about safety and risk management and the key components of effective programs.

What priorities should employers focus on to reduce safety risk and losses?

  • Be responsible for your employees; treat them like they are your greatest assets. Train your new hires and existing employees, making safety one of the forefronts of your business. Let employees know you will provide a safe environment for them to work in.
  • Hold all employees accountable. This includes everybody, from upper management all the way down the chain. If you do, everybody will benefit.
  • Complete regular inspections to ensure everything is safe and working properly in your company.
  • Establish proper engineering procedures and administrative controls.

What are the benefits of having safety and risk management programs in place?

Bottom line, your company will pay lower insurance premiums and reduced workers’ compensation costs. Insurance may pay the immediate costs of losses, but in the long run, a company always pays for its claims. Your employees will also be happier, more productive and morale will improve throughout the company. No matter what type of company you have, the happier the employees, the healthier the bottom line. Safety enforcement also becomes easier as employees see the benefits of maintaining the safety standards.

How do you educate your employees on safety programs and help them understand their importance?

Train your employees, and make sure they understand the benefits of your programs as soon as they are hired at the company. By making safety a precedent you will be able to more effectively train your employees and communicate your safety standards. Communicate the company’s commitment to the employees and to their personal safety. Encourage your employees to participate in evaluating the effectiveness of the training and improving your company’s safety program. If they help to create it, they are more likely to follow it. The ultimate result is for your employees to make your safety programs their safety programs.

How do you enforce and maintain these programs so they continue to reduce losses and risks?

Safety begins at the top and management must be 100 percent on board with the various programs. The programs will only be as effective as you enforce them to be. Once those written programs and procedures are in place, proper enforcement, accountability and documentation will keep your company and employees protected. Make sure you have somebody knowledgeable audit and evaluate the program’s effectiveness. Utilize all the tools available to you including internal and external resources. If your broker is focused on risk management and not just collecting insurance premiums he or she should be providing loss control services and also assisting in coordinating the loss control efforts of your chosen insurance carrier. Regardless, an employer must not merely rely on such outside sources to do the job; this moral and legal obligation cannot be delegated to others — it is your job.

A key aspect in an effective safety program includes reviewing the supervisor’s inspections and employee discipline and accident investigation. Are investigations done procedurally to list excuses without finding the root causes of the accident? Do investigations produce positive solutions and do they actually implement the corrections? You have to make sure your company identifies the desired goals and objectives in the programs.

How do you deal with a loss or risk if it does happen?

Take immediate care of your employees at the time of the accident, especially if they need emergency attention. When you assure the injured employee and his or her family that they will be taken care of, you can avoid many unnecessary legal costs in the future. It is paramount to determine the root cause of an accident and not just put a Band-Aid on it. Once you determine the cause, communicate this to all your employees. Every accident can be converted into a safety lesson and this will minimize future accidents while further protecting the company’s bottom line.

Gerry McEwen is the safety/loss control representative at GMGS Insurance Services. Reach her at gerrym@garrett-mosier.com or (949) 559-3372.

Sunday, 26 July 2009 20:00

Control the cost of risk

Risk management was once regarded as a routine task for the risk manager, with little or no connection to the company’s broader priorities. But, risk management has now become a key part of a broader financial management strategy and is linked to corporate priorities, making it more demanding and putting CEOs and CFOs in the spotlight.

“This new attention places increased reliance on good data around risks, risk controls, incident reporting and losses,” says Mike Theut, vice president of Aon eSolutions Group, a part of Aon Risk Services Central Inc. “You can’t manage what you can’t measure. The key to risk management is understanding risk needs and using insurance as a financial tool. If you don’t do this, you have a limited understanding of the overall risk costs in your business.”

Smart Business spoke with Theut about how to develop a successful risk management process, how to better track your total cost of risk (TCOR) and the benefits of tracking TCOR and risk management data.

How can a business develop successful risk management processes?

You have to understand your risk objectives, strategy and profile, then deliver these using optimal mitigation, retention and a transfer risk management plan. This leads you to your total cost of risk — the risk costs incurred by a business, beyond the premium costs — to deliver an effective risk management strategy.

The main components of TCOR are insurance premiums (risk transfers), loss/loss prevention (claims) and expenses (internal and external risk management costs). TCOR is most often converted to a percentage of an operating value, such as revenue. This allows you to normalize the data for benchmarking your corporation from year to year and can also be used to benchmark your various business units.

How can you use TCOR to manage risks?

A risk management information system (RMIS) provides you with the quality data needed to track your TCOR components, prepare market submissions and define your optimal retention levels. Underwriters today are paying more and more attention to risk information, and buyers are looking to differentiate themselves to achieve the best price. Better information will allow you more leverage in the marketplace.

Based on a recent survey, only 44 percent of respondents tracked and managed all components of TCOR. And, while more than 90 percent tracked their transferred risk, only 74 percent tracked their retained risk.

Businesses with risk management departments are more likely to measure full TCOR. On average, TCOR is 1.2 percent of a company’s total revenue, so understanding, controlling and lowering this percentage can have a substantial financial impact. Have your CFO or risk manager identify the lowest sustainable cost of insurable risk, understand how the different components interact and contribute to the total, and identify the best point between retaining risk and insuring it.

How can you identify the lowest sustainable cost of insuring the risk?

A RMIS containing the components of TCOR can give you the insight you need to focus on items you can control. A CFO may concentrate on expenses and efficiency improvements, while a risk manager may concentrate on risk transfer and retention costs.

TCOR reports consolidate these efforts and assist you with identifying the underlying root cause of losses, spotting trends and establishing best practices with internal benchmarking. Good risk management can be promoted with a structured cost allocation program, making the TCOR more accountable and visible to your business units.

How can you use a RMIS to better track data?

A RMIS helps you obtain the right data and monitor performance of control mechanisms, which leads to improved governance. It also leads to more informed risk management decisions, which creates a targeted approach to reducing TCOR.

A RMIS also gives you an integrated, enterprisewide view of your risk exposure and delivers critical risk management intelligence. Data from multiple external sources can be incorporated, as can data from internal systems, such as human resources and payroll.

With a RMIS, you can establish your risk information in an efficient manner and have a complete picture of your business at your fingertips. With the increased focus on driving down the cost of business, more and more companies are benefiting from using this solution.

What are the benefits of tracking your TCOR and risk management data?

Using a RMIS gives you greater awareness of your risk and more control of it, which results in a 3 to 10 percent savings on TCOR. You can see this in:

  • Improved insurance premiums and better quality data presented to the market
  • Efficient renewal processes through centralized data in a consistent structure
  • Development of loss prevention schemes through discovery of loss history trends
  • New workflow efficiencies, such as reduction of time for settlement of claims, issuance of new insurance policies, or record searches

With all eyes on budgets, such initiatives and improved workflows often enable the reduction of resources. Better quality data can help you identify innovative strategies for reducing costs. As businesses tighten their belts and start to make difficult decisions, you need to determine whether you can afford to not control your data and drive down TCOR.

Mike Theut is vice president of Aon eSolutions Group, a part of Aon Risk Services Central Inc. Contact him at (248) 936-5255 or michael_theut@aon.com.

Sunday, 26 July 2009 20:00

Energy savvy business

With increased attention being paid globally to environmental issues, federal and state governments have implemented or are considering implementing several regulatory and statutory changes focused on energy. For instance, 27 states in the U.S., including Ohio, and several countries, including Canada, Great Britain, Belgium and Italy, have adopted renewable portfolio standards.

“These standards require utility providers to produce or obtain a certain percentage of their production from renewable energy sources by a certain date or face penalties,” says Michael L. Snyder, co-chair of the energy practice group at McDonald Hopkins LLC.

In addition, legislation was recently passed by the House and is awaiting consideration by the Senate (American Clean Energy and Security Act), which contains a cap and trade for carbon emissions.

“This will be a critical issue to watch over the course of the year. If the Senate passes similar legislation and some type of carbon trading system is implemented, there will be a significant impact on businesses,” says Michael W. Wise, co-chair of the energy practice group at McDonald Hopkins LLC.

Smart Business spoke with Snyder and Wise about the differences between a renewable energy portfolio and efficiency standards, how these standards affect electricity prices, how these standards affect businesses, the benefits of energy efficient projects, and the possibility of future regulations.

Is the renewable portfolio standard different from the efficiency standard?

It is, and utility companies are preparing for this new standard in a variety of ways. Utilities in every state are faced with deciding what renewable energy source or sources they wish to utilize to meet the new requirements. They must also assess their own renewable generating capabilities and determine their sufficiency. Many sources are already commercially available but others will require further development. In many cases, utilities are actively purchasing renewable energy credits in order to meet the new portfolio standards.

How will these standards affect electricity prices?

Renewable portfolio standards and efficiency standards will ultimately result in increased prices paid by consumers. In Ohio, increases are capped for electricity consumers and renewable electricity producers. There are obviously two views on these standards. If you are in the business of producing renewable electricity, you have already been able to command a great price for renewable energy generation. That fact has led to a dramatic increase in that activity, both in Ohio and nationally. However, consumers are beginning to see a corresponding increase in electricity prices, which could eventually have a negative impact on the ability to sustain existing jobs or increase new job opportunities.

How do these standards affect businesses?

Depending on which side you are on — renewable energy or older manufacturing — this will either be the greatest subsidy or greatest tax on energy in the U.S. There is an opportunity for the renewable energy industry to blossom, but heavy industry and manufacturing have a wary eye on these standards because of the increase in electricity prices.

Can businesses shop for lower electricity prices?

There has never been a greater opportunity for electricity consumers to look for better prices than what their utility is offering. The downside is there will no longer be a safe, regulated rate, and the wholesale price of electricity will unquestionably increase. Consumers will need to be smart about energy decisions and try to mitigate the price increases. Businesses can work with their utility, engage electricity marketers, or sell their electricity load at auction. All of these strategies can result in materially lower electricity prices.

Tell us about the new efficiency rider and the benefits of energy efficient projects.

Most businesses also want to avoid the new efficiency rider that will show up on electricity bills later this year. This rider can be avoided by submitting efficiency projects that have been completed since Jan. 1, 2006. The efficiency projects are not just for savings this year or last year, they can go back to 2006, and you can get credit for any energy efficiency projects since that date.

The size of the rider and when it will become effective is being negotiated right now in the Public Utilities Commission of Ohio in Columbus. The size could be anywhere from a half to a full cent per kilowatt-hour, which could easily be a 10 percent or more surcharge on a business’s electricity bill. The utility will collect those funds, which will then be made available as a subsidy to businesses implementing energy-efficiency projects. The current issue businesses will be faced with is whether they will pay into this fund to support other businesses’ projects or whether they will take the steps necessary to be a recipient of these dollars.

Financial assistance for projects can be obtained through this rider or traditional state and federal energy programs. This is an excellent time to pursue efficiency projects, both because of the availability of assistance and because you will lower your electricity bill, avoid the new efficiency rider and potentially upgrade your equipment. You will also be fiscally and environmentally responsible, which makes your business more attractive to customers. There is a growing ‘green’ culture and pursuing these types of projects will go a long way toward establishing you as a leader in the sustainability arena.

Will there be new regulations in the future?

Yes, there is no question that regulation in this area will expand. You will also see an increased focus on energy costs and diversifying into renewable energy sources. Be prepared for a long ride; for better or for worse, this space will be volatile for the foreseeable future.

Michael L. Snyder and Michael W. Wise are co-chairs of the energy practice group at McDonald Hopkins LLC. Reach Snyder at (216) 348-5754 or msnyder@mcdonaldhopkins.com. Reach Wise at (216) 430-2034 or mwise@mcdonaldhopkins.com.