As accountable care programs are implemented, health care providers are going through significant financial, clinical, operational and strategic transformation. This has profound effects not only on health care providers, but also on those touched by health care delivery.

Payment transformation, re-admission penalties and demographic shifts are creating a perfect storm where health care providers have to be very skilled, says Ron Calhoun, managing director, national health care practice leader, at Aon Risk Solutions.

“Providers are going to have to get it right,” he says. “They’ve got to be clinically integrated, and a majority of them are not.”

Smart Business spoke with Calhoun about the risks health care providers are facing in this new environment.

What are the impacts of payment transformation and re-admission initiatives?

Numerous payment reform programs are moving providers toward payment for value and outcomes, as opposed to volume or service. The Patient Protection and Affordable Care Act has increased emphasis on Medicare/Medicaid outcomes, which has in turn led to more commercial sector payment transformation. The fundamental question is how are health care providers going to clinically manage a population in a non-clinical environment with all of the quality measures by which they’re assessed?

In 2012, Medicare’s Hospital Re-admission Reduction Program started penalizing hospitals for re-admission of certain acute myocardial infarction (heart attack), heart failure and pneumonia patients. Reimbursement penalties are expected to be $280 million in year one, and to increase as penalties go up and the program expands.

With financial risks tied to reducing re-admissions, there is de-emphasis on acute care — short-term medical treatment — and emphasis on post-acute care. This puts more demand on non-physician clinicians like registered nurses. Hospitals also are managing discharged patients to reduce exposure by either pushing a patient into a post-acute setting earlier or managing that patient more aggressively. However, this has direct and vicarious liability implications.

How are demographic changes creating risk?

As Medicare and Medicaid grow, payment transformation models will proliferate, placing more emphasis on outcomes and value. Roughly 44.3 million Americans are on Medicaid, which will increase by 10 to 20 million, depending on how many state Medicaid programs expand. Michigan Gov. Rick Snyder included an expansion of about 320,000 residents in his budget proposal. Also, 60 percent of the 169 million with employer-sponsored health care are ages 40 to 65, so the Medicare population will double to 88.6 million by 2035.

The Centers for Medicare and Medicaid Services is bundling reimbursements with outcomes, which shifts liability to the provider. Health care providers need to adhere to established clinical protocols, narrow physician practice pattern variation, be highly communicative between specialties and with patient hand-offs, and have sophisticated clinical decision support capabilities within electronic medical record platforms. The tighter the clinical integration, the more confident the health care provider will be in participating in bundled or value-based reimbursement.

Why are family caregivers so important?

About 45 million Americans are unpaid, informal caregivers for those with dementia and/or the top 15 chronic conditions. In the next three to five years, care will systematically go into the home, increasing the demands on home health. Health care providers must connect to caregivers to drive outcomes, such as decreasing re-admissions or increasing medication compliance.

What’s the impact for consumers?

As health care providers move toward value-based or bundled reimbursement, health care networks may become narrower and include only the highly effective providers in a given geography. Consumers with higher deductible, more consumer-driven plans will demand that all providers demonstrate an ability to comply with quality measures. Group health plan providers are certainly going to demand quality, as well. Population management will only become more critical. Consumers and employers will want relevant medical data pushed beyond the hospital’s four walls and into their hands.

Ron Calhoun is a managing director, national health care practice leader, at Aon Risk Solutions. Reach him at (704) 343-4128 or


Website: Aon’s health care reform microsite can help businesses navigate this complex issue. Visit to learn more.


Insights Risk Management is brought to you by Aon Risk Solutions


Published in Detroit

The Patient Protection and Affordable Care Act is well named, as its aim is to make health care providers accountable for delivering better care. As a result, the reforms make skilled health care risk management even more vital.

“The Patient Protection and Affordable Care Act has initiated a fundamental shift in the manner in which health care providers are going to be paid,” says Ron Calhoun, managing director and national health care practice leader with Aon Risk Solutions. “We are beginning a transition from volume-based methodologies to outcome-based methodologies. Prior to this, we have been on a fee-for-service model, as health care providers were compensated for volume.”

Smart Business spoke with Calhoun about how risk management integrates with health care in an age of reform.

What effect is health care reform having on the health care delivery system?

One of the consequences is that reform is creating the need for delivery systems to more fully integrate and provide a broader continuum of services. To take a bundled reimbursement, as opposed to the old pay-for-volume model, health care providers will be compensated based on outcomes. That creates a need for them to more fully integrate. On the front end, they will need to build out their ambulatory capabilities, and on the back end, they will need to improve post-acute capabilities.

How will the shift to outcome-based compensation affect providers?

The Centers for Medicare and Medicaid Services has implemented a compensation mechanism called the value-based purchasing program for providers to measure quality. There are 12 clinical process measures and nine patient experience measures. This program, which took effect in fiscal year 2013, is about 70 percent weighed toward the 12 clinical processes and about 30 percent weighed toward the nine patient experience measures.

If health care providers have Medicare or Medicaid reimbursements in 2013, they can participate in this program. Then, those measures will have a real impact on their reimbursement thresholds. The measurements, plus the overall shift away from volume toward getting paid for outcomes, makes risk management programs even more critical than their historical place in patient safety.

How can a risk management program help with those measures?

Nationally, our health care delivery system does not have a standardized, systemic quality measuring process. When The Institute of Medicine issued its 1999 report, ‘To Err is Human,’ it started the patient safety movement.

Risk management has been proactive in patient safety since 1999, but we still have negative outcomes in our health care delivery service. After a six-year decline, we are starting to see an increase in the frequency of health care professional liability claims.

What factors affect the frequency and severity of health care liability claims?

From 2000 to 2006, there was a decrease in the frequency of health care professional liability claims, driven by three factors. One was the proliferation of tort reform. Second, there was an investment in patient safety systems at the provider level. Third, the provider community did a good job managing the perception of there being an availability-of-care crisis because of malpractice costs. Those have contributed to a downward pressure on health care professional liability claims.

From 2007 to the present day, there have been continued investments in patient safety initiatives, but we are seeing an increase in claims because of two factors. The first is tort reform erosion. In some states, tort reform bills have been either reformed or weakened. The second factor is economic stress.

There is an interesting correlation between the unemployment rate and an increase in health care professional liability and medical malpractice claims frequency. For every 1 percent increase in the unemployment rate, there is a corresponding 0.3 percent increase in health care professional liability and medical malpractice claims frequency, with a three-year lag. We are starting to see the post-2007 unemployment rate as a contributing factor to increasing claims frequency.

Unlike claims frequency, claim severity has increased at a steady rate, 4 percent over the past six years. That is cause for concern.

What can be done to improve outcomes and reduce medical claims?

One of the biggest barriers to improving risk management and patient safety is the ability to measure outcomes and the speed with which outcomes can be measured. One feature of the Patient Protection and Affordable Care Act is providing financial incentives to hospitals and physicians to further the meaningful use of electronic medical records (EMRs). The proliferation is dramatic, but it is still a fractured business.

There are three levels of sophistication in EMRs. The first level is simply making a paper file electronic. The second is computerized physician order entry, or CPOE. The third and most complex level is platforms with clinical decision support data. That third level will be necessary going forward to drive down the incidence of preventable medical errors.

More sophisticated EMRs will improve outcomes because physicians will have clinical decision support to help them adhere to clinical protocols at their fingertips. This is important because one of the biggest variables for integrated delivery systems to manage as they make the shift from volume-based to outcome-based methodologies is their ability to narrow physician practice pattern variation.

This technology comes with liabilities. If physicians have clinical decision support at their fingertips and depart from protocols, and an adverse event occurs, these errors could have a greater financial consequence than in the absence of such technology.

Ron Calhoun is managing director and national health care practice leader with Aon Risk Solutions. Reach him at (704) 343-4128 or

Insights Risk Management is brought to you by Aon Risk Solutions

Published in St. Louis