On Slinkys, Fleas, and Health Care and Nursing Reform

On Slinkys, Fleas, and Health Care and Nursing Reform

Thomas CoxUrsine

Whole, Part, or Hole?

The Importance Of The Slinky

Slinky looks a lot like the normal curve – If Slinkys could they would move in the shape of normal curves

Insurance risk transfers to providers are eerily similar to a Slinkys patterns as we shift hands

Sometimes it is mostly in the left hand, others the right

Insurer loss ratios wobble: Low to High

Slinky’s rhythmic pattern is manifest in loss ratios

Slinkys gone wild: Katrina, AIG, Health care finance

The Importance Of Slinky

Retained insurance risks are like a tight, stable Slinky

Insurance risk transfers are like a stretched out Slinky

If hands are too far apart, Slinky collapses

If risk portfolios are too small, insurers collapse

Failure to support our health care system from known risks is like failing to hold your Slinky with two hands

Risk transfers impair the health care system and public health

The Importance Of SlinkyThe side to side motion of the Slinky is akin to shifting revenues and costs of insurers and health providers

When Slinky is out of balance we see increasing disparities in health care, access problems, declining public health indices, human suffering

Slinkys stretched beyond their structural integrity limits are like flawed finance mechanisms – on the edge

If we appreciate Slinky’s pattern, we can appreciate the pattern of health care (finance) reform and its likely impact on nursing

Risk Theory & Aesthetics

Risk theory (RT) does not assume nor produce certainty. It quantifies uncertainty, the fleeting, ephemeral nature of human experience

RT should be the method of choice for understanding nursing phenomena from a Rogerian perspective

RT, like choreology*, is the aesthetic and scientific study of the performance art of nurses and nursing

Dance is no less aesthetic because we document it and the documentation is its own aesthetic...

Joan and Rudolf Benesh 1956

Adopt your chosen perspectives

Quantitative work – its quantitativeQualitative – Ongoing discourse on health care financeCritical social theory – Deconstruct dominant paradigmsConservative – Call for a return to traditional valuesLiberation – Reveals hidden truthsEmpowerment – Provider/Consumer enlightenmentHolism – Details threats to holism in finance mechanismsHermeneutics – Re-interpretation of the word “Is” as in “What is insurance?”

Looking for research $ – Fertile ground – nobody is doing it

Want to promote Rogerian perspectives – Acausality and the serendipity of pattern and others may actually “get it”

What Can We Nurses Learn From AIG?

AIG's Financial Products division wrote hundreds of billions of dollars in credit default swaps

AIG had insufficient surplus and inadequate reserves

AIG was a Slinky stretched to the point of collapse

Stockholders and taxpayers had to “bear” the burden of Slinky’s collapse

The Slinky, AIG and Nursing

Health facility Marketing/Finance divisions act like AIG’s Financial Products division

Sell services then tell nursing to “make it work”

Revenues are inadequate and facilities lack resources

Cost cutting measures exacerbate reduce inadequacy

Nursing and nurses struggle with scarce resources, cost cutting imperatives, lack of redundancy, end up providing inadequate care

Clients bear the burdens: delayed/denied care, long waiting times, and unresponsive providers

How Do Risk Transfers Arise

Managed care and capitation are gold standards and dominant paradigms in health care reform

But risk transfers are pervasive: Medicare and Medicaid managed care, Prospective Payment Systems for Hospitals, Physicians, Long Term Care and Home Health, Occurrence payments, Pay for performance, Prometheus…

Reform that does not address the Slinkyesque impact of inefficient risk management is meaningless

A national health insurer is a first, incomplete, step without risk management reform

Why Health Providers Are Insurers

Uncertain costs assumed for fixed payments “Insurance”

“Insurer” has unpleasant implications in meetings between providers and clients – so advocates avoid “insurance”

Euphemism: Providers manage “financial risks” caused by their own inefficiency not “insurance risks”

Financial risks exist at the start and persist during contracts

Providers do not know how to become “efficient” and efficiency always involves tradeoffs – who benefits from efficiency and who is hurt…

Katrina & Health Care Reform

We have not learned the lessons:

Providers/Insurers should have had resources adequate to serve clients for weeks, not hours or days

You get paid on XX/01 to provide care through XX/31

Pre-paid, population focused, payment models can not pay providers enough for these risks or fund their true costs

Hospitals and NHs woefully unprepared for a certain event

Neither providers nor transferors have been held to account nor are they likely to be…

“Who could have anticipated…” Syndrome

What We Need to Understand About Health Care (Finance) Reform

Risk management through real insurance is key

How insurers manage risk – the Slinky Effect

How insurer size effects efficiency: loss ratio variation and maximum sustainable benefits

Nurses are affected by comprehensible forces

It is easy to understand insurance – insurance was in use long before modern actuarial risk theory

Deconstructing Myths

Everyone keeps $10,000; $100,000 in reserve$10,000 $3.07 Trillion idled$100,000 $30.7 Trillion idled

De-regulate insurance and cross State linesInsurer misconduct is common, de-regulation would increase misconduct with little recourse for victims

Tax credits for purchasing individual insuranceIndividual underwriting costs exceed tax breaks

Extend litigation protectionsLitigation protections reward past/future misconduct

The Patterns Are ExquisiteAll It Takes Is Appreciation

The normal curve is without an aesthetic equal

Regularity, symmetry, ease of definition, perspicacity, and near universal applicability

To the mathematically trained it is the equivalent of the best opera, ballet, art, music, cuisine

The dynamic motion of a Slinky is like the random aspect of insurer loss ratios, a cyclical pattern of ups and downs, the intensity and rhythm of which vary with the size, shape, and extension of the Slinky

Exemplar Insurer - Slide 1

A Slinky in balanceAssumptionsWrites 1,000,000 policies per yearCharges $4,000 per person

Expected Loss ratio = $0.75Expense ratio = $0.15Profit margin = $0.05Risk premium = $0.05

Insurers select portfolios from normally distributed portfolio collections with Standard Error = $0.05Insurer has probability 0.9987 of remaining solventProviders and Insurers are EFFICIENT!!!!

Exemplar Insurer - Slide 2

Implications

ProbabilitiesEarns profits > $0.05 (LR<$0.80) 0.8413

Breaks even (No operating loss) 0.9772

Remains solvent (LR<$0.90) 0.9987

FinancialRevenues $4,000,000,000Maximum sustainable benefits $3,000Surplus required for solvency $202,400,000

Slinky ImbalanceProbabilities of Higher Loss Ratios By

Insurer Size

Loss Ratio 307,000,000 10,000,000 1,000,000 100,000 10,0000.75 0.5000 0.5000 0.5000 0.5000 0.50000.80 0.0000 0.0008 0.1587 0.3759 0.46020.85 0.0000 0.0000 0.0228 0.2635 0.42070.90 0.0000 0.0000 0.0013 0.1714 0.38210.95 0.0000 0.0000 0.0000 0.1029 0.34461.00 0.0000 0.0000 0.0000 0.0569 0.3085

Loss ratios higher than $0.85 are operating losses for insurers.

Insurer must draw against surplus to pay current costs when LR > $0.85

Our Exemplar can sustain a loss of $0.90 but will become insolvent above that level and will not be able to write new policies close to that level.

Comparing Insurers By SizeInsurer Size 307,000,000 10,000,000 1,000,000 100,000 10,000Standard Error 0.0029 0.0158 0.0500 0.1581 0.5000Prob Profits GE 5% 1.0000 0.9992 0.8413 0.6241 0.5398

1.0000 1.0000 0.9772 0.7365 0.57930.7587 0.7976 0.9006 1.2261 1.9132

$0 $0 $202,400,000 $150,440,000 $56,228,000Surplus for 1,000,000 Policies $0 $0 $202,400,000 $1,504,400,000 $5,622,800,000Maximum Sustainable Benefits 0.7971 0.7842 0.7500 0.6419 0.3000Efficiency 99.64% 98.03% 93.75% 80.24% 37.50%

Prob No Oper LossMin LR w Prob geq 0.9987Surplus Req 99.87% Solv

Slinky says:Standard errors of portfolio collections by insurer size

30,700 insurers (10,000) policies) 0.5000

3,070 insurers (100,000 policies) 0.1581

307 insurers (1,000,000 policies) 0.0500

National health insurer (307,000,000 policies) 0.0029


1.0000 1.0000 0.9772 0.7365 0.57930.7587 0.7976 0.9006 1.2261 1.9132



Slinky says:Probability of profitability by insurer size

30,700 insurers (10,000) policies) 0.5398

3,070 insurers (100,000 policies) 0.6241

307 insurers (1,000,000 policies) 0.8413

National health insurer (307,000,000 policies) 1.0000


1.0000 1.0000 0.9772 0.7365 0.57930.7587 0.7976 0.9006 1.2261 1.9132



Slinky says:Probability of loss ratios > 0.85 (Net operating loss)

30,700 insurers (10,000) policies) = 0.4207

3,070 insurers (100,000 policies) = 0.2635

307 insurers (1,000,000 policies) = 0.0228

National health insurer (307,000,000 policies) = 0.0000


1.0000 1.0000 0.9772 0.7365 0.57930.7587 0.7976 0.9006 1.2261 1.9132



Slinky says:Surplus requirements by insurer size

30,700 insurers (10,000 policies) $1,726 Billion

3,070 insurers (100,000 policies) 462 Billion

307 insurers (1,000,000 policies) 62 Billion

National health insurer needs no surplus $0.00

Maximum Sustainable Benefits

All insurers seek profits of $0.05 or higher with probability 0.8413 (The Exemplar Insurer’s level)

The maximum sustainable benefit is calculated by subtracting the Se for each insurer from the maximum possible payout of $0.80

Maximum Sustainable Benefit

Insurers seek profits of $0.05 or higher with probability 0.8413 (The Exemplar Insurer’s level)

Calculate the maximum sustainable benefit by subtracting Se from the maximum payout of $0.80 consistent with profit objective.

$0.80 - 1 * Se

Exemplar: = $0.80 - $0.05

= $0.75

***** Comparing Insurers By Size *****Insurer Size 307,000,000 10,000,000 1,000,000 100,000 10,000Standard Error 0.0029 0.0158 0.0500 0.1581 0.5Prob Profits GE 5% 1.0000 0.9992 0.8413 0.6241 0.54

1.0000 1.0000 0.9772 0.7365 0.580.7587 0.7976 0.9006 1.2261 1.91



Slinky says:Maximum sustainable benefits per person

30,700 insurers (10,000 policies) $0.3000

3,070 insurers (100,000 policies) $0.6419

307 insurers (1,000,000 policies) $0.7500

National health insurer $0.7971


1.0000 1.0000 0.9772 0.7365 0.580.7587 0.7976 0.9006 1.2261 1.91



Slinky says:Maximum sustainable benefits in $ per person

30,700 insurers (10,000 policies) $1,200

3,070 insurers (100,000 policies) $2,568

307 insurers (1,000,000 policies) $3,000

National health insurer $3,189


1.0000 1.0000 0.9772 0.7365 0.57930.7587 0.7976 0.9006 1.2261 1.9132



Slinky says:Benefit distribution efficiency by insurer size

30,700 insurers (10,000 policies) 37.50%

3,070 insurers (100,000 policies) 80.24%

307 insurers (1,000,000 policies) 93.75%

National health insurer 99.64%

Health Services & Disparities Research

We see the impact of risk dis-aggregation on insurer efficiency

The smaller the insurer, the lower the Maximum Sustainable Benefit

Why are health services researchers failing to identify and quantify a service capacity loss this large?

Why did decades of research fail to connect cigarettes to smoking and lung cancer and heart disease?

Ethics: Old & New

IssueIssue Pre-Managed CarePre-Managed Care Managed CareManaged CarePatient autonomy Patients make decisions Insurer/Providers make

decisions

Informed consent Payment mechanisms not an issue Clients misinformed about conflicted roles, who pays & who makes decisions

Paternalism Common but conflicts between providers and payers mediate

Pervasive – no mediation, provider/insurer knows best

Beneficence No interventional limits How little can I do for each client?

Non-maleficence Unnecessary Dx/Tx Denied necessary Dx/Tx

Conflicts of interest Provider profit seeking Provider cost cutting

Distributional ethics According to need, time of arrival, extant resources…

Less than or at unique benefit plan mandates

How Do Providers Deal With Risk?Exactly the opposite of how they should

Cut costs:Cheaper remote suppliers – 100s of miles awayCentral storerooms/Limited supply access

Eliminate redundant staff – Send nurses homeJust enough equipment for routine needs

Strain Capacity:Keep beds filled, appointments bookedConstant turnoverStaff/Resources fully committed - No slackRely on “just in time” resource replacementDependent on supply chain integrity

How Should Providers Deal With Risk?

Maintain much larger supply storesDistributed supplies and increased access

Maintain redundant staffMore equipment than needed for routine needs

Create more capacity:Keep beds in reserve, spare appointmentsReduce patient flow – let staff regroupDevelop/Maintain slack resources“Well ahead of time” resource replacementDecrease dependence on supply chainReduce demands on staff

Maintain ability to respond to unusually high demand

Old Fee For Service Paradigm

Providers and clients are in “voluntary” relationships

Providers well being independent of client choices

Acute and chronic clients increase revenues

Providers free to open/close facilities at will

Dissatisfied clients can go elsewhere

Providers not obliged to stay in natural disasters

Providers not obliged to maintain redundant resources

Ethical conflicts – Who we agree to serve…

Pre-payment Paradigm

Providers and clients are in “involuntary” relationships

Provider’s well being depends on client choices

Acute and chronic clients increase costs

Providers not free to open/close facilities

Clients stuck in potentially unresponsive networks

Providers - obliged to stay in natural disasters

Providers should maintain redundant resources, not rely on supply chain integrity

Ethical conflicts – Who we deny, undisclosed roles

Non-Treatment RisksThe Limits of Cost Cutting

Can providers save money by reducing expensive Dx tests?

Must cut many tests - What are the implications?

Clients not getting expensive diagnostic tests with P = 0.01 of positive results have probability = 0.01 of non-diagnosis

Providers not performing 100 tests in a year have probability of at least one missed diagnosis = 0.63

If providers do this for 5 years, P[Diagnostic Failure] = 0.90 If providers do this for 35 years, P[Diagnostic Failure] = 1.00

How Nursing Is & Will Be Affected

The implementation models are clear:

Non-Health Care Sector: Outsourcing – Marginalized unskilled laborers, then skilled laborers, then low level white collar workers, then middle management, then skilled professionals

Health Care Sector: Marginalize high cost sectors (Hospitals and specialists), then primary care, then NPs, RN, LPNs, CNAs, PCAs

Cost cutting efforts appear to be benefiting nurses, but we will be marginalized by lower cost providers

Not seeing the train does not diminish the impact

Health Care In The Future

Impossible to sustain/expand labor intensive care

Number of nurses needed based on old paradigms – like the need for finance MBAs in Spring, 2008

Workplaces need radical change to meet boomer generation demand: high tech, robotics, low touch, highly automated, fewer professionals, more paras

Academicians see growth as good – but working nurses will face higher patient loads and stiffer job competition in the future

Health care industry knows what it is doing – do we?

The MCO/Insurer Shell GameMCO/Insurer negotiates contracts with gov’t, labor, employers

MCO/I negotiates contracts with providers

Providers cannot share – Not aware of each other’s behavior

MCO/I uses hidden information about other provider’s behavior to negotiate more favorable terms

MCO/I squeezes providers who fear no contracts/patients

Difference between claims costs in the MCO/I’s premiums and their provider contract costs is pure profit

Wild West – MCO/Is are not looking for 5% returns

What services do MCO/Is actually provide to justify profits?

Pattern Appreciation

Using 24 observations (Jan-Feb 1801) by Giuseppe Piazzi, 24 year old Carl Gauss calculates where Ceres, the smallest dwarf planet in the Solar System, will be in December, 1801...

The world's leading astronomers had no idea where to look

Gauss and Piazzi both appreciated Ceres’ pattern… In different ways…

Patterns exist/persist whether seen or not

An incidental case of pattern appreciation...

Pattern Appreciation 1

The ephemeral nature of pattern is never more obvious than in an insurance company's executive dining room, when the Claims VP just learned a $1,000,000 claim has been submitted.

The “pattern” of seasonal good tidings and good will to all is disrupted as each executive begins their appreciation of new, unfolding, universes...

It is no different when risk assuming health care providers contend with “high cost” clients

Pattern Appreciation 2

Back to Slinky

Insurance executives’ patterns change with the daily ups and downs of the sales and claims departments

New information constantly alters anticipated results

Insurer tapestries change with single eventsKatrina led to the most egregious cases of shortchanging

policyholders in the history of insurance

9/11: Rogerian (re)insurers: 2 planes, hit 2 buildings, at different times – A single event

We should only pay one “per occurrence” benefit

Why Small Insurers Are Less EfficientInsurance is based on the Central Limit Theorem a rhythm much like the dynamic pattern of a Slinky

CLT defines relationship between sample (portfolio) size and measurement error in estimates of population parameters: Population Loss Ratio (PLR)

Large insurers Actual Loss Ratios (sample estimates) closer to PLR than smaller insurers’ Actual Loss Ratios

Small insurers have higher probabilities of extreme loss ratios and unfavorable operating results than larger insurers

Small insurers must decrease benefits to compensate for the wide swings they may experience

Why Health Providers Are Inefficient Insurers

Insurer risk declines with portfolio size

Entities transferring risk are large: MCOs, Medicare, Medicaid, “profit sharing” and “risk sharing” insurers

Transferred portfolios are smaller than transferring entity’s portfolio, often 2 –10 % or less

We use the Central Limit Theorem to appreciate the increased loss ratio variation from risk dis-aggregation – simple relationship using the square root of relative portfolio size

Flawed thinking: Risk assuming providers have same experience as risk transferors

Unpleasant Risk Assuming Provider Truths

Bear far greater risk than acknowledged

No difference between “Financial” & “Insurance” risk

Do not accept roles nor do they act as responsible insurers

Pattern of well being illusory – Ignored duties and responsibilities, overly dependent on payers, poor fiscal/clinical accountability

Inappropriate transition from “FFS” to “Insurer” paradigm

Ignoring population health reduces current costs – No choice because revenues are inadequate

Profiteering easy – Nobody minding the store

Risk Appreciating Nurses

Arrives earlyAssesses environment and clientsHits the supply room, stocks up on needed itemsAssures availability of supplies for othersReady for shift reportProvides caring service throughout the shiftUnhampered by forgotten or unavailable resourcesPaces self, anticipates lost time, high risk needsEnds shift:

Clients got what they neededNurse not unduly stressedEnvironment more sound for their presenceCogently reports to incoming staff

Non-Risk Appreciating Nurse

Arrives just on time or lateHits the supply room as needed, multiple times a day Unprepared for shift reportIgnores looming shortages – Someone else will do itHampered by unanticipated and unavailable resourcesFails to anticipate lost time, high risk client’s needsEnds shift:

Clients, at best, get some of what they neededNurse stressed outEnvironment more fragile and unstableResources depletedNot prepared to report to incoming nurse

Merchant of Venice

My ventures are not in one bottom trusted,Nor to one place; nor is my whole estate

Upon the fortune of this present year:Therefore, my merchandise makes me not sad.

Shakespeare

Risk Diversification Strategies

Spread portfolio out among different payorsProviders dependent on 2 – 3 large MCOs, Medicare, Medicaid

Vary the risk in portfoliosProviders are having more risks transferred and risks are increasingly correlated

Vary portfolios by industry, or by geographyProviders concentrated by geography and industry - locked in to contracts based on facility location

Portfolio diversification reduces risk, reduces the rates of return, and serves as a hedge against a single large payor having too much power

Conclusions

Risk assuming health care providers (RAHCPs) furnish less service than non-risk assuming health care providers

RAHCPs become less, not more efficient

RAHCPs are as fiscally sound as AIG in 2007 – Not adequately prepared for the obligations assumed

On Slinkys, Fleas, and Health Care and Nursing Reform

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