May 20, 2020

Ferd H. Mitchell and Cheryl C. Mitchell, Mitchell Law Office

Financial risk managers have learned—the hard way, through experience and crises—how to develop strategies for the financial sector to improve responses to unexpected events. As observed here, many of the important lessons from financial risk management may be translated for use in health care settings.

With the current response efforts underway to cope with the COVID-19 pandemic, the idea of tailoring financial response strategies to health care settings may provide a useful resource for attorneys. The transfer of lessons learned from risk management in the financial sector to the health care sector requires the development of procedures that fit the task. The financial and health care settings are quite different, so some type of translation is required.

The authors have developed a procedure that may be used to apply financial risk management concepts to health care. This procedure uses a decision-making, organizational model that is valid in both settings and involves how organizations make decisions by watching the outside world for threats and opportunities; identifying dangers to the enterprise; considering possible reactions to protect the enterprise; selecting actions that best protect interests; and acting as effectively as possible.

The following steps discussed below may assist health care professionals in their application of the decision-making model to develop an assessment rubric to deal with unexpected events.

Categorizing. Where there is a concern over possible unknown future events, health care risk management can involve categorizing all possible types of external events that may be experienced; categorizing all available types of actions that may be taken; and establishing decision linkages between these event and action categories. This approach helps organizations develop as much control as possible over their reactions to potential unexpected events through anticipation. When unexpected events occur, this pre-planning may reduce feeling overwhelmed by uncertainty and more quickly allow productive actions for a proactive response.

Relearning. Prior ways of perceiving certainty in operations may need to be unlearned and replaced with implied uncertainty. Administrators and managers need to assume the uncertain and unexpected will continue to arise and develop action plans with an emphasis on the need for flexibility and adaptability. Relearning provides a different way for interpreting the outside world, which may be seen in terms of events that carry with them a range of risks and a general risk awareness with tiered approaches to adapt the organizational response to the risk level.

Rethinking. All-too-often, health care enterprises are driven by a singular emphasis on maximizing payoffs and reducing costs. The problem is that optimized rewards, on these metrics alone, tend to be brittle, so that unexpected events may cause major damage to an enterprise. Redundant and replaceable operations can flex without collapse, a desirable characteristic when certainty about the future is replaced with pervasive uncertainty. Lower benefit-cost ratios may be desirable if the outcome is an improved likelihood of enterprise survival in a risky environment.

Hedging. Hedging in health care involves designing to include alternatives that can help manage risk in operations that may prevent extreme losses. Rigid program strategies may be replaced with redundancies. Hedging involves giving up some design advantages in order to allow for backup protections and may not be as elegant as singular commitment strategies but may better stand the test of time.

Stopping loss. Capping losses by making use of building block concepts that allow new operational sequences to be achieved even if certain capabilities are lost because of an unexpected event can prevent operations from cascading in series one after the other when one component fails. Building block approaches for organizations allow sub-operations to be repurposed as needed to deal with unexpected events. Higher routine costs for services will often be required in order to build in such stop-loss capabilities; thus, stop-loss strategies may be in tension with short-term operational horizons.

Rewriting contracts and regulations. Efforts should be made to rewrite contracts to allow for more flexibility in case of unexpected events, and agencies should be encouraged to develop more adaptive regulations to allow enterprises to take full advantage of capabilities to respond to unexpected events. New standard contract terms may be developed to allow health care enterprises to change their operations according to system needs, as specified by agencies. Waivers may no longer be required if contracts and regulations are designed to accommodate uncertainty.

Resetting relationships. Enterprises can critically evaluate relationships with individuals and organizations that could prove unproductive in a given crisis situation. As an enterprise changes, it should also expect relationships to change to avoid getting locked into contractual relationships that are limiting. Enterprises may extend zero-budgeting concepts to include an examination of all relationships, starting from a willingness to consider zero-continuation options.

Emphasizing triage. Enterprises should build the concept of triage into all operations, as a strategy to align needs and resources on an adaptable basis. Triage is effective because decisions are made at the individual-to-individual level as to how needs should be best managed within the enterprise. Fixed referral patterns and service sequencing remove an opportunity for adjustments to operations at the most basic service level and should be avoided to deal most effectively with uncertainty.

Communicating. Agencies and enterprises, and combinations of enterprises, should establish routine, online two-way communications exchanges that are used to assess changes in the service environment, categorize any unexpected events, and define system changes and relationships that should be initiated. Agencies may specify needs and enterprises may implement programs and changes. Such linkages may assist with making improved risk decisions, as more information becomes available to decision-makers, increasing the ability to watch for events, take effective actions, and manage the impact of stress on the enterprise.

Conclusion
It seems likely that the impact of COVID-19 will ultimately be viewed as an opportunity to evaluate internal processes to make improvements for future events. Temporary fixes to health care threats are highly disruptive and expensive; such fixes will likely be deemed insufficient to manage enterprise risks. As the world grows more complex and uncertainties increase, comprehensive, proactive, tailored approaches will be needed to anticipate and respond to health care risks.

Ferd and Cheryl Mitchell are married attorneys at Mitchell Law Office in Spokane, WA. They are active in developing new problem solving strategies and resource materials for use by attorneys in their practices, particularly in the areas of elder law, health law, intended versus actual program outcomes, applications of risk management, communications management, and the development of effective enterprises.

*AHLA thanks the Enterprise Risk Management Task Force for reviewing and editing this article.