As a recipient of the PRIMA scholarship, I was given an amazing opportunity to interact with industry professionals, meet various firms and better understand the importance of networking. As a student, I felt as if I was thrown into a new world. Thankfully, PRIMA provided us with the wonderful help of mentors and staff for a stress-free transition. Everyone was incredibly kind and generous with the many lessons I gained from each interaction. Even more so, I had the chance to attend a few learning sessions which discussed social inflation and risk pooling to name a few.

I believe the convention hall was one of my favorite parts of the trip. It was interesting to see the setups of the many companies with piles of merch they brought. I learned, however, that the companies with the best merch created a networking hotspot. Tons of people would flock around the booth and start up conversations. The risk managers, brokers, software engineers and others all have something to gain from one another.

The different reasons why people attend the conference became evident. We spent a week in a bubble of events; some for learning and others for enjoyment. As I listened to the conversations, I could hear brokers discussing with risk managers from across the country. The PRIMA conference, from a networking perspective, provided public risk professionals with an opportunity otherwise seemingly unattainable.

Everyone in this industry, no matter how experienced, has something to learn from others. Most conversations took place between risk managers from different cities discussing problems and solutions they encountered. Working together, the PRIMA community betters itself to improve public risk management collectively.

Previous to the conference, my knowledge was fairly limited to private risk. I had no idea how important the role of the risk management department in cities was. After many conversations, I gained a deeper understanding of why many risk managers self insure, form risk pools or select to purchase insurance. Even more important than insurance is risk mitigation. The PRIMA conference was a location in which risk managers shared techniques and strategies they use to reduce the risk in their cities.

Additionally, I was able to network with the other student scholarship recipients. It was great to have the shared experience and build future industry relationships. Traveling as a group the entire week, we became close over our shared interests. The networking happy hours were especially enjoyable to build bonds as we tasted great food and listened to the live band.

This conference will hopefully be the first of many! It was an experience I will never forget, and it encourages me to push on in this industry.

*The views and opinions expressed in the Public Risk Management Association (PRIMA) blogs are those of each respective author. The views and opinions do not necessarily reflect the official policy or position of PRIMA.*

In a world where many shy away from reading books or thinking about insurance policies, only the brave embrace the idea of turning on convention with a real “career." As an eager student seeking professional growth, I had the privilege of attending the Public Risk Management Association 2023 Conference held in Long Beach, California through a student scholarship opportunity. Better referred to as #PRIMACON23, it was a four-day event that brought together education, networking opportunities, career-building advice and entertainment

Keynote Speakers

The most insightful piece that was provided in the PRIMA conference was three amazing keynote sessions. To start esteemed industry experts Bob Wilson, Mark Pew and Ya'Sheaka Williams shared their invaluable insights, sparking meaningful conversations and providing guidance on fostering a strong and supportive network within the risk management field.

During the PRIMA 2023 Conference, one of the keynote speakers who left a lasting impression was Sonia Aranza. Her insightful session shed light on the profound impact of unconscious bias on risk management. Unconscious bias refers to the unconscious associations and stereotypes that affect our perceptions, decisions and actions without our conscious awareness. Aranza delved into how these biases can seep into risk management processes, potentially leading to skewed assessments, limited perspectives and overlooked vulnerabilities. By recognizing and addressing our unconscious biases, risk managers can enhance the effectiveness of their strategies and decision-making, fostering a more inclusive and comprehensive approach to risk management.

Speaker and preformer Jon Petz's message of the small moments are what serve to be remembered and also serves as a powerful reminder that risk management but business in general. It is about the human element—the connections we build, the empathy we show and the value we place on each individual's contributions. By embracing the significance of simple moments, risk management professionals can elevate their work, foster stronger relationships and ultimately create a culture of excellence and resilience.

What are the Public Risks?

Public entities, such as townships and cities, face a wide range of challenges that need to be addressed with risk management. Compliance, police liability and city workers' compensation are significant areas that require attention. Ensuring adherence to laws and regulations, mitigating risks associated with law enforcement activities  and providing adequate support for city employees injured on the job are crucial aspects of managing these risks. By effectively addressing these areas, public entities can create a safer and more resilient community for both employees and the public.

Apply Risk Management Tools

During the PRIMA 2023 Conference, I had the opportunity to explore the tools and strategies that city risk managers have at their disposal and their outcomes. One tool that emerged was the use of external auditing. By bringing in auditors, risk managers can gain impartial and expert insights into potential vulnerabilities within their organizations. This helps in identifying areas for improvement and enhancing risk management practices. Additionally, actively participating in board meetings and engaging with stakeholders allows risk managers to stay informed, align their strategies with organizational goals, and build strong relationships and communication within their communities.

The People of PRIMA

The best aspect of the PRIMA 2023 Conference was the opportunity to connect with a diverse and passionate community of professionals. From the attending risk managers, brokers and adjusters to students like myself, the conference had a wealth of experience and expertise. This enabled the trip to exeed my expectations and become one of my favorite professional experiences to date.

*The views and opinions expressed in the Public Risk Management Association (PRIMA) blogs are those of each respective author. The views and opinions do not necessarily reflect the official policy or position of PRIMA.*

Accidents happen. That’s why it’s imperative for organizations to establish a robust incident reporting process to address any accident that may occur, including commercial auto, general liability, property, student accidents and workplace injuries.

Whether you’re looking for a partner to build the framework of your incident reporting process or to enhance your current infrastructure, ensure that your partner puts compassionate people and innovative technology at the center.

By creating your processes around these components, you streamline the collection, management, accuracy, and secure access and delivery of information, transforming your organizational reporting.

Compassionate People

When looking for an incident reporting partner, ensure that the organization is made up of compassionate people.

Getting into an accident brings uncertainty. Utilizing a reporting system supported by people who demonstrate care and expertise to address accidents relieves this stress.

Compassionate people make reliable partners who will nurture, guide, and support your organization. This extends to your employees, who report incidents, and to your risk management team, who will benefit from a partner who helps them to enhance and refine the reporting process.

Why else are compassionate people a crucial component in selecting a risk reporting partner for your organization? These individuals truly care about your organization and improving its experience. They deliver exceptional service that surpasses expectations by attentively listening to your needs and continuously striving to enhance your processes.

Innovative Technology

Equally vital to identifying compassionate people within your risk reporting partner, is ensuring the partner is backed by innovative technology.

So, what does this entail when evaluating a potential risk reporting partner? The ideal partner will provide technology that bolsters the efficiency and accuracy of your processes. Such a partner continuously improves their technology, implementing updates to enhance your experience and yield improved results.

Moreover, this technology should incorporate robust security measures to safeguard your organization and its people. These measures encompass the formulation of comprehensive business continuity and disaster recovery plans (BCP/DRP) and adherence to regulatory standards such as HiTech and SOC II.

The Impact

Together, compassionate people and innovative technology will profoundly enhance your accident reporting experience. A partner who provides these crucial components will aid in streamlining the collection, management, and secure access and delivery of information, transforming your organizational incident reporting.

Claims Collection

Technology created by compassionate people invariably prioritizes the user experience. Your partner should offer technology that allows users to report incidents via their preferred channels, whether that be through phone, text, or virtual chat, thereby facilitating more prompt and accurate reporting.

Secure Access to Claims Information

A partner that utilizes innovative technology provides robust security, ensuring the secure transmission of data and information. Consequently, this instills confidence in users reporting accidents.

Furthermore, this security ensures that administrators access reports and supplementary information in a secure manner, strictly adhering to a need-to-know basis, thereby safeguarding their employees and the organization as a whole.

Claims Management

With simple, yet secure, access to risk reports, your risk management team has the information it needs to efficiently address and close claims.

However, it is essential to ensure that your partner properly supports the collection of the information you need during the reporting process. Your partner should allow you to add specific questions that will enable stakeholders to receive direct and timely answers.

*The views and opinions expressed in the Public Risk Management Association (PRIMA) blogs are those of each respective author. The views and opinions do not necessarily reflect the official policy or position of PRIMA.*

Demands facing the public entity sector remain high, and competition for workers is fierce. Many organizations today are tasked with providing more services with fewer resources. These conditions have raised interest and put a spotlight on the value of ergonomics.

Simply stated, ergonomics involves fitting the demands of a job to a worker’s capabilities. By ensuring the task, equipment and environment are optimized for the employee, not only is the potential for injury reduced, but also productivity may increase.

An Ergonomic Surge

The onset of the pandemic forced the overnight establishment of many home offices and the need to ensure proper set-up of equipment and workstations. While an ergonomic surge developed among those with office responsibilities, interest in ergonomics also increased for those in the field performing more physical and arduous tasks. Regardless of the working environment, ergonomics can prevent injury due to poor position, excessive force or high repetition. Such adjustments and practices are designed to dull the risk and effects of injury, particularly those arising from cumulative trauma that develop over time.

The Impact of Stress

In recent years, many ergonomic initiatives have resulted in improved equipment set-ups, the addition of accessories or scheduling realignments. However, if an organization believes they have made significant efforts toward reducing their physical risk factors and would like to take its ergonomic program a step further, consider evaluating the impact of stress on employees. Just as with physical risk factors, stress also involves an imbalance between the demands of a job and the worker’s capacity to cope.

According to the Occupational Safety and Health Administration (OSHA), an estimated 83% of U.S workers suffer from work-related stress.  Moreover, it is estimated that nearly one in five US adults live with a mental illness.

Such mental conditions can produce physiological responses in employees that can impact their daily work and make them more susceptible to injury.  For example, prolonged stress can increase muscle tension.  If this is coupled with repetitive tasks that require force, then it could increase the risk of developing a musculoskeletal disorder.  Additionally, stress can have a negative impact on sleep. Insufficient sleep can lead to increased error rates that in turn, contribute to higher rates of rework, job repetition and increased risk.  Further, stress can have a negative impact on the body’s circulation; and, this may impede an employee’s performance or ability to heal from a cumulative disorder.

These observations point to the need for frontline managers and supervisors to identify employees exhibiting signs of stress and take steps to mitigate stress-inducing conditions. Signs of stress may be seen in increased absences or tardiness, declining performance or productivity, limited engagement or communication, and reduced physical capabilities or daily functioning.

Protecting Employee Well-Being

In these instances, there are steps an organization can take to maximize the effectiveness of their existing ergonomics program and protect overall employee well-being:

• Create a safe space or working environment where employees are comfortable sharing what is driving stress and what steps can be taken to alleviate it.
• Make the employee aware of benefits that are available to them. Many organizations offer an employee assistance program (EAP) or provide counseling for little or no fee as part of their benefits package.
• Introduce ergonomic practices that allow for increased job rotations, workstation adjustments, or more frequent rest periods. Both mind and body benefit from breaks throughout the day.
• Allow the employee to have a sense of autonomy and control over work and scheduling to the extent possible. This includes encouragement to share ideas and suggestions that will improve the workplace and work experience.
• Ensure the organization is complying with the Americans with Disabilities Act, Occupational Safety and Health Act, and any related federal or state statutes or mandates.

Ergonomic enhancements at the workplace are an excellent way to demonstrate care and concern for employees. However, it is important to remember that ergonomics, like any injury prevention or recovery program, should address both the physical and mental health needs of employees.  Only then can ergonomic principles and practices be maximized to achieve improved outcomes and results.

Source:  Workplace Stress - Overview | Occupational Safety and Health Administration (osha.gov)

*The views and opinions expressed in the Public Risk Management Association (PRIMA) blogs are those of each respective author. The views and opinions do not necessarily reflect the official policy or position of PRIMA.*

CLICK HERE for Part 1

So, here’s the skinny, we have a crisis of unprecedented proportions in the property market and a very hard market for liability insurance especially for certain types of coverage such as sexual abuse and law enforcement but the third leg of our P&C stool is steady: workers’ compensation. The result of these crisis and ever rising costs are three fold:

• Your entity is spending more on your self-insured losses
• Your entity is spending more to transfer the risk to a pool, insurer or reinsurer
• Your entity has blown through reserves and needs to replenish the reserve account

That’s a tall order and the underlying factors which have created items 1-3 are not going away anytime soon.  I would argue perhaps never. In other words, this isn’t something we can ignore and survive. So what can we do other than pay more for insurance?

I will share with you what my clients are doing and perhaps it can apply to your situation. First, and I want to be clear about this, our clients are doubling down on risk management and claims management. They are investing in technology to better understand the risk and potential prevention mitigation techniques. They are also attending PRIMA conferences and workshops to learn from one another.

Second, they are changing the way they cover events by transitioning to claims made for certain very volatile exposures, such as sexual abuse, civil rights and law enforcement. It is not realistic or sustainable to price and fund losses today that will be paid 10 or more years from now (other than workers’ compensation). No one predicted the type of nuclear verdicts we see nowadays, even as recently as a few years ago. How can an actuary tell you what you need to set aside to pay law enforcement claims in 2030 or 2035?

Third, they are looking at group and pure captives to fund for large retentions as the insurance industry withdraws from geographic regions and lines of coverage where underwriting profit is elusive to impossible. Captives do not offer the same benefits as they do to those in private sector but there are advantages that cannot be ignored. Not the least of which is they are regulated by a department of insurance while most pools and self-insured entities are not. Captives are to pools what the largest banks are to the banking system; they are safer because they are regulated.

Fourth, there are reinsurance financial structures that are utilized by the insurance industry to provide multiyear protection of large retentions (retentions greater than $2M). In addition, there is a reinsurance market underutilized by pools that leans more on finance and quantitative risk than qualitative. Pools should be talking to those companies. The capital markets which offer significantly greater amounts of capital are an untapped source for financing of certain large exposures such as catastrophic risk.

In summary, the decade of the 2020s has started with not one but two worldwide events: a pandemic and a war in Europe. And I don’t think the decade is done with us yet. The challenges before us will not be solved by the solutions of the eighties or nineties. It’s time to innovate again.

*The views and opinions expressed in the Public Risk Management Association (PRIMA) blogs are those of each respective author. The views and opinions do not necessarily reflect the official policy or position of PRIMA.*

The story begins with the interconnection of exposures, hazards, perils and losses. The world is in many ways smaller than it’s ever been and COVID-19 and supply chain disruptions are vivid examples of our joint vulnerabilities. The latest worldwide calamity is the inflation cycle, which is not unknown to third world and emerging economies but hasn’t been experienced by developed counties since the 80’s. Yet, here we are sharing a rising rate of inflation that shifts from one commodity to the next.  These events challenge the insurance and reinsurance community as they grapple with having enough capital to pay losses and meet the needs of an expanding global economy.

Now let’s bring the discussion closer to home and specifically to how it impacts the public sector in the US.  First, despite alternative risk techniques such as self-insurance and pooling we are still dependent on financing by a robust insurance industry. A business that is well capitalized but stretched to the limit. The pain is not unknown to public agencies as property losses know no boundary nor region. This is not your grandparent’s earthquake and flood events. We now have so many new terms for large scale property events they have their own language: bomb cyclones, atmospheric rivers are part of our lexicon. Hail the size of a Buick falls in Colorado and Texas freezes more than Iceland and on a far larger scale. The insurance industry refers to these as secondary perils, meaning NOT earthquake or hurricane. Secondary also means these events are random, unexpected and without precedent... other than they happen all the time.

Then there’s the liability situation which is reminiscent of the “wild eighties” when products liability and medical malpractice claims were the rage. The tidal wave of these claims and their ever growing impact was blunted by an insurance crisis and tort reform.  The memory of these lessons has long been forgotten and the law schools are pouring out new graduates all looking to sue someone, anyone.  If it wasn’t for personal injury attorneys advertising on TV and radio, there would be nothing to watch or listen to. Those newly graduated, wet behind the ear lawyers have a new tool in their arsenal and it’s called litigation funding. The way it works is investors back their efforts by paying their bills in the hope they will share the proceeds of the case.  Litigation funding was once an informal affair with friendly investors but is now a sophisticated exchange of law firms and hedge funds with billions of dollars in the mix.  This toxic mix of too many attorneys, advertising and litigation funding has fueled a new phenomenon referred to as social inflation. Essentially, social inflation is the cost of a society that has zero tolerance for certain types of offences such as sexual abuse, employment matters and anything to do with law enforcement.

I have already referred to earlier hard markets as a way to compare where we are today with earlier crisis.  The hard markets of the 70’s. 80’s and even 2000 were worse and involved all lines of coverage indiscriminately. Not so in 2023, we have a very strong and stable workers’ compensation market. And, praise be that we do, as workers’ compensation is by dollar amount our largest spend as a percentage of property & casualty insurance.

*The views and opinions expressed in the Public Risk Management Association (PRIMA) blogs are those of each respective author. The views and opinions do not necessarily reflect the official policy or position of PRIMA.*

                        I do love a locker room. It smells like potential.
                                                                 -Ted Lasso

Teamwork is the most important determinant for the success of any board. We all learn teamwork when we are young, in school, on an athletic field or around a game board. However, we rarely take the principles of teamwork into our board meetings. Here are some techniques to foster teamwork within a board of directors.

Foundations
If we consider a board as members of a sports team, the foundational documents for organization are akin to the rules of the sport. Board members must be aware of, if not conversant in, the founding or governing documents of their organization. This may include bylaws, organizational structure, policies and the like.

All boards should have a “Rules of Board Procedure” document that establishes the process of how votes are taken and agendas are set. Board members should also be aware of their relationship to the organization’s staff, and the structure of the insurance provided.

Two foundational pledges should be adopted to foster a solid foundation for board members and staff:

• A pledge to never surprise one another in public
• A pledge to never disparage one another anywhere

The board and organization should also mutually follow two foundational principles:

• Leadership through persuasion
• Reciprocal accountability

Like an athletic team, board members should have a clear vision of their overall purpose. This can take the form of a mission statement. One simple, yet iconic, example is that of the McLaren Formula 1 Team: “We exist to win."

Fundamentals
Fundamentals for any team are the crucial, repeated and everyday tasks. In our industry, the most fundamental task is building trust. Trust between the board and staff flows from a true understanding of the scope and limits of everyone’s role.

Therefore, onboarding, clear responsibilities, ongoing training and retreats are all critical. Making sure to balance educational time with conversational activities will help build those relationships.

Fundamental trust is also built in maintaining board-appropriate communications pathways. Any conflicts that arise should be discussed professionally and openly.

Functions
Like an athletic team taking the field, board meetings are where the foundations and fundamentals of teamwork are implemented.

Recruitment and time spent on your board’s composition is crucial. Having a blend of abilities, interests and backgrounds on your board will help develop a solid diverse team.

To function well as a team, the most impactful member is your board chair. The chair will represent the organization, run the meetings, and must, therefore, be most knowledgeable. Make sure to spend time with your board chair.

Professionally run meetings will likewise lead to success. A carefully structured meeting, utilizing a consent agenda, functional committees, and measured staff input, will help streamline meetings. Combined with the ongoing training fundamental, this will lead to shorter, more focused meetings. Spend time practicing and communicating meeting expectations.

Great teamwork is the overall goal. Your board and staff can work best together when fulfilling distinct roles but uniting together as a team.

*The views and opinions expressed in the Public Risk Management Association (PRIMA) blogs are those of each respective author. The views and opinions do not necessarily reflect the official policy or position of PRIMA.*

The four commonly designated “silent killers” are heart disease, diabetes, hypertension and prostate cancer. The one silent killer which is not listed is the failure to return to work after an industrial accident. Studies have shown that failure to return to work results in reduced life expectancy and is usually a severe financial catastrophe for injured workers and their families.

When someone collapses in front of you, it is a life-threatening event which requires immediate action. Call 911 and start CPR immediately. Employers, applicant attorneys and many claims adjusters do not treat the potential loss of a job or occupation from an industrial accident with the same sense of urgency as we do a heart attack. We should.

Studies have shown that every single day delay in returning to work increases the likelihood of permanent loss of the job and the occupation. On a positive note, studies have shown that early return to work significantly improves the speed and scope of recovery after an industrial accident. Light and modified duties are the key to faster recovery as well as significantly reducing the cost of workers' compensation.

One of the biggest barriers for injured workers to return to work is the fear of re-injury. Many employers have the same fear. This is one of the reasons that many employers do not want the injured worker to return unless the doctor has released the patient to full duties.

There are several ways for employers to help overcome the barriers that injured workers experience when they face returning to work.

The first is that all parties have to set the goal of returning to work.

The second is to provide the treating doctor and claims examiner with an accurate physical job description.  It is always better when everyone knows the ultimate recovery goals.

The third is to inform the injured worker, the doctor and the claims adjuster that there are light or modified duties available. Provide accurate information on what duties are available or get the restrictions from the doctor and then design the job within those restrictions.

The fourth is to have the front-line supervisor keep in touch with the injured worker and provide gentle encouragement for getting back to work.

The fifth is to make sure that the employee is complying with the limitations. Many times, the employee does not want to be singled out or wants to keep the production line going so they go beyond their limitations.  The front-line supervisor needs to assure the employee that the limitations will not last and that they should always follow the doctor's instructions.

As usual with all things in workers’ compensation, communication and encouragement are the keys to success.

*The views and opinions expressed in the Public Risk Management Association (PRIMA) blogs are those of each respective author. The views and opinions do not necessarily reflect the official policy or position of PRIMA.*

Often, the last thing a company wants to address immediately following a large property loss is an insurance claim. However, the claims preparation process is vital to ensuring that a business survives a large property loss. Throughout my career of measuring and preparing large property losses for insureds, I have learned many lessons to ensure the claims process goes smoothly and efficiently. Below, I outline six critical steps to take prior to and following a loss to increase the chances of a favorable claims outcome.

Prior to a loss:

• Ensure your reported values are accurate

To place insurance, each year a company reports the annual values of the property, inventory and business interruption risk to insurers. Inaccurate values can lead to several difficult outcomes, including co-insurance penalties, insufficient limits of insurance or inaccurate deductibles.

• Assemble your claim team prior to a loss

Internally, identify key personnel from risk management, facilities, operations, sales, accounting, insurance broker, etc. Externally, take the opportunity to interview, vet and contract with vendor partners including restoration companies, claim preparation firms and coverage counsel. Following a wide-spread event, these resources quickly become fully utilized and having relationships in place will result in prioritized response and recovery.

• Fully read and understand the policy language

Work with your insurance broker to understand the policy, coverage and any potential areas of concern. Once a loss has occurred, it is not the time to learn what coverage you have (or don’t have).

Following a loss:

• Communicate externally and internally

Early on, it is important to provide insurers with a preliminary estimate of total loss so that the insurance reserve can be properly set. This will develop into a well-documented insurance claim submission and be shared with insurers. It is equally important to identify potential recovery issues with internal management, including insurance sublimits, deductibles or potential policy coverage issues.

• Make decisions in a timely manner

Often after a catastrophic event, the insured may decide to make changes to the building or operations while rebuilding. While most understand the increased cost of upgrading will not be covered by insurance, it is important to also highlight that any extension to the restoration period will be excluded from a business interruption recovery. Of course, the insured may opt to make the change or investment regardless but should understand the implications to their insurance recovery.

• Establish a claim preparation timeline and communication protocols

Following a loss, it is important to keep regularly scheduled meetings with the team (risk, operations, finance, claim preparer, etc.) and the insurance company’s representatives (adjuster, equipment or building consultants, claim auditor, etc.). Develop communication protocols and assign a point person for such communications. This ensures timely communication and discussion of key decisions and issues. It also keeps the insurance adjustment team focused on your claim, which may be one of many following a wide-spread event.

By following these steps, a business will be in position to maximize insurance recovery in a timely manner, allowing it to get back to running its business.

*The views and opinions expressed in the Public Risk Management Association (PRIMA) blogs are those of each respective author. The views and opinions do not necessarily reflect the official policy or position of PRIMA.*

Many employers struggle with trying to provide affordable healthcare to their employees. Traditionally, employers’ solution is to select a medical vendor who touts the deepest provider discounts. Discounts do save money, when used to buy groceries, appliances, or other consumable goods; however, maybe not so much with healthcare. Why is this? The “true” cost of services can be hidden under a layer of fees and add-ons and may also vary between regions and facility types. Therefore, a discount from an unknown cost may not always control costs, especially if the unknown cost is continually changing. That may also explain why employers, year after year, are having to deliver premium increases to their members, or absorb the cost. When that occurs, employers may need to think outside the box to meet those needs.

Reference Based or Transparent Pricing is the concept of identifying and processing a bill for medical services based on a known price point such as Medicare. This information is then used by insurers to determine a “cost +” pricing for all services. The savings realized on specialized care facilities or providers can be substantial, because those areas may have the greatest markup.

How does Reference Based Pricing work? A predetermined “cost +” is outlined prior to claims being processed by the insurance company or TPA (Third Party Administrator).  Where Traditional Discount Plans rely on “networks” to steer members to covered facilities, with RBP (Reference Based Pricing), there is no network.  Employers pay the same “cost +” amount regardless of where the member receives services.  For example, with the Traditional Discount Plan if a member needs an MRI, the member must go to the network facility for services otherwise out-of-network benefits apply. However, with RBP the member may go to any MRI facility and regardless of the amount billed, the payment is the same. The amount the employer would pay using the Traditional Discount Plan in most cases is more than the amount paid using the RBP method.

The reason is based on the markup of services vs the amount of the discount. There is not a lot of room for markup on primary care services; therefore, savings using the RBP model may not be as substantial, but with specialized medicine and urgent care facilities there is no ceiling on the markup applied to claims.  For that reason, if employers have a 30% discount using the Traditional Discount Plan, but the facility is billing 400% of Medicare, they probably are not seeing a reduction in their medical spend. 30% of 400% above Medicare means the employer still paid at least 200% more than with the RBP model, which for services related to a premature baby, heart disease and/or cancer could be substantial. Therefore, using the Traditional Discount Plan model the only option available to employers to reduce their healthcare spending is to shift the cost share more to the member by increasing deductibles and premiums.

Using the RBP model is a tried and true method to reduce healthcare costs without employers having to reduce benefits to the member.  In fact, members’ benefits may improve by eliminating the deductible in favor of a flat copay.  This makes the RBP much easier for the provider and the member to know what is expected at the time of service.  Members like the plan because they can go to any provider or facility, and providers like the plan because it eliminates the need for them to be in the collection business.

According to CMS, in 2021 retail drug spend in the US was around $378 billion, which increased by 7.8% from 2020. [1]  The cause is due to the increase in the use of prescriptions.  In fact, costs for medical and pharmacy spend have increased each year since 1960, which is when CMS started collecting data.  That means employers should be looking for “outside-the-box” ways to provide benefits including pharmacy. Many Traditional Discount Plans will advertise the “rebates” and throw out words such as “transparent” and “100 % pass through” as a way to let employers know these plans are serious about saving money on pharmacy costs.  What isn’t always disclosed is the shell game with “rebates”. [2]  Drug companies partner with PBM (Pharmacy Benefit Managers) or Insurance Companies to have their drug place on the formulary in a preferred status.  This encourages members to use their drug instead of other drugs which may be cheaper and more effective. On the back end, the company pays a rebate back to the PBM, which provides those back to the employer.  The primary issue with that methodology is that high-cost drugs listed on the formulary in a preferred placement does not mean those drugs are more effective, which is what many employers, members and even physicians think.  In fact, in many cases those preferred drugs are NOT more effective.  People might be surprised to know that the FDA’s only requirement for a drug’s effectiveness is whether it is better than a placebo. [3]  For this reason, placing a high-cost, possibly ineffective drug on the formulary, just for the rebates does not save on prescription spend and does not help the patient with his or her medical condition.

Comparative Effectiveness Data looks at drugs to determine their effectiveness in treating conditions, and it’s those drugs that have preferred status on the formulary. Excluding high-cost and ineffective drugs may reduce rebates, but the overall savings to the plan can be much greater.

Employers may not realize the tools they have in their toolbox to control healthcare costs and preserve benefits for their members. That is why getting away from the traditional methods of controlling costs where the members’ burden increases either by premium or plan design changes, will not work.  Using that method could drive people who are well to go elsewhere for their healthcare needs and creates an atmosphere of discontent for those remaining on the plan. Using Reference Based Pricing to reduce the medical spending, and Comparative Effectiveness Data to determine which drugs should be placed on the formulary, are only two of the many tools available to employers trying to control healthcare costs.  The end result is a win-win for the employers and their members.

[1] https://www.cms.gov/newsroom/press-releases/national-health-spending-grew-slightly-2021

[2] https://www.kff.org/medicare/video/prescription-drug-rebates-explained/

[3] https://www.trudatarx.com/what-does-fda-approval-really-mean

*The views and opinions expressed in the Public Risk Management Association (PRIMA) blogs are those of each respective author. The views and opinions do not necessarily reflect the official policy or position of PRIMA.*