Not that long ago, the insurance industry, if not the business world, was rocked when Connecticut General and INA merged to form CIGNA. Today, mergers and acquisitions are a common everyday occurrence.
Once an M&A announcement has been made public, there is a plethora of activities and actions that need to be addressed, including staffing, location of personnel, budget and culture. Each one of these areas, even in a small way, can have an impact on your claims program.
The culture of the organization is most likely to change in some fashion. This change can have a negative impact on the claims professionals and corporate morale. The culture needs to be addressed as soon as possible, but change could take months and even years as the organizations finalize consolidation and weave their way through financial, regulatory and business barriers. Read Kathy Shostek’s recent blog, “Successful healthcare consolidation requires consolidating culture,” for additional culture considerations.
The process of merging cultures, operations and risk management objectives (profitability, reputation, community, growth, etc.) that affect the claims process is a daunting task. Couple this with the mechanics behind the claim process that include insurance programs, information systems for claims processing and defense panels, and the success of the task at hand gets even more complicated. All of the aforementioned are important, but culture is a far more critical concern to be addressed immediately.
As soon as an M&A announcement is made, it sends an immediate shock wave through all employees with a common theme. The claim staff may fear losing their jobs or losing opportunities formerly available. This fear can negatively impact productivity and may even result in employees leaving the company to seek jobs elsewhere. It is important for the organization, its managers and HR staff to recognize this and react promptly. The failure to do so can result in escalated claim costs to the organization, along with the loss of reputational risk at a staggering rate.
The organization needs an effective plan in place to address potential loss of staff. Senior management should be involved in the planning and development of contingencies in the event of involuntary terminations of the claims and risk management staff. This begins with the evaluation of exposures based on the type of insurance program for the acquired organization.
A claims program that is bundled with a carrier, whether it be first dollar or a deductible program, presents little disruption on human capital since the claims program is being handled by the carrier. If a retention and a third party administrator are used, again the exposure is limited and there is time to evaluate once all transactions are completed. If the claims program is self-administered, however, action needs to be taken to address the loss of any key personnel.
Typically, the wrong approach is taken to address a temporary loss of staff. This usually entails absorbing the caseload using existing claims professionals. If there is a large staff in place, this may be acceptable for short periods of time with the caseload distributed among many professionals. More times than not, though, the claims staff is already at or above an acceptable workload. Adding more claim volume, even if small or short-lived, can have detrimental effects on loss costs.
One successful approach is to outsource the claims. This can be done on a temporary basis using third party personnel. The staff can come from insurance brokers, third party administration companies or perhaps even claims staffing companies. The locum tenens approach can be quite successful. While the cost of this short-term staffing solution is typically high, the alternative consequences are much more adverse. This approach allows more flexibility and will aid in creating a long-term claim program solution.
A recent example of this type of approach involved the merger of two large community health systems. Proper planning allowed for temporary placement of claim specialists in the acquiring company’s headquarters to provide for uninterrupted claims administration. This not only maintained identical benchmarks for measuring claim costs (open caseloads, expenses, closing ratio, etc.), but improved the morale of existing staff, who could see the organization’s commitment to staffing the program at levels that did not create additional hardship.
The key to a smooth M&A transition, from a liability claims outcomes perspective, is proper planning through an enterprise risk management approach that addresses the exposure before it gets to the critical stage.
Tim Over, MPH, ARM, AIC, SVP – Specialty Claims