Epidemic proportions: insurers are modeling the potential liability posed by infectious diseases. (Industry Strategies: Infectious Disease).

With the outbreak of one or two new infectious diseases each year for the past decade, the battle to ward off epidemics continues to challenge medical professionals. Health-care providers and hospitals are gearing up to fight new infectious diseases, and insurers are examining closely their potential liability.

Infectious diseases still account for about 63% of deaths among children and 48% of all premature deaths, according to the World Health Organization. The rise of antimicrobial resistance resulting from inappropriate use of antibiotics, poverty and ineffective infectious disease control programs are contributing to the resurgence of epidemic diseases. In addition, the globalization of travel and trade can speed the spread of disease.

The recent outbreak of severe acute respiratory syndrome-SARS--across Asia and Canada is keeping insurers, providers and hospitals on high alert. The number of fatalities resulting from these epidemics is growing rapidly. SARS, the pneumonia-like illness that originated in China's southern providence of Guangdong, had infected more than 8,445 people and claimed the lives of more than 790 people worldwide as of June. By comparison, an average of 36,000 people die from flu-related complications each year in the United States, and the 1918 flu epidemic killed more than 50 million people worldwide.

There is no end in sight to the onset of infectious diseases. While SARS has up until now had little effect in the United States, U.S. Secretary of Health and Human Services Tommy Thompson believes the virus will likely reappear in the nation and Europe next flu season and result in some deaths, despite best efforts to control the illness. In addition, David Heymann, head of communicable diseases for the WHO, said in a statement that an influenza epidemic will almost certainly occur as it did three times in the past century, as well as diseases we do not yet know.

Gearing Up

Insurers and health-care providers are gearing up to protect against and possibly ward off potential disease epidemics.

"First, we have the responsibility to be able to pay for an increase in necessary care and all of the attendant costs. We can help keep provider organizations viable because they are receiving necessary income," said Dr. Thomas Simmer, vice president of medical affairs and corporate medical director for Blue Gross Blue Shield of Michigan. He said the organization also has a coordinating role to assist institutions providing care that exhaust either resources or capacity. The Blues would then facilitate transfers and coordinate with other centers in the area.

Insurers are taking many of the same steps they previously implemented with the threat of other epidemics, such as AIDS. The insurance industry has had to plan for fair payment for services so members don't worry about getting the quality of care they expect, said Simmer. "With AIDS, the situation has become routine, but it wasn't for a long time. People didn't know what type of policies they needed to have in terms of providers caring for patients, whether special isolation was needed, whether special legislation was required for quarantine...and the debates continue today."

With the SARS outbreak, insurers are asking providers and hospitals to take all necessary precautions, particularly those set forth by the Centers for Disease Control and Prevention, to protect against its spread. For example, the CDC has issued to hospitals recommendations for proper hand-washing and cleaning procedures, use of masks and protective apparel, transportation of infected patients and patient placement.

"One of the first lessons learned with SARS is that early and effective quarantine procedures can avoid widespread dissemination of illness and save a large number of lives and an enormous amount of health-care costs," said Simmer.

The liability that insurers and hospitals could face if SARS spreads across a region or throughout a facility has not been quantified. "It's a difficult question because if there were an outbreak, such as SARS, we're not 100% sure what actually would happen," said Dr. Eric Book, senior vice president and chief medical officer of Blue Shield of California, adding that the plan is taking the potential outbreak seriously. For example, members can download updated information about SARS' symptoms, causes, treatment and prevention on its Web site, MyLifePath.com.

Insurers believe education is key to protecting against potential outbreaks. "We believe our role is to inform our member community and providers as to what a disease is and make sure providers are keeping up with appropriate links from the CDC," said Book. In the event of an outbreak, he said the Blues plan would quickly mobilize its regional medical directors to make sure local medical groups affected by the outbreak are implementing appropriate precautions and procedures.

"Health insurers are responsible for facilitating the health of their members:' said Jeanne Kennedy, vice president of business risk management for CareFirst Blue Gross Blue Shield in Maryland. "So, for us as a payer and health insurer, the result will be just like any other disease--manage the symptoms and patients' health and try to positively influence our members' health." If a population develops severe symptoms, the plan turns to disease management to figure out whether there are any measures that can be taken to prevent or detect the disease or manage a population that has a higher incidence than other regions, she added.

"The main step is exercising due diligence," Kennedy said, noting that the plan stays current with the data and heeds the recommendations from the CDC and WHO.

Modeling Risk

Insurers are gauging potential claims activity by predicting disease patterns and populations at risk. Surveillance systems and predictive models can help them measure the benefits of intervention to reduce the incidence and prevalence of diseases, as well as the costs of not intervening, said Martin Meltzer, senior health economist for the office of surveillance, office of the director, National Center for Infectious Disease for the GDC. These models tell insurers who's getting sick and why. Insurers also can build economic models that indicate the cost of insuring against a particular disease or condition, he added.

Insurers such as Highmark Inc. in Pennsylvania rely on predictive models to identify risk factors and increase member awareness. While such models generally provide two types of assessments--predictive and early detection, Highmark is focusing on developing and enhancing its early detection abilities to help detect if an event, such as bioterrorism or a virus such as SARS, has entered the region, said Rick Pro, vice president of healthcare informatics research and analysis. "We can then simulate a situation based on the information gathered about the disease course, types of utilization volumes we might expect, types of services needed by individuals with SIXES, and then draw correlatives between SARS utilization and typical flu utilization to help us more accurately quantify what we think the impact might be:' he said.

Influenza has become a popular model base used to predict future catastrophic infectious disease outbreaks. "I don't believe any discussion about catastrophic infectious disease is complete without reference to influenza pandemic," said Meltzer. "If you're ready for influenza pandemic, you're well on the way to being prepared for anything else."

The CDC recently asked Kaiser Permanente to develop a surveillance system to compare the incidence of respiratory illnesses in its population to rates of similar episodes over the past five years. Data is compiled from Kaiser's clinics, emergency rooms and hospitals for rates on respiratory illness on a weekly basis. Data is then entered into a computer program, which generates a weekly report on the incidence trend, and is statistically compared with previous data.

"We also use data to plan internally, such as whether there are any unexpected clusters of respiratory illness that could be SARS or another illness," said Dr. Steve Black, co-director of Kaiser Permanente's Vaccine Study Center. Kaiser, which serves members in nine states and the District of Columbia, recently developed a similar surveillance system to study the incidence of influenza.

Insurers will continue to evaluate risk for current and new infectious diseases. "I think that the anthrax outbreak following Sept. 11 really changed the perspective of everyone and certainly within the insurance industry, as early detection of bioterrorism events, and now with SARS, has come to the forefront in the industry," said Pro. As a result, a flurry of activity by insurers to develop predictive models is growing. However, he doesn't believe insurers are yet at the point of developing standard models across the industry.

Ample Reserves

Financial losses could be the greatest impact of an epidemic on insurers. "Because an epidemic, such as SARS, would be unanticipated, the result would be a large expenditure that could be only covered through depletion of our reserves to some degree," said Highmark's Pro.

The insured losses from an infectious disease epidemic such as SARS is not yet calculated, but the global cost of the illness is now reaching nearly $30 billion, according to a recent report by ING Re. This $30 billion total is apparent in many areas, according to ING, including wages, production, trip/event cancellations, retail sales, entertainment, etc.

"We must first make sure we have ample reserves to be able to pay for claims so no one will have to worry about covering their costs or not being able to continue to be in a good position with suppliers to receive drugs and equipment needed to provide care," said Simmer of Michigan Blues. In addition, hospitals need to pay close attention to costs they might incur. "There's a certain amount of training and cost that our hospitals must incur to be able to prepare for events. In our contracting discussions with them, we discuss what resources they need to maintain a level of preparedness and ensure they have adequate resources to meet those obligations," he said, adding that Michigan Blues has been able to maintain the state-required level of reserves and is in "a position to withstand an epidemic and be less likely to have a financial struggle in paying the bills."

From an insurer's perspective, the most immediate impact would be a dramatic increase in utilization above normal levels for members, which ultimately translates into a much higher level of payout than is anticipated or built into any financial plans, said Pro. The result? Insurers would likely have to dip into reserves to pay for extra utilization.

Ready-Set-Go?

But as insurers gear up to protect against mass attacks or epidemics, is the U.S. health system as prepared?

The American College of Surgeons recently said that the United States is dangerously unprepared for a mass attack--bioterrorist or otherwise--because most states lack an organized system of trauma care. In addition, Dr. Julie Gerberding, the head of the CDC, recently said in a statement that having enough hospital space to deal with an emergency SARS outbreak is a "weak link" in the U.S. health system.

In addition, some insurers believe hospitals must take a serious look at how to protect health-care workers in the wake of an outbreak. "Most U.S. hospitals aren't prepared for the types of internal policies that are required when hospital employees are at risk of an epidemic," said Simmer of Michigan Blues. For example, vaccinating health-care workers for diseases such as smallpox would protect against the possibility of a breakdown in the health-care delivery system because staff would be protected against such an epidemic. "It's a form of preparedness--you have to reduce risk of your healthcare delivery or else compromise the ability to deliver good service," he said. "And I'm not sure how hospitals would prepare for that in advance, but I suspect it would require a fair amount of crisis management to ensure they live up to such social expectations."

Worldwide SARS Cases

As of June 12, 2003


Australia                5
Brazil                   3
Canada                 238
China                5,328
Hong Kong *          1,755
China,
Macao *                  1
China, Taiwan          688
Colombia                 1
Finland                  1
France                   7
Germany                 10
India                    3
Indonesia                2
Italy                    9
Kuwait                   1
Malaysia                 5
Mongalia                 9
New Zealand              1
Philippines             14
Republic of Ireland      1
Republic of Korea        3
Romania                  1
Russian Federation       1
Singapore              206
South Africa             1
Spain                    1
Sweden                   3
Switzerland              1
Thailand                 9
United Kingdom           4
United States           70
Viet Nam                63

*Special Administrative Region

Source: World Health Organization

RELATED ARTICLE: Putting SARS In Perspective

The number of deaths from SARS totals around 790 worldwide as of early June, but other diseases continue to wreak more havoc.

WEST NILE VIRUS: The bite from the virus-laden mosquito caused 284 deaths in the United States in 2002.

MALARIA: Transmitted by the bite of the Anopheles mosquito, malaria causes at least 1 million deaths annually.

HIV/AIDS: The virus killed 3.1 million people worldwide in 2002.

TUBERCULOSIS: Highly contagious, as it is spread through the air, TB kills about 2 million people each year.

INFLUENZA: The virus takes about 250,000 to 500,000 lives worldwide annually.

Sources: World Health Organization; Centers for Disease Control and Prevention New Infection Prompts New Risk Management Measures

The recent outbreak of severe acute respiratory syndrome, a pneumonia-like illness now primarily affecting Asia and Canada, has insurers looking for ways to address risk management concerns that might result from its spread. For example, a higher incidence of a disease would require health-care providers to step up cleaning of the facility and ask caregivers to be more aware of the changing situation around them, said Jeanne Kennedy, vice president of business risk management for CareFirst Blue Cross Blue Shield in Maryland.

In addition, at the discovery of suspected cases, hospitals would need to set up triage sites and separate SARS patients from the others. "Management of disease is a main function of clinical settings, and while there's financial risk to a company facing a huge SARS outbreak and health risks posed to residents in the immediate area, we're not sure that there are additional things a clinical site would do other than increase wearing protective masks," Kennedy said. The key is exercising good due diligence to try to keep the disease from spreading, she said.

"SARS represents an extremely important challenge that we have been observing in other countries outside the United States' said Dr. Thomas Simmer, vice president of medical affairs and corporate medical director of Blue Cross Blue Shield of Michigan. "An important consideration is how the delivery system is affected when such an outbreak threatens the health of health-care providers themselves." He said Hong Kong hospitals provided important clues as to how to handle SARS. For example, one hospital remained functional throughout the epidemic, largely because management encouraged employees to stay on the job by demonstrating the important role they play. On the other hand, another hospital's doors were closed in the wake of the epidemic because a large number of personnel didn't report to work for fear of contracting the illness. "Hospitals must be prepared to make sure people are coming to work even in the face of a certain amount of danger," Simmer said. In addition, health insurers have the responsibility to engage in hospital contracts to assure that facilities have the necessary resources to be prepared for such an event, he added.

Simmer believes, however, that U.S. hospitals aren't yet fully prepared for the types of internal policies required when employees are placed at risk. Vaccinating staff against diseases such as smallpox is one important step, in addition to implementing crisis management practices to ensure hospitals are prepared to handle a potential spread of disease, he said.

Because it's a relatively new disease, little information about SARS currently exists, and insurers say all the risk management concerns are not yet known.

"While I believe there are risk management concerns, exactly what they are can only be better known when we really understand the disease even more than we do today," said Dr. Eric Book, senior vice president and chief medical officer for Blue Shield of California. And, while the Blues plan recommends that providers and hospitals follow precautions set forth by the Centers for Disease Control and Prevention, it's still not known which steps are most crucial to take and which may be less necessary, he added.