Health Care Risk Management
Helpm31990
Chapter5.pptxChapter 5: Financing Risk
Financing Risk
Risk exists for a healthcare organization is there is an event or action that can have impact on its financial or operational performance.
Healthcare organizations work to balance this by covering the financial risk or transferring it.
Financing risk means to ensure that adequate funds are available to cover costs related to unexpected events
Transferring risk is accomplished by purchasing insurance.
To Finance or Transfer Risk
Management of risk is paramount to the healthcare organization and should be tailored to the specific needs and structure.
The healthcare organization must determine what risk can and should be internally financed versus what risk should be transferred
The goal of risk management is to add value to the organization by appropriately and wisely managing risk
Costs of Adverse Risk
Defense Costs
Settlement or Judgment
Loss Reduction
Employee Morale
Opportunity Costs
Identifying Risk
Risk managers work to identify areas of risk exposures in order to minimize the likelihood of adverse events as well as how to cover costs if they should occur by monitoring:
Adverse incident reports
Patient safety data
Quality indicators
Insurance company claims
Employee satisfaction/complaints
Patient satisfaction/complaints
Accreditation survey results
Financial reports
Professional literature
Financing the Risk
The fiscal well-being of the organization is the determinant of how best to managing the financing of risk.
Internal financing is not prudent if the organization does not have available funding to cover risk.
External financing of risk is less costly yet still is a financial expense to the organization and must be weighed as to how much coverage is needed.
Analyzing How to Finance Risk
Healthcare organizations evaluate cost-effectiveness of available risk financing alternatives through:
Quantitative analysis measures an event’s risk variables
Qualitative analysis measures the event’s impact on the organization
Insurance Options
Traditional Insurance Companies
Fairly common
Standard coverage
Cost is relative predictable
Events not covered by insurance remain the responsibility of the healthcare organization
Self-Insurance or Self-Funding
Requires a significant amount of capital and financial reserves
Choosing an Insurance Plan
Make sure the plan meets your needs in terms of:
Portability
Flexibility
Services provided
Choose a company based on:
Experience -- Staffing
Technology -- Procedures
Costs -- Protection
Total Cost of Risk
In order to balance the need for risk financing with the cost, healthcare organizations need to estimate the total cost of risk by analyzing:
Cost of risk transfer
Cost of risk retention
Administrative costs associated with managing both the exposure to risk and claims if adverse events occur
Areas of Exposure
Automobile Liability
Aircraft Liability
Business Interruption and Income
Crime
Cyber Liability
Directors/Officers Liability
Emergency Evacuation
Employment (injury/illness, benefits, practices)
Areas of Exposure
Fiduciary Liability
General Liability
Licensing Board Discipline
Media
Medical Equipment Breakdown
Patient Confidentiality
Professional Liability
Property
Insuring Agreements
Insurance company will pay sums that the insured becomes legally obligated to pay.
Occurrence Policies cover all injuries that occurred during the policy period, regardless of when they were reported.
Claims Made policies cover injuries reported during the policy period that occurred after the policy retroactive date.
Summary
Financing of Risk is a major component of Management.
Determining the method of financing risk as well as selecting the appropriate liability insurance company and plan is essential
