Health information system electronic health record week 2

Chapter 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