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Risk Management in Healthcare Industry

Healthcare Management

Risk Management in Healthcare Industry

Healthcare risk management dates back to four thousand years, with the “Babylonian Code of Hammurabi” ordaining severe punishment for physicians who caused death or harm through their own malpractice. After the malpractice insurance crisis in 1970s, healthcare risk management became an important component of hospital administration in the US. Healthcare administrators recognized the value of developing a proactive approach leading to an increase in malpractice verdicts and settlements. With growing cost and complexity of care, healthcare faces intimidate challenges.
A wide variety of personal and environmental exposures posed by quantitative and qualitative assessment of risk to human health has become a necessary expedient for government decisions on managing those risks. In hospital operations, risk management refers to self protective activities which help in preventing real or potential threats of financial loss due to accident, injury and medical malpractice.

Risk management for healthcare is defined as an organized effort to identify, assess, and reduce risks to patients, visitors, staff and organizational assets. In other words, risk management is “the process of assuring that covered persons (members) receive all the healthcare services they need, are entitled to under the contract, no more and no less at the most cost effective level possible by reducing or eliminating untoward incidents (occurrences) that might lead to injury or illness of patients, visitors or employees”. Risk management is neither integrated nor does it address the upside of risk, it works on quality, safety, compliance, audit, insurance etc. In simple words, risk
management can be considered as the protection of assets. Risk management involves four steps for accomplishing this goal:

Risk identification:- Risk identification is not a one-time static analysis, it is a continuous identification process of all possible liabilities such as unexpected treatment outcomes, patient’s complaints about care, adverse events that may or may not cause harm.

Risk analysis:- Risk analysis encompasses the evolution of past experiences and current exposure to eliminate or limit substantially the impact of risk in cash flow, community image and employee & medical staff morale. High risk activity priorities for risk manager develop from risk analysis information.

Risk control/ treatment:- Risk control/treatment is the most common function associated with a risk management program. It is the organizations response to significant risk areas. Ideally a risk control/loss management program categorizes the potential liability program into four areas: bodily injury, liability losses, property loss and consequential losses.

Risk financing:- Indemnification of risk requires retrospective analysis and comprehensive organisational prospective of direct expenditure associated with quantifying and funding losses & risk management activities. Financing choices can be self insurance, commercial insurance coverage, insurance premium or funding for any related risk management activities and liability payouts.

Increasing corporatization of healthcare industry for a number of reasons along with synchronization in increasing awareness brings the healthcare service providers under pressure from multiple fronts. The safety and quality problems in healthcare system continue because it relies on outmoded systems of work. Risk management perform its function apparently, in a system that is not fully integrated into the structure of the organisation, hence the changes be episodic and unit or incidents focused and not sustained and organization wise. Promoting and understanding patient
safety to develop a reporting tool is an important step to create a culture in which adverse event reporting is encouraged and rewarded by all the staff members. Managing adverse events is the primary focus of risk managers.

The Joint Commission on Accreditation of Healthcare Organization (JCAHO), is an independent organization that evaluates and accredits healthcare organizations and healthcare programs throughout the US. These standards focus on critical areas related to
(1) providing leadership,
(2) improving organizational performance, and
(3) information management and patient rights, training and education.

The JCAHO standard is typically not the driving motivator for risk management activities but is to provide a good template for beginning to create a culture of safety. Other agencies involved in making determinations about health risks are:-the Department of Health and Human Services (DHHS), Public Health Service (PHS) agencies: including the Food and Drug Administration (FDA); the National Institutes of Health (NIH); the Centres for Disease Control (CDC), the Alcohol, Drug Abuse, and Mental Health Administration (ADAMHA); the Agency for Health Care Policy and Research (AHCPR); and certain divisions of the Office of the Assistant Secretary for Health. Other federal agencies conducting risk assessments, includes the Environmental Protection Agency (EPA), the Occupational Safety and Health Administration (OSHA), the Consumer Product Safety Commission (CPSC), the Department of Transportation (DOT), the Mine Safety and Health Administration (MSHA), and the U.S. Department of Agriculture (USDA). Risk assessment is a major activity of the government’s health and regulatory agencies and is developed by state and local governments.

Primary concern of risk management programs since they were first used in hospitals is the prompt identification of injuries and accidents to patients, visitors and staff. Thus the institutions approach the potential problems and correct their cause before they can occur. Prompt identification can be accomplished by:

  • Incident reporting
  • Occurrence reporting
  • Occurrence screening

Risk management process sounds harsh and leads to the conclusion that the healthcare industry is adopting a business like , bottom-line approach without humane consideration of aspects of providing care to people in need. This perception is not accurate. Risk management by healthcare institution becomes an integral tool of effective management. Effective risk management strategy is
not judged in terms of the provider’s money it saves, which is certainly a legitimate and important goal, but is judged against the fundamentals objective of contributing to quality of services. At the end of the day, protecting patients, staff, and organization from risk is the ultimate goal in healthcare.

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