Risk management is a complex yet inevitable aspect of healthcare.
Ineffective risk management increases an organization’s downside risk, or potential for financial loss. Conversely, effective risk management not only lowers downside risk but also helps organizations plug into upside risk, or opportunities that increase value and revenue potential.
The accelerating shift to value-based care demands that healthcare organizations implement proactive, comprehensive risk management. However, this can seem easier said than done. That’s where experts in risk management come in.
Below we discuss how healthcare risk management has evolved in the United States and why experts skilled in risk management are crucial to your healthcare organization’s success — particularly, in this era of value-based care.
The evolution of healthcare risk management
In the mid-1970s, healthcare risk management in the U.S. focused primarily on patient safety to combat rising malpractice insurance costs and litigation. This focus expanded as a result of the Institute of Medicine’s 1999 report To Err is Human, which reported that medical errors were causing up to 98,000 patient deaths each year.
To Err is Human triggered an immense reaction from not only the healthcare industry but also the American public, giving rise to several patient safety initiatives (e.g., the SBAR communication tool) aimed at promoting a culture of safety and accountability.
Now, with healthcare’s growing shift toward value-based care, poor patient outcomes not only carry ethical and legal implications but also significant financial repercussions.
For instance, value-based reimbursement models — such as pay-for-performance — compels healthcare providers to deliver high-value, top-quality healthcare or else they’ll lose money due to CMS penalties. If the providers manage a patient’s care in a cost-effective way, CMS will reward them with financial incentives. Value-based care differs from the traditional fee-for-service model, in which CMS reimburses providers for each service regardless of the patient’s health outcome.
With value-based care, providers take on more financial risk, obligating them to pay more attention to patient safety and other aspects of healthcare risk that can influence their healthcare delivery and bottom line. For this reason, many healthcare organizations have adopted Enterprise Risk Management (ERM) — a risk management model designed to apply a more holistic approach to healthcare risk management.
What is ERM — and what it means for healthcare organizations
According to the American Society for Healthcare Risk Management (ASHRM), “Enterprise risk management in healthcare promotes a comprehensive framework for making risk management decisions which maximize value protection and creation by managing risk and uncertainty and their connections to total value.”
ERM consists of the following eight domains:
- clinical/patient safety
- human capital
Healthcare organizations need risk management experts to implement ERM and other risk management best practices that will anticipate, mitigate, and prevent the potential losses associated with each of the aforementioned eight domains. In addition, these experts can identify opportunities to enhance a healthcare organization’s revenue flow, credibility, clinical care, and patient safety.
Risk management experts come from a variety of backgrounds, including medicine, law, finance, insurance, and nursing. For this reason, they’re highly adept and flexible, consistently staying current on evolving healthcare trends, such as changes to reimbursement and regulations.
For example, risk management experts can help healthcare organizations:
- remove operational silos by streamlining communication between various departments, thereby promoting safe, consistent, patient-centered care
- maintain compliance with local, state, and federal regulations that could impact licensure, accreditation, and other legal liabilities
- implement systems to raise patient health outcomes, satisfaction, and employee productivity, thereby improving operational success
- ensure precise and efficient reimbursement processes
Notably, the use of data analytics has become a key component to effective risk management, replacing cumbersome and often inaccurate manual methods such as spreadsheets. Data analytics allows a healthcare organization to discover, track, and prioritize potential risks. This enables the organization to adjust their exposure to risk and execute wiser decisions that boost coordination, quality, and efficiency.
The future of healthcare risk management
The road to value-based care can seem like an uphill battle for healthcare organizations — especially in regard to provider participation. To illustrate, a 2020 study by Deloitte found that only 46% of physicians used clinical pathway tools designed to promote value-based outcomes.
From a risk perspective, providers will need more education about value-based care and greater support to optimize patient outcomes and avoid burnout. Information technology (IT) can provide this support in various ways, including population health management, which helps providers to identify patients most at risk for poor outcomes (e.g., hospital readmission). This increases the likelihood of early intervention and cost savings.
Ultimately, experts in risk management astutely guide healthcare organizations through the numerous, multifaceted challenges in healthcare.