Risk management is important in every industry, but for healthcare companies, risks carry even greater weight. Cyberattacks threaten patient safety and the organization’s reputation. Hospital administrators have to precisely manage working capital, oversee personnel, and navigate strict regulatory requirements. In this complex environment, many organizations are implementing enterprise risk management for healthcare needs.
What Is Healthcare Enterprise Risk Management?
ERM is a risk management framework that takes an integrated, organization-wide approach to the decision-making process and controls. ERM helps organizations adapt to changing risk landscapes and choose the optimal paths forward. Healthcare ERM is designed to address the unique challenges and needs of hospitals, clinics, and HMOs.
Healthcare ERM is holistic, tailored to your organization’s risk profile and operating environment. This approach means identifying and managing risks, vulnerabilities, and threats before they have the opportunity to cause significant harm to your operations.
How is an enterprise risk management program different from the one your organization uses right now? ERM stands out from traditional risk frameworks because it doesn’t rely on insurance as the primary solution. Instead, hospitals that follow ERM develop effective methods to prevent, minimize, transfer, and mitigate risks skillfully.
What Does Enterprise Risk Include? The Eight Domains of ERM in Healthcare
The American Hospital Association and the American Society for Health Care Risk Management define eight categories of healthcare risks, or domains.
1. Operational Risks
Operational risks involve disruptions to your organization’s systems, processes, and daily operations. Supply-chain problems, inadequate security controls, lapses in oversight, poor management decisions, and hiring mistakes all have short-term and long-term impacts on organizational health.
2. Strategic Risks
Strategic risks include the risks of adopting new protocols and technologies, but also risks associated with refusing to adapt to customer expectations. Marketing, executive leadership, business partnerships, supplier relationships, acquisitions, contracts, and the organization’s overall direction are all part of strategic risks.
3. Financial Risks
Financial risks involve all decisions and events that impact your organization’s financial well-being, from credit ratings and interest rate fluctuations to equipment assets and expansion. In healthcare, risks to cash flow, lines of credit, reimbursement rates, and budget allocations demand fast and precise action.
4. Clinical Risks
Clinical and patient safety risks deal with care, patient outcomes, medication, treatments, and residents. Examples of risks to patients include hospital-acquired conditions, prescription mistakes, misdiagnosis, and serious safety events.
5. Legal and Regulatory Risks
Regulatory compliance risks in healthcare include violations of HIPAA, state laws, and the Conditions for Coverage and Conditions of Participation for Medicare and Medicaid. Legal risks generally revolve around liability concerns. Violations can happen due to employee actions, inadequate security controls, internal fraud, and human error.
6. Technology Risks
Information technology can improve healthcare operations significantly, but hospital hardware and software also carry risks:
- Malware
- Ransomware
- Phishing attacks
- Theft
- Data breaches
- Unexpected downtime (e.g., billing systems offline)
In healthcare ERM, the technology domain also relates to data storage, cloud-based platforms, mobile devices, data backups, and cybersecurity.
7. Human Capital Risks
Risks related to medical staff and healthcare personnel often involve hiring disputes, wages, disciplinary actions, termination, and HR decisions. You have to anticipate risks to workplace safety, injuries, fatigue, and workers’ compensation. Absenteeism and turnover rates also impact operations.
8. Hazard Risks
The hazard risk category involves three types of events:
- Natural disasters: Hurricanes, tornadoes, wildfires, flooding, and other declared disasters
- Business disasters: Global supply chain breakdowns and vendor failures (e.g., collapse of EHR network)
- Building disasters: Failure of backup power, facility maintenance, structural problems, and renovation problems
This risk domain requires careful evaluation, contingency planning, and prioritization.
What Are the Benefits of Enterprise Risk Management for Healthcare Organizations?
It takes time to transition from a traditional risk model to ERM, but the benefits are overwhelming from an organizational, compliance, reputational, and profit perspective.
Proactive Instead of Reactive
Hospitals traditionally transfer risk, relying on insurance to recover after natural disasters, fires, or ransomware attacks. The problem is that reactive strategies still allow major, costly disruptions to business operations.
ERM is proactive. It aims to prevent damage or mitigate organizational impacts. Instead of suffering a massive data breach that decimates share prices and consumer confidence, it’s better to minimize the risk and scale of cyberattacks.
Integrated From Top to Bottom
One of the largest advantages of ERM is how it facilitates communication, data sharing, and governance. ERM policies and procedures take the entire organization’s needs into account.
Hospitals without standardized risk policies often leave decisions to department heads. But data silos inevitably cause problems:
- Misunderstandings and miscommunications
- Mistakes and compliance violations
- Duplicated efforts or contradictory policies
- Short-sighted “solutions” with unintended consequences
- Executive policies that don’t apply to day-to-day realities
Thanks to ERM’s connectivity, decision-makers can gather data points from the bottom up, and then craft top-down policies that unify compliance efforts and remove confusion.
A Better Fit for Today’s Healthcare Models
An insurance-focused risk approach made sense when reimbursements were transactional. Now that value-based care, bundled payments, and other alternative payment practices are commonplace, ERM is a better fit for maximizing revenue. Risk mitigation strategies improve patient outcomes and organizational performance simultaneously.
Valuable for Shareholders and Patients
ERM helps you build value with shareholders, insurers, customers, and employees. Risk-based controls can strengthen your reputation, build patient trust, and streamline your healthcare compliance program.
ERM’s value-based approach also recognizes that organizational and performance risks have direct and indirect financial impacts. Taking steps to protect patient privacy, strengthen cybersecurity, and promote a risk-aware culture is good for business.
Many hospitals see lower operating costs, which improves long-term financial health and cash flow stability. The cost of a data breach in healthcare ($9.5 million per event) is more than double the average of other industries ($4.45 million), so improving risk management can also lower insurance premiums.
Comprehensive and Connected
ERM frameworks offer greater insight into your business as a whole. Different departments share risk data instead of managing issues in a bubble. This matters because a non-issue to one department can signal serious threats to another.
For example, HR may fire an underperforming employee. But does the IT department know? What if the individual has elevated access credentials? Three-quarters of insider threats (e.g., destruction of data or theft) come from disgruntled employees.
Developing a holistic, customized, and centralized approach to your risk program strengthens your defenses. It also makes better use of company resources.
Strategic and Data Driven
Risk management programs with roots at the executive level are better positioned to achieve long-term objectives. Board members have the authority to see and set ERM goals that align closely with initiatives instead of adding weight. The result is often faster compliance.
Making risk decisions based on data provided from across the organization also enhances the quality of organizational policies. There is less guesswork, greater accuracy, and improved adaptability — not to mention fewer surprises.
How Do You Create an Enterprise Risk Management Framework for Healthcare?
Healthcare ERM frameworks are like building projects. It takes time to lay the foundation, but the results last ages.
Perform a Comprehensive Risk Assessment
Start by identifying all organizational risks. Use quantitative data from each department to assign costs and probabilities to each risk. Qualitative observations from experts and stakeholders are also valuable.
Prioritize Risks Holistically
Score risks, identifying high-likelihood threats and low-probability events. Prioritize risks that have the highest impact on your patients, finances, operations, and business health.
Evaluate Your Current RMF and Define Goals
Align your ERM framework with your company’s objectives. This requires asking questions:
- Where does your current risk framework fall short or miss vulnerabilities?
- What type of risks do you have the most trouble managing?
- Where does your personnel spend the most time on compliance tasks?
- Which risks are having the largest impact on your financial health?
A good ERM framework continues evolving with risk trends and organizational needs. Regularly seek opportunities for improvement.
Use Technology
Gathering, organizing, analyzing, monitoring, and acting on the large volume of data points in healthcare is difficult by hand. Modern risk management platforms can accelerate the process, improve your capabilities, and minimize human error.
Technology can go beyond tracking sentinel events (medication errors, OR mortality rates, etc.) for reporting requirements. It can look for patterns in records of near misses, tracking down latent failures and underlying causes of poor treatment outcomes. This improves patient results from the ER to aftercare.
Appoint an ERM Executive
Assign an executive “promoter” to represent ERM concerns to the board. Executive ownership is necessary for ERM to enact real, effective changes to risk programs. It’s common for the CCO, CFO, CRO, or CISO to assume this role.
Define Your Risk Attitude
Insurance is often still necessary for enterprise risk management in healthcare, but it plays a less prominent role. Evolving your approach means balancing the costs of risk prevention, risk financing, and risk mitigation controls. The right formula depends on your capital needs, facility size, risk profile, and compliance requirements.
Learn How To Implement Enterprise Risk Management in Healthcare Successfully
Juggling patient care risks, compliance concerns, personnel issues, financial needs, and growth objectives isn’t easy, but technology makes it possible. Risk management platforms like Compyl help you create and manage a customized ERM for your organization.
Automate workflows, data gathering, reporting, cybersecurity oversight, and compliance with state-of-the-art risk management solutions. Contact us for more information today.
