Importance of Enterprise Risk Management In Healthcare System

Risk management has become a necessary tool with in many healthcare settings today. With so many rapid changes, health demands have opened doors to many risks for both the patient and provider. An effective risk manager or risk management program must include a number of basic elements such as structural elements, risk strategies designed to cover all scopes/departments, as well as formal written procedures and policies. An element of sophistication and innovation must also be associated with the risk management program (Carroll, 2009).

This sophistication and innovation can likely be seen in a form of risk management called enterprise risk management (ERM). ERM is different from traditional risk management making ERM a much more effective approach for health care organizations today which also includes key drivers evolving it into an approach which is more value-driven.

Traditional risk management structures address issues on a more local and departmentalized level. Risk managers assigned are experienced in the field they oversee developing their risk management methods specific to the service disciplines in each department.

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Methods used are more reactive and preventative on a much smaller scale when addressing risks. Since traditional risk management is much more departmentalized, it will often not include corporate marketing components or missions but focus mainly on clinical care delivery, issues in safety, claims, and finances specific to each department (Carol, 2009). Managerial, administrative, and operative process are the main focus of to reducing risk issues.

Enterprise risk management (ERM) encapsulates a much larger range of risk management models similar to that of traditional risk management but starting from the highest organizational levels down.

Risks addressed by ERM first are risks that affect the highest levels of management downward altering the very missions, visions, and plans of the entire organization. ERM models to address this are meant to portray the organizational visions of business and marketing. These models will include more strategic and comprehensive corporate planning and will often include elements of corporate branding.

With its many components, enterprise risk management (ERM) has the potential to grow into a very sophisticated improvement tool. Although, considering the significant number of changes affecting health care with in the past few years, risk management initiatives have remained relatively unchanged. With health care organizations developing towards a more complex number of business, political, financial, and regulatory factors every year, enterprise risk management allows the organization to more effectively develop on those factors. Since ERM takes into account risks on a higher corporate scale, risk models can encompass more strategic planning on all levels of the organization.

This includes branding and marketing components which excel a health care organization in sustaining a profitable, safe, and effective service to its community (2009). This broader outlook at risks increases the likely hood of discovering more risks and preventing them in the future. Fewer risks will fall through the departmental cracks due to the comprehensive risk processes in ERM are communicated from top leadership down encouraging a more multidisciplinary culture. Other management teams and risk managers will work together, promoting the other’s ability to think outside the box for possible solutions to risks. This approach allows teams to be mindful of future risks as well as establish preventive methods prior to the issue occurring (Beasley, 2016). Like many forward thinking drivers in health care, value-driven ERM has become its own scope which most organizations have adapted.

Key drivers for enterprise risk management, on a value driven spectrum, come from both internal and external sources. They include regulatory drivers, political drivers as well as business and financial drivers. Many healthcare policy makers, stakeholders, and professionals are all constantly trying to ensure the value of health care service so there is a constant initiative to improve that value routinely. In value-driven ERM approaches, probabilities of risks are identified and quantified which can be weighed through policy weighing risk versus reward trade off (Strategic Decisions Group, 2018). Essentially value-driven ERM is aligned with organizational and corporate business strategies in strategy that the two share a common culture on risks making a shift in the risk-return profile so there is a greater return when taking risks. In order for this return to occur, risks taken must be in line with organizational values, missions and objectives. The effects key drivers have on value-driven ERM can be seen in many scenarios.

A major key driver for value-driven ERM is regulatory demands. New laws and regulations, both state and federal are constantly changing. Non-compliance in these areas can mean many risks for an organization’s financial and licensing aspects. Risk managers, safety officers, compliance officers, and quality officers must remain on top operative processes to ensure compliance. Government regulatory agencies such as the Occupational Safety and Health Administration, the Department of Public Health, Centers for Medicare & Medicaid Services, and accrediting bodies like the Joint Commission all oversea compliance in many areas of risk. They will oversee common risk areas such as patient and employee safety, medical errors, infection control, patient health outcomes or changes in condition (Carroll, 2009).

Corporate management teams must ensure their ERM teams are well equipped with resources and knowledge of these regulatory issues. Another major driver for ERM is internal business initiatives. An organization may have a particular mission in the way it hope to affects its community. Core values, new projects or initiatives will open the organization to more risks. For example, to meet the growing demands of the young people in a community a hospital may want to open a pediatric wing. Assessing the business risks involved in this new project may deter or encourage a hospital in a particular direction. They must weigh the financial risks as well as how realistic the project is to succeed. ERM will allow the project planning team to evaluate and analyze financial implications and project those responsibilities on both long-term and short term agenda (Hayward, 2016).

With the abundance of risks affecting a health organization today, a well oiled risk management program is key to reducing or eliminating risks. With so much emphasis on safety, and quality placed on health care today, it is no uncommon for a health care company or organization to incorporate both traditional and enterprise risk management. This way multiple elements can be designed to cover all scopes, departments, and related risks. The innovation and sophistication that comes along with ERM makes it at more effective approach to achieving value driven initiatives as well as safe for both patient and health care employee.