Create a 2-3 page internal memo for a risk management team. Summarize the risk management issue you identified in Assessment 1 for your selected organization in the memo.
Introduction:
Note: The assessments in this course build upon each other, so you are required to complete them in sequence.
Financial risk management helps reduce the financial impact of risk. It also determines the best approach for handling adverse situations from a financial standpoint. Healthcare leaders must have a solid understanding of the basics of regulation, government and public risk sharing, and also the era of ACOs.
There is a constant tension between the management of medical errors and the improvement of the quality of care. You may be asked to participate in risk management and risk financing activities in your role as a healthcare leader.
If a risk management team asked you to research and summarize financial risks in your organization today, would you know the following?
What information to include?
What format to use?
How to present alternatives and make a recommendation?
How to locate credible data from which the issue is to be evaluated?
Full Answer Section
2.0 Background and Scope of the Risk
Community General Hospital currently operates on a fully insured professional liability model, relying on a commercial insurance carrier to transfer all risk above a minimal deductible. This has been a financially stable approach in the past. However, a review of our claims history shows a troubling spike in new malpractice filings. Specifically, there has been a
35% increase in claims over the last 24 months, with a notable concentration in the Emergency Department and surgical services.
As a direct result of this claims experience, our insurance carrier has projected a
25% premium increase for the upcoming fiscal year. This represents an additional financial burden of over $1.5 million annually, a cost that was not factored into our current budget and cannot be absorbed without impacting other essential hospital functions. This escalating cost, if left unchecked, will severely compromise our financial planning and strategic investments, such as upgrading medical technology or expanding community outreach programs.
3.0 Analysis of the Financial and Operational Impact
3.1 Financial Impact
The financial consequences of this trend are multi-faceted and extend beyond the direct cost of rising premiums.
- Direct Costs: The projected premium increase of 25% is the most immediate financial threat. This forces the hospital to either cut costs in other areas or divert funds from capital projects, hindering long-term growth.
- Indirect Costs: Increased litigation also brings a host of indirect costs. This includes legal fees not covered by our policy (e.g., costs associated with reporting and initial review), the significant time and resources dedicated by medical staff to depositions and case preparation, and the administrative burden on our internal legal and risk management teams.
- Reputational Costs: A rising number of malpractice claims can damage the hospital’s reputation within the community, potentially leading to a decrease in patient volume and a struggle to attract top clinical talent.