In comparison with non-healthcare businesses, enterprise risk management is particularly more important in services based healthcare organizations. Non-healthcare businesses focus on managing risk with the aim of preventing and mitigating against financial losses (Arena, Arnaboldi, & Azzone, 2010). There is no doubt that services based healthcare organization also need to protect itself against financial loss, but risk management also extends to the safety of the patient within the care of the healthcare organization (Arena, Arnaboldi, & Azzone, 2010). Risks in serviced based healthcare organization is usually a matter of life and death due to the high stakes the healthcare organization faces.
Service based healthcare organizations are vulnerable to big settlements and more plaintiff claims, which affect insurance rates. Enterprise risk management for service based healthcare organizations is no longer focusing on protecting their financial interest, but also the interest of their clients through proactive risk management (Duckert, 2010). For product based non-healthcare organizations, decentralize reporting system is the key to success. This means that non-healthcare organizations do not have to share information amongst the departments to reduce risk. However, service-based healthcare organizations have to reduce patient risk, cut cost and improve efficient through centralized reporting system via enterprise risk management (Duckert, 2010).
Enterprise risk management is critical in ensuring that the healthcare management can manage the patient’s revenue cycle. To keep track of the patient’s claims and avoid loss of income, the healthcare management can transfer the risk to a revenue cycle management company (Kavaler & Alexander, 2012). Through the partnership, the healthcare organization can manage employees, keep up with health care programs, and maintain patient revenues. These will also enable the healthcare organization focus on improving services to the patients and improve the performance of the organization in the industry (Olson & Wu, 2010).
According to this concept, healthcare information technology is an important tool in preventing risks within the healthcare organization. Information technology has the potential of improving patient safety, increase healthcare quality, increase efficiency and may restrain rising costs. Based on enterprise risk management concept, information technology is the appropriate risk preventative measure that may help prevent medical errors by more than a half. Therefore information technology can be used to protect the privacy of the client (Olson & Wu, 2010). Once the customer’s information is stored electronically, those who wish to know should have the legitimate access. These enable the healthcare organization to maintain confidentiality with the client.
In enterprise risk management, human resource is a source of risk in healthcare organizations. For example, employees doing sloppy work, staff members refusing to take additional work and employees leaving after completion of the training program are all reasons for the adoption of enterprise risk management (Olson & Wu, 2010). However, human resource can also be beneficial in enterprise risk management. This is because people can be resourceful in handling risk, especially in healthcare organizations. However, in enterprise risk management, human resource initiatives and realities affect healthcare strategies. The healthcare organization needs to be strategic in addressing issues concerning human capital, company culture, and allocation of resources.
In addition, the healthcare company needs to ensure that there are no gaps in talent supply and demand. In avoiding failure, the healthcare organization needs to ensure that the performance measurement process is useful in identifying top performers and retaining them. In enterprise risk management, measurement and administration of workforce’s cost are an important factor to consider, avoiding financial risk (Arena, Arnaboldi, & Azzone, 2010). These means there must be a balanced relationship between workforce cost and performance of the healthcare organization.
Enterprise risk management objective is to provide a comfortable environment for the patient to receive adequate care during unhealthy situations. Enterprise risk management ensures a patient comfort by providing a framework for achieving a safe and reliable healthcare delivery. Enterprise risk management provides the healthcare organization the structure that can integrate risk management and patient safety (Kavaler & Alexander, 2012). Enterprise risk management focuses on better management of patient risk and increases the value of the healthcare organization through gains in patient comfort. When the patient feels comfortable within the healthcare setting, the firm is likely to gain from high reputation. Enterprise risk management concept mainly focuses on patient satisfaction rather than risk control activities.
Differences between service-based and production-based ERM models
Product-based enterprise risk management model in healthcare industry focuses on preventing and mitigating the risk that affects the financial status of the healthcare organization. This is because product-based health-care is vulnerable to financial risks such as pricing risk, asset risk, currency risk, and liquidity risk (Olson & Wu, 2010). Therefore, this focuses on providing risk management solutions that aim at reducing financial losses. Product based healthcare are also subjected strategic risks such as competition and capital availability. Therefore, products are subject to competitions and require capital to be produced (Olson & Wu, 2010).
However, in service-based healthcare, enterprise risk management is aimed at preventing and mitigating hazard risk, financial risk, operational risk and strategic risk (Olson & Wu, 2010). Service-Based healthcare is not only subject to financial losses but also subject to the care of the patient and the overall healthcare facility. Service-based ERM model is broad in nature and covers both the financial position of the healthcare organization, as well as the physical asset of the healthcare.
Arena, M., Arnaboldi, M., & Azzone, G. (2010). The organizational dynamics of Enterprise Risk Management. Accounting, Organizations and Society, 659–675.
Duckert, G. H. (2010). Practical Enterprise Risk Management: A Business Process Approach. New York: John Wiley & Sons.
Kavaler, F., & Alexander, R. S. (2012). Risk Management in Health Care Institutions. Burlington: Jones & Bartlett Publishers.
Olson, D. L., & Wu, D. (2010). Enterprise Risk Management Models. Berlin: Enterprise Risk Management Models.
Wu, D. D., & Olson, D. (2010). Enterprise risk management: a DEA VaR approach in vendor selection. International Journal of Production Research, 4919-4932.