Enterprise Risk Management for Physician Practices: More Than Managing Insurance Risks

The concept of Enterprise Risk Management (ERM) in healthcare may be familiar to some, unfamiliar to others, and even perceived as overwhelming by certain individuals or organizations. Essentially, ERM is a strategy to increase the economic and noneconomic value of an organization.

ERM was first implemented in the financial services sector. Since then, more and more organizations across all industries began to imbed the concept of ERM into their culture.

How to Implement an ERM Strategy for Physician Practices

Implementing an ERM strategy involves a systematic method of risk identification and prioritization of those risks. An effective Enterprise Risk Management (ERM) strategy in a physician practice, the first step is to identify and prioritize risks that could affect the practice’s operations, financial health, and compliance. Unlike traditional risk management, which focuses mainly on patient safety, an ERM program evaluates a wider range of risks, including operational, financial, and human capital issues. Practices should assign a priority score to each identified risk based on its potential impact and likelihood, allowing the team to focus on high-priority risks that could have the greatest influence on the practice’s strategic goals.

Once risks are prioritized, the next step is to develop mitigation strategies, assign accountability, and establish a monitoring process. Key leaders should be actively involved to ensure the ERM program aligns with the practice’s mission and objectives. By fostering a proactive approach to risk and supporting it from the top, practices can effectively manage uncertainties, improve compliance, and enhance decision-making across the organization, leading to a safer and more sustainable practice environment.

There are multitudes of ways an organization can address its risk exposure(s): accept the risk, spread the risk, segregate the risk, share the risk, completely eliminate the risk exposure and/or transfer the risk contractually through the purchase of medical malpractice insurance.

What are the Categories of Risk for an Organization?

Traditionally, ERM categorizes risks into “domains” or “spheres of influence.” The overarching categories of risk an organization needs to be cognizant in addressing are defined as:

Strategic Risks: Do all stakeholders in an organization — from the top of the organization to the bottom — have a clear understanding of the organization’s vision, mission, goals and objectives?

• For example, why are you in business in the first place? Where is the organization today? Where is the organization headed? What does the organization aspire to be in the future? How is the organization going to get there?

Hazard Risks: Risks that are traditionally attributed to a physical loss or a reduction in the value of an asset or real property. Hazard risks can be mitigated and managed through various loss-control techniques and/or through risk transfer, e.g., the purchase of insurance.

• Examples of managing hazard risk through the purchase of insurance include medical professional liability insurance, which Cunningham Group offers free quotes, to protect a physician’s reputation and property insurance to protect an office/building and its contents. A non-insurance approach to mitigating loss-control risk would be to install cameras and a security system to better protect the safety of patients, employees and the physical office.

Operational Risks: The ERM process evaluates the efficiency and effectiveness of an organization’s administrative and operational processes that could potentially adversely impact the organization from achieving its goals due to inadequate or failed internal processes, people or systems.

• For example, the advent of ERM systems is a prime example in mitigating operational risk. There are many benefits to the effective implementation and utilization of an EMR system: medical records are more secure, maintained in a consistent format, are easy to access and share with the appropriate parties and promote improved medical documentation in the treatment of patients.

Human Resources Risks: An organization needs to evaluate its ability to attract, develop and retain key individuals. Do we have the right number of people? Are those people in the right roles to leverage our strengths and mitigate our weaknesses?

The overall emphasis should be on having the appropriate mix of human capital in terms of staff size and the appropriate skill sets for an organization to achieve its vision and mission, e.g., to ensure the utmost in patient safety and care.

Financial Risks: How to succeed and thrive in an ultra-competitive global economy. An organization needs to take measures to leverage all of its resources: financial capital, human capital and competitive advantages to attain sustainable profitability; create balance sheet strength in order to generate positive cash flow during favorable and unfavorable economic cycles.

• Examples for mitigating financial risks include: implementing expense management and cost containment programs; changing policies and procedures to improve the collection of accounts receivable; leveraging payment terms and discounts with vendors and suppliers.

Legal/Regulatory/Compliance Risks: With healthcare being a highly regulated industry, organizations must address risks from licensure, accreditation, legislative policy, regulations, case and common law as well as taxes.

Ensuring Compliance and Agility in Risk Management

Healthcare organizations must establish and maintain clear policies and procedures that align with legislation and regulatory requirements, such as HIPAA and Protected Health Information (PHI) guidelines. An effective ERM strategy enables these organizations to be agile in reallocating resources, both human and financial, to adapt to regulatory changes as they emerge. This proactive approach ensures that the organization remains compliant while preparing for upcoming changes, thereby minimizing potential legal and financial risks.

Right-Sizing ERM for Any Practice

Implementing an ERM strategy need not be complex or costly; it can be customized to fit the unique needs and size of any healthcare organization. Many risk management practices, such as prioritizing high-impact risks and developing tailored mitigation strategies, have been in use for years and can be adapted for small and large practices alike. A “right-sized” ERM approach enables even smaller organizations to protect themselves by focusing resources on their most pressing risks, ensuring an efficient and practical risk management process.

Leadership Commitment and Continuous Risk Evaluation

A successful ERM strategy must begin with strong support from top leadership and require clear, ongoing communication across all departments, from finance and HR to operations and legal. While not all identified risks can be addressed simultaneously, prioritizing and systematically addressing them over time results in incremental improvements in the organization’s risk profile. ERM is an evolving process; as existing risks are managed, new risks will emerge from both internal and external factors. By committing to continuous evaluation and adaptation, healthcare organizations can enhance their overall resilience, adding both economic and non-economic value.

Implementing an Enterprise Risk Management (ERM) strategy enables healthcare organizations and physician practices to proactively identify, prioritize, and mitigate a wide range of risks—from compliance issues to operational challenges. By tailoring ERM strategies to the size and unique needs of the organization, practices can stay agile, enhance decision-making, and create a culture of risk awareness across all levels. Strong leadership commitment and a focus on continuous evaluation make ERM an invaluable tool in protecting both the financial and operational health of the organization.

For customized support in managing your practice’s risks, contact Cunningham Group to explore quotes from multiple insurance providers. We’ll help you find the best coverage options tailored to your specific needs, ensuring your organization is well-protected and positioned for long-term success.

*This article has been updated with new information