Health Care Risk Classifications and How They Can Affect Your Practice

By Devin Partida, Editor-in-Chief,
Twitter: @rehackmagazine

While working at a health care practice or in the medical field, you’ll undoubtedly hear about health care risk classifications. One of their common applications relates to the insurance industry. Insurers consider the overall risk associated with a physician or practice and then conclude whether to offer coverage. Here are some other helpful specifics about these groupings.

The Eight Enterprise Risk Management (ERM) Domains

All industries deal with risks. For example, supply chain leaders may manage severe weather risks that could delay or damage goods. It’s crucial to recognize and manage medical risks due to the life-and-death decisions practitioners make daily.

Some medical facilities use enterprise risk management (ERM) domains to become more familiar with risk classifications and their effects. These eight areas create and protect value by managing risks and uncertainties. They are as follows:

  • Operational: This category includes risks related to operational management, including failed or incomplete internal processes, inadequate staffing levels, and poor management of adverse events.
  • Clinical/patient safety: These risks relate to the delivery of care to customers. They include problems like medication errors, serious safety events, and failure to follow evidence-based approaches. A 2020 study estimated 22,000 patients die preventable deaths per year. That’s lower than previous assessments but still a notable number.
  • Strategic: These are risks associated with an organization’s focus and direction. Potential issues include failure to adapt, media relations blunders, and contractual or administrative shortcomings.
  • Financial: This category refers to an organization’s financial stability (or lack thereof), including its access to capital, external financial ratings, and management of revenue versus expenditures.
  • Human capital: This is centered on the workforce, including productivity, employee recruitment and retention, job-related injuries, and whether the organization has enough employees to handle its typical workload.
  • Legal/regulatory: This risk category encompasses national, state, and local laws that dictate medical practice permissions. It includes aspects like product liability, licensure, fraud, and abuse.
  • Technology: This covers all the machines, devices, and tools an organization uses. It also extends to its processes and systems. You can also expect to see the definition expand over time due to emerging innovations like artificial intelligence (AI). For example, nurses spend a quarter of their time on documentation. AI can help with that, but what if the technology leads a doctor to make a wrong diagnosis?
  • Hazard: The risks in this category relate to assets and their value. Some threats include natural disasters, poor management of the building and its parking area, and mistakes during construction or renovation. Cyberattacks frequently feature in this risk classification too. Statistics show that more than 93% of health care organizations suffered data breaches over the past few years.

Failure to manage the risks in these categories could lead to an above-average number of adverse events. Those situations could eventually cause reputational damage, lawsuits, and increased public mistrust.

Health Care Risk Classifications for Insurance Companies

Insurers that extend coverage to physicians and medical practices also use risk classifications to determine whether a customer poses above-average threats and whether to offer plans to them. They include:

  • Preferred risks: The entities in this category have the lowest likelihood of filing claims. Thus, they may have the best chances of finding coverage and securing affordable rates.
  • Standard risks: This category recognizes that all jobs in the medical industry carry some risks, but the people in this group are not more likely to file claims than their average peers. A physician in this group may be someone in a low-risk specialty who has never faced medical board actions against them.
  • Substandard risks: The entities in this risk classification have a higher-than-average likelihood of filing claims. That doesn’t necessarily mean that a person or practice had past problems, but it may relate to the risks associated with complex procedures like orthopedic surgeries.

Insurance companies use other classifications as well. However, these are the most common categories.

Strategies to Reduce Risks

It’s impossible to eliminate all risks in health care or any other sector. However, engaging in proactive risk management minimizes the potential issues. Making progress starts by identifying risks and using data to help. Next, responsible parties should score those threats and prioritize them based on their likelihood of occurrence and associated ramifications for the organization.

Teaching all employees to spot and report risks is crucial, too. Even when an organization has a dedicated risk management professional, individuals should not expect that person to recognize all issues.

Risk Awareness and Mitigation Strengthen a Practice

This overview of risk areas should help you understand what’s in your power to do when helping an organization manage threats. Collective action is essential for getting meaningful results.