RISK MANAGEMENT

IN
CONTEMPORARY
PHARMACY PRACTICE

Qais Alefan
B.Pharm, R.Ph., M.Pharm, PhD
INTRODUCTION
 An element of risk exists in every
human activity
 Pharmacists must deal with the
risk of business declines/failure
 There are always threats from the
economy and the competition, the
potential for damage caused by a
tornado, fire, flood, or hurricane
 Indeed, a degree of risk is inherent
in performing most common task
in any pharmacy
INTRODUCTION
 The changing health care environment requires pharmacists
to critically examine risks in all aspects of their practice
 Historically, the primary risk exposure for pharmacists was
related to traditional business risks (i.e., fire, theft, etc.),
coupled with negligence related to prescription-filling errors
 Modern pharmacy practice now must also consider new
risks related to:
◦ the use of technology and electronic data transmission
◦ patient counseling and drug utilization review requirements
◦ protected private health information
DEFINITION OF RISKS
 Risks are associated with negative outcomes
 A risk is anything that threatens the ability of a person
or organization to accomplish its mission
 For a risk to be a threat, there must be some statistical
chance (probability) that a negative event will occur
 To be a risk, it also must constitute a hazard
 The severity or consequences also must be negative
to be a risk
 From an insurance perspective, there are two basic
types:
◦ speculative risks
◦ pure risks
A speculative risk
 involves a chance of gain or benefit as well
as loss
 Speculative risks are not insurable
(Gambling)
 Purchasing shares of a mutual fund or
common stock as an investment involves
speculative risk
 What about operating a pharmacy does it
involve speculative risk?
 Only 45 % of newly established
businesses survive at least 4 years
Pure risk
 Involves a risk in which there is only the
opportunity of sustaining a loss; there is no
opportunity for gain
 Pure risks are considered accidental,
unanticipated, or unavoidable (e.g., Illness,
death, fire)
 Insurance is a product designed to assist
people in managing their exposure to these
accidental risks
 The identification and management of pure
risks are essential for a business to manage
potential threats to its mission
CRITERIA FOR INSURABLE
RISKS
 For a pure risk to be insurable, it must meet certain
requirements:
◦ The loss must be measurable in dollar figures, easy to measure,
and result in a substantial loss
◦ The loss must have a defined time and place
◦ The loss must be accidental for the insured
◦ The probability of the event occurring in a population can be
accurately calculated. There must be a sufficiently large number
of homogeneous individuals with similar risks to make losses
predictable
◦ The insured must have an insurable interest. Compensation
cannot be awarded to those not actually suffering the loss.
◦ The insurance premium must be available for a reasonable cost
DEVELOPING A RISK MANAGEMENT
STRATEGY
 A risk management process should be developed
to:
◦ analyze and identify strategies to manage risk threats
◦ protect the vital assets through coping with uncertainty
 This process involves not only identifying risks but
also assessing their potential threat and making
decisions on managing those risks
THE RISK MANAGEMENT PROCESS
1. Establish the context
◦ What are the goals of the risk management process?
◦ What are potential vulnerabilities of the business?
◦ Do employees or patients risk injuries?
◦ How might the reputation of the pharmacy suffer if a
patient was injured owing to a prescription error or if his
or her health condition was inadvertently made public by
an employee?
◦ Could costly claims be avoided by not providing certain
services or products?
THE RISK MANAGEMENT
PROCESS
2. Identify and analyze risks
◦ Pharmacy managers should start by analyzing
each dimension of their operation
◦ Some examples of risks faced by pharmacies
include the activities inherent in their business (i.e.,
filling prescriptions, counseling patients, and
providing professional services)
◦ Other risks include making deliveries; maintaining
the building, sidewalks, and parking lot; preparing
sterile products; maintaining a computer system;
and protecting patient health information
THE RISK MANAGEMENT
PROCESS
3. Evaluate and prioritize the risks
◦ Some risks are fairly common yet are not
associated with a high degree of loss (e.g.,
shoplifting)
◦ Other risks are much less common yet are
associated with substantial losses (e.g.,
catastrophic damage from a fire, flood, or storm or
harm to a patient associated with a dispensing
error)
THE RISK MANAGEMENT
PROCESS
4. Select an appropriate risk management
strategy and implement the technique

◦ Pharmacy managers must determine which risks could

(and should) be avoided
◦ Additional insurance policies or add-on riders should be
secured as necessary
◦ Riders are supplemental policies that provide additional
coverage for something not covered in the original policy at
some additional charge
◦ Thought should go into the level of deductibles to
appropriately balance risk-sharing and risk-transfer issues
THE RISK MANAGEMENT
PROCESS
5. Monitor decisions and update the risk
management program
◦ to meet new challenges, threats, and opportunities
◦ For example, when a pharmacy decides to offer
immunizations to their patients, it not only creates
new patient care and business opportunities, but it
also exposes itself to additional risks
◦ Once these new risks are identified, managers
must create new strategies for their management
TECHNIQUES TO MANAGE
RISKS
1. Risk avoidance
◦ While avoiding risks may sound like a logical approach, it is
often impractical for most risks in a business environment
◦ For example, most pharmacies cannot (and would not want
to) avoid dispensing prescriptions despite the inherent risks
involved in the process
2. Risk prevention/Modification
◦ Pharmacy managers may not be able to eliminate a risk,
but they can take steps to minimize the likelihood of its
occurrence (dispensing errors)
TECHNIQUES TO MANAGE
RISKS
3. Risk absorption/retention
◦ Pharmacies commonly accept losses owing to shrinkage (i.e., shoplifting,
employee theft, and unsalable products), usually by losing profits or passing
on higher prices to consumers
◦ A deductible on an insurance policy is absorption of risk

4. Risk sharing or transfer

◦ Insurance companies commonly share or transfer the risks inherent in paying
for health care for their beneficiaries by entering capitated agreements with
providers, paying them a set amount per member per month regardless of
how much or how little their beneficiaries need health services
◦ Health care providers can also purchase insurance to share or transfer the
risks involved in providing care to patients whose costs may exceed the
income provided in the capitated contract
TECHNIQUES TO MANAGE
RISKS
 One may choose to absorb certain risks if the cost of insurance is very
high and the potential loss is small
 Risk prevention is an important component of effective risk
management strategies and is generally used in tandem with risk
transfer
 Risk prevention includes the use of smoke alarms, security systems,
and theft detection
 Additionally, employee training programs, education, and established
policies and procedures are essential to deal with such risks as
prevention of medication errors
 With the possible exception of risk avoidance, most instances of
conducting risk management will use some combination of each of the
techniques of risk prevention, risk absorption, and risk sharing
BASIC INSURANCE CONCEPTS
 No matter how careful a pharmacy is about preventing risks, it
is practically impossible to eliminate accidents, such as when a
customer or employee slips on the pharmacy’s floor
 At the same time, insuring for these risks does not eliminate the
need for pharmacies to take effective risk prevention measures
 Indeed, insurers commonly require that pharmacies have risk
prevention measures in place to keep insurance policies in
good standing for these risks or to reduce premiums
 For instance, insurance for fire damage requires a sprinkler
system or smoke detectors or alarms
Common Insurance Terms
 Coverage
◦ The scope (extent) of protection provided under an insurance contract
 Coinsurance
◦ A provision that requires the insured party to share (absorb) some of the costs of
covered services or losses on a fixed percentage basis
 Deductible
◦ The amount of an insured loss to be paid (or absorbed) by the policyholder
 Disability insurance
◦ Health insurance that provides monthly income to the policyholder if he/she
becomes unable to work because of an illness/accident
 Insured
◦ The party covered by the insurance contract or persons entitled to benefits under
the terms of the policy
 Liability
◦ Individual responsibility for causing injury to another person or damage to
another’s property through negligence
Common Insurance Terms
 Negligence
◦ The failure to use reasonable care
 Peril
◦ Insurance terminology for risk, possible cause of injury, damage or loss
 Policy
◦ A written contract for insurance between an insurance company and the insured
party
 Rider
◦ A document that amends or changes the original policy
 Umbrella liability
◦ A form of insurance protection in excess of the amount covered by other liability
insurance policies. It also protects the insured in situations not covered by the usual
liability policies
 Worker’s compensation
◦ A policy that pays benefits to an employee (his/her family) for job-related injury/death
Types of Insurance for a Pharmacy
1. Property Insurance
2. Liability Insurance (also
Known as Casualty Insurance)
3. Business Owner’s Policy
4. Individual Professional Liability
Insurance
5. Key Person Insurance
6. Umbrella or Excess Liability
7. Worker’s Compensation
Property Insurance
 The most common type of insurance for protecting the property
 Cover losses owing to fire or lightning and theft and the costs of
removing property to protect it from further harm
 Property that should be insured include buildings (leased or owned),
equipment, supplies, fixtures, inventory, money, accounts receivable
records, computers and other data storage devices, vehicles, and
intangible assets (e.g., goodwill and the value of a trade secret)
 Additional coverage can be purchased for specific “extended perils”
such as windstorms, hail, floods, explosions, riots, or other specific
events
 A pharmacy manager should know exactly what is covered in his or
her basic property insurance policy to determine if additional coverage
is warranted owing to geographic location or local circumstances
Liability Insurance (Casualty
Insurance)
 Protects a business entity against claims when it is sued for
damages or injuries caused by the negligence of the business or
its employees
 Covers bodily injury, property damage, personal injury (libel and
interference with privacy), and advertising injury
 The legal expenses involved in a negligence suit (i.e., investigation,
settlement, or trial) also should be covered by the policy
◦ Even fraudulent lawsuit brought by plaintiffs with little hope of success will
result in expenses necessary for the pharmacy to defend itself
 Does not protect against:
◦ nonperformance of a contract
◦ wrongful termination of employees
◦ sexual harassment
◦ race or gender lawsuits
Business Owner’s Policy
 Insurance companies commonly bundle property and
liability coverage together in the same policy for small
business owners
 Allows for broader coverage, generally with less expensive
premiums
 Small businesses must meet certain criteria to qualify for
these policies, such has having <100 employees and
revenues not exceeding set amounts
 Do not include:
◦ professional liability coverage
◦ worker’s compensation
◦ employee health insurance
Individual Professional Liability
Insurance
 Pharmacists frequently purchase individual
professional liability insurance policies in addition to
what their business or employer may provide
 This policy protects the individual against claims
emanating from actual or alleged errors or omissions,
including negligence, in the course of professional
duties or activities
 Individual policies are purchased because the business
policy limits may not be high enough, and they will not
cover the pharmacist outside that workplace
Key Person Insurance
 Designed to protect a business entity from
financial loss if key individuals (owner or partners)
were to die or experience a disability
 For instance, if the pharmacist-owner were to die
suddenly or become disabled, this policy would
pay to find and train a replacement or replace
profits the company may have earned if the
person had not died
Umbrella or Excess Liability
 It is possible that a lawsuit filed against a pharmacy
could exceed the limits of the primary liability protection
 For instance, a pharmacy’s base liability policy may
provide a maximum of $300,000 of coverage, but the
pharmacy experiences a lawsuit in which the settlement
or judgment reaches $1 million
 Would cover the difference between the base liability
limits and the judgment amount
 Is activated only when the limits of the underlying base
policy have been exceeded and exhausted
Worker’s Compensation
 Covers medical expenses, disability income, and
death benefits to dependents of an employee whose
accident, illness, or death is job related
 Businesses are required to provide a safe working
environment for their employees
 Worker’s compensation can be a costly expense for
some types of business in which the risk of injury to
the worker is high, such as construction
 Examples of injuries related to a pharmacy would be
those owing to falls, overexertion, or repetitive
motion
Information Technology(IT) -Related
Risks
 The health care sector have become increasingly dependent on
IT
 Almost all aspects of goods, services, and activities provided or
conducted by community pharmacies have become interlinked
with IT
 This has brought about a relatively new and increasingly
important risk known as information technology-related risk
(ITRR), often referred to as digital risk
 Hardly a day passes without the report of some business losing
confidential client information or having its computer network
compromised by unauthorized intruders
Information Technology(IT) -Related
Risks
 Can be grouped into several areas:
◦ Strategic Risk
◦ Performance Risk
◦ Operational Risk
◦ Psychosocial Risk
Strategic Risk
 Is the first and foremost risk confronted by pharmacies
implementing IT
 To make any IT project successful in the long run,
pharmacies must assess the compatibility of the
technology with mission and goals
 While the purpose of most IT is to achieve efficiencies and
competitive advantages, there are always risks that the
organization would have been better off by pursuing other
options
 The costs of these risks are known as opportunity costs
Strategic Risk
 Such risks even can result in failure to meet a
pharmacy’s goals and objectives and put the pharmacy
at risk for significant financial loss
 An analysis of 13,522 IT projects found that 15 %
“failed” and another 51 % were considered “challenged”
 Organizational behavior problems can arise when
integrating IT into pharmacy practice
 These often occur when stakeholders (i.e., employees
and patients who interact with these systems) are not
provided appropriate training
Performance Risk
 Performance risk is the degree of uncertainty inherent in the
procurement and application of IT solutions that may keep
the system from meeting its technical specifications or from
being suitable for its intended use and the consequences
 Performance risk arises from product complexity
 Product complexity involves the number of components,
functions, and interfaces in the pharmacy information system
 There are several factors that contribute to product
complexity:
 System requirements
 Modularity
Performance Risk
 System requirements
◦ Specifications required by a pharmacy in its IT are directly related to the
degree of product complexity and performance risk
◦ Pharmacy information systems must handle a multitude of complex and
interrelated elements, such as prescription entry, prescription pricing,
inventory, and financial management
◦ Another area of concern to pharmacies is data storage
 Modularity
◦ The system should be decomposable into subsystems that make the
product less complex
◦ This provides room for individual component upgrades instead of
redesigning the whole system when specifications change in certain areas
Operational Risk
 IT operational risks in today’s digitized pharmacy are characterized
by 6 event factors:
◦ Internal fraud is an act committed by at least one internal party (an employee)
that leads to data theft and/or loss
◦ External fraud is an act committed by a third party that leads to data theft, data
loss, and function disruption
◦ Computer homicide is the use of IT systems to perform a hateful act that
results in the death of a patient
◦ Digital veil is the term applied when the use of computer and automated
machinery to execute business-related tasks creates a unique state of mind
among the employees, resulting in complacency and blind trust in automation
◦ The human-automation tradeoff becomes more prominent as pharmacies
become more dependent on automation
◦ System failures can occur in a multitude of ways once a pharmacy business is
automated
Psychosocial Risk
 Involves the moral and legal issues related to the interaction of IT and
the safety and health hazards that technology poses to employees in
the workplace
 Pharmacies with an increased risk of these conditions also risk higher
worker’s compensation costs, absenteeism, short- and long-term
disability, and decreased productivity
 Repetitive- motion injuries, known as cumulative trauma disorders, are
common among employees who deal with automation on a regular
basis
 The most common cumulative trauma disorder is carpal tunnel
syndrome, a painful injury that can debilitate the hands, wrists, and
arms
 Other illnesses include neck, shoulder, and lower back pain; headaches;
irritability; difficulty sleeping; deteriorated vision; and eye strain
Thank you