8 Risk Management in Contemporary Pharmacy Practice

RISK MANAGEMENT IN

CONTEMPORARY PHARMACY PRACTICE

Qais AlefanB.Pharm, R.Ph., M.Pharm, PhD

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

INTRODUCTION

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

DEFINITION OF RISKS

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

A speculative 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

Pure risk

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

CRITERIA FOR INSURABLERISKS

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

DEVELOPING A RISK MANAGEMENT STRATEGY

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 MANAGEMENTPROCESS

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)


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


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


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 MANAGERISKS

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


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


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

BASIC INSURANCE CONCEPTS

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

Common Insurance Terms

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

Types of Insurance for a Pharmacy

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

Property 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

Liability Insurance (Casualty Insurance)

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

Business Owner’s Policy

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

Individual Professional Liability 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

Key Person Insurance

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

Umbrella or Excess Liability

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

Worker’s Compensation

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

Information Technology(IT) -Related Risks

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

Strategic 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

Performance 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

Operational 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

Psychosocial Risk

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