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FOUR RISK MANAGEMENT TIPS FOR PHYSICIANS

Physicians often hear about risk management. They may have only a vague idea, however, of what the phrase means. What exactly is risk management? You can view it as a process which involves:

  • identifying possible causes of loss;
  • finding ways to address the causes of loss;
  • selecting an appropriate technique to address the cause(s);
  • implementing the technique;
  • monitoring a risk management program for results.

Physicians can also view risk management as a toolbox of techniques. There are four classic risk management techniques, all of which apply in varying degrees to medical professional liability claims:

  • avoidance
  • control
  • retention
  • transfer

Avoidance, as the term implies, means shying away from an activity because of its potential for loss. Avoidance may involve opting out of existing medical activities or deciding not to take part in other activities due to the risk of loss. Avoidance is an extreme risk management technique, reserved largely for risks that a physician deems uncontrollable or extremely threatening to his or her financial existence. We will revisit some specific examples momentarily.

Control aims to reduce the frequency or severity of accidents. Loss control places a heavy emphasis on safety techniques to keep losses from occurring in the first place.

Loss control techniques benefit physicians in three ways.

First, to the extent that preventive measures prevent mishaps, they save money and loss of life or limb.

Second, insurance companies offer lower premiums to physicians who show that they have a well-thought-out risk management plan. Many insurance companies may provide even further, deeper discounts to physicians who adopt loss control measures, such as continuing medical education or attending special risk management seminars.

Finally, whatever the cost of loss control and safety measures, they are typically less than the cost of a single medical malpractice claim. Expressed differently, if risk reduction measures avert one mishap for a physician, those measures will have paid for themselves many times over.

Retention is a conscious decision to self-fund losses without transferring risk to an insurer or another risk-bearing entity. While large corporations establish “self-insurance” programs, physicians may lack the means to seriously consider this.

Transfer, as the term implies, involves shifting the financial consequence of loss to another entity. The most obvious example of transfer is insurance. A physician pays money — premium — to a professional risk-bearer, i.e., an insurer. An insurer exchanges a promise to pay in return for a stream of premium. The concept here is that the premiums of the many will fund the losses of the few. Insurance is a common risk management technique, but it works best when blended with avoidance, control and retention.

What many people overlook is that risk management is more than simply buying insurance for professional liability. In fact, physicians should avoid a mind-set which says, “Why should I care about mishaps, isn’t that why I have insurance?” Insurers call that morale hazard, i.e., poor attitude or casualness about safety due to the existence of insurance as a safety net.

Further, physicians should heed the following risk management advice:

  1. Don’t retain more than you can afford to lose. Fortune 500 companies can afford to “self-insure” for millions of dollars. Few physicians can. While it’s great to see a premium savings from higher deductibles on the property insurance covering your office equipment and fixtures, make sure that you have the funds set aside to pay any portion of a loss that is uncovered due to a deductible.
  2. Don’t retain a lot to save a little. This is a corollary of the preceding tip. Risks with low frequency but high severity should generally be insured, because they are so predictable. Medical malpractice claims typically have moderate to low frequency, but high severity. In an inflationary and litigious age, one suit could financially cripple a physician or shut down her practice. One claim could cost a physician many times the tab for one year of insurance premium or even have catastrophic financial consequences.
  3. Don’t spend lots for very little financial protection. Spending money for premiums on low-dollar losses is called “swapping dollars” with the insurance company. Examples might be insurance to cover glass breakage, to replace damaged shrubbery or credit insurance. Better to retain this type of exposure and save some money.
  4. Don’t treat insurance as a substitute for safety. Never view medical professional liability risks fatalistically because, “That’s what we have insurance for.” Risk management and insurance go hand-in-hand. In fact, the more you invest in prevention, the less you may have to spend on medical malpractice insurance. The best insurance rates go to physician practices which already have the best risk management programs: ongoing continuing education, careful office management procedures, meticulous informed consent procedures, etc.

The above was excerpted from Quinley, KM Bulletproofing Your Medical Practice: Risk Management Techniques for Physicians that Work (SEAK 2000).  Please click here to download a free complete copy of Bulletproofing Your Medical Practice: Risk Management Techniques for Physicians that Work.