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Risk Management In Health Care

Drotumdi O

Otumdi Omekara, MD. MPAHA, Member of Society of Physician Entrepreneurs

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Risk management in the health care industry is not too different from other industries, since every industry basically manages money, men and material. Each of these three core management areas poses its own risks that ultimately affect any company's bottom line or net worth. Anything that takes away from a company's net worth is a risk that has the potential to put it out of business. Any company that fails to effectively manage its risks basically plans to fail. In the health care industry, the tendency is for only for profit health care organizations to pay serious attention to risk management. Social health care services funded by governments and not-for-profit organizations generally focus more on service delivery with little attention to risk management, counting on the funders to always provide the funds.   

But the irony is that government funded agencies are managed by human beings who belong to the "men" category of the three main risk sources. Politicians dictate how much fund is allocated to the health care and other industries. If they are not managed well, they pose the risk of reduction in health care capital, which impacts the establishment and maintenance of health care infrastructure and professional manpower. This in turn impacts accessibility of health care services due to limited service points. Professional health care associations like the American Medical Association have learned to manage this risk by hiring the services of professional lobbyists in Washington DC to ensure that no laws are passed that are detrimental to health care funding and practice. Individual retired health care professionals have also contested for congressional and senatorial offices at state and national levels to ensure that the necessary protective health car laws are created and passed in a timely manner.    

While the traditional emphasis in preventive medicine had been to break the vicious cycle of poverty, ignorance and disease, current preventive medicine now stretches to monetary loss prevention and material over-utilization and loss prevention. Poverty, ignorance and disease all focus mainly on patient related risks without addressing the money and material related risks. Money and material risk prevention have in the past been viewed as outside the area of responsibility of preventive medicine experts. But well informed patients earning average income are still constrained by affordability of adequate health insurance for  accessing the health care system to treat their diseases. The risk management need in this case is for an appropriate health insurance law like the current ACA passed by the Obama administration to accommodate individuals not covered by Medicare and Medicaid insurance laws.  

In general, health care management risks fall into two broad categories: revenue reducing and revenue wasting risks. The revenue reducing risks include inadequate budgetary allocation to government funded health care agencies, legally restrictive private provider insurance billing rates, inefficient revenue collection system from insurance payers and inefficient account receivable system for patient billing system. The revenue wasting risks include inefficient organizational budgeting, inefficient budgetary control system, inefficient audit system, inadequate electronic and physical financial security, inadequate organizational property security, inadequate loss prevention policies, inadequate employee injury prevention, inadequate regulatory compliance policies and inadequate law suite prevention policies. How each of these risk factors affects the net worth of a health care organization will now be further explored to create increased management sensitivity to their riskiness.  

The way politics affects budgetary allocation for health infrastructural and manpower development has already been touched on above. A US administration  or state government that does not believe in abortion will reduce allocation of funds to Planned Parenthood and prohibit insurance payment for abortion related patient care. Similarly an administration that does not believe in a large military establishment will reduce military budget, which in turn will reduce Veterans Administration's funding of physicians and nurses education. Less number of doctors ultimately reduces patient access to health serves. Thus the control of revenue reducing risks starts at the Federal government level with the employment of professional lobbyists.  

Private health institutions  have the option of accepting large volume of Medicare or Medicaid patients at a reduced fixed government rate or limited volume of direct pay and other insurance pay patients. Very few health organizations in US can function successfully without accepting Medicare and Medicaid patients. Again, to contain this revenue reducing risk, US health services managers lobby hard for more favorable Medicare and Medicaid laws.  They also lobby hard for the appointment of favorable candidates for the offices of Secretary of Health and Human Services and US Surgeon General.   

For individual health facilities, dealing with insurance payers is such a night mare with the complicated coding system. Inability to effectively submit patient bills to insurance payers can frustrate an organization out of business. Insurance payments can take weeks to months after a patient's visit. Providers can hardly count on current month's revenue to pay current month 's bills. A simple mistake or multiple payers for one patient can even further lengthen the payment time. Not being able to generate cash for payroll each month forces management to borrow money from the banks and further lose money on interest payment. The portion of patient bills not legally covered by insurance plans also need to be aggressively collected by the accounts receivable teams. So most health facilities now make sure to have very efficient case management and billing teams who are always on top of their games, as a way of managing these last two revenue reducing risk factors.  

Coming to the revenue wasting risks, the first is bad organizational budget, which fails to represent the ultimate working document for any organization's strategic plan. A good organizational budget should be addressing the vision, goals and action plans of the organization. A good budget makes it easy to compare financial projections with actual performance and apply necessary financial controls. When and where to apply financial control is usually determined by independent monthly or quarterly audits by the CEO or an internal auditor.   

The financial security of any organization has to do with where it stores its physical cash/checks and how it control access to its bank accounts. There should be clear policies on who should have access codes to company safe onsite and its online banking sites. At least two top level officers, like the CEO and CFO should have the ability to access the onsite safes and bank accounts. If the CEO alone signs the checks, the CFO alone should sign major purchase invoices. Both should receive alerts about every major transaction on the accounts. There should be an agreed limit to maximum daily or monthly withdrawals. The bank account pass words should be changed at least quarterly and never be saved on the bank website. A good IT unit helps to protect an organizational website from hackers. Just one  major fraud by any company executive could easily cripple or bankrupt a health facility.   

Loss prevention in a health facility requires an in-house or contracted security service. Loss of major equipment and installations prevention requires a skilled maintenance unit. The security service provides public safety, patient safety, provider safety, and prevents property theft and vandalism. Work site injury and falls are both major risk sources in any health facility. Workman compensation claims could add up to millions of dollars a year. Employee safety training and safety procedure enforcement have proved very effective in workman compensation claims. Staying in compliance with the ADA laws by creating disability friendly facilities protects them against expensive law suits by fall victims. Very few health facilities can survive more than one or two major law suits.  

If a health facility survives the risks of heavy law suits, it could still be caught by the most dangerous of them all, regulatory non-compliance. In fact regulatory non-compliance in the areas of unreported patient negligence, physical abuse, financial abuse, sexual abuse, verbal abuse, rights violations, privacy violation or racial discrimination could lead to facility failure of re-certification surveys and suspension of facility operating license or outright closure of the facility. Most health facilities manage this dangerous risk by retaining the services of independent health care regulatory compliance consultants to continuously audit patient care and correct any non-compliant practices prior to re-certification surveys. 

What has been discussed so far should awaken or re-awaken a high sensitivity in health facility executives to the various risk factors plaguing the industry. Both the veteran executive and a new health facility  administrator will benefit from this discussion. Employees will, on their part probably begin to understand why their facility executives tend to be very touchy about seemingly unimportant events in their facilities. However we look at it, efficient risk management in health care remains at the core of successful management and facility survival.  

Author: Otumdi. Omekara, MD., MPAHA 
PO Box 91221, Portland OR, 97291 
(971) 208-5909 

Dr. Otumdi Omekara is a preventive/business medicine specialist and medical publisher with over two decades of clinical practice experience and over a decade of provider management experience. His passion for patient education drives his medical content article writing and publishing. He was a health educator at Oregon DHS Center for Disease Control from 2001 to 2002. Prior to that he volunteered at NE Portland Neighborhood Clinic as a health educator from 1997 to 2002. Since 2002 he has been the Medical Publisher at Drotumdio Health Publications (dHp).

Dr. Otumdi Omekara is a preventive/business medicine specialist and medical publisher with over two decades of clinical practice experience and over a decade of provider management experience. His passion for patient education drives his medical content article writing and publishing. He was a health educator at Oregon DHS Center for Disease Control from 2001 to 2002. Prior to that he volunteered at NE Portland Neighborhood Clinic as a health educator from 1997 to 2002. Since 2002 he has been the Medical Publisher at Drotumdio Health Publications (dHp). He lives in Portland Oregon and can be reached through his website at or by text at +1971-2085909. .