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Qais Alefan

B.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

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

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

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

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

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

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


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?


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


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)


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


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


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


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)


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


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 pharmacys 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


The scope (extent) of protection provided under an insurance contract A provision that requires the insured party to share (absorb) some of the costs of covered services or losses on a fixed percentage basis The amount of an insured loss to be paid (or absorbed) by the policyholder Health insurance that provides monthly income to the policyholder if he/she becomes unable to work because of an illness/accident


Disability insurance Insured

The party covered by the insurance contract or persons entitled to benefits under the terms of the policy
Individual responsibility for causing injury to another person or damage to anothers property through negligence



The failure to use reasonable care Insurance terminology for risk, possible cause of injury, damage or loss A written contract for insurance between an insurance company and the insured party A document that amends or changes the original policy 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 A policy that pays benefits to an employee (his/her family) for job-related injury/death




Umbrella liability

Workers compensation

1. 2.

3. 4.

5. 6.


Property Insurance Liability Insurance (also Known as Casualty Insurance) Business Owners Policy Individual Professional Liability Insurance Key Person Insurance Umbrella or Excess Liability Workers Compensation

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

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 nonperformance of a contract wrongful termination of employees sexual harassment race or gender lawsuits

Does not protect against:

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 workers compensation employee health 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

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

It is possible that a lawsuit filed against a pharmacy could exceed the limits of the primary liability protection For instance, a pharmacys 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

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

Workers 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

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

Can be grouped into several areas:

Strategic Risk Performance Risk Operational Risk Psychosocial 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

Such risks even can result in failure to meet a pharmacys 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 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

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

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

IT operational risks in todays 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

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 workers 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