Hospitals and health systems across the nation are working to improve their balance sheets and achieve financial sustainability as they adapt to seismic changes in the industry. To achieve this goal, many provider organizations are increasing their focus on risk management and using technology to make improvements in this area.
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What is an acceptable level of risk to take on? This question will often garner many different answers from individuals within a single healthcare organization. This is a serious dilemma, as conflicting views on risk tolerance can have a negative impact on an organization's ability to appropriately manage risk and, ultimately, its bottom line. Given the slim margins on which many hospitals and health systems operate, a strong focus on risk management is imperative in today's healthcare environment.
A technology-enabled approach to risk tolerance
To overcome the risk tolerance dilemma, hospitals and health systems must first establish a baseline level of acceptable risk. A unified statement of risk tolerance is necessary for optimal risk management. To set a risk tolerance baseline, many hospitals and health systems are looking to analytics tools for help.
Willis Towers Watson, a global advisory, broking and solutions company, has developed a suite of core analytics tools that leverage big data to provide publicly traded hospitals and health systems with a strategic view of risk tolerance. The interactive financial analysis platform allows provider organizations to establish a risk tolerance baseline and then take the next step of implementing risk management.
One of the analytics tools included in Willis Towers Watson's core analytics platform is Risk Tolerance Clarified. This is a financial analysis platform allowing for a customizable creation of a risk tolerance statement. Customization is based on the financial areas of concern that are important to the organization and the corresponding financial metrics are used to judge financial success or failure.
"The financial analysis is not just based on your data in a vacuum, but incorporates broader data across the healthcare industry allowing for customized scoring," said Ben Fidlow, head of Willis Towers Watson Core Analytics, during an executive roundtable at Becker's Hospital Review's 8th Annual Meeting in Chicago. For example, a hospital could use the tool to see how it stacks up on a particular financial metric compared to similarly sized hospitals in the same geographic region.
By comparing financials to those of their peers, hospitals and health systems develop a better understanding of their strengths and vulnerabilities. This insight allows provider organizations to make more informed business decisions.
In addition to helping organizations evaluate their current financial picture, Willis Towers Watson's Risk Tolerance Clarified also lets hospitals and health systems perform "stress tests" to see how an adverse event would impact their financials, according to Mr. Fidlow. For example, the platform lets provider organizations run a False Claims Act risk analysis to see how a false claims lawsuit could alter their financials.
The insight these stress tests provide allows hospitals and health systems to better prepare for many possible adverse scenarios and potentially take steps to minimize or even avoid their negative impact.
"With the tight margins in the nonprofit sector, it is essential for hospitals and health systems to proactively manage risk and that starts with understanding how an adverse event could affect key financial metrics that are critical to their business operations," said Frank Castro, national healthcare practice leader at Willis Towers Watson, during the executive roundtable.
Foster collaboration
Using analytics tools to develop a strategic view of risk management can help foster collaboration within an organization — especially within those with many decision-makers who are responsible for financial results.
Hospitals and health systems have multiple stakeholders who sometimes have varying views on risk tolerance. Analytics tools can help these decision-makers get on the same page by assisting them with the development of a unified view of risk tolerance.
Mr. Fidlow said the goal of Willis Towers Watson's Risk Tolerance Clarified is to "create a visualization of the varying levels of acceptable financial deviation which you can share throughout your organization and apply to all risk functions within your organization." Developing a system-wide view of risk tolerance will help healthcare organizations make smarter and more consistent business decisions.
Conclusion
Hospitals and health systems are operating with narrow margins in an environment that is going through monumental change. To successfully navigate the shift in the industry, provider organizations must develop a unified view of risk tolerance within their organizations and utilize tools that allow them to make calculated business decisions.