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
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?
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
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)
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 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
 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
anothers property through negligence
 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
Workers compensation
A policy that pays benefits to an employee (his/her family) for job-related
injury/death
1. Property Insurance
2. Liability Insurance (also Known
as Casualty Insurance)
3. Business Owners Policy
4. Individual Professional Liability
Insurance
5. Key Person Insurance
6. Umbrella or Excess Liability
7. 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
Does not protect against:
nonperformance of a contract
wrongful termination of employees
sexual harassment
race or gender lawsuits
 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
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
 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