Question

Please identify the basic elements of risk financing in Healthcare and explain the importance of risk financing?

Answer 1

Risk financing in healthcare

Health care sector is such a firm that can expect a financial risk at anytime due to unexpected lossess. Risk financing economically means providing funds to cover the accidental losses experienced by the organization. It involves all the steps that taken by an organisation for effectively funding loss that result from a risk.

Elements of risk financing in healthcare sector:

The major elements of risk financing in healthcare sector are risk retention and risk transfer.

A) risk retention: it means retaining the risk and its burden within the firm. It involves the following steps

* Paying of losses out of available cash as they occur

* Recording in the accounts regarding potential liability

Example: loss of income for lost items such as denture, hearing aids

* keeping aside a certain amount of fund for unexpected losses

* organisation borrows to pay losses

* self insurance and captive insurance( funded retention by way of reserver)

B) Risk transfer: it meant to transmit a frm's risks to an out side party. Through this an organisation can transfer financial burden of losses but not the final legal responsibility of the incident. It can obtained by the methods of non insurance( a contract made with an out side party in which one party agrees to pay money for losses.) and insurance. Through the way of insurance a health care sector can transfer the risk to an insurance company, which compensate the insured for covered losses and provides the cost of losses.

Importance of risk financing in healthcare sector

Risk financing is a very important step in the financial management of a healthcare sector as it deals with the human life and also there are a lot of chances to get accidental losses. Through the ways of risk retention and risk transfer a firm can manage it losses. Otherwise the unexpected losses will become a threat for the organisation itself. Risk management in the healthcare sector focuses on patient safety and the reduction of medication errors as it results in major loss in finance and the popularity of hospital.