Healthcare cost of risk initiative: preliminary findings

The Cost of Risk Initiative, jointly sponsored by HFMA and MMI Companies, Inc., is designed to identify the cost of risk in health care organizations and to gather case study examples of best practices in the management of the cost of risk. The first phase of the ongoing initiative, a pilot study, was completed in 1995. Although response to the pilot study was low, and the findings therefore are not statistically significant, the study provides initial insight into the cost of risk and the extent to which the cost of each component of risk contributes to the total cost of risk in various types of healthcare organizations. The total cost of risk ranged from 1 percent to 12.5 percent of net patient revenues among study participants. The organizations with the greatest average cost of risk were medical group practices. Costs for employee benefits, professional and general liability, workers' compensation, and risk management administration contributed the most to the total cost of risk. Baseline studies that will be conducted later this year and longitudinal data to be collected over the next five years will provide more reliable data that healthcare financial managers can use to assess and improve risk management in their organizations.