The business of healthcare is becoming riskier. Capitation1 is increasing the risk providers must assume; expansion of the populations they cover makes health-related events (and the cost) more difficult to predict; and competition among providers is eroding operating margins, making the effect of risk on profitability more pronounced. At the same time, the management of risk is becoming more complex as the delivery of healthcare becomes ever more fragmented.
Each trend implies a serious threat to healthcare organizations. HMOs, for example, face two options for trading off risk against profitability in the future—they can accept lower margins in the more commodity-like low-risk business, or take on higher risk for potentially higher margins (Exhibit 1). But each also provides opportunities for players who manage risks well and develop a risk portfolio that suits their appetite for risk, their skills, and customers’ needs. This is because healthcare organization margins are actually a "risk premium": the reward for taking on risk.
To take advantage of the opportunities, risk must be treated as a core business activity for which responsibility is taken at senior level, rather than as a technical skill to be handled by specialists. As competition and pressure on costs...