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The health care industry is a dynamic landscape, constantly evolving and introducing new risks and opportunities that disrupt the market.
In addition to common internal audit challenges and conventional health care risks (such as revenue cycle, human capital management, cybersecurity, contract compliance), modern health care internal audit teams must be prepared with the resources and knowledge to dive deep into emerging risk areas. Left unchecked, these risks could present substantial threats to a health care organisation’s already tight margins, operational efficiencies, compliance and most importantly, patient safety
Is your organisation effectively managing key risks?
Click on the following areas to learn about specific risk obstacles as well as understand the resulting positive outcomes once you apply transformative strategy.
Third-party risk management
Strong vendor risk management is more than the practice of evaluating and mitigating just the security- and privacy-related risks introduced by vendors. Internal audit and risk management functions are essential in mitigating the diverse risks posed by third-party relationships. By implementing comprehensive risk assessment frameworks and due diligence processes, organizations can enhance resilience in their third-party engagements.
How effective is your third-party risk management process?
- Financial losses incurred when third-party vendors fail to meet contractual obligations or deliver products or services that do not meet expectations
- Financial penalties incurred from regulators if a third-party vendor violates compliance regulations
- Operational or clinical disruptions associated with third-party vendors failing to meet service level agreements, experiencing data breaches or cyberattacks, or failing to comply with regulatory requirements
- Risk of reputational damage if associated with a third-party vendor that engages in unethical activities
- Implement a performance monitoring system to track key performance indicators and contract compliance
- Assess the performance and identify improvement opportunities for all third-party vendors on a periodic basis
- Diversify vendors for critical services and develop a business continuity plan to mitigate service disruptions and ensure minimal impact on operations
- Develop a comprehensive due diligence process that evaluates the financial and reputational health of prospective third-party vendors
- Identify a strategy for exiting a third-party vendor relationship and planning succession
Price transparency
Hospital price and health plan transparency is a critical regulatory requirement aimed at providing patients with accurate and accessible information about the cost of health care services. Compliance with price transparency regulations is essential for health care organizations, necessitating the implementation of robust processes, controls and technologies to ensure adherence. Failure to comply with price transparency requirements can result in significant financial penalties, administrative burdens and reputational damage.
How confident are you that the processes, internal controls and technologies in place to ensure adherence to the requirements are operating effectively and as intended?
- Lack of governance structure to plan for and oversee compliance
- Lack of resources within the organization to help with compliance
- Lack of clarity and understanding of regulations.
- Possible corrective action plan from CMS for noncompliance or violation
- Potential civil monetary penalties
- Implement effective program governance to establish efficient processes, controls, and materials
- Implement key program-level internal controls to ensure regulatory compliance
- Detect errors or irregularities
- Monitor and report appropriately
- Leverage price transparency as a strategic growth opportunity
Nursing utilisation
Nursing utilisation is a critical aspect of health care operations, aimed at aligning clinical capabilities with patient needs to ensure that nurses are scheduled and operating at the highest level of their clinical resume. Effective nursing utilization can improve patient outcomes, enhance job satisfaction and increase cost-efficiency.
Do your internal controls and processes promote the alignment of clinical capabilities with patient needs to ensure nurses are scheduled and operating at the highest level?
- Financial costs associated with utilizing skilled/registered nurses for tasks outside of their job description and experience level
- Increase in nurses’ workloads due to system factors and expectations (e.g., nonprofessional tasks such as delivering and retrieving food trays; performing housekeeping duties; transporting patients; and ordering, coordinating or performing ancillary services)
- Lack of sufficient time to perform tasks that can have a direct effect on patient safety
- Reduced time spent by nurses collaborating and communicating with physicians, therefore affecting the quality of nurse-physician collaboration
- Poor nurse-patient communication
- Lack of defined job descriptions and clinical ladders, affecting staff retention, productivity and job satisfaction
- Open dialogue with nursing teams to assess staff levels, staff qualifications and patient needs
- Provide ongoing training and education to help nurses develop new skills and to learn emerging health care practices
- Perform analytics/benchmarking by location, specialty, surgeon and more to identify outliers and remediate issues
- Use clinical ladders to effectively staff nurses
Generative artificial intelligence (AI)
Generative AI is an exciting innovation that presents both opportunities and risks for health care organisations. Effective risk management is essential to ensure that the use of generative AI is aligned with clinical quality, privacy and security, regulatory compliance, and third-party relationships. Risk management must consider multiple factors to ensure robust AI governance without serving as an anchor to the exciting innovation of generative AI.
Does your organisation have the needed governance structure in place to manage the risks around clinical quality, privacy and security, regulatory compliance, and third-party relationships for AI implementation?
- Potential fines due to patient privacy violations or HIPAA violations as a result of AI misuse
- Unreliable and false claims and estimates due to improper AI monitoring and governance
- Outputs in which AI can reflect the biases in the underlying data which can lead to incorrect recommendations, negatively affecting patients
- Security and privacy risks such as the potential for data breaches
- Lack of understanding among key stakeholders, leading to mistrust in the AI tool
- Bias in outputs that negatively affect patient outcomes, ethics and health care equity
- Potential generation of false claims, incorrect health care cost estimates and inappropriate/duplicative/surprise billing, which may compromise fraud, waste and abuse compliance, price transparency and NSA billing compliance
- Establish organizational AI strategy and governance frameworks and periodically reassess
- Implement internal controls to ensure data leveraged for AI systems are equitable and unbiased
- Integrate data privacy rules and regulations into the design and implementation of AI model(s)
- Establish cybersecurity controls to ensure AI systems/model(s) are protected
- Understand input and output processes of the AI model(s)
Laboratory operations
Lab operations are an essential component of any health care organisation. In the current environment, payors are reducing reimbursements for lab tests, driving hospitals to focus on operating their labs efficiently and effectively. While improvement efforts related to lab operations may result in cost reduction and streamlined processes, internal audit can play an important role in evaluating potential risks and unintended consequences of the changes to people, process and or technology.
Have you reviewed internal controls related to lab operations to effectively balance reduction of costs and effective processes?
- Lack of qualified staff and high turnover
- Challenges associated with finding the right balance of centralized/standardized vs. localized/customized processes
- Lack of robust data analytics capabilities to review financial performance evaluating cost of staffing, supplies contracts
- Establish standardized reporting, key performance indicators, policy and process
- Leverage analytics to identify root causes and operational inefficiencies
- Identify automation opportunities
- Document cost savings
- Enhance quality metrics and patient experience
- Establish governance leading to process improvements
Discharge and transition of care
With the increasing complexity of health care delivery and the growing emphasis on patient outcomes, discharge and transition of care processes are under scrutiny. Factors such as prolonged hospital admissions, high readmission rates and inadequate discharge planning can result in inefficiencies and financial costs. Effective discharge planning and transition of care processes, on the other hand, can improve patient outcomes, reduce readmissions and increase cost-efficiency.
Does your organisation have well-controlled and efficient discharge planning and transition of care process? What is your confidence level that care coordination, both internally and with external facilities, is operating effectively?
- Financial costs associated with prolonged hospital admissions; CMS penalties for high readmission rates
- Increase in utilization of nurses for patients with prolonged hospital admissions
- Risk of inadequate discharge with fewer facilities for patients to transition into
- Need for recertification for continued hospitalization if the physician does not find available beds in participating long-term facilities to transition the patient into
- Poor communication between staff, teams, hospital and external providers negatively affecting documentation, discharge delays, follow-up care and health outcomes
- Noncompliance with CMS transition care management services requirements\
- Achieve discharge planning/assessment within 24 hours of admission
- Achieve separation of duties between clinical care and discharge,
- Achieve appropriate staffing ratio of patients to providers and case managers
- Reduce delays in discharge
- Ensure adherence to multiple requirements
- Encourage continuous relationship-building efforts with external long-term care facilities
- Provide efficient case management, owned by case manager/care coordinator/social worker
Clinical labor pay practices
Health care organisations have experienced a significant increase in clinical labor costs. These increased costs are largely related to the rise in shift bonus and shift differential expenses for employed staff as well as increased expenditures for contracted clinical resources needed to maintain the staffing levels required to meet surging patient care needs.
How strong are your processes and internal controls to forecast demand and monitor the accuracy and appropriateness of clinical labor costs?
- Inconsistent, time-consuming, manual processes
- Inaccurate reimbursement rates that do not reflect increasing costs
- Insufficient nurse-patient ratios affecting quality of care
- Cost of alternative staffing models creating strain across the system
- Emerging nursing shortages caused by inadequate staffing, heavy workloads, increased use of overtime, a lack of sufficient support staff, and adequate wages
- Modernize clinical labor pricing to help recruit and retain clinical labor staff
- Implement competitive compensation packages that recognize sustainable rate increases
- Leverage productivity enabling technology to free up capacity and alleviate pressures caused by labor shortages
- Implement an accurate payroll system and regularly conduct audits to identify and correct any payroll errors
- Review employee classifications to ensure staff qualifications align with job roles
- Establish effective communication channels with staff and union representatives
Supply management
Poor supply management results in a system that is wasteful, costly, ineffective and prone to fraud/abuse, and can negatively influence clinical quality. While improvement efforts related to supply management may result in cost reduction and streamlined processes, an internal audit can play an important role in evaluating potential risks and unintended consequences of the changes to people, process and technology.
How efficient is the supply management in your organization?
- Poor inventory management, physician preferences, lack of good data, lack of standardization and inefficient practices contributing to a system that is costly, ineffective, prone to fraud/abuse and influences clinical quality
- Multiple operating rooms that utilize single supply room
- Unclear roles and responsibilities of vendors across the inventory life cycle, especially for high-dollar implants and orthopedic supplies
- Varying inventory control considerations, requirements, expiration dates creating an opportunity for human error, manual workarounds, waste/loss/theft
- Leverage supply chain data to identify operational gaps
- Monitor how much was paid, what patient was charged and how much was reimbursed by the payor
- Identify supplies that are purchased across multiple locations for greater purchasing power or standardization
- Leverage dashboarding opportunities to track and discard items that have expired or been recalled
- Prevent fraud or optimization by identifying mismatches in use vs. charges
This article was originally published by RSM US on 22 May 2024.
