Examkin

Question

Difficulty: MediumMethods of Handling Risk

A regional hospital network, Sterling Health Systems, is evaluating its risk management plan regarding medical malpractice and operational liability exposures. The hospital's board of directors has implemented a combination of strategies to manage these exposures. Which of the following actions correctly illustrate the risk handling method of Risk Retention? (Select all that apply.)

  1. Establishing a self-funded reserve account to pay out the first $250,000 of any liability claim.Answer
  2. Choosing not to purchase coverage for minor property damage to visitor vehicles, absorbing any occasional repair costs directly.Answer
  3. C
    Closing the hospital's high-risk experimental surgery wing to completely eliminate the exposure to associated lawsuits.
  4. D
    Mandating that all contracted physicians sign a hold-harmless agreement, shifting the financial liability for errors to the physicians.

Answer

The correct actions illustrating risk retention are establishing a self-funded reserve for the first $250,000 of claims and choosing to absorb repair costs for visitor vehicles directly.
Risk retention occurs when an entity assumes the financial consequences of a risk, either intentionally or unintentionally. Establishing a self-insured fund (a form of deductible) and actively choosing not to insure a known exposure (absorbing the costs) both represent the hospital keeping the financial burden of those potential losses.

Step-by-Step Solution

1
Analyze the definition of Risk Retention.
Risk retention involves assuming the financial responsibility for a loss, either fully or partially (such as through deductibles, self-insurance, or simply not buying insurance).
Understanding the core concept is necessary to evaluate the given strategies.
2
Evaluate the option regarding a self-funded reserve account.
This action requires the hospital to pay for losses out-of-pocket up to $250,000. This is a partial retention of risk.
This matches the definition of retention.
3
Evaluate the option regarding absorbing minor property damage costs.
By deliberately not buying insurance for this specific exposure, the hospital is fully retaining the risk.
This matches the definition of retention.
4
Evaluate the remaining options.
Closing a surgical wing eliminates the exposure entirely (Avoidance). Requiring a hold-harmless agreement shifts the financial burden to another party (Transfer).
These actions do not fit the definition of retention.

Key Concept

Methods of Handling Risk (STARR)
Rate this question

Topics

Methods of Handling Risk

More questions from this topic