How to Implement a Robust Risk Management Framework for Your Digital Health Startup

Understanding the Risks in Digital Health

The digitization of healthcare comes with its share of uncertainties. However, through regular discussion about known and anticipated challenges, startups become better equipped to mitigate those risks while also continuing to advance digital health systems. Here are some risks that should be at the forefront of digital health startup leaders’ minds.

Cyber Security Threats

For the last decade, healthcare has remained high on the list of the most targeted industries for cyber attacks — even beating the financial sector. As digital approaches evolve throughout healthcare more and more each year, the industry becomes an even hotter target for malicious actors.

In 2023, each data breach cost the healthcare industry an average of $10.93 million. These threats not only come with a hefty price tag but also jeopardize patient privacy, undermining providers’ trust and credibility. Patient confidentiality is paramount in healthcare. A scenario is currently playing out for Change Healthcare, which is scrambling to mitigate its reputational impact and remind the healthcare ecosystem of the importance of strengthened security measures.

Regulatory Compliance

Digital health operates within a highly regulated environment, including laws related to data privacy. For instance, the Office for Civil Rights (OCR) at the U.S. Department of Health and Human Services HHS recently updated its guidance on online tracking technology for those regulated by HIPAA and their partners. The entity issued a bulletin to clarify what healthcare providers should look for when hiring SaaS vendors, especially on the data security front.

With government involvement and regulatory policies constantly evolving to address risks that stem from innovations, startups can find it challenging to keep up. However, their success is tied to quickly adapting to these incoming measures. Understanding these regulations requires a thorough overview of the legal requirements and proactive engagement with regulatory agencies to ensure compliance.

Reputational Risks

Data breaches and compliance failures can erode patient trust in the startup’s ability to safeguard sensitive information. This loss of confidence will ultimately be associated with the startup’s brand and far-reaching consequences, including losing customers and partnerships with vendors. The first few years are critical in making a name that’s associated with providing quality service. Once your reputation is tarnished, it could be hard to bounce back.

Developing a Risk Management Framework

Preparing for potential risks is necessary to safeguard a business of any size. From general liability to virtual health insurance, a risk management framework can foolproof companies and turn them into proactive powerhouses rather than sitting ducks.

Risk Identification

Pinpointing risks can seem like a game of hide-and-seek: counting down while simultaneously thinking about where the risks are hiding. However, some risk identification strategies exist to help shine a light on some nooks and corners that can sometimes be missed.

• Start with the bigger picture: Review common risks experienced in digital healthcare to identify vulnerabilities specific to your industry. Then, micro-analyze potential exposures unique to your company by discussing hypothetical worst-case scenarios that can occur. At this stage of the framework, there is value in pessimism.
• Use a risk assessment tool: Consider using tools and software built to analyze risk through company and industry data. Visuals, like graphs and charts, can be an effective way of understanding where exposures lay.
• Equip the team with BOR Insurance: It’s vital to have a broker who represents the company when connecting with other insurance providers. This approach can provide efficiency through negotiations and prioritize products that speak to the startup’s best interest.

Risk Analysis and Assessment

It can be daunting to consider the worst-case scenario, but understanding how much risk can hurt your business is valuable and necessary. Luckily, methods for evaluating the likelihood and impact of risks exist.

For example, qualitative assessment uses techniques such as risk registers to categorize vulnerabilities based on severity. This allows companies to identify what can have the most damaging impact. This information prioritizes scenarios that need further examination to mitigate its chaos.

Risk Tracking and Treatment

Don’t lose sight of the lessons learned because growing any company will inevitably involve hiccups. Look at losses as opportunities to understand gaps that need to be addressed for a possible next time. Remember that no startup is the same — each has its own objectives, works under specific regulations, and serves different clients.

A critical part of the process is analyzing the degree of low to high risk and prioritizing it based on needs. Then, resources are shifted accordingly to mitigate what could come. So, it’s about treating each risk with its solution based on how wide you’re able or willing to cast the net.

Insurance Considerations

Much is still being learned about the evolving world of digital health. At its core, insurers have created policies addressing common risks in the industry. Here are some to consider to protect against potential liabilities and financial losses.

Errors and Omissions Insurance, also known as professional liability, is built to safeguard companies from lawsuits stemming from claims of substandard service or work. The traditional approach to this insurance has been upgraded in the context of the tech space to include exposure that might stem from digital healthcare to provide a broader range of coverage.

Moreover, Cyber Liability Insurance covers expenses related to data breaches, cyberattacks, and unauthorized access to sensitive patient information. The risks associated with a hack can have far-reaching effects, such as regulatory fines, reputational damage and suspension of operations.

Keep in mind that several other coverages exist that benefit digital health startups, such as general liability, workers’ compensation, product liability, and more. However, it’s critical to create a custom-fit insurance plan for the risks you face.

Implementing Risk Mitigation Strategies

Today’s insurers are also taking on the role of risk management specialists, ensuring that companies are doing their best to reduce the likelihood of damage before initiating coverage. Risk mitigation strategies offer a framework to guide startups to do just that.

Cybersecurity Measures

The size of a business won’t deter cyberattacks. If anything, startups are seen as an attractive target because they present more vulnerabilities due to systems that aren’t as robust or not correctly prioritizing resources toward these measures, often struggling to keep up with evolving attacks and ever-changing compliance demands.

Healthtechs operate digitally, meaning their attack surfaces are plenty, and so their cybersecurity practices to protect them should be just as abundant. Typical approaches involve encryption, secure coding, and access controls.

Compliance Management

Startups need to protect the company from internal errors. Roughly 74% of successful data breaches in 2022 involved a human element, such as weak passwords and phishing emails. This includes policies for data privacy, patient consent, data breach response, and regulatory reporting.

This is where the importance of a dedicated professional comes in to mitigate risks associated with non-compliance — many times in the form of a chief compliance officer.

Focused on developing, enforcing and reviewing how the company complies with laws and regulations, 76% of those surveyed confirm prioritizing a culture of compliance as part of their decision-making processes.

Establishing a Risk Monitoring and Review Process

Monitoring and reviewing what works and what doesn’t is essential for a digital healthcare startup looking to evolve in a rapidly growing industry.

This can be done through establishing systems and processes that offer continuous monitoring. Some tools provide ongoing surveillance of risk indicators that detect and respond to emerging threats, like cybersecurity alerts, regulatory changes and any potential operational disruptions.

As regulations and landscape continue to change, risk strategies should continue to adapt. This is why constant review is necessary to stay on top of new trends. It also includes evaluating past incidences that occurred under the current strategy to prevent them in the future.

Equally important is stakeholder feedback. Actively engaging stakeholders in the risk management process gives startups valuable insights that result in identifying blind spots. Establishing channels where feedback can be shared confidently by employees, customers and partners is a cost-effective and valuable tactic that can serve the organization.