Financial management in healthcare organizations
Financial management in healthcare organizations is important to ensure that these organizations achieve their goals. The role of healthcare financial management is financial and risk management in a manner that helps healthcare organizations achieve their financial goals and organizational purposes. Healthcare financial management seeks to achieve six objectives to enable healthcare organizations to achieve their purposes.
The primary objective is income generation. Healthcare organizations need to survive and grow, and to achieve this, they need to generate income. In the healthcare industry, income generation is important in maintaining community services (Nowicki, 2018). Healthcare organizations cannot continue to operate and offer healthcare services to the communities they serve if they cannot afford it. As such, to generate income is the most essential healthcare financial management objective. Healthcare organizations achieve this objective by coming up with avenues to generate adequate revenue to offset expenses and fund future development. This entails investing in assets, coming up with new services, and reviewing healthcare service prices to reflect market rates.
Another objective is responding to regulations. The government regulates the healthcare system to prevent healthcare organizations from exploiting consumers. According to Tang, Eisenberg, and Meyer (2004), it is the responsibility of the government to protect and advance societal interests, including the delivery of cost-effective quality care. Since the market alone is incapable of ensuring all people have access to cost-effective, quality healthcare, the government must supplement the market where gaps exist and regulate the market to prevent exploitation. The federal, state, and local governments have a vested interest in ensuring that healthcare organizations spend money effectively since these governments pay 55 percent and more of all health insurance expenditures (Nowicki, 2018). Additionally, the government is responsible for accrediting healthcare organizations and certifying them to qualify for reimbursement from third-party payers. As such, healthcare organizations need to comply with the set regulations. Thus, responding to regulations is an important healthcare financial management objective.
Healthcare financial management also seeks to facilitate the healthcare organization’s relationship with third-party payers (Nowicki, 2018). Third-party payers, including insurance companies, government agencies, and employers pay medical claims for the insured. Third-party payers account for mete than 82 percent of health consumption expenditures. Third-party payers, especially insurance companies, are largely profit-oriented, and thus, healthcare organizations need to negotiate better contracts with these third-party payers to receive adequate payment for the care services they offer. Financial management ensures that healthcare organizations maintain constructive relationships with third-party payers, ensuring that each party receives favorable terms.
Influencing payment methods and the amount that the third-party payers choose is important since the third-party payers pay the bills. Third-party payers are profit-oriented and thus aggressively asking for discounts from healthcare organizations upon proving large numbers of patients. However, healthcare organizations can lose significant revenue if they fail to receive appropriate reimbursement for the care they provide. Third-party payers are further asking healthcare organizations to take up part of the financial risks by agreeing to prospective payment. Healthcare entities lose money if the prospective payment is lower than the cost of care provided. As such, healthcare financial management must be attentive to influencing payment methods and amount to minimize financial risk and avoid losing money (Nowicki, 2018).
Physicians have a considerable influence on all healthcare expenditures. Therefore, healthcare financial management seeks to monitor physicians and their financial liability to healthcare organizations. Physicians are responsible for ordering patient admonitions, diagnostic testing, treatment, and patient discharge. Physicians may make orders that expose healthcare organizations to unnecessary expenses and liabilities. Healthcare financial management ensures that physicians make orders that are in line with patient needs. Additionally, healthcare financial management ensures that healthcare management minimizes exposure to legal liability for the possible negligent actions by the physicians (Nowicki, 2018).
With the federal, state, and local governments looking for new sources of revenue, healthcare organizations ought to protect their tax-exempt status. Therefore, protecting the tax status of healthcare organizations is one of the priorities of healthcare financial management. Healthcare finance management ensures that healthcare organizations comply with tax requirements. For-profit healthcare entities seek to lessen their tax liabilities, and not-for-profit entities seek to protect tax-exempt status. With this in mind, healthcare financial management seeks to protect the health organization’s tax status.
Of these six objectives, I have more experience with income generation. Healthcare organizations need to generate income for their continued service provision and survival. One of the ways in which healthcare organizations are seeking to generate more income is by offering quality services. According to Dong (2015), healthcare organizations can generate more income by offering high-quality care services when the marginal quality valuation of the patients increases with price. Increasing service quality by inversing in the hospital infrastructure, information technology, and medical equipment attracts more business, especially attracting paying patients. Healthcare organizations need to generate more income to offset their expenses, and thus they need more private-pay patients. They can achieve this by enhancing service quality. Also, healthcare organizations are seeking to generate more income by becoming consumer-friendly. Healthcare organizations have realized that attracting private-pay patients not only calls for providing quality services but also means become more consumer-friendly. As well, enhancing the efficiency of ED services has become an avenue for healthcare organizations to generate income. Enhancing the efficiency of the ED by removing bottlenecks slowing down patients and thus reducing waiting times, healthcare organization attracts more private-paying patients who frequent the ED.
Extra time should be devoted to understanding the objective of influencing payment methods and amounts. Various payment mechanisms that exit include global budget, fee-for-service, line-item budget, per diem, cased-based, capitation, and payment for performance (Kazungu, Barasa, Obadha & Chuma, 2018). These methods correspond to financial risks to healthcare organizations, with each method reflecting a risk factor within the health care spending identity. Understanding the financial risk each method presents to healthcare organizations is important to determine how best healthcare entities can influence or respond to each of these methods to minimize financial risk. I intend to accomplish this learning by engaging in extensive research on the financial risks each of the payment methods present to healthcare organizations.
In conclusion, healthcare financial management is important to enable healthcare organizations to achieve their purposes and objectives, and to achieve this, healthcare financial management seeks to accomplish six objectives. These objectives include income generation, responding to regulations, facilitating healthcare organization’s relationship with third-party payers, influencing payment methods, and amount that the third-party payers choose, monitoring physicians, and protecting tax status. Understanding each of these objectives is essential to comprehensively comprehending healthcare financial management.