So many advancements have been occurring in the healthcare industry, they’ve been difficult to keep up with. Medicare introduced a coding system for billing. Advances in technology inspired the introduction of electronic medical records, which have now become standard practice. The Affordable Care Act (ACA) has brought even more changes in recent years, and the federal government is still refining healthcare laws and programs. Adding to that, automation and artificial intelligence are front-runners in technology and they stand to change healthcare financial practices even more.
With so many changes going on all at once, financial management is challenging at best. Healthcare providers and insurance companies are in this together. Skilled financial management skills are a necessity for healthcare boards now and as we move into the future. To help you sort things out, we’ll define financial management, provide an overview, and list best financial practices for healthcare organizations.
Defining Financial Management
Financial management for healthcare organizations means applying general management principles to your organization’s financial resources. It entails organizing, planning, controlling, and directing your organization’s financial activities, including procurement and how you allocate funds.
These are some of the activities that fall under financial management:
- Handling routine financial activities
- Negotiating contracts
- Reserving funds for payroll
- Reserving funds for unexpected costs
It’s the responsibility of your CEO and executive team to use data to make strategic plans for the present and for the future. In general, leaders in the healthcare space always have bigger dreams for what they want to accomplish then what they have time, funds, and resources for. That’s where strong financial management and best financial practices for healthcare come into play. Strong financial management makes it possible for healthcare organizations to introduce new treatments, purchase new equipment, and hire skilled staff with the goal of providing high quality healthcare.
Overview of Financial Practices for Healthcare Organizations
Business strategies and financial management are inherently interconnected. In your healthcare board’s role as an overseer, it has to consider both issues together.
These are some of the other issues that go into establishing financial practices for healthcare organizations:
- Larger healthcare organizations have greater bargaining power with insurance companies then smaller organizations, which affects decisions about mergers and partnerships.
- Pharmaceutical companies are highly influential with drugs and research.
- Insurance companies establish a list of drugs and treatment guidelines for physicians, and they have specific requirements for paying claims.
- Insurance companies have two goals-ensuring that treatments are cost effective and preventing even higher costs later on.
- Boards and executives need to find the balance between making profits and ensuring quality of care.
- Boards also have to consider the impact of the risk of malpractice lawsuits which can negatively impact financial goals and overall sustainability.
Best Financial Practices for Healthcare Organizations
To get a better understanding of the best financial practices for healthcare organizations, you can take some cues from the data that your healthcare organization collects.
These are some of the statistics for your board to review:
- Number of cases where there were complications
- Death rates
- Readmissions after 30 days
- Lengths of stay
- A patient safety index
- Hospital Consumer Assessment of Healthcare Providers and System scores
The strength of your healthcare organization’s financial situation is an indicator of whether you will be able to invest in improving the quality of care and how much you’ll be able to invest toward achieving that goal. It stands to reason that healthcare systems that are in a position to regularly invest in improvements are the most likely organizations to see a higher return on their investments.
Now, let’s take a look at some of the best financial practices for healthcare organizations:
- Using your audited financial statements, calculate your operating margins, expendable cash, and long-term debt-to-capitalization ratio.
- Perform a short-term and long-term debt equity analysis.
- Identify all sources of funds-shares, loans, bonds, etc.
- Review investments to determine if they’re profitable and prudent.
- Establish a value-based model that you can share with government agencies, insurance agencies, and other stakeholders to demonstrate value.
- Gather feedback from direct providers and your patients to gauge the quality of care.
- Review data and the quality of care versus your expenditures.
- Consider how much money you can reinvest to make additional improvements from the savings realized from providing a higher quality of care.
- Consider how preventative measures will help your healthcare organization save money for the long term.
- Use a balanced scorecard method to set targets for making improvements and the quality of care, financial accountability, staffing productivity, and staffing engagement.
- Determine how to dispose of surplus funds-dividend declaration, retained profits, etc.
- Review financial controls using tools like ratio analysis, forecasting, cost and profit control, etc.
Utilizing a Board Management System to Ensure Accountability for Best Financial Practices
Establishing best financial practices for your healthcare organization will surely be a work in progress. A board management system by BoardEffect provides a secure platform to support this very important work.
BoardEffect provides a secure platform for the confidential and sensitive nature of a healthcare board’s work. It’s a safe place to collaborate, create online board meeting books, and store your board meeting agendas and meeting minutes. Your board portal is the perfect solution for storing articles on health care trends, technology, and innovations.
As a member of a healthcare board, it’s your responsibility to ensure that your organization has adequate funds for all the organization’s needs. Best financial practices lay the groundwork to ensure that your organization strikes a reasonable balance between incoming and outgoing funds. Sound financial practices will help position your healthcare organization to grow and expand its programs and treatments with the ultimate goal of serving your community.
What’s more, good financial practices will help eliminate or reduce the uncertainties that are brought about by our communities and society, in general. Also, sound financial practices will help your organization mitigate risks and ride the wave of changing market trends as they occur.
No matter what size your financial organization is, finding the perfect balance between capital and debt will always be tough, but with perseverance and a solid commitment to best financial practices, you can get the job done.