Objectives of Financial Management in Healthcare
Among their other responsibilities, healthcare boards are responsible for ensuring that management teams and finance teams run efficiently while pursuing goals that lead to profitability. In order for healthcare organizations to succeed and provide quality healthcare for all their patients, they must have financial management plans and systems that are strong and efficient.
Senior executives rely on finance professionals to give them accounting and other financial information to help them make wise decisions and monitor internal and external spending. Health care finance managers play a primary role in developing and implementing strategies to help health care providers generate enough revenue to pay for expenses and plan for future development.
Following are ten objectives of financial management in healthcare:
Careful Evaluation and Planning
Financial managers evaluate the organizations’ effectiveness and overall financial health. Careful planning allows them to plan for the future. As an example, let’s say that a health clinic was losing patients to a center that was on the other side of town because the technology they were using was slow and outdated. Careful evaluation and planning would help the clinic make plans to update its technology.
Another objective of financial management is to invest in assets to ensure financial sustainability. To generate income and still be competitive, financial managers regularly review the prices of health care services to reflect market rates. In addition, they evaluate the effectiveness of the various departments within hospitals.
Generating income may also entail considering whether to launch new services. For example, now that cannabis is legal in some states, some healthcare organizations might consider adding a cannabis dispensary as a new source of income that also ensures the drug is safe and being dispensed legally.
If the senior managers are in favor of a project, the health care finance manager prepares a proposal for the project that indicates the costs of launching it, how the project could be funded, and the annual profit projections.
Protecting Tax Status
Federal and state governments are always interested in finding ways to secure additional funds and one way they do that is when a nonprofit organization loses its tax-exempt status. For this reason, it’s vital for health care management teams to focus on compliance with tax-exempt laws and regulations.
One strategy that healthcare organizations use to support being a nonprofit organization, is limiting charges for indigent patients. Some organizations perform needs assessments for their communities and implement strategies to address their needs. Another strategy is to build nursing schools in communities that have few educational institutions and charge affordable tuition rates to help build a skilled nursing workforce.
Monitoring Internal Spending
Healthcare finance managers also monitor spending to detect fraud and the misuse of funds. Physicians influence much of the spending. They may place purchase orders for medications or equipment that’s inconsistent with a patient’s needs which would set the organization up for legal liabilities.
Finance managers also set up special committees to conduct monthly audits on all purchases for drugs and equipment to help prevent fraud and misappropriation of funds. If there is evidence of fraud, the healthcare organization can initiate disciplinary proceedings against the physician in line with the organization’s policies, launch an investigation, or proceed with disciplinary action according to federal fraud and abuse laws.
Influencing Third-Party Payers
Insurance companies and other third-party payers sometimes cover all or part of a patient’s medical bills. Insurance companies are profit-oriented and it’s common for them to pursue discounts when they insure large numbers of people. Healthcare finance managers are responsible for negotiating fair rates so they can retain the most patients and still get the appropriate amount of payment for the care they provide. Healthcare financial management teams develop strategies to help facilities mitigate the financial risks that are associated with entering into agreements with third-party payers by negotiating the best possible contracts.
Long-Term Investment Decisions
Long-term investment decisions help to support the future of organizations. Financial teams usually take the lead on making big decisions around investments with input from managers at all levels. Using their expertise, they determine how various investments might positively or negatively impact their financial future.
If they need to update their technology, the financial team will need to determine the cost of updating the technology, project if it will help to attract more patients, or provide savings in other ways.
Finance managers also have to raise funds to meet their expenditures. They accomplish this in a variety of ways including fundraising, getting loans, or using other internal funds. They have to make their decisions based on evaluations of the cost and the benefit of the investment or type of debt incurred. The senior manager usually makes the final decision and he or she may bring in an expert to determine what they need, how much it will cost, and how they will fund it.
Working Capital Management
Working capital refers to the organizations’ current assets minus its liabilities. Assets may be in the form of cash, marketable securities, receivables, or inventories. By managing capital, organizations can reduce costs and increase effectiveness.
Numerous parties can be involved in contracts, so they must be carefully managed. Financial managers establish a defined process and flow for each type of contract which helps to prevent mistakes and ensure compliance.
Financial Risk Management
Most companies have risk management teams or risk management policies to prevent or mitigate losses. The risks in the healthcare field have the potential to carry heavier risks than in other industries because there are plenty of risks in regard to patient safety, including life and death decisions.
Boards are responsible to review and oversee all objectives of financial management in healthcare to ensure financial sustainability and to ensure the health and well-being of their patients. Many different people are involved in the process of financial management including the board, senior executives, accounting managers, and finance managers. By using a high-quality board management software program like BoardEffect, and by following these 10 objectives of financial management in healthcare, boards can be as prepared as possible to make wise decisions and properly oversee their operations.