By Chron Contributor Updated April 23, 2021
Health care finance management teams focus on helping organizations such as hospitals and nursing homes run efficiently and profitably. Finance professionals provide general managers with accounting and other financial information that helps them make smart decisions. Four elements of financial management in healthcare include generating income, monitoring internal spending, maintaining the facility's tax-exempt status and figuring out areas of financial strength and weakness. Take a look to learn more about the financial goals in healthcare that managers need to know.
Generating Hospital Income
According to BoardEffect, health care finance managers develop and implement strategies to help health facilities generate sufficient revenue to offset expenses and finance future development. This typically involves investing in assets, reviewing the prices of health care services to reflect market rates, evaluating the effectiveness of hospital departments and launching new services.
For example, finance managers working in an outpatient hospital might advise senior management to invest in inpatient services as a new source of income. If senior managers approve of the idea, the health care finance management team prepares a project proposal indicating the estimated costs of launching the service, potential funding sources and annual profit projections.
Protecting the Hospital's Tax Status
With federal and state governments consistently looking for new revenue sources, non-profit health facilities must protect their tax-exempt status. A health facility’s health care finance management team focuses on ensuring compliance with tax exemption requirements. It might do this by limiting charges for indigent patients, or conducting a community needs assessment and implementing a strategy to address those needs.
For example, if the hospital operates in a community with few educational institutions, it might build a nursing school for local students to pursue diplomas in nursing at affordable rates.
Monitoring Internal Spending
The Bureau of Labor Statistics explains that monitoring spending within the hospital is one of the financial goals of healthcare management. The purpose of this type of purpose of financial measurement in healthcare is to help managers detect fraud or the misuse of funds.
In particular, physicians are closely monitored because they influence much of the spending attributable to hospitals and nursing homes. For instance, a physician might place a purchase order of medicine and equipment that is inconsistent with patient needs, exposing the facility to unnecessary expenses and legal liabilities.
To combat this practice, the health care financial management team can set up a special committee to conduct a monthly or annual audit on all drugs and equipment purchases to detect the misappropriation of hospital funds. If there is evidence of fraud, the hospital can initiate disciplinary proceedings against the physician in line with institutional policies, or launch criminal proceedings in accordance with federal fraud and abuse laws.
Influencing Third-Party Payers
Third-party payers are insurance companies and other organizations that cover all or part of a patient's medical bills. Third-party payers are largely profit-oriented and often aggressive in asking healthcare facilities for discounts if they provide large numbers of patients. However, hospitals can lose money if they don't receive the appropriate amount of payment for the care they provide.
The health care financial management team develops strategies to help the facility mitigate financial risks associated with entering into agreements with third-party payers by negotiating better contracts with insurance companies.
FAQs
THE ELEMENTS OF FINANCIAL MANAGEMENT
There are four recognized elements of financial management: (1) planning, (2) control- ling, (3) organizing and directing, and (4) decision making.
What are the four elements of financial management in healthcare? ›
THE ELEMENTS OF FINANCIAL MANAGEMENT
There are four recognized elements of financial management: (1) planning, (2) control- ling, (3) organizing and directing, and (4) decision making.
What are the 3 main goals of financial management? ›
Common goals of financial management
- Maximize current value. The financial manager or managerial team works to maintain the highest value possible for the company's assets. ...
- Maintain growth. ...
- Maximize profit. ...
- Minimize cost. ...
- Avoid bankruptcy. ...
- Controlling. ...
- Reporting. ...
- Planning.
The five principles are consistency, timeliness, justification, documentation, and certification.
What are the 4 functions of financial management? ›
What are the functions of financial management? The functions of financial management involve organising, planning, controlling and directing an organisation's financial activities. It includes applying different management principles to financial assets.
What is financial management and its objectives? ›
Financial management focuses on establishing a firm position for the company in the market. It achieves this through a framework for increasing the investors' and shareholders' wealth. The main objective of an organization is to perform well and optimize profits while stumping up the economy.
Why is financial management important to healthcare organization? ›
The primary role of financial management is reducing risk and managing finances to reach a healthcare organization's goals. Providing healthcare requires a robust and organized administrative backbone, and what that looks like will vary between one healthcare organization and the next.
What are the 6 financial principles of financial management? ›
The six principles of finance include (1) Money has a time value, (2) Higher returns are expected for taking on more risk, (3) Diversification of investments can reduce risk, (4) Financial markets are efficient in pricing securities, (5) Manager and stockholder objectives may differ, and (6) Reputation matters.
What are the 5 financial objectives of a business? ›
Financial objectives signal commitment to such outcomes as good cash flow, creditworthiness, earnings growth, an acceptable return on investment, dividend growth, and stock price appreciation.
What are the 4 types of financial management? ›
What are the types of financial management?
- Corporate Financial Management. This focuses on making decisions related to the financing and investment of an organization. ...
- Personal Financial Management. ...
- Public Financial Management. ...
- International Financial Management. ...
- Non-Profit Financial Management.
The main financial system components include financial institutions, financial services, financial markets, and financial instruments.
What are the 4 major elements of financial accounting? ›
Of these elements, assets, liabilities, and equity are included in the balance sheet.
...
The main elements of financial statements are as follows:
- Assets. ...
- Liabilities. ...
- Equity. ...
- Revenue. ...
- Expenses.
The four primary care (PC) core functions (the '4Cs', ie, first contact, comprehensiveness, coordination and continuity) are essential for good quality primary healthcare and their achievement leads to lower costs, less inequality and better population health.
What are the financial management practices in healthcare? ›
The basic activities involved in financial management in healthcare organizations include evaluation and planning, long-term investment decisions, financing decisions, working capital management, contract management, and financial risk management.
What are the four pillars of the financial services industry? ›
A term used to describe the main types of financial institutions: banking, trust, insurance and securities.
What are the four core financial statements? ›
But if you're looking for investors for your business, or want to apply for credit, you'll find that four types of financial statements—the balance sheet, the income statement, the cash flow statement, and the statement of owner's equity—can be crucial in helping you meet your financing goals.
What are the four accounts essential for effective financial management? ›
Any good cash management plan revolves around the four A's — Accounting, Analysis, Allocation, and Adjustment.
What are the objectives of the financial statements? ›
Financial statements have the objective of providing information about a reporting entity's financial activities and economic condition relevant to a wide variety of users for evaluating the entity's management and making economic decisions.
What are the 5 principles of management in healthcare? ›
Management has five main functions: planning, organising, leading, coordinating and control. In healthcare management there are three managerial levels: top-level, middle-level and frontline managers.
What do the 4 P's stand for healthcare? ›
The four Ps (predictive, preventive, personalized, participative) [3] (Box 21.1) represent the cornerstones of a model of clinical medicine, which offers concrete opportunities to modify the healthcare paradigm [4].
This article outlines how using the Seven A's (awareness, accessibility, affordability, appropriateness, adequacy, acceptability, and availability) can help nurses and agencies effectively determine the fit between older adults and community support agencies.
