Finance in Health Care


Financial Management encompasses budgets, cost-benefit analyses, return on investments (ROIs), contracts, and managing resources. A general understanding of accounting terminology that incorporate assets, liabilities, and owner’s equity on a balance sheet, revenue and expenses on an income summary, and utilization of cash flow statements provide the foundation for financial management of an organization. Coordination of departments within an organization is critical to securing of funds and providing detailed explanations about its expenditures. Effectively managing funds is critical for business strategies and employment of talented personnel. Securing reimbursement for services rendered in a health care organization can be a sophisticated and complex process involving third party payers and managed care organizations. Bundling of services and associated costs is becoming more common.

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Employees impact the financial status of an organization and ultimately its viability. The costs associated with hiring alone are critical to the profitability of a company. Retention with high satisfaction of employees remains key and employees, as well as the organizational management team, must all engage in profitability measures maximizing company growth; each bears some responsibility. Gross negligence pertinent to the financial health of the organization affects all vested members of an establishment. Alternately, full participation towards the goals and objectives of the company reap rewards for all contributors.

Continued good health in the workplace is a goal of organizations around the world. In Guilmette’s article (2013), the Global Healthy Workplace Awards and Summit, touted the contributory factors that affect health including the environment in which one works, personal health resources, and the organization’s interaction with the community. The winners of the awards in 2013 shared the commonality of “buy-in from senior leadership.” Information campaigns in which employees are educated or re-educated on topics that affect their lives are part of the initiatives set forth. Supporting the vital resource of personnel focusing on health factors reduced sick days for companies, and is quantifiable in terms of return on investment-investing in personnel, which is vital to conducting business. While human resources managers can guide this process, its ultimate success depends on all management and employees to support the ideals presented.

The financial life cycle includes assessment of the financial performance and health of an organization, applying that information to create a plan for future performance, and executing that plan (McWay, 2014). Assessment includes observations as well as documentation review to understand the past, current, and future state of finances. Creating a plan for the future includes participation of all involved or affected parties to ensure success of any future implementation. Executing the plan includes carrying out the stated plan with evaluation of outcomes.

Financial life cycles are impacted by areas both within and outside of the organizational environment. One example includes the advent of the electronic medical record (EMR). Electronic medical records became part of the newest technology in the mid-1960s to address questions about public safety in the medical arena, as only one example of the reasons. The 2009 Recover Act sets aside more than $20 billion as incentives from the federal government to healthcare providers and hospitals who adopt the electronic medical records delineating improved quality, safety, and effectiveness of care (Malhotra & Lassiter, 2014). The adoption of the electronic record is a burden for practices and facilities to include in their plans of care for patients. Both with the learning of a new system for all personnel and the additional time performing the necessary documentation, extremely busy medical organizations have more time invested in the processes. Simultaneously, these organizations are trying to maintain patient and employee satisfaction and managing payroll, one of their largest expenses, which will ultimately include more hours for employees and even the addition of overtime pay. Providers must realize that this will be a return on their investment as they implement this new technology. The needs of the practice and the mandates of the government need to be assessed, reasonable plans for conversion need to be defined and placed on a time line, and plan execution must occur. These electronic systems also queue healthcare professionals about thorough documentation, mandated and essential pieces of data, and aid in contributing to their overall effectiveness, while reducing costs in the long run.

Reimbursement of services in health care is predicated on the following prescribed measures to achieve expected or optimal results for patients. In a study by Boltong (2013), the prevalence of malnutrition risk and assessed malnutrition for patients in a cancer-specific public hospital and potential for funding opportunities were investigated in terms of routine malnutrition screening. The results showed a prevalence of 52% for malnutrition for the patients. This evidence supports other literature demonstrating that malnutrition coding contributes to casemix funding in Australian public and international hospitals alike highlighting a significant shortfall to the hospital surveyed in terms of reimbursement. This benefits patients by early identification of malnutrition, which may provide quicker nutritional management and improve patient outcomes (Boltong, 2013). This example highlights the need for research as a means to increasing quality patient health outcomes, and possible reduction in costs in the future.

Revenue cycle management, defined as efficient and effective use of administrative and clinical functions to capture, manage, and collect revenue related to the delivery of patient services, includes patient-specific information and his or her method of payment (McWay, 2014). For Medicaid eligibility, applicants must meet prescribed criteria in order to qualify for coverage. When seeking medical care, patients are expected to present insurance information and/or any necessary co-payments at the time of service. Exceptions include emergency room visits in which hospitals cannot refuse patients treatment if they do not have insurance.

Reimbursement methodologies, including an explanation of third-party payers—both governmental and nongovernmental—have an important role in financing the delivery of health care in the United States. Managed care, and its various forms, is an integral part of the payment and reimbursement structure. It is important to distinguish between the varieties of methods used in reimbursement and understand how this affects revenue cycle management. The awareness and understanding of these topics can provide the framework each employee needs to assist a health care organization’s efforts in achieving its mission and improving its financial well-being (McWay, 2014).

Negotiation of services by insurance companies and other entities are decided before a patient arrives for treatment with his or her insurance information. A complex equation of factors contributes to the costs of the services for the patient. Sometimes patients may carry insurance from two different carriers or supplementary insurance that will help reduce the final cost of the treatment, diagnostic or laboratory services, or medications. If a balance remains, the patient will be responsible for payment. Once the charges are completely paid, the revenue cycle is complete. The complexities are many in such a cycle and experts are trained to implement and provide detailed explanations for covered and non-covered items on any patient bill. Proper coding is also necessary so that the diagnosis and treatment plan can be correctly attributed to the documented treatment plan as a form of reconciliation. If an error occurs, payment will not be rendered until proper documentation and coding are returned to the payer of services. Securement of funds at healthcare centers ensures financial viability; without it, the financial burden will affect other expenditures necessary to maintain patient care.

Reimbursement methodologies are the means used to pay for the services provided by health care professionals. Reimbursement is performed primarily by third-party payers in both the public and private sectors, with the U.S. government operating the largest set of health care reimbursement programs in the nation. Nongovernmental payers, such as private insurance companies, employers, and managed care organizations, finance health care in the private sector. Managed care organizations have played a significant role in the financing of health care in the latter half of the 20th century, with several models operating across geographic regions. Payment methods have differed over time, moving from the once predominant method of fee-for-service to such methods as prospective payment systems and capitation. With the focus on containing costs, many health care entities have seen a dramatic shift take place with regard to managing the revenue cycle. Efforts to improve the revenue cycle process are largely dependent upon the content of the health record, adding new complexities to the role of the health information management professional (McWay, 2014). Timeliness of incoming revenues also affects financial outcomes of an organization. Oftentimes, contingency funds or other cash availability may be necessary to infuse into a healthcare center to cover unexpected or slow incoming payments from insurance companies and/or patients.

Lecture and Research Update Bibliography

Boltong, Anna G,B.AppSci, P.G.CertTeach&LearnH.E., Loeliger, Jenelle M, BSc,M.Nut&Diet, G.DipMan, & Steer, Belinda L,B.Sci, M.Nut&Diet. (2013). Using a Public Hospital Funding Model to Strengthen a Case for Improved Nutritional Care in a Cancer Setting. Australian Health Review, 37(3), 286-90.

Guilmette, D. (2013). Winning with Work Place Health. Occupational Health, 65(10), 14-15.

Malhotra, N., & Lassiter, M. (2014). The Coming Age of Electronic Medical Records: From Paper to Electronic. International Journal of Management & Information Systems (Online), 18(2), 117.

McWay, D. C. (2014). Today’s Health Information Management: An Integrated Approach (2nd ed.). Clifton Park, NY: Delmar Cengage Learning.

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