Healthcare Financial Management | Functions & Importance - Lesson | Study.com (2024)

• Evaluation and planning: Assessing the general activities and financial performance of the healthcare business is part of financial management. The healthcare provider is now able to make preparations for the future thanks to this. Imagine a situation where a hospital looks at emergency room income and notices that a nearby facility with more room is attracting most of its patients. As a result, they can choose to make preparations for a larger emergency room to overcome this challenge.
• Long-term investment decisions: Although the financial team is organized hierarchically, significant corporate investments typically involve input from all managers, regardless of level. Making long-term investment decisions entails reviewing implementation plans and assessing the potential impact of the investment on one's financial future, both positive and negative. Using the previous scenario, the finance team at the hospital would assess the expense of a more extensive emergency department and possible income gains to determine the viability of the investment.
• Financing: The financial team must also raise money to cover expenses. This could entail undertaking fundraising efforts, obtaining grants, or using internal finances. They will consider the cost and return of the investment and the type of debt likely to be incurred. The senior manager is obliged to make the final decision about finance. For instance, they might elect to pay for some of the expenses out of internal resources and then utilize a small loan to cover the remainder. Their long-term investment will increase their income and eventually enable them to pay back the loan.
• Management of working capital: The working capital of the business is determined by current assets minus liabilities, and it is managed by the financial management group. Assets include things like receivables, cash, inventories, and securities. Capital management is essential for a business to operate efficiently and cut expenses. For instance, the team decides which assets can be reused and which ones need to be purchased using working capital when renovating the emergency department.
• Contract management: An effective contract management system enables healthcare companies to deliver the best treatment to patients, cut operational costs, ensure compliance, and reduce risk. For example, a healthcare facility might contract out its transcription, collections, and other office-based tasks, as well as medical coding.
• Management of risks: Healthcare risk management is defined as the procedures and systems employed to identify, minimize and avert risks in healthcare organizations, recognize its objectives, constituent parts, the risk manager's function, and more. Using skin protocols to prevent skin ulcers, lowering the incidence of falls, decreasing malpractice claims, and enhancing communication with insurance providers are some examples of financial-related risk management objectives for healthcare businesses.

To unlock this lesson you must be a Study.com Member.
Create your account

• Creating income: Investing in assets to achieve financial sustainability is one goal of financial management. In order to generate income and maintain competitiveness, financial managers continuously evaluate the cost of healthcare services to meet market rates.
• The ability to sway third-party payers: The full or partial payment of a patient's medical bills may occasionally be made by insurance companies and other third parties. Insurance companies regularly seek discounts when they insure a large number of customers since they are profit-driven. Negotiating reasonable charges is the responsibility of healthcare finance managers in order to retain the bulk of their patients while still getting paid fairly for the treatment they provide.
• Monitoring internal spending: Finance managers in the healthcare industry also keep an eye on internal expenditures to look for fraud and money-related abuse. Most of the spending is influenced by physicians. They might place purchase orders for items that are improper for a patient's needs, putting the business at risk for lawsuits.
• Protecting tax status: The state and federal governments may use the chance to raise money when a nonprofit organization loses its tax-exempt status. This makes it crucial for management teams in the healthcare industry to concentrate on following tax-exempt legislation and regulations.

To unlock this lesson you must be a Study.com Member.
Create your account