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In today’s healthcare environment, where financial realities play an important role. Healthcare
managers at all levels must understand the fundamentals of finance and how that knowledge is used to
enhance the financial well-being of the institution.
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In short, health financing in a health system concerns with covering all the health services that a
society needs.
~~~ The system that a society uses to pay for healthcare services ~~~
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Accounting
The measurement and recording of events that reflect the operations, assets, and financing of an
organization.
Financial management
The use of theory, principles, and concepts developed to help managers make better financial decisions
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The Role of Finance in Health Services Organization
Managers must understand some elements of many different functions, such as marketing, facilities
management, and human resource management.
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To explain further the role of Finance in Health Services Organization, there are specific finance activities
identified. These are:
◆ Estimating costs and profitability, planning, and budgeting.
First and foremost, healthcare finance involves evaluating the financial effectiveness of current
operations and planning for the future.
◆ Managing financial operations.
Healthcare organizations spend a lot of time managing cash and supply inventories as well as
collecting money owed for services rendered. Proper management of these functions is necessary to
ensure operational effectiveness and to reduce costs.
◆ Financing decisions.
All organizations must raise funds to buy the assets necessary to support operations. Senior
managers and the financial staff typically make the financing decisions.
Such decisions involve many issues, such as the choice between long-term and short-term debt
and the use of leases versus conventional financing
◆ Capital investment decisions.
One of the most critical decisions managers make is the selection of new facilities (including
land, buildings, and equipment). Such decisions are the primary means by which businesses implement
strategic plans.
◆ Financial reporting.
For a variety of reasons, businesses must record and report to outsiders the results of
operations and current financial status. This task is typically accomplished with a set of financial
statements.
◆ Financial and operational analysis.
To achieve and maintain a high level of organizational performance, businesses must constantly
monitor both financial and operational conditions and take actions as needed to ensure that goals are
met.
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The Structure of the Finance Department
• Comptroller
Reporting activities such as routine budgeting, preparation of financial statements, and
patient accounts management.
• Treasurer
In other words, the treasurer must raise the funds needed by the organization and
ensure that those funds are effectively used.
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This shows an example of where does financing allot their funds for health care services.
As you can see, the largest area of healthcare expenditure is hospital care; the second largest, physician
and other clinical services, includes diagnostic imaging, outpatient surgeries, physical therapy, and
chiropractic care.
The next biggest healthcare expense, at 10.1 percent, is prescription drugs.
Almost 8 percent of each healthcare dollar is spent on administrative costs. Next to it, is 7.3% which
goes to public health, research and facilities.
Other health and personal care – 5.1%
Long term care – 4.9%
Dental care – 3.7%
Durable and nondurable medical equipment – 3.4%
Home health care – 2.8%
