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Introduction to Healthcare Finance
Collecting Pooling Purchasing
HAS Islamabad
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Introduction
The Sustainable Development Goals
adopted by 193 countries at the 2015 UN
General Assembly, as well as the Political
Declaration on universal health coverage
(UHC) adopted in 2019 (UN, 2019), have
affirmed that health system strengthening
is the principal means to achieving the
shared goal of UHC.
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Introduction
The importance of health systems
strengthening has been underlined by recent
events such as the coronavirus disease 2019
(COVID-19) pandemic (WHO, 2020), which
highlighted the role of the health system in
protecting the population. For policy-makers to
effectively focus their health system
strengthening efforts and see them translate
into improvements in health system
performance, they need to be able to determine
which areas to prioritize and direct resources
towards.
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Introduction
Regular health systems monitoring, appraisal
and assessment take on a great significance,
especially in view of gaining a solid
understanding of key strengths and
shortcomings. Over the years, assessments of
health systems and their performance have been
given different labels, including “health system
profile”, “health sector situation analysis”, “health
system monitoring”, “health system analysis”,
“health system assessment” and “health systems
performance assessment”
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Defining Healthcare Financing
Health care financing is the process of
generating, allocating, and using financial
resources to support health systems. It's a key
part of health systems and can help to improve
access to services and financial protection for
people.
Health care financing can be analyzed from the
point of view of financing schemes (financing
arrangements through which health services are
paid for and obtained by people, e.g. social health
insurance), financing agents (organizations
managing the financing schemes, e.g. social
insurance agency), and types of revenues (e.g.
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Defining Healthcare Financing
Health financing is a core function of health systems that
can enable progress towards universal health coverage by
improving effective service coverage and financial
protection. Today, millions of people do not access services
due to the cost. (WHO)
We began by examining the healthcare sector of the
economy, which consists of a diverse collection of
subsectors that involve, either directly or indirectly, the
healthcare of the population. The major subsectors of
healthcare include the following:
Health services: The health services subsector
consists of providers of health services, including
medical practices, hospitals, nursing homes, home
health care agencies, and hospice providers
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Health insurance
The health insurance subsector, which makes
most of the payments to health services
providers, includes government programs,
commercial insurers, and self-insurers. Also
included here are managed care companies,
such as health maintenance organizations
(HMOs), which incorporate both insurance and
health services (provider) functions.
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Medical equipment and supplies
These subsectors include the makers of
diagnostic equipment, such as X-ray
machines; durable medical equipment,
such as wheelchairs; and expendable
medical supplies, such as disposable
surgical instruments and hypodermic
syringes.
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Pharmaceuticals and biotechnology
These subsectors develop and market drugs and
other therapeutic products.
Other.
This broad category includes organizations such as
consulting firms that advise hospitals on strategy
and operations, educational institutions that train
providers and healthcare managers, government
agencies that regulate various health services
subsectors, and private agencies that provide a
wide variety of services.
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Defining Healthcare Finance
The definition depends on the context.
Policy maker or manager
Type of healthcare organization
For our purposes, healthcare finance is the
practice of finance, including both
accounting and financial management,
within health services (provider)
organizations.
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Accounting Versus
Financial Management
Accounting concerns the measurement, in
financial (dollar) terms, of events that reflect
the resources, operations, and financing of an
organization.
Financial management provides the theory,
concepts, and tools necessary to help
managers make better financial decisions.
Are the two disciplines independent?
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Course Goal
The primary goal of this course is to introduce
students to the field of healthcare finance,
including:
Principles and concepts.
Applications across a wide variety of provider
settings.
The impact of alternative reimbursement
methods.
Along the way, some important personal
finance concepts also are discussed.
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Concept of a Business
A business has the following characteristics:
Obtains financing from the marketplace.
Uses the funds to buy assets.
Operates the assets to provide goods or
services.
Sell the goods or services to create revenue.
What is the difference between a business
and a pure charity?
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The Role of Finance
The primary role of finance within any business is to
plan for, acquire, and utilize resources to maximize
the efficiency (and hence value) of the organization.
Finance activities include:
Planning and budgeting
Financial reporting
Capital investment decisions
Financing decisions
Working capital management
Contract management
Financial risk management
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The Four C’s
The finance activities listed on the previous
slide can be summarized by the four C’s:
Cost minimization
Cash sufficiency
Capital access
Control
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Finance Department Structure
At large providers (typically hospitals), the
finance department typically is organized as
follows:
Chief financial officer
• Comptroller
– Budgeting and reporting activities
– Payables and receivables management
• Treasurer
– Acquisition and employment of capital
– Debt management
– Financial risk management
What about a small medical practice?
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Health Services Settings
Health services are provided by numerous
types of organizations in many different
settings.
Applications presented in this course will
include the following settings:
Hospital (inpatient) care
Ambulatory (outpatient) care
Long-term care
Integrated delivery systems
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Regulatory Issues
Entry into the health services industry is
heavily regulated.
Licensure
Certificate of need (CON)
Cost containment and rate review
Although designed primarily to protect
consumers, critics of regulation contend that
it protects providers more than consumers.
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Legal Issues
The primary legal issue facing healthcare
providers is professional liability
(malpractice).
In addition, other issues include:
General liability
Antitrust
Right to die
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Current Management Challenges
According to ACHE
Financial concerns
Medicaid reimbursement and regulation
Medicare reimbursement and regulation
Indigent care costs and bad debt losses
According to HFMA
Balancing financial and quality issues
Revenue cycle improvement
Access to capital (financing)
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Organization of the Course
Healthcare environment
Alternative types of ownership
Taxes
Third-party payers
Reimbursement methods
Financial accounting
Basics
Income statement
Statement of changes in equity
Balance sheet
Statement of cash flows
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Organization of the Course (Cont.)
Managerial accounting
Basics
Cost behavior and profit planning
Cost allocation
Pricing and service decisions
Planning and budgeting
Basic financial analysis concepts
Time value analysis
Financial risk and return
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Organization of the Course (Cont.)
Long-term financing
Long-term debt capital
Equity (ownership) capital
Capital structure decisions
The cost of capital
Capital investment decisions
Cash flow estimation
Breakeven and profitability measures
Risk assessment
Risk incorporation
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Organization of the Course (Cont.)
Other potential topics
Working capital (current asset) management
Current asset (short-term) financing
Analyzing financial performance
Lease financing
Business valuation
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Conclusion
This concludes our discussion of Chapter
1 (Introduction to Healthcare Finance).
Although not all concepts were discussed
in class, you are responsible for all of the
material in the text.
Do you have any questions?
