Basics Of Managerial Finance Within The Healthcare Industry
The demand for healthcare professionals is expected to grow over the next six years. While most healthcare organizations need nurses and physicians, healthcare administration is another in-demand field. Colleges and universities have revamped and added to their programs to fill this need. Healthcare administration comprises various roles, including the financial aspects of running a healthcare organization.
Healthcare administrators who work with the financial aspects of overseeing a healthcare organization might work with private practice medical groups, long-term care facilities or hospitals. A few of the roles that involve the financial aspects of handling a business include setting and monitoring departmental budgets, overseeing and managing the financial mechanisms related to billing and fees, and offering cost-reduction strategies. These roles are all a part of managerial finance.
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Managerial finance in healthcare defined
Managerial finance or financial management involves organizing, planning or overseeing the economic activities of a healthcare organization. It also involves managers ensuring that the resources needed to operate the organization are available to provide patients with quality care. The purpose of these activities is to carry out the mission of the healthcare organization.
Financial managers might be involved with evaluating and planning to assess the effectiveness of existing operations. They also might contribute to investment decisions, such as acquiring a new building, that impact the hospital. Specifically, they may be involved in determining whether these decisions negatively or positively impact the healthcare organization. First and foremost, they are always involved with decisions related to financing new buildings and equipment for the hospital. These decisions usually include taking out loans, equity capital and funds, or engaging in fundraising.
Outside of making funding and investment decisions, those in the managerial finance part of healthcare also oversee contracts. To run effectively, a hospital organization contracts with numerous vendors, requiring them to be error-free, provide the best patient care and reduce operating costs.
They are also involved with risk management aspects of managing a healthcare organization. Their role in risk management consists of reducing risks in the hospital to prevent hospital organizations from incurring liability if something happens to a person. Finally, financial managers ensure that the hospital complies with tax laws and regulations to maintain its tax-exempt status.
So, why is managerial finance essential to healthcare organizations?
The short answer is that managerial finance is vital because these departments oversee how the hospital allocates and spends funding. As you can see, these managers are in almost every area of running the organization’s finances. Below are a few examples of how the business of finance intersects with the business of healthcare.
Generating income for the healthcare organizations
As stated above, the financial manager plays a role in generating income to fund the hospital, whether through investment, financing or fundraising. In the real world, generating income might result from financial managers implementing a new program focusing on in-patient services. First, they would draft a proposal that approximates how much the program costs, possible funding sources and profit projections. They then submit this report to their supervisors, who would determine the cost-effectiveness of program implementation.
Overseeing spending within the hospital
This aspect of managerial finance is essential in helping hospitals detect and prevent fraudulent behaviors and ensure funding is not misused. A common occurrence in a hospital is when medication and supplies use does not match patient records. For example, a physician orders a particular medicine that a physician or nurse can only administer in the hospital. Records show that healthcare providers have dispensed the medication. Following a review of patient records, they discover discrepancies between what is in inventory and what has been dispensed to patients.
This discrepancy usually leads to an investigation of the lost inventory carried out through a committee of financial managers. This investigation into determining the cause of the misappropriation of funds is important for one main reason. Financial managers must get to the source of the issue to avoid becoming liable if something happens involving a patient or staff member.
Establishing high value-based care
One of the priorities of any healthcare organization is ensuring patients receive quality care. To do this, hospital organizations must use funds to hire the most talented healthcare providers and equipment outfitted with the latest and best technologies. Financial managers must also ensure that every dime they oversee is used wisely. These activities ensure the hospital uses its budget to provide optimal patient care.
Negotiating with third-party partners
Third-party partners are typically insurance companies or other organizations that pay for the patient’s hospital bills in part or whole. Like a tug-of-war, financial managers negotiate with insurance companies and other payers. On the one hand, insurance companies set the price for services and products by using methods that reduce waste. However, hospital managers must ensure they receive enough money to pay for expenses incurred while caring for patients. Financial managers and third-party partners connect at this point to make sure that patient bills are settled.
Developing strategies to deal with taxes
Through state and federal regulations, non-profit healthcare organizations must figure out ways to maintain their tax-exempt status. Some of these strategies include assisting indigent patients by reducing the hospital bill burden or reaching out to the community to assess and respond to these needs. One example of how hospitals keep their tax-exempt status is by launching a healthcare educational program, such as a nursing school, that trains professionals to work in healthcare.
The importance of a financial management team in the healthcare setting
The financial management team is part of the organization’s foundation. These professionals make decisions on the organization’s behalf, but they also must answer to a board of directors and large institutions with accountants on staff. Ultimately, financial management teams work with departments within hospitals and entities outside of them to ensure the hospital’s survival.
How can pursue a career in healthcare financial management?
While these teams include professionals from various degree disciplines, the managers of these teams usually have an MBA. Becoming a financial manager in the healthcare industry is more accessible than one might envision. In fact, this career is one of the few within this industry where the professional does not require a degree in a health-related field, although it does help. Students embarking on their career journey will only need to have bachelor’s and master’s degrees in finance. Career professionals within healthcare might be required to complete additional coursework for admittance into a master’s degree program.
Many schools offer programs that make it possible to transition into MBA programs. Some of these programs focus on concepts related to how healthcare functions side-by-side with business, offering MBA in Healthcare Administration degrees. Many schools have made it easier for students and mid-career professionals to enroll in online MBA healthcare admin programs, such as Spring Arbor University.
By enrolling in an online MBA, you can typically learn by watching lectures, interacting with students and engaging the online community when it is most convenient. Additionally, many of these programs have a completion rate of a year. Finally, students receive the same academic support they might receive if attending an on-site program.
You can tour any healthcare organization to see how important managerial finance is to its function. Organizations that are in poor shape financially often do not have this type of financial oversight, leading to waste, poor patient care and mismanagement. Overcrowded waiting rooms, overwhelmed hospital staff and costly treatments are a few examples that illustrate how financial mismanagement manifests itself.
Alternatively, healthcare organizations with a strong financial management team create a system where someone accounts for all operations and services and one that makes patient care a priority. A hospital with a solid financial management team avoids dealing with many issues that plague poorly managed healthcare organizations.
These teams are important because they play different roles in creating an organic and thriving business that cares for people. Making sure that hospitals have the right equipment and top talent, generating income or devising strategies to remain tax-exempt are just a few of the many ways that financial managers work in the hospital to ensure the health of the organization and that it can provide the best care for patients. Their role in connecting with other people and organizations outside the hospital helps the organization keep in touch with the community within which it functions.
In the end, financial management in the healthcare industry requires the person to come to the job with various soft skills, many financial managers hone these skills throughout life. However, many of these professionals earn a degree, and in the case of those who lead teams, an MBA degree. Fortunately, the career landscape supports professionals at any stage who can aspire, achieve and earn a degree in any of the disciplines needed to work on managerial finance teams within the healthcare industry. Those considering a career in financial management with healthcare should consult their local career center for more information on this field as it has excellent potential for career growth.